Tri Pointe Homes(US:TPH)2020-07-24 18:25Financial Data and Key Metrics Changes - TRI Pointe Group generated net income of $56.5 million in Q2 2020, representing a 139% improvement year-over-year, with earnings per diluted share at $0.43 [8][31] - Excluding costs related to debt extinguishment and workforce reduction, net income was $65.9 million or $0.51 per diluted share [9][31] - Home sales revenue reached $767 million, an 11% increase year-over-year, with an average selling price of $624,000 per home [27] Business Line Data and Key Metrics Changes - The company delivered 1,229 homes during the quarter, a 9% increase year-over-year [27] - The homebuilding gross margin percentage improved to 21.6%, a 460 basis point increase year-over-year [28] - The cancellation rate for the second quarter was 21%, down from a high of 36% in April to 13% in June [26] Market Data and Key Metrics Changes - Order activity improved significantly, with a 28% year-over-year increase in June orders, including a 36% increase in California [10] - Net orders were up over 40% year-over-year in July for the first three weeks, with California orders up over 70% [10] - The company opened 12 new communities and closed 10, ending the quarter with 145 active selling communities [32] Company Strategy and Development Direction - TRI Pointe Group is focusing on a balanced strategy with an emphasis on affordable market segments, with 45% of orders in California priced at $500,000 or less [16][17] - The company aims to diversify operations geographically and by product, expanding into early-stage markets like Sacramento, Austin, Dallas, and the Carolinas [18][19] - The pandemic has accelerated the shift towards online sales, with 48% of net orders in Q2 driven through virtual and one-on-one appointments [22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to adapt to changing market dynamics and consumer behavior due to the pandemic [23][42] - The company anticipates delivering between 1,100 and 1,200 homes in Q3 2020, with an average sales price of $620,000 to $630,000 [39] - There is a focus on maintaining a strong balance sheet and managing capital prudently amid ongoing uncertainties related to COVID-19 [42] Other Important Information - The company generated $250 million in positive cash flow from operations and ended the quarter with over $1 billion in liquidity [37] - The effective tax rate for Q3 2020 is expected to be in the range of 25% to 26% [39] Q&A Session Summary Question: Guidance for the back-half of the year - Management acknowledged that the guidance appears conservative due to a lower number of specs available, with only 198 specs at the end of the quarter [48] Question: Strategy on speculative starts - The company has increased the pace of new speculative starts after a conservative approach during the pandemic [49] Question: Pricing power and margin impact - Management indicated that they have been able to increase prices or reduce incentives due to strong demand, but there may be mixed impacts from higher-priced legacy assets [52][53] Question: Buyer urgency and patience - Buyers are showing more patience and willingness to wait for homes to be built, prioritizing personalization and features that cater to their needs [66] Question: Geographic trends in order growth - Strong growth has been observed in California and Phoenix, with new product offerings contributing to higher absorption rates [90][91] Question: Community count growth expectations - Management expects more meaningful community count growth in 2021, particularly in new markets like the Carolinas and Texas [114]