Q3 2023 Tri Pointe Homes Inc Earnings Call

[music].

Greetings and welcome to the Tri Pointe homes third quarter 'twenty to 'twenty. Three are you conference call. At this time all participants are in a listen only mode.

A brief question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host David Lee Giordano Koffler of Tri Pointe homes.

Go ahead.

Good morning, and welcome to Tri Pointe homes earnings Conference call.

Earlier. This morning, the company released its financial results results for the third quarter of 2023.

Documents detailing these results, including a slide deck are available at www dot Tri Pointe homes dot com or the investors link 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.

A discussion of risks and uncertainties and other 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 to the most comparable GAAP measures can be accessed through <unk> website and in its SEC filings.

During the call today are Doug Bauer, the Companys Chief Executive Officer.

Glenn Keeler, the company's Chief Financial Officer.

Tom Mitchell, the company's Chief operating officer and President.

And Linda MMA, the Companys, Chief marketing officer with that I will now turn the call over to Doug.

Thank you David and good morning to everyone on today's call.

During the call we will review operating results for the third quarter.

A market update and discuss key operating highlights.

In addition, we will update our fourth quarter outlook.

Tri Pointe delivered another strong quarter, achieving 1223 deliveries.

And the average sales price of 675000.

Leading to a home sales revenue of $825 million.

We exceeded the high end of our delivery guidance for the quarter, which is a testament to the success.

We've achieved in efficiently converting our backlog.

And so our ability to sell and close move in ready homes during the quarter.

Throughout 2023, our strategy to increase construction starts.

Bind with improved cycle times has significantly bolstered our inventory of spec homes.

Under the current market backdrop, having availability of quick move in homes has allowed us to ramp up our delivery potential.

And to capture share in todays under supplied housing market and higher interest rate environment.

This top line performance for the third quarter translated into a homebuilding gross margin of 22, 3%.

Pre tax income of $100 million.

And diluted earnings per share of <unk> 76 cents.

We are proud of these results and expect a strong finish to the year.

We opened 30, new communities during the third quarter, bringing our active selling community count to 163.

Which is an all time high for Tri Pointe.

The 30, new communities opened during the quarter were well received by our customers generated an average monthly absorption pace of 4.4 homes per community.

Our strategic focus to geographically diversify our business from our historical concentration in California is progressing well.

Currently, California represents 29% of our active selling community mix.

Well, our Texas growth markets of Austin, Houston, and Dallas Fort worth accounts for 34%.

Of our total active selling communities.

We're excited about our current land position and continue to focus on growth.

With the goal of becoming a top 10 builder in each of our markets as measured by annual delivery volume.

We were especially pleased with the success we've enjoyed this quarter.

The year during evolving economic climate.

Throughout the third quarter and into October mortgage rates have remained at elevated levels due.

Due to continued increases from the federal reserve.

As well as from the ongoing effects of quantitative tightening.

Moreover, concerns have arisen regarding the nation's fiscal deficit.

The increasing supply of treasury issuance required to fund it.

These elements combined with today's historically wide spreads have resulted in cycle high mortgage rates on multiple occasions over recent months.

Despite these hurdles that have put a strain and housing affordability.

The demand for new homes has remained positive throughout the third quarter extending the trend that first surface in January 2023.

This demand is fueled by the strong job market and historically low housing supply.

So housing supply shortage has played a crucial role in bolstering the new homebuilding industry's performance under today's higher rate environment.

Because of the existing homebuyers, who in previous years secured locked in rates well below current levels.

And now reluctant to sell.

This locked in effect significantly reduces resale home supply is trading up to current market rate levels creates affordability challenges for a vast number of homeowners.

The resilience of the new home markets is further supported by steady demand for millennials and Gen Z.

Millennials have reached the age for household formation.

And home buying and have significant incomes enabled enabling them to qualify for our homes.

In addition, Gen Z has entered the market and currently 30% of 25 year olds own a home. According to a recent redfin analysis.

Demonstrating the strong underlying demand that exists we experienced positive order trends in the third quarter.

With net orders up 122% compared to the prior year.

On an absorption pace of three three homes per community per month.

This has allowed us to grow our backlog by 10% quarter over quarter.

And 108% since the beginning of the year.

We have over 3000 units in backlog valued at $2 1 billion as we head into the fourth quarter.

Based on the level of demand we experienced in the quarter, we were able to achieve modest price increases and approximately two thirds of our communities.

But our focus remains on maintaining our target absorption pace.

While we carefully ensure the quality of our buyers and mitigate duration risk within our backlog.

Further we are using forward commitments and continuing to employ a range of pricing incentives.

Clothing closing costs credits interest rate locks and buy downs, which are tools that are not typically available in the resale market and provide buyers with the opportunity to secure mortgage rates well below market level.

With respect to our backlog that is expected to deliver in the fourth quarter and as financing with our affiliated mortgage company Tri Pointe kinetic.

86% are locked at an average fixed rate of six 6%.

In the third quarter, 85% of our buyers financed their new home with Tri Pointe connect.

This quarter, we announced several exciting initiatives that will be accretive to our long term growth goals.

First we announced that we exercised the right to purchase the minority stake in Tri Pointe connect our.

Our mortgage joint venture with long depot.

This transaction is anticipated to be completed in the first quarter of 2024.

At which time Tri Pointe connect will become a wholly owned subsidiary of Tri Pointe homes.

This alignment of mortgage operations with our core homebuilding business offers more flexibility in terms of the customer experience and competitive pricing along with adding a positive impact to the bottom line.

In the interim our Tri Pointe connect operations will remain unchanged and we will continue to operate under our existing joint venture model into the purchase is finalized.

We also recently announced our organic expansion into Utah.

Focusing on the greater Salt Lake City market.

Operations have commenced under the leadership of Kevin <unk>.

Who has led our Washington Division for the past 12 years.

Ken is the ideal leader to launch this new division.

Have you been raised in Utah and with previous industry experience in the state.

Ken has maintained strong ties to the market.

Our well established corporate infrastructure.

Built on solid foundation of innovation adaptability and a commitment to excellence.

Has us very excited as we expand our footprint into Utah.

Most recently Tri Pointe has organically entered the Sacramento, Austin, Charlotte and Raleigh markets with strong success, and we are enthusiastic about adding salt Lake city to our growing market mix.

Looking ahead, we are actively exploring the Florida, and Charleston markets, where there's always a disciplined and patient approach to our growth initiatives.

Our dedication to product innovation remains a core pillar of our company strategy.

As a premium lifestyle brand, we consistently evolve and differentiate our product offerings and customer experience.

Our recently announced multi year design collaboration.

With celebrity interior designer Bobby Burke.

Set to launch in select communities in our southern California, and Charlotte markets in the fourth quarter.

We're excited about the integration of Bobby Burks 10 collections into our design studios nationwide.

Allowing customers to personalize their homes with Bobby Burke designs and further enhance our award winning product offerings.

As we continue to innovate and adapt in the ever changing.

The ever evolving housing landscape.

Our unwavering commitment to delivering a unique customer experience.

<unk> is a driving force.

We strive to meet the pricing and affordability challenges that are presented today, we have not lost sight of the importance of offering an inspiring premium product that is differentiated from the competition.

Finally, I want to discuss our balance sheet and liquidity position.

Our balance sheet remains very strong and we ended the quarter with a record low debt to capital ratio of 32, 1%.

And a net debt to capital ratio of 15, 4%.

Our total liquidity at quarter end was $1 5 billion, which provides us with the financial flexibility to execute our strategic plans and weather potential economic challenges.

We remain committed to our share repurchase program and spent 55 million to repurchase 1.8 million shares for the quarter.

This brings our year to date share repurchases to $124 million.

Which equates to $4 5 million shares or three 6% of our outstanding shares as of the beginning of the year.

We believe that our share repurchase program continues to be a prudent use of capital.

And that it will enhance shareholder value over the long term.

This lever in addition to our strong earnings growth.

Has enabled us to grow book value per share from $10.42 on December 31, 2015.

$230 <unk> as of September 30th 2023.

Representing a compounded annual growth rate of 15%.

We have reduced shares outstanding over the same period by 40%.

All while lowering our leverage ratios and increasing our cash and liquidity to all time highs.

Looking ahead to the rest of 2023 and into 2024.

We remain focus on operational efficiency by continuing to improve our cycle times and maintaining the cost savings we realized throughout the year.

Our strategic focus on maintaining a strong balance sheet and driving increased orders cost reductions and improved returns should continue to enable us to address any challenges that higher rates may pose.

While capitalizing on opportunities for growth.

With this outlook I'm confident we have the right strategy and the right team in place to create significant value for our shareholders.

With that I'll turn the call over to Glenn.

Thanks, Doug and good morning, I'm going to highlight some of our results and key financial metrics for the third quarter, and then finish my remarks, with our expectations and outlook for the fourth quarter.

