TRI Pointe Group (NYSE: TPH) reported Q2 EPS of $0.43, $0.12 better than the analyst estimate of $0.31. Revenue for the quarter came in at $766.9 million versus the consensus estimate of $683.5 million.

Results and Operational Data for Second Quarter 2020 and Comparisons to Second Quarter 2019

• Net income was $56.5 million, or $0.43 per diluted share, compared to $26.3 million, or $0.18 per diluted share. In the second quarter of 2020, the Company recorded costs related to the early extinguishment and refinancing of a portion of its Senior Notes due 2021 in connection with the issuance of its Senior Notes due 2028 during the quarter. The charge incurred was $6.9 million and is included in other expense (income), net on the Company's consolidated statements of operations. In addition, the Company incurred $5.5 million of restructuring charges related to a workforce reduction plan that was implemented in the second quarter of 2020. Excluding these items, adjusted net income was $65.9 million, or $0.51 per diluted share, for the second quarter of 2020.*
• Home sales revenue of $766.9 million compared to $692.1 million, an increase of 11%
  • New home deliveries of 1,229 homes compared to 1,125 homes, an increase of 9%
  • Average sales price of homes delivered of $624,000 compared to $615,000, an increase of 1%
• Homebuilding gross margin percentage of 21.6% compared to 17.0%, an increase of 460 basis points
  • Excluding interest and impairments and lot option abandonments, adjusted homebuilding gross margin percentage was 24.6%*
• SG&A expense as a percentage of homes sales revenue of 10.8% compared to 12.1%, a decrease of 130 basis points
• Net new home orders of 1,332 compared to 1,491, a decrease of 11%
• Active selling communities averaged 144.3 compared to 146.0, a decrease of 1%
  • Net new home orders per average selling community were 9.2 orders (3.1 monthly) compared to 10.2 orders (3.4 monthly)
  • Cancellation rate of 21% compared to 16%
• Backlog units at quarter end of 2,558 homes compared to 2,208, an increase of 16%
  • Dollar value of backlog at quarter end of $1.7 billion compared to $1.4 billion, an increase of 17%
  • Average sales price of homes in backlog at quarter end of $656,000 compared to $652,000, an increase of 1%
• Ratios of debt-to-capital and net debt-to-net capital of 39.4% and 30.2%*, respectively, as of June 30, 2020
• Issued $350 million aggregate principal amount of 5.70% Senior Notes due 2028
  • Proceeds from the issuance during the quarter were used to pay off $216 million of the $300 million of Senior Notes due 2021 that were tendered in a cash tender offer, with the remainder of the notes redeemed in early July.
• Ended the second quarter of 2020 with total liquidity of $1.0 billion, including cash and cash equivalents of $474.5 million and $559.4 million of availability under the Company’s unsecured revolving credit facility

“TRI Pointe Group experienced a significant rebound from the initial weeks of the COVID-19 pandemic, with double-digit revenue growth and significant margin expansion as compared to the prior-year period, as well as improving order trends as the second quarter of 2020 progressed,” said TRI Pointe Group Chief Executive Officer Doug Bauer. “Net income for the quarter was $56.5 million, or $0.43 per diluted share, representing a 115% improvement over the prior-year period. Excluding the impact of costs related to the early extinguishment of debt and a workforce reduction plan, net income was $65.9 million, or $0.51 per diluted share. These results are a testament to the resiliency of our Company and underscore the heightened demand for single-family homes that currently exists in our country.”

Mr. Bauer continued, “Following the initial shock to the economy brought about by the COVID-19 pandemic, order activity steadily improved as the second quarter progressed, culminating in a 28% year-over-year improvement in net new home orders for the month of June, including a 36% year-over-year increase in California. This momentum has carried into July, with net new home orders up over 40% for the first three weeks of the month as compared to the prior-year period. The order activity has been broad-based, both from a geographic and product segment standpoint, and we have been actively raising prices in most markets in response to the strong demand.”

Mr. Bauer concluded, “While the long-term impact of the virus on the economy and our industry remains unclear, TRI Pointe Group is well positioned to navigate these uncertain times thanks to our seasoned management team, our well capitalized balance sheet and our strong market positioning. In addition, our team members have done an excellent job adapting to this new environment, giving me confidence that our Company will emerge from this health crisis a better and more efficient homebuilder.”

“The health and safety of our employees, trade partners and customers continues to be our top priority as we conduct our business in the era of COVID-19”, said TRI Pointe Group President and Chief Operating Officer Tom Mitchell. “We have implemented a number of safety protocols across our organization that encourage social distancing and allow for employees to work from home in an effort to limit the spread of the virus. Fortunately, we have been successful in our sales efforts despite the reduced in-person interaction, thanks to our virtual sales capabilities and the investments we have made in our online presence. We believe this new way of shopping for a home will be a lasting shift in consumer behavior and will lead to a more efficient sales model over time.”

Outlook

There remains significant uncertainty regarding COVID-19 and future developments, including the duration and severity of the outbreak, as well as the related short-term and long-term impacts on the economy. The following outlook is based on the Company’s backlog as of June 30, 2020, current market dynamics and management’s estimates. Actual results could differ due to, among other things, the effects of the COVID-19 pandemic, including the severity and duration of the outbreak and disruptions to the economy that may result from the pandemic.

For the third quarter of 2020, the Company anticipates delivering between 1,100 and 1,200 homes at an average sales price between $620,000 and $630,000. The Company expects its homebuilding gross margin percentage will be in the range of 20.0% to 21.0% for the third quarter of 2020 and anticipates its SG&A expense as a percentage of homes sales revenue will be in the range of 10.2% to 10.7% during such period. Lastly, the Company expects its effective tax rate for the third quarter of 2020 will be in the range of 25% to 26%.

For the full year, the Company anticipates delivering between 4,400 and 4,700 homes at an average sales price between $620,000 and $630,000. In addition, the Company expects homebuilding gross margin percentage will be in the range of 20.0% to 21.0% for the full year and anticipates its SG&A expense as a percentage of homes sales revenue will be in the range of 11.0% to 11.5%. Finally, the Company expects its effective tax rate for the full year will be in the range of 24% to 25%.

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