At times I'll be referring to certain information from our slide deck, which is posted on our website slide.

Slide six of the earnings call deck provides some of the financial and operational highlights from our third quarter.

We delivered 1223 homes at an average selling price of 675000, resulting in home sales revenue of approximately $825 million.

Deliveries came in above the midpoint of our guidance range by 16%.

We're able to take advantage of the strong demand environment and deliberate move in ready spec homes during the quarter.

Gross margin percentage for the quarter was 22, 3%, which was above our guidance range due to a favorable mix of the additional deliveries we were able to pull into the quarter.

Adjusted gross margin was 25, 6% for the quarter and represented a 70 basis point improvement sequentially from the second quarter, resulting from the pricing power we experienced during the spring selling season.

SG&A expense as a percentage of home sales revenue was on the lower end of our guidance range at 12, 3% and finally net income for the third quarter was 75 million or <unk> 76 cents per diluted share.

We generated 1513 net new home orders in the third quarter, which was 122% increase compared to the prior year. Our absorption pace was three three homes per community per month.

84% increase compared to the prior year and higher than we would normally expect seasonally for third quarter.

Terms of market color demand was broad based based on across both our product and market segment.

Absorptions were $3 seven for our entry level offerings in the quarter.

And 3.1 for both first and second move up segment.

Moving to the market absorptions were $3 five in the west to 0.8 in the central and $3 seven in the east.

In the West our inland Empire, Orange County, San Diego, Arizona, and Nevada markets showed particular strength during the quarter.

In the Central region, Houston, and Dallas displayed strong demand.

As did our D C metro in Charlotte divisions in the East.

So far in October absorption paces than 2.3 interest rates have increased but normal seasonality is also a factor for context pre pandemic absorptions in the fourth quarter averaged 2.5 for Tri Pointe and the current demand environment feel similar to that normal seasonal levels and much stronger than the fourth quarter last year when absorptions were 1.1.

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As Doug mentioned, we have robust community count growth in the quarter opening 30, new community and ended the quarter with 163 active selling communities.

Which was a 23% increase compared to the prior year.

We expect to open an additional eight communities in the fourth quarter and anticipate ending the year between 150 and 160 active selling communities.

Pending on the timing of community close outs.

We were in a solid land position with over 32000 lots under control, which provides the foundation for volume growth for the next several years.

Looking at the balance sheet and capital spend we ended the quarter with approximately $1 5 billion of liquidity consistent up 849 million of cash on hand, and 700 million available under our unsecured revolving credit facility.

Our debt to capital ratio was 32, 1% and net debt to net capital ratio was 15, 4%.

We continue to be active in our share repurchase program repurchasing one 8 million shares during the quarter for a total aggregate dollar spend of $55 million.

Operator: Greetings and welcome to the TRI Pointe Home's third quarter, 2023 Ernie Conference call. At this time, all participants are in a meeting only mode. A brief question and answer session will follow the promo presentation.

I've spent 124 million on share repurchases year to date and have 126 million of remaining availability on our current repurchase authorization.

For the third quarter, we invested approximately $284 million in land and land development.

Operator: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

And going forward, we expect to spend approximately $1 2 billion annually on land and land development to support our growth targets.

Now I'd like to summarize our outlook for the fourth quarter.

David Lee: It is now my pleasure to introduce your host, David Lee, General Conflirt of TRI Pointe Home. Please go ahead.

The fourth quarter, we anticipate delivering between 1600 1800 homes at an average sales price between 670006 hundred 80000, we.

We expect homebuilding gross margin percentage to be in the range of 22% and 23% and we anticipate SG&A expense as a percentage of home sales revenue to be in the range of 10% to 11%.

Douglas Bauer: Good morning and welcome to TRI Pointe Home's Ernie Conference call. Earlier this morning, the company released its financial results results for the third quarter of 2023. Documents detailing these results, including a slide deck, are available at www.tRI Pointe Home's.com through the investor's link and under the events and presentations tab.

Lastly, we estimate our effective tax rate for the fourth quarter to be in the range of 25, 5% and 26%.

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

Thanks Glenn.

Douglas Bauer: 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 that could cause actual results to differ materially are detailed in the company's SEC filing. Except it's required by law, the company undertakes no duty to update these four-looking statements. Additionally, recommendations of non-gape financial measures discussed on this call for the most comparable gap measures can be accessed through TRI Pointe's website and in its SEC filing.

In closing our industry is positioned for long term success with.

With the continued supply imbalances and strong consumer demand.

Tri Pointe where focus on steady growth to both the top and bottom line.

This focus will continue to benefit our shareholders with a very simple formula of increasing book value per share year over year.

I would also like to thank all of our team members for their excellent work and commitment to building our passionate culture.

Tri Pointe has earned distinguished recognition from great place to work unfortunate magazine.

On 2023, best workplaces in construction best workplaces for millennials and best workplaces for women.

We are extremely proud of these designations.

Douglas Bauer: Posting 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 chief operating officer and president, and Linda Mame, the company's chief marketing officer. With that, I will now turn the call over to Doug. Thank you David and good morning to everyone on today's call. During the call, we will review operating results for the third quarter, provided market update, and discuss key operating highlights.

And that of other people, who put into action try point's values mission and beliefs that we are in the life changing business by delivering an outstanding customer experience.

Now I'd like to turn the call back over to the operator for any questions. Thank you.

Thank you we will now conduct a question and answer session I would like to ask a question. Please press star one on your telephone keypad.

Information on where we can get paid their line is in the question queue.

Douglas Bauer: In addition, we will update our fourth quarter outlook. TRI Pointe delivered another strong quarter, achieving 1,223 deliveries, and the average sales price is 675,000, leading to home sales revenue of 825 million. We exceeded the high end of our delivery guidance for the quarter, which is a testament to the success we've achieved in efficiently converting our backlog and to our ability to sell and close moving ready homes during the quarter. Throughout 2023, our strategy to increase construction starts, combined with improved spectral times, as significantly bolstered our notorious spec homes.

You May press star two if it's alive.

Churn move your questions on the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before.

But I think they started one moment please while the poll for questions.

And our first question comes from Charlie Smith with Deutsche Bank. Please go ahead.

Hey, good morning, everybody how are you.

Good good thanks.

Great. Yeah, I appreciate you highlighting the a tripling of the book values are there you know do that a few more times and you'll really be in business.

The question I had though first question.

Douglas Bauer: Under the current market backdrop, having availability of quick moving homes has allowed us to ramp up our delivery potential, and to capture share in today's undersupplied housing market and higher Trade Environment. This top line performance for the third quarter translated into a home-building gross margin of 22.3 percent. Retax income of 100 million. And deluded earnings per share of 76 cents. We are proud of these results and expect a strong finish to the year.

Question I have first off was on community count in the third and fourth quarter. Here. I think you had said before 155 to $1 65 by year end. It looks like you were ahead of that even in the third quarter, but now you're saying it might be a little lower sequentially I know, there's timing in there, but maybe you could just.

Through some of what those timing puts and takes were around the communities.

It's just a stronger absorption that we experienced this year Joe.

This is Glenn.

I mean, there's about 15 to 20 communities that are close to close out in the fourth quarter. We're opening eight new communities in the fourth quarter. So that's it's just timing of when those communities close will depend on the ending number but overall, we opened the total number of care at least we thought we were going to open this year with the additional eight in fourth quarter. So it's just a.

Douglas Bauer: We hope that 30 new communities during the third quarter bring in our active selling community count to 163, which is an all-time high for TRI Pointe. The 30 new communities open during the quarter were well received by our customers, generating average monthly absorption pace of 4.4 homes for communities. Our strategic focus through geographically diverse fire business from our historical concentration in California is progressing well. Currently, California represents 29 percent of our active selling community mix.

I mean thats closeouts.

Got it and then you referenced the absorptions on the ones that you opened which were higher than the average, but then as you're kind of talking about the October absorption and what you used to do prior to the pandemic I would think those were lower absorption communities on average.

Douglas Bauer: While our Texas growth markets have often used and endowed for worth, accounts for 34 percent of our total active selling communities. We are excited about our current land position and continue to focus on growth, with the goal of becoming a top 10 builder in each of our markets as measured by annual delivery volume. We are especially pleased with the success we've enjoyed this quarter and through the year during any evolving economic climate.

With so maybe.

Maybe just talk about the mix of your communities in the fourth quarter and how that would play into comparability versus that two and a half history.

Well I think you know well we tried to highlight there is usually you do get a nice.

Pop when you initially opened a community right. There's some pent up demand there and we're just trying to highlight that those 30 communities were well received within the quarter.

But its still a mix of an overall 163 communities and we just tried to highlight that that seasonality that we've seen so far in October fields.

Douglas Bauer: Throughout the third quarter, in into October, mortgage rates have remained at elevated levels due to continued increases from the Federal Reserve, as well as from ongoing effects of quantitative tighten. Moreover, concerns have risen regarding the nation's fiscal deficit and the increasing supply of treasury issuance required to fund it. These elements, combined with today's historically wide spreads, have resulted in cycle high mortgage rates on multiple occasions over recent months. Despite these hurdles that have put a strain on housing affordability, the demand for new homes has remained positive throughout the third quarter, extending the trend that first service in January 2023.

Similar to pre pandemic levels of seasonality.

Got it alright, well congrats on the good results.

Thank you.

Yes.

Our next question comes from Stephen Kim with Evercore ISI. Please go ahead.

Yeah. Thanks, very much guys. Congrats on the good results you talked about being prepared to do maybe a little more with incentives given the market environment in order to maintain sort of targeted a sales pace and I gather you talked about.

You are talking about Ford purchase commitments, which I think is something you haven't really done much since maybe you know early in the year. So as you talk as you introduced.

Douglas Bauer: This demand is fueled by the strong job market and historically low housing supply. The housing supply shortage has played a crucial role in bolstering the new home building industry's performance under today's higher rate environment, because existing home bars who, in previous years, secured locked in rates well below current levels and now reluctant to sell. This locked-in effect significantly reduces resale home supply, as trading up to current market rate levels creates affordability challenges for a vast number of homeowners.

These rate buy downs, you know through forward purchase commitments can you give us a sense for how you're doing that how you know what kind of significant what the what the magnitude is of the buy downs and what the uptake seems to be so far in October.

Oh, yes.

Yes. Thank you we use toy commitment is on a very limited basis.

Communities and even on the left hand side and to give you an idea of the magnitude only 7%.

Douglas Bauer: The resilience of the new home markets is further supported by steady demand from millennials and Gen Z. Millennials have reached the age for household formation and home buying and have significant incomes enabling them to qualify for our homes. In addition, Gen Z has entered the market and currently 30% of 25-year-olds own a home, according to a recent redfin-and- analysis. Demonstrating the strong underlying demand that exists, we experience positive order trends in the third quarter.

We funded in the third quarter.

So most of our homebuyers are using a 10 minute rate buy down.

Our typical center level and in the third quarter was three 8% of homebuilding revenue and customers were typically using approximately 10% of that the closing costs.

<unk> or financing.

Douglas Bauer: With net orders up 122% compared to the prior year on an absorption pace of 3.3 homes per community per month. This is allowed us to grow our backlog by 10% quarter over quarter and 108% since the beginning of the year. We are valued at 2.1 billion as we head into the fourth quarter. Based on the level of demand we experience in the quarter, we were able to achieve modest price increases in approximately two thirds of our communities.

Okay.

Has any of that changed and as you've moved into October and into the fourth quarter.

Not significantly month today theyre not tied there.

3.9% of revenue so we expect it to be similar but we will adjust if we see further changes in mortgage insurance right and then just to clarify that rather she means order revenue not delivery revenue.

That's really helpful. Yeah that was gonna be my yeah.

But yeah, it's fairly fairly consistent so far in October from what we experienced in the third quarter student.

That's really encouraging so I appreciate that that color.

Douglas Bauer: But our focus remains on maintaining our target absorption pace while we carefully ensure the quality of our buyers and mitigate duration risk within our backlog. Further, we are using forward commitments and continuing to employ a range of pricing incentives, including closing costs credits, interest rate locks and buy downs, which are tools that are not typically available in the retail market and provide buyers with the opportunity to secure mortgage rates well below market level.

Moving on to SG&A. Your guide was a little higher on SG&A than we expected even though the closings were kind of looking like in line, but the I'm curious as to whether or not you've seen an increase in your agent commissions.

And also with the the court case, playing out in Texas curious curious as to.

How you guys are positioned relative to moving with the market. If you were to see agent commissions broadly across the market come down, particularly on buyer agency.

Douglas Bauer: With respect to our backlog that is expected to deliver in the fourth quarter and is financing with our affiliated mortgage company, TRI Pointe Connect, 86% are locked at an average fixed rate of 6.6%. In the third quarter, 85% of our buyers finance their new home with TRI Pointe Connect.

Stephen I'll take a chance that Linda could chime in as well, but overall, we've seen a slight uptick in you know outside broker commissions just the percentage of usage overall, though compared to our peer set we're a pretty low you know we're on the lower end of abuse of Jos.

Outside brokers, but I think we've done a pretty good job at that historically.

Douglas Bauer: This quarter we announced several exciting initiatives that will be accreted to our long-term growth goals.

And then as it related to the Texas Traveler, Linda do you have any color there.

Yes.

Douglas Bauer: First, we announced that we exercised the right to purchase the minority stake in TRI Pointe Connect, our mortgage joint venture with Lone Depot.

Well. Thank you right there that we'll be watching the outcome of that but as Glenn said I mean.

Our broadband sales on third quarter orders were 71%. So we're typically in that high <unk> low 70% range for birthday attachment.

Douglas Bauer: This transaction is anticipated to be completed in the first quarter of 2024, at which time TRI Pointe Connect will become a wholly owned subsidiary of TRI Pointe Homes. This alignment of mortgage operations with our core home building business offers more flexibility in terms of the customer experience and competitive pricing along with adding a positive impact to the bottom line. In the interim, our TRI Pointe Connect operations will remain unchanged and we will continue to operate under existing joint venture model into the purchase is finalized.

And that's typically a times like a 3% incentive right sorry, not inside of a 3% Commission right.

Actually now we aim to really keep that under control and our average commissions as a percentage of the home price in the third quarter, what kids want straight to think a lot of times in certain markets.

Fee or a fixed amount versus an actual percentage just just depends on the market the community the demand for the community thinks like that.

Douglas Bauer: We also recently announced our organic expansion into Utah, focusing on the greater Salt Lake City market. Operations have commenced under the leadership of Ken Provening, who has led our Washington division for the past 12 years. Ken is the ideal leader to launch this new division, having been raised in Utah and with previous industry experience in the state, Ken has maintained strong ties to the market.

Great I appreciate it guys.

Thank you.

Yes.

Our next question comes from Truman Patterson with Wolfe Research. Please go ahead.

Hey, good morning, everyone. Thanks for taking my questions.

The first question you know earlier in the year you know all builders, we're expecting some pretty nice cost tailwind. This year I'm, just hoping you could give an update on kind of the cost trends here in the back half of 2023 labor and materials and you know given.

Douglas Bauer: Our well-established corporate infrastructure builds on solid foundation and innovation, adaptability and a commitment to excellence, as is very excited as we expand our footprint into Utah. Most recently, TRI Pointe has organically entered the Sacramento, Austin, Charlotte and Rowley markets with strong success. And we are enthusiastic about adding Salt Lake City to our growing markets, at Next.

The recent rate move perhaps you know the sequential softening you're seeing do you think there's a chance to perhaps push back on any you know labor material costs going into 2024 or is just kind of the underlying inflationary pressures likely to keep everything kind of elevated as we sit today.

Douglas Bauer: Looking ahead, we are actively exploring the Florida and Charleston markets, with as always, a discipline and patient approach to our growth initiatives. Our dedication to product innovation remains a core pillar of our company's strategy. As a premium lifestyle brand, we consistently evolve and differentiate our product offerings and customer experience.

Good morning, Cherilyn. This is Tom I'll take a little bit of that one.

We're feeling really good that the.

Market is normalizing relative to supply chain.

Trade availability and labor supply you know it is still tight and constrained, but it is beginning to normalize on the cost front.

Douglas Bauer: Our recently announced multi-year design collaboration with celebrity and tear designer Bobby Burke is set to launch and select communities in our Southern California and Charlotte markets in the fourth quarter. We're excited about the integration of Bobby Burke's 10 collections into our design studios nationwide, allowing customers to personalize their homes with Bobby Burke designs and further enhance our award-winning product offerings. As we continue to innovate and adapt in the ever evolving housing landscape, our unwavering commitment to delivering a unique customer experience remains a driving force. While we strive to meet the pricing and affordability challenges that are presented today, we have not lost sight of the importance of offering and inspiring premium products that is differentiated from the competition.

Largely able to maintain the cost reductions we achieved in the first couple of quarters. So we feel really good about that and that's our goal going forward into 'twenty 'twenty four is to really focus on maintaining that cost structure continuing to focus on our cycle times and just capitalizing.

On a more normalized market.

Yeah, Okay, Yeah sure.

And I would add this is Doug going forward I think it will continue.

To be very normal I don't think interest rates are going to drive cycle times are costs, one way or the other.

Obviously that would be driven more by starch and velocity.

So we've seen as Tom said at a very steady market and it's also showing up in our customer satisfaction scores that are going up very nicely and that's that's very important to our business.

Douglas Bauer: Finally, I want to discuss our balance sheet and liquidity position. Our balance sheet remains very strong and we ended the quarter with a record low debt to capital ratio of 32.1%, and a net debt to capital ratio of 15.4%. Our total liquidity at quarter end was 1.5 billion, which provides us with the financial flexibility to execute our strategic plans and whether potential economic challenges. We remain committed to our share repurchase program and spent 55 million to repurchase 1.8 million shares for the quarter.

Okay. Okay, Gotcha, and then I'm, hoping you all could give an update on kind of the Carolinas Dallas expansion, if you will as well as the recent.

Utah entrants and given your old balance sheet, you know a tougher just banking lending environment for smaller privates.

Could you just discuss the appetite you have for M&A in the current environment.

I think you mentioned you know youre looking at Florida in Charleston would that be greenfield or potential M&A opportunity.

Douglas Bauer: This brings our year-to-date share repurchases to 124 million, which equates to 4.5 million shares for 3.6% of our outstanding shares as of the beginning of the year. We believe that our share repurchase program continues to be a prudent use of capital and that it will enhance your overall value over the long-term. This lever, in addition to our strong earnings growth, has enabled us to grow book value per share from $10.42 on December 31, 2015 to $30.3 as of September 30, 2023 for representing a compounded annual growth rate of 15%. We have reduced shares outstanding over the same period by 40%. All while lowering our leverage ratios and increasing our cash and liquidity to all-time highs.

Yeah, Truman it's Doug.

Right now where we're looking at both I would tell you that the M&A environment is is a little limited.

And so we've been pursuing more of the organic strategy as we've mentioned in Utah.

We're actively recruiting for Florida and Charleston.

And that could tag along with an M&A opportunity within the local market. So we're looking at both but we're going to pursue organic which is something we can control and be very disappointed about our growth.

That's that's kind of a current update.

Alright, Thank you all.

Our next question comes from how long exactly with Zelman.

Douglas Bauer: Looking ahead to the rest of 2023 and into 2024, we remain focused on operational efficiency by continuing to improve our cycle times and maintaining the cost savings we realized throughout the year. Our strategic focus on maintaining strong balance sheet and driving increased orders, cost reductions, and improved returns to continue to enable us to address any challenges that higher rates may pose. Well, capitalizing on opportunities for growth.

Please go ahead.

Hey, guys. Good morning, Thanks for taking my questions first question I guess on capital allocation you guys have done a really good job.

The advantage of but I'm sure you you feel as a an unjustified discount here on your stock price with the buybacks you do have a.

Douglas Bauer: With this outlook I'm confident we have the right strategy and the right team in place to create significant value for our shareholders.

A maturity coming up next year, and obviously with rates climbing up here I was just curious if you can give us an update on your thinking on the balance sheet at the plan to pay down that maturity.

Next year.

Anything else that you're contemplating with that.

Hey, Alan this is Glenn good question.

Glenn Keeler: With that I'll turn the call over to Gwen.

Right now, we're putting ourselves in a position to pay those bonds off next year.

Glenn Keeler: Thanks Doug and good morning. I'm going to highlight some of our results and keep on natural metrics for the third quarter and then finish my remarks with our expectations and outlook for the fourth quarter. At times that will be referring to certain information from our slide deck, which is posted on our website.

Bond market in the end.

It's not too attractive to refinance and so.

So we plan on deleveraging and paying those bonds down but as you can see we have ample liquidity to do that while still investing in land and in being active in our share repurchase program.

Glenn Keeler: Slide six of the earnings called deck provides some of the financial and operational highlights from our third quarter. We delivered 1,223 homes at an average selling price of 675,000 resulting in home sales revenue of approximately 825 million. Deliveries came in above the midpoint of our guidance range by 16% as we were able to take advantage of the strong demand environment and deliver moving ready spec homes during the quarter. Growth margin percentage for the quarter was 22.3%, which was above our guidance range due to a favorable mix of the additional deliveries we were able to pull into the quarter.

Gotcha that makes sense second question on the margin guide you know some of your peers have guided for some sequential pressure in margin in the fourth quarter with the.

Expectation or assumption that incentives might creep higher and I know you had similar commentary in the press release, but your guidance is pretty flat sequentially and it sounds like there hasn't really been any notable shifts in your incentives thus far in the quarter. So could you just explicitly highlight what is your expectation for incentives for the quarter embedded within your guy.

Glenn Keeler: Adjusted growth margin was 25.6% for the quarter and represented a 70 basis point improvements sequentially from the second quarter, resulting from the pricing power we experienced during the spring selling season. SGNA expense of the percentage of home sales revenue was on the lower end of our guidance range at 12.3%. And finally, net income for the third quarter was 75 million or 76 cents per diluted share. We generated 1,513 net new home orders in the third quarter, which was 122% increase compared to the prior year.

Since right now.

Yeah like we discussed it so far in October we've seen consistent with.

The third quarter from an incentive perspective, now if rates stay elevated and like we said in our comments.

We'll look at that and we will look to satisfy certain communities that aren't meeting our sales expectations, but overall were going into the fourth quarter with a strong margin in backlog that supports that guidance and we don't know.

Right now our sales really to generate deliveries next year in 'twenty for largely and so that shouldn't impact our Q4 margin.

Glenn Keeler: Our absorption pace was 3.3 homes per community per month and 84% increase compared to the prior year. And higher than we would normally expect seasonally for a third quarter. In terms of market color, the man was broad based based across on both our product and market segments. Absorptions were 3.7 for our entry level offerings in the quarter and 3.1 for both first and second move up segment. Moving to the market, absorption was 3.5 in the west, 2.8 in the central and 3.7 in the east.

Yeah. The other thing this is Todd and Tom just to add a little more color there.

Of course, we're focused on.

Target absorptions for our business plan and we're right on that seasonality that we normally build into our business plan.

We've got 86% of our fourth quarter backlog lock those that are are going through our tri Pointe connect and so we feel good about the fourth quarter coming up.

Glenn Keeler: In the west, our inland empire, Orange County, San Diego, Arizona and Nevada markets showed particular strength during the quarter. In the central region, Houston and Dallas displayed strong demand as did our DC Metro and Charlotte divisions in the east. So far in October, absorption pace has been 2.3. Nature's grade 7 increased, but normal seasonality is also a factor. For context, pre-pendemic absorption is in the fourth quarter average, 2.5 for tri-point. And the current demand environment feels similar to that normal seasonal level and much stronger than the fourth quarter last year when absorption was 1.1.

Great I appreciate that thanks, guys.

Exactly.

Our next question comes from Tyler, that's what I mean with Oppenheimer <unk> co. Please go ahead.

Thank you. Good morning, My first question on the impact of higher mortgage rates, what do you think about a possible lag effect from from higher rates in the past when he saw route spike I was traffic or sales pace impacted right away or does it take.

A few weeks to filter through I'm, just trying to get a sense of maybe for the for the industry or for you as well, perhaps the full impact of this runs a day.

Glenn Keeler: As Doug mentioned, we have robust community count growth in the quarter opening 30 new communities and ending the quarter with 163 active selling communities, which was a 23% increase compared to the prior year. We expect to open an additional 8 communities in the fourth quarter and anticipate ending the year between 150 and 160 active selling communities, depending on the timing of the community close up. We are in a solid land position with over 32,000 mods under control, which provides a foundation for volume growth for the next several months, in a couple of years.

8% here might not have been talking about.

That's a really good question.

The homebuilders.

You know we sell we just happen to sell the most expensive durable goods that consumers are going to buy right and you hit the nail on the head and what's interesting to me is the reaction by the street and the contract because.

As we saw at the beginning of the year. There was a very rapid increase in interest rates right. The fed increase rate seven times and 22 that was such a psychological effect on the consumer that really caused a bigger pause.

Glenn Keeler: Looking at the balance sheet in capital spend, we ended the quarter with approximately 1.5 billion of liquidity, consisting of 849 million of cash on hand, and 700 million available under our unsecured revolving credit facility. Our debt to capital ratio was 32.1% and net debt to net capital ratio was 15.4%. We have spent 124 million on share purchases year to date, and have 126 million of remaining availability on our current repurchase authorization. For the third quarter, we invested approximately 284 million of land and land development, and going forward, we expect to spend approximately 1.2 billion annually on land and land development to support our gross targets.

You saw what happened in the first part.

You saw what happened in 'twenty three the consumer adjust interest rates don't drive a homebuilding market and that's the thesis that the market is missing.

Consumer.

In the homebuilding market is driven by jobs and household formations and the consumer ultimately adjust so you know this increase in rates lately and the volatility that we've seen obviously it wasn't hasn't been as volatile as significant of an increase that we saw in 'twenty two hence the reason we're still seeing very good.

The man, it's seasonal but.

Glenn Keeler: Now I'd like to summarize our outlook for the fourth quarter. For the fourth quarter, we anticipate delivering between 1600 and 1800 homes at an average sales price between 670,000 and 680,000. We expect home building gross margin percentage to be in the range of 22% and 23%. And we anticipate SGNA expense as a percentage of home sales revenue to be in the range of 10% to 11%. Lastly, we estimate our effective tax rate for the fourth quarter to be in the range of 25.5%, and 26%.

I mean, we opened.

Several new communities in the last couple of weeks with Prequalification less from 10 to 80 people.

So the market for the homebuilders is very solid and yeah. There's some temporary puts and takes and maybe a little longer conversion cycle, but your question is spot on it you you'll see the consumer adjust and will move into the spring selling season, and and the beauty of the.

Since we have the levers to pull to continue to move product.

Douglas Bauer: With that, I will now turn the call back over to Doug for some closing remarks. Thanks, Glenn. In closing, our industry is positioned for long-term success with the continued supply and balances and strong consumer demand. At tri-point, we are focused on steady growth to both the top and bottom line. This focus will continue to benefit our shareholders with a very simple formula of increasing book value per share year over year. I would also like to thank all of our team members for their excellent work and commitment to building our passionate culture.

Okay, Great Tyler this is Tom.

Yeah, I'm going to add just a little a little color to that as well to try to put it into perspective, I think everybody does the math based on medium household income I think it's important to note that our 10.

Typical buyers are much more significantly qualified and have higher income levels in medium household income.

And it gives them more purchasing power and if you think about it if you go back to Q2.

Interest rates from the end of Q2 to the end of Q3 are up about 100, bips, but on our average loan amount that's about $300 per month and the incomes of our qualified buyers really can't absorb that that's why we don't see as big of a effect on that demand.

Douglas Bauer: Tri-point has earned distinguished recognition from great place to work in Fortune Magazine. On 2023, best workplaces in construction, best workplaces for millennials, and best workplaces for women. We are extremely proud of these designations and of our people who put into action tri-points values, mission, and beliefs that we are in the life-changing business by delivering an outstanding customer experience.

Profile.

Okay, Great I appreciate that.

One more question on ESP.

Clothing, ASB you talked about price increases in two thirds of your communities during the quarter.

Operator: I'd like to turn the call back over to the operator for any questions. Thank you.

Looked like I ask it was a touch lower than the than the guide so I'm, assuming there's a little bit of mixed mixed there that's impacting that so I'll talk about pricing trends and then also interested.

Operator: We will now be conducting a question and answer session. If you would like to ask questions, please press star 1 on your telephone keypad. The confirmation tone will indicate your line isn't a question in queue. You may press star 2 if you would like to remove your question from the queue. For participants using a speaker keypad, it may be necessary to pick up your headset before pressing their keys. One moment please. Why would we move for questions?

You know how youre thinking about Asps next year in 2024 as well.

Yes, Tyler this is Glenn.

We did talk about it with some modest price increases that two thirds of the communities in the quarter, but that ASP P. You're right was a little lower than our guidance and that was purely mix. The additional deliveries we pulled into the quarter, where they came from largely from our Texas and Charlotte markets.

So that was just a mix factor and asps going into 2024 as I discussed on previous calls will be lower than 2023, but again that is just more mix related because you'll have a heavier weighting towards.

Joy Ashmer: In our first question comes from Joy Ashmer here with Deutsche Bank. Please go ahead. Hey, good morning, everybody. How are you? Good. Good thing. Great. Yeah, I appreciate you highlighting the tripling of the book value there. You know, do that a few more times and you'll really be in business.

Texas and Charlotte than than the current mix a lot of new communities opening this year and next year in those markets that are just driving that asps. So I think I had mentioned on the last call something around the 625 to $630000 ASP range for next year and that still feels like a good target.

Glenn Keeler: The question I had though, first, the question I had first off was on community count in the third and fourth quarter here. I think you had said before 155 to 165 by year and looks like you were ahead of that even in the third quarter, but now then you're saying it might be a little bit lower sequentially. I know there's timing in there, but maybe you could just go through some of what those timing puts and takes were around the communities.

Okay. That's all for me thank you for the detail.

Thanks Tara.

Our next question comes from Carl race right.

Please go ahead.

Thanks, Good morning, everybody.

I missed the absorptions for entry.

Entry level during the quarter, but I also wanted to show you haven't raised prices and two thirds modest price increases two thirds of your stores.

Glenn Keeler: Yeah, it's just the stronger absorption that we experienced this year, Joe. This is Glenn. There's about 15 to 20 communities that are close to close out in the fourth quarter. We're opening eight new communities in the fourth quarter, so that's, it's just timing that one of those communities close will depend on the Andy number. But overall, we opened the total number of communities. We thought we were going to open this year with the additional eight and a fourth quarter, so it's just the timing that's close out.

Can you break that out between move up and entry level in terms of the price increases you put in place.

So yeah that entry level absorption Karl was $3 seven and it was $3 one for both first move up and second move up.

We don't have the breakout in front of us between price increases between those cohorts, but I think it was.

Probably more on the move upside you would see a higher percentage of those price increases, but it was.

Glenn Keeler: Got it. And then you referenced the absorptions on the ones that you opened, which were higher than the average. But then as you're kind of talking about the October absorption and what you used to do prior to the pandemic, I would think those were lower absorption communities on average to begin with. So maybe just talk about the mix of your communities in the fourth quarter and how that would play into a comparability versus that two and a half history.

It's just really market dependent more than anything so like in Charlotte for instance, where we're more entry level first move up you know that was a market where you saw price increases.

Across the board really just because of the level of demand so.

I would say it was fairly broad based.

Okay. Thank you Glenn and then when I was down there in August we talked a lot about their premium entry level as it is a differentiating point for your product wise and and I'm interested again, you do spec, but you're trying to build that product up so that customers can still choose options upgrades. So within the move up cohort and the premium metro level cohort have you been.

Glenn Keeler: Well, I think, you know, what we tried to highlight there is usually you do get a nice, you know, pop when you initially open the community, right? There's some pent up demand there. And we were just trying to highlight that those 30 communities were well received within the quarter. But still a mix of an overall 163 communities. And we just tried to highlight that that seasonality that we've seen so far in October feel, you know, similar to pre-pandemic level of seasonality. Got it.

Gun to notice trade down effects, so people, taking fewer options and upgrades in their homes <unk> shifting to smaller homes and in either cohort as you go.

To offset the affordability challenges that we see out there.

Hey, Carl it's Tom good questions, obviously because.

Because we do such a great job on our option in the studio business.

Joy Ashmer: All right. We'll congrats on the good results. Thank you.

That's a big component of our offerings in.

Linda Mamet: Our next question comes from assistant team with Evercore ISI. Please go ahead. Yeah. Thanks very much guys. Congrats on the good results. You talked about being prepared to do maybe a little more within centers, you know, given the market environment in order to maintain sort of targeted sales pace. And I gather you talked about you talked about forward purchase commitments. But I think as something you haven't really done much since maybe, you know, early in the year.

In Q3, we did not really see any decline relative to option spend on closings, we averaged $76000 per home, which was about 11, 2% of revenue year to date. We're at about 11, 6% of revenue was that dollar amount being about 81000.

Per house, so we're still seeing a significant amount of spend in our design studios because people in today's market still do want to personalize their homes and that's a driving factor you saw we introduced the Bobby Byrd collections, that's going to be very popular and a big driver and it will also help us streamline and be more efficient.

Linda Mamet: So as you talk, as you introduce these rate buy downs, you know, through forward purchase commitments, can you give us a sense for how you're doing that? How, you know, what kind of significant, what the, what the magnitude is of the buy downs? And what the uptake seems to be so far in October. Hello, Steven. This is Linda. Yes, thank you. So we use forward commitments on a very limited basis at select communities and even on select home sites.

Through our studio so we're excited about that.

Yeah, we have put into the marketplace. Some smaller footages to because we're very aware of attainable price point and so that is something that we are seeing that people are accepting smaller footages for affordability and reasons.

Great. Thank you so much Tom.

Our next question comes from Jay Mccanless with at the bus security.

Linda Mamet: And to give you an idea of the magnitude, only 7% of the loans that we funded in the third quarter used a forward commitment. So most of our home buyers are using a permanent rate buy downs. And our typical incentive level in the third quarter was 3.8% of home building revenue and customers were typically using approximately 2% of that for the closing costs and all of running. Now, has any of that changed in, as you've moved into October and into the fourth quarter?

Go ahead.

Good morning, everyone. Doug you made the comment earlier that the U.

You see the M&A environment has limited could you maybe unpack that a little bit is it limited by the valuations you're seeing or just not the right. So any color there would be helpful.

I would say limited by the number of offerings Jay.

We were we're looking at packages.

Packages, there few right now, but it's not so much evaluations more opportunities the number.

Linda Mamet: Not significantly month to date in October, our incentives at 3.9% have driven you, so we expect it to be similar but we will adjust if we see further changes in will be generous rate. And just to clarify the revenue, she means order revenue, not delivery revenue. That's really helpful. Yeah, thanks for that was going to be my, yeah. But yeah, fairly consistent so far in October from what we experienced in the third quarter student. Oh, that's really encouraging, so yeah, appreciate that color.

Okay.

And then.

Thus far in October you said you raised price in two thirds of our communities. During three Q do you feel like you have that same type of pricing power now or have you had to slow it down a little bit just given the 70 bps move we've seen in mortgage rates over the last few days or few weeks.

Well that that pricing increasing was about 7000 per house, it's about 1%. So it was very modest and I would imagine we will continue to keep it very modest.

Glenn Keeler: Moving on to S-GNA, your guide was a little higher on S-GNA than we expected, even though the closings were kind of looking like in line. But the, I'm curious as to whether or not you've seen an increase in your age and commissions. And also with the court case playing out in Texas, curious as to how you guys are positioned relative to moving with the market if you were to see age and commissions broadly across the market come down, particularly on buyer agency.

<unk> be very mindful of making sure our product is attainable.

You know price and payment is the name of the game, especially more in the entry level.

But you know we've had a lot of success in our new community openings that we talked about earlier and it will continue to see some price movement in those as well.

Okay. That's great. That's all I had thanks, everyone.

Thanks Jay.

Our next question comes from Mike Dahl with RBC capital markets. Please go ahead.

Glenn Keeler: Stephen, I'll take a chance to that and Linda could chime in as well. But overall, we've seen a slight uptick in, you know, outside broker commissions, you know, just the percentage of, you know, usage. Overall though, compared to our peer set, we're a pretty low, you know, we're on the lower end of usage of outside brokers, but I think we've done a pretty good job of that historically. And then related to the Texas trial on of Linda, you have any color there?

Good morning, Thanks for taking my questions.

If I can just go back to the kind of current environment as he noted some consumers may adjust the builders have the tools to adjust.

As well to meet the market we have heard some of your peers are.

Eddie leaning back into incentives when they're talking about the trends from September into October.

Glenn Keeler: We'll see. We'll be watching the outcome of that. That is Glenn said. I mean, our broker's sales on third quarter orders was 71% so we're typically in that high 60 low 70% range for broker attachment to sales. And that's typically times like a 3% incentive, right? Sorry, not incentive, a 3% commission, right? I actually know we aim to really keep that under control and our average commissions is the percentage of the home price in the third quarter with 2.35.

Your commentary sounds a little bit different so I'm curious you know given your other comments around what happened last year do you have a view.

Hey, it's been a quick move over a short period of time.

Let's give it a little time to see where things settle out before we jumped the gun on on pulling incentive or a price lever or pace, just not fallen to levels that are kind of a.

Triggering it for you at this point.

You know maybe talk to that a little bit more because it does seem like a different than what some of your peers have described.

Glenn Keeler: A lot of times in certain markets, we'll just want to feed or pick them out versus an actual percentage. Just depends on the market, the community, the demand for the community, things like that. Great. Appreciate it, guys.

So as we mentioned you know, we we continue to manage to our pace that we desire and our business plan I.

Operator: Thank you.

I think year to date, Glenn were what about 3.33 0.4 absorptions so.

Our seasonal pace that we're seeing right now is.

Is it maybe a tick softer than what we saw back in 2019, yeah, yes, but we will continue to use the tools to move into building our backlog for the Q1 and Q2, the only thing I'd I'd point out is key.

Truman Patterson: Our next question comes from Truman Paterson with Walt Research. Please go ahead. Hey, good morning, everyone. Thanks for taking my questions. First question, you know, earlier in the year, you know, all builders were expecting some pretty nice cost tailwinds this year. I'm just hoping you could give an update on kind of the cost trends here in the back half of 2023 labor materials. And, you know, given the recent rate move, perhaps, you know, the sequential softening you're seeing.

Truman Patterson: Do you think there's a chance to perhaps push back on any, you know, labor material costs going into 2024, or is just kind of the underlying inflationary pressures likely to keep everything kind of elevated as we said today?

Comparing peers.

It is a little bit.

Difficult.

In a sense that.

We have like 163 active communities and our focus on land acquisition has to be in in the premium markets a locations with a product.

And frankly.

That trumps the b locations and within every one of our markets, we're seeing a higher incentives from builders and in locations that are different. So there's a lot more to that question and how you answer it and how you executed in and one of the strengths that Tri Pointe has it.

Tom Mitchell: Good morning, Truman. This is Tom. I'll take a little bit of that one. You know, we're feeling really good that the market is normalizing relative to supply chain and trade availability and labor supply. You know, it's built tight and constrained, but it is beginning to normalize. On the cost front, we are largely able to maintain the cost reductions we achieved in the first couple quarters, so we feel really good about that.

<unk> is our land strategy that we start you know years ago, when we buy land and it it's proven out I mean in Houston, which is one of the most competitive markets in the U S. Our land our community locations had been selling very very well because its location. It's the old adage, Mike it's low.

Acacia location location. So we can drive a better absorption drive a better premium.

Tom Mitchell: And that's our goal going forward into 2024 is to really focus on maintaining that cost structure, continuing to focus on cycle times and just capitalizing on a more normalized market. Okay, Truman, I would add this, going forward, I think it will continue to be very normal. I am going to drive cycle times or cost one way or the other. Obviously that will be driven more by starch and velocity. So we've seen, as Tom said, a very steady market, and it's also showing up in our customer satisfaction scores that are going up very nicely, and that's very important in our business. Okay, gotcha.

And we're not.

At the whims of a plane as much in the incentive game, possibly because our buyer profile as Tom pointed out is very strong as well. So there's more detail behind that you can't just lump it all in one industry.

Yeah, that's fair makes sense helpful.

And my second question is on the mortgage venture and I know, you'll have more to say once it closes or when it's closer to close.

But is there any order of magnitude you could give.

Give us in terms of you know maybe you had you owned outright in 'twenty three.

Here's what the incremental contribution would be from a profitability standpoint, that's one and then two from a more of an operational standpoint, I mean, presumably with the joint venture partner.

Douglas Bauer: And then I hope you all could give an update on kind of the Carolinas Dallas expansion, if you will, as well as the recent Utah and Trenton. Given your old balance sheet, you know, a tougher just banking lending environment for smaller privates, could you just just discuss the appetite you have for M&A in the current environment? I think you mentioned, you know, you're looking at Florida and Charleston. Would that be Greenfield or potential M&A opportunity?

Do you have a failed yourself with all the same tools that.

The other builders, who have wholly owned debentures have in the current environment, but is there anything operationally anywhere.

You know you think there could be a meaningful difference.

For U S.

As a wholly owned versus JV.

Hey, Mike This is Glenn.

The first part of your question well, we'll update you on more of the economics as we get further into 'twenty, four and actually are up and running but there should be a positive benefit to the company as well to have a 100% of the economics versus you know right now being in a joint venture obviously, but.

Douglas Bauer: Yeah, Truman, Mr. Doug. Right now, we're looking at both. I would tell you that the M&A environment is a little limited. And so we've been pursuing more of the organic strategy, as we mentioned in Utah. We're actively recruiting for Florida in Charleston, and that could, you know, take along with an M&A opportunity within the local market. So we're looking at both, but we're going to pursue organic, which is something we can control and be very disciplined about our growth. So that's kind of a current update.

But from an operational standpoint, I think it's really all about the consumer will be able to control that process from end to end and I think that will be the biggest advantage from us from a customer experience perspective.

Got it okay. Thank you.

Our next question comes from Alex Barron with housing websites Center. Please go ahead.

Hey, guys. Good morning, and good job on the quarter I was hoping you could elaborate on the you know what on the consumer what what your average statistics look like me.

Truman Patterson: All right, thank you all.

You know what their average income what's their average down payment, what's the average FICO score.

Glenn Keeler: Our next question comes from Alan Reckner, with Xamarin NSLCA. Please go ahead. Hey guys, good morning. Thanks for taking my questions. First question, I guess, on capital allocation. You know, you guys have done a really good job of taking advantage of what I'm sure you feel is an unjustified discount here on your stock price with the buybacks. You do have a, you know, a maturity coming up next year, and obviously with rates climbing up here, I was just curious if you can give us an update on your thinking on the balance sheet as a plan to pay down that maturity next year, anything else that you're contemplating with that.

That types of thing and also wondering if you guys have an average interest rates.

After incentives that people are are getting how does that compare to market.

Good morning, Alex This is Tom I'll take the first part and then Linda can talk about the second question there, but as I've said, we've got an exceptional buyer profile.

Largely breaks down with our our average buyer, having an average income of about 185000 and average FICO score of 749, our average debt to income is right around 40%.

Glenn Keeler: Alan, this is Glenn. Good question. Right now, we're putting ourselves in the position to pay those bonds off next year with the current bond market and the rates. It's not too attractive to refine it. And so, you know, we plan on deliberating and paying those bonds down, but as you can see, we have ample liquidity to do that while still, you know, investing in land and be an active and are sure we purchase program. Gotcha.

Glenn Keeler: That makes sense.

Average loan to value is about 81, 5%.

Hmm.

79% of our buyers are using conventional financing. So we've got a really strong buyer pool, and it's very consistent as well.

Alright.

Go ahead Linda.

Cause I guess more information about the average interest rate for our bias as we mentioned with 86% about fourth quarter backlogs in box.

Glenn Keeler: Second question on the margin guide. You know, some of your peers have guided persons sequential pressure and margin in the fourth quarter with the expectation or assumption that incentives might creep higher. And I know you had similar commentary in the press release, but your guidance is pretty flat sequentially. And it sounds like there haven't really been any notable shifts in your incentives thus far in the quarter. So can you just explicitly highlight what is your expectation for incentives for the quarter embedded within your guidance right now?

Besides that have already closed or expected to come.

Have an average interest rate.

The things and then obviously rate increase more.

In the quarter I interrupt turns on our sites.

Lines that we locked in the third quarter and have an average interest rate.

[laughter].

Very helpful. Thank you.

Doesn't mean, we're going to say something.

Glenn Keeler: Yeah, like we discussed it so far in October, we've seen consistent with the third quarter from an incentive perspective. Now, you know, for a state elevated, like we said in our comments, we'll look at that and we'll look to incentivize certain communities that aren't meeting ourselves expectations. But overall, we're going into the fourth quarter with the strong margin and backlog that supports that guidance. And we don't, you know, right now our sales are really to generate, you know, deliveries next year and 24 largely. And so that shouldn't impact our Q4 margin.

No I was going to say the exact same thing when does that.

[laughter], great well I appreciate you guys sharing that because I think it helps to highlight that it's not your median income households buying your homes.

Which as you know something that I think people oftentimes don't quite yet but anyway. The other question that I had was what is your average build time and how much has that come down say versus a year ago, because I'm kind of looking at your order trends, which are obviously.

Tom Mitchell: Yeah, on the other thing, this is taught. This is telling us that a little more color there. You know, of course, we're focused on, you know, target absorption for our business plan. And we are right on that seasonality that we normally build into our business plan. You know, we've got 86% of our fourth quarter backlog locked those that are going through our tri-point connect. And so we feel good about the fourth quarter coming out. Great, appreciate that.

Tyler Batory: Thanks, guys.

Very different in their deliveries you're having so.

I'm, assuming all those homes, obviously are coming at some point I'm just trying to figure out you know what kind of a lag is there between typically in order and the delivery of these days.

Good good question Alex.

You know as we've stated on average we've been able to reduce our cycle times.

Up to about six day weeks and reduction in it. So it's very back to a normalized schedule templates are averages 112 day schedule. So it's about a five and a half month construction cycle and it varies based on product and market anywhere from <unk>.

Tyler Batory: Our next question comes from Tyler battery with openheimer and code. Please go ahead. Thank you.

Douglas Bauer: Good morning. My first question on the impact of higher mortgage rates. What do you think about a possible lag effect from higher rates? I mean, in the past, when you saw rates spike was traffic or sales pace impacted right away or does it take a few weeks to filter through? I'm just trying to get a sense of maybe for the industry or maybe for you as well, you know, perhaps the full impact of this run to 8% here might not have been taught yet.

<unk> hundred 45 days and it's five to seven months in duration.

And so we're back to those templates then we're going to continue to evaluate and see if there's further reductions there.

As we continue to look to more efficient product and.

And reuse that efficient product that we've designed over the last couple of years. So we're we're optimistic on the cycle time front.

Awesome.

And if I could ask one more going back to the.

Douglas Bauer: That's a really good question. You know, the home builders, you know, we sell, we just happen to sell the most expensive durable good that consumers are going to buy, right? And you hit the nail on the head. And what's interesting to me is the reaction by the street and the construct because as we saw at the beginning of the year, there was a very rapid increase in interest rates, right? The Fed increased rates seven times in 22.

The discussion of the the average consumer that buys your homes have you guys.

Some hypothetical testing you know just how much more rate paying.

These guys could take you know.

In other words could cause they pay 8% theoretically because they pay higher than that.

Yeah. Thanks, Alex we stress test our buyers at the time they are pre qualifying and right now restraints keep thing typically an eight and a half a sandwich and don't see issues for alpine.

Douglas Bauer: That was such a psychological effect on the consumer that it really caused a bigger pause. You saw what happened in the first part. You saw what happened in 23. The consumer adjusts. Interest rates don't drive a home building market, and that's the thesis that the market is missing. The consumer in the home building market is driven by jobs and household formations. And the consumer ultimately adjusts. So, you know, this increase in rates lately in the volatility that we've seen.

Yes.

Got it well, thanks, so much and best of luck.

Thank you.

There are no further questions at this time I would like to thank a floor back over to Doug Bauer for closing comments. Please go ahead.

Well, thanks, everyone for joining us today, and we want to wish all of you a safe and wonderful holiday season, and I can't believe that the holidays at right around the corner and.

Douglas Bauer: Obviously, it hasn't been as volatile as significant of an increase that we saw in 22. Hence, the reason we're still seeing very good demand. It's seasonal. But, I mean, we opened several new communities in the last couple of weeks with pre-qualification lists from 10 to 80 people. So, the market for the home builders is very solid. And yeah, there's some temporary puts and takes. And maybe a little longer conversion cycle. But your question is spot on it.

Look forward to reporting some strong results.

Next February as we get back together and thank you.

This concludes today's conference call you may disconnect. Your lines at this time, thank you for participation.

<unk>.

Mhm.

Okay.

[music].

Douglas Bauer: You'll see the consumer adjust and we'll move into the spring selling season. And the beauty of the home builders is we have the leverage to pull to continue to move product. Great, Tyler. This is Ray Tom. I'm going to add just a little color to that as well to try to put it into perspective. I think everybody does the math based on medium household income. I think it's important to note that our typical buyers are much more significantly qualified and have higher income levels than medium household incomes.

Okay.

[music].

Douglas Bauer: And it gives them more purchasing power. And if you think about it, if you go back to Q2, interest rates from the end of Q2 to the end of Q3 are up about 100 dips. But on our average loan amount, that's about $300 per month. And the incomes of our qualified buyers really can absorb that. That's why we don't see as big of a effect on that demand profile. Okay, great. Appreciate that.

Glenn Keeler: My whole question on ASB is closing ASB. You talk about price increases in two thirds of your communities during the quarter. You know, looked at ASB was a touch lower than the than the guide. So, you know, I'm assuming there's a little bit of mixed mix there that's impacting that. So I have to talk about pricing trends and then then also interested, you know, how you're thinking about about ASB next year in 2024 as well.

Glenn Keeler: Yeah, Tyler, this is Glenn. We didn't talk about it with some modest price increases at two thirds of the communities in the quarter, but that ASP your ride was a little lower than our guidance. And that was purely mixed. The additional deliveries we pulled into the quarter were. They came from largely from our Texas and Charlotte markets. And so that was just a mixed factor. And ASP going into 2024. As I discussed on previous calls will be lower than then 2023.

Glenn Keeler: But again, that is just more mixed related because you'll have a heavier waiting towards. Texas and Charlotte than the current mix. A lot of new communities open this year and next year in those markets that are just driving that ASP. So I think I mentioned on the last call something around the $625 to $630,000 ASP range for next year and that still feels like a good target.

Tyler Batory: Okay, that's all from me. Thank you for the detail.

Carl Reichardt: Thanks, Troy.

Glenn Keeler: Our next question comes from Carl Reichardt with BTID, please go ahead. Thanks more than everybody. I missed the absorptions for entry-level during the quarter-blend, but I also wanted to tell you I think raised prices in two-thirds, modest price increases, two-thirds of your stores. Well, can you break that out between move-up and entry-level in terms of the price increases you put in place? So yeah, that entry-level absorption car was 3.7, and it was 3.1 for both first and second to the both.

Glenn Keeler: And we don't have the breakout front of us between price increases between those cohorts, but I think it was, you know, probably more on the move-up side, you would see a higher percentage of those price increases, but it was, it just marked really market-dependent more than anything, so like in Charlotte, for instance, where we're more entry-level first move-up, you know, that was a market where you saw price increases across the board, really, just because of the level of demand. So I would say it was fairly broad-based.

Tom Mitchell: Okay, thank you, Clint. And then when it was down there in August, we talked a lot about the premium entry level as a differentiating point for you product-wise. And I'm interested, again, you do spec, but you're trying to build that product up so that that customers can still choose options upgrades. So within the move-up cohort and the premium entry level cohort, have you begun to notice trade-down effects? So people taking fewer options on upgrades in their homes, and or a shift to smaller homes in either cohort as you go to offset the affordability challenges that we see out there.

Tom Mitchell: Thanks. Hey, Carl. It's Tom. Good questions, obviously, because we do such a great job, on our option and studio business, and it's a big component of our offerings. In Q3, we did not really see any decline relative to option spend. On clothing, we averaged $76,000 per home, which was about 11.2% of revenue. Year-to-day, we're at about 11.6% of revenue with that dollar amount being about 81,000 per house. So we're still seeing a significant amount of spend in our design studios, because people in today's markets will do want to personalize their home.

Tom Mitchell: And it's a driving factor. You saw we introduced the Bobby Burke collection. That's going to be very popular in a big driver. And it'll also help us streamline and be more efficient through our studio. So we're excited about that. We have put into the marketplace some smaller footages because we're very aware of attainable price points. And so that is something that we are seeing that people are accepting smaller footages for affordability reasons.

Tom Mitchell: Great. Thank you so much, Tom.

Jay Mccanless: Our next question comes from Jay McKinley with Exboss Security. Please go ahead. Good morning, everyone. Doug, you made the comment earlier that you see the M&A environment as limited. Could you maybe unpack that a little bit? Is it limited by the valuations you're seeing or just not the right to any color there would be help? I would say limited by the number of offerings, Jay. We're looking at packages, packages there. Few right now, but it's not so much evaluation, it's more opportunities, the number.

Jay Mccanless: And then, thus far in October, you said you raised price in two thirds of communities during 3Q. Do you feel like you have that same type of pricing power now, or you had to slow it down a little bit, just given the 70 bit move we've seen in mortgage rates over the last few days or few weeks. Well, that pricing, increasing was about 7,000 per house, it's about 1%, so it was very modest.

Jay Mccanless: And I would imagine we'll continue to keep it very modest, be very mindful of making sure our product is attainable. You know, price and payment is the name of the game, especially more in the entry level. But, you know, we've had a lot of success in our new community openings that we talked about earlier, and it will continue to see some price movement in those as well. Okay, that's great. That's all ahead. Thanks, everyone. Thanks, Jay.

Mike Dow: Our next question comes from Mike Dow with RBC Capital Market. Please go ahead. Morning. Thanks for taking my questions. I just go back to the current environment as you know that some consumers may adjust the builders have the tools to adjust as well to meet the market. We have heard some of your peers are ready leaning back into incentives when they're talking about the trends from September and October. Your commentary sounds a little bit different.

Mike Dow: So I'm curious, you know, given your other comments around what happened last year. Do you have a view that, you know, hey, it's been a quick move over a short period of time. Let's give it a little time to see where things settle out before we jump the gun on. You know, pulling the incentive or price lever or, you know, as pace just not falling to levels that are kind of triggering for you at this point.

Mike Dow: You know, maybe talk through that a little bit more because it does seem different than what some of your peers have described. Well, as we mentioned, you know, we continue to manage to our pace that we desire in our business plan. I think here today, Glenn, we're what about 3.3, 3.4 absorption. So our seasonal pace that we're seeing right now is, you know, is it maybe a tick softer than what we saw back in 2019?

Mike Dow: Yes, but we'll continue to use the tools to move into building our backlog for the Q1 and Q2. The other thing I'd point out is comparing peers is a little bit difficult in the sense that we have what, 163 active communities. And our focus on land acquisition is to be in the premium markets, a locations, with a product. And frankly, that trumps the B locations. And within every one of our markets, we're seeing higher incentives from builders and locations that are different.

Mike Dow: So there's a lot more to that question and how you answer it and how you execute it. And one of the strengths that TriPoint has is our land strategy that we start, you know, years ago when we buy land. And it's proven out. In Houston, which is one of the most competitive markets in the US, our community locations have been selling very, very well because it's location. It's the old adage, Mike.

Mike Dow: It's location, location, location. So we can drive a better absorption, drive a better premium. And we're not at the whims of a plane as much in the incentive gain possibly because our buyer profiles, Tom pointed out, is very strong as well. So there's more detail behind that. You can't just lump us all in one end. High Street. Yeah, that's fair. Makes sense, helpful.

Glenn Keeler: My second question is on the mortgage venture. And I know you'll have more to say once it closes or when it's closer to close. But is there any order of magnitude you could give us in terms of, you know, maybe had you own this outright in 23, you know, here's what the incremental contribution would be from a profitability standpoint. Point that's one, and then two, from more of an operational standpoint, I mean, presumably with the joint venture partner, you know, you, you've availed yourself of all the same tools that the other builders who have wholly owned ventures have in the current environment, but is there anything operationally where, you know, you think there could be a meaningful difference for you as a, as a wholly owned versus JV.

Glenn Keeler: Hey, Mike, this is Glenn to the first part of your question. We'll update you on more of the, you know, economics as we get further into 24 and actually are up and running, but there should be a positive benefit to the company, you know, as we'll have 100% of the economics versus, you know, right now being in a joint venture. Obviously, but from an operational standpoint, I think it's really all about the consumer will be able to control that process from end to end. And I think that will be the big advantage from us from a customer experience perspective. Okay, thank you.

Alex Barrow: Our next question comes from Alex Barrow with Halvin Woodford Center. Please go ahead. Hey guys, good morning and good job on the quarter. I was hoping you could elaborate on the, you know, what, on the consumer, what, what your average statistics look like, meaning, you know, what's their average income, what's their average down payment, what's their average Michael score. That's the thing and also wondering if you guys have an average interest rates after incentives that people are are getting, how does that compare to market?

Alex Barrow: Good morning, Alex. This is Tom. I'll take the first part and then Linda can talk about the second question there. But as I said, we've got an exceptional buyer profile. And that largely breaks down with our average buyer having an average income of about 185,000 average, fight those scores, 749. Our average debt income is right around 40%. Average loan to value is about 81.5%. You know, 79% of our buyers are using conventional financing.

Alex Barrow: So we've got a really strong buyer pool and it's very consistent as well. Yeah, I would go ahead, Linda. Just to provide you some more information about the average interest rates for our buyers. As we mentioned, with 86% of our fourth quarter backlog box, those buyers that have already closed or are expected to close have an average interest rate of 6.6% and then obviously rates increase more at the end of the quarter and into October.

Alex Barrow: So the loans that we locked in the third quarter have an average interest rate of 6.7%, very helpful thank you. Does he were going to say something? No, I was going to say the exact same thing. What is it? Great.

Tom Mitchell: Well, I appreciate you guys sharing that because I think it helps to highlight that it's not your meeting income household buying your homes, which is, you know, something that I think people oftentimes don't quite get. But anyway, the other question that I had was, what is your average build time and how much has that come down, say, versus a year ago? Because I'm kind of looking at your order trends, which are obviously very different than the deliveries you're having.

Tom Mitchell: So I'm assuming all those homes obviously are coming at some point. I'm just trying to figure out, you know, what kind of a lag is there between typically an order and a delivery these days. Good question, Alex. You know, as we stated on average, we've been able to reduce our cycle times to about six days weeks in reduction. And so it's very back to a normalized schedule template. But our average is 112 day schedule.

Tom Mitchell: So it's about a five and a half month construction cycle. And it varies based on product and market anywhere from 100 to 145 days and it's five to seven months in duration. And so we're back to those templates. Then we're going to continue to evaluate and see if there's further reductions there coming as we continue to look to more efficient product and reuse that efficient product that we've designed over the last couple of years.

Tom Mitchell: So we're optimistic on the cycle time front. Awesome. Now, if I should ask one more going back to the discussion of the average consumer that buys your homes. Have you guys done some hypothetical testing, you know, just how much more rate. And you guys could take, you know, in other words, could they pay 8% theoretically, should they pay higher than that? Yes, thanks, Alex. We've stressed test albias at the time that they are pre-qualifying.

Tom Mitchell: And right now we've stressed testing typically at eight and a half percent. And don't see issues for our buyers at that level. Got it. Well, thanks so much and best of luck. Thank you. There are no further questions at this time. I would like to turn the floor back over to those dollars for closing comments. Please go ahead. Well, thanks everyone for joining us today. And we want to wish all of you a safe and wonderful holiday season.

Tom Mitchell: I can't believe the holidays are right around the corner and look forward to reporting some strong results next February as we get back together. And thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for participation and have a great day. [inaudible] a lot of work to do. She's got a lot of work to do.