Greetings. And welcome to the TRI Pointe Group’s Third Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Chris Martin, Investor Relations for TRI Pointe Group. Thank you, Mr. Martin. You may now begin.

Good morning. Welcome to TRI Pointe’s third quarter 2015 earnings conference call. Earlier today, the company released its financial results for the quarter. Documents detailing these results are available on the company’s Investor Relations website at www.tripointegroup.com. Before the call begins, I would like to remind everyone that certain statements made in the course of this call are not based on historical information and constitute forward-looking statements. These statements are based on management’s current expectations and beliefs, and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described or implied in these forward-looking statements. I refer you to the company’s filings made with the SEC for a more detailed discussion of the risks and factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statement made today. The company undertakes no duty to update these forward-looking statements that are made during the course of this call. Additionally, non-GAAP financial measures will be discussed on this conference call. The company’s presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Reconciliations of these non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP can be accessed through TRI Pointe’s website and the filings with the SEC at www.sec.gov. Earlier today, we posted a slide deck in the Investors section of our website under the Presentations tab reflecting our results and key financial metrics for the third quarter. Hosting today’s call is Doug Bauer, the company’s Chief Executive Officer; Mike Grubbs, the company’s Chief Financial Officer; and Tom Mitchell, the company’s Chief Operating Officer and President. With that, I will now turn the call over to Doug.

Thank you, Chris, and good morning, everyone. TRI Pointe Group posted excellent results in the third quarter as we delivered solid improvement in each of the relevant homebuilding metrics when compared to last year. Homebuilding revenues increased 36% on a year-over-year basis, thanks to 35% increase in unit deliveries and 1% increase in average selling prices. Both unit orders and backlog, grew in excess of 20% when compared to the third quarter of 2014, driven by absorption pace and community count. Gross margins expanded 270 basis points and SG&A as a percent of home sales revenue declined 170 basis points, resulting in a 420 basis point improvement in our homebuilding operating margin to 12.1%. These achievements are a result of TRI Pointe Group’s successful combination of the six homebuilding companies and the strength of our deep and experienced operating teams in each of their local markets. Despite all the noise surrounding the availability of land, labor and mortgage financing, I remain optimistic about the outlook for homebuilding and believe that these concerns will be mitigated by strong future demand drivers in the form of job growth and household formations. TRI Pointe is in a desirable position of having a large supplier lot in entitlement constrained California and we have been successful in identifying and securing land positions in all of our markets that meet or exceed our underwriting criteria. On the labor front, we believe that workers will continue to return to the trade base as permit activity increases in a given submarket. However, there will be a lag effect. Thanks to our relationships with our subcontractors, we have been successful and securing the trade labor necessary to complete our homes and backlog in a timely fashion. With respect to mortgage availability, we have seen conditions improve on the margin.…

Thanks, Doug. Good morning. I would also like to welcome everyone to today’s call. This morning I will be highlighting some of our results and key financial metrics for the third quarter and then finish my remarks with an update on our expectations, and outlook for the balance of the year. As Chris mentioned earlier, I would also like to refer you to a slide deck on our website, which includes charts detailing orders, deliveries and absorption rates by Homebuilding Company for both the third quarter and nine months ended September 30, 2015. You may have also noticed, we provided some key operating metrics by state in today’s press release announcing our earnings report. Our third quarter included strong topline growth, highlighted by the 36% increase in our home sales revenue over the same period in the previous year, largely as a result of 35% increase in home deliveries. Our homebuilding gross margin came in ahead of our guidance at 21%. We were also successful in recognizing additional operating leverage improvements during the quarter as reflected in our selling, general and administrative expense ratio, which improved to 8.8% as a percentage of home sales revenue compared to 10.5% in the same period a year ago. This resulted in net income for the quarter of $50.2 million or $0.31 per diluted share compared to $11 million or $0.07 per diluted share a year ago. We averaged 121 active selling communities during the quarter, up 13% from the same period a year ago, which helped fuel the significant increase in our net new home orders. During the quarter, we opened seven new communities, of which four were in California, two in Texas and one in Washington. In addition, we closed out of 11 communities during the quarter, ending with 118 active selling…

Thanks, Mike. In conclusion, I’m very pleased with our results this quarter. Based on our performance this year, our desirable lot position in California and the strong leadership and talent that we have at each one of our homebuilding companies, I'm confident about the future of the TRI Pointe Group. I personally want to thank all of our teams for an excellent job during this last quarter. We look forward to seeing those of you that are planning to attend our Investor Day in San Diego on Monday evening and Tuesday of next week. For those of you not attending, a slide deck and link to the webcast of the presentation will be posted on our website. With that, that concludes our prepared remarks and now, I will open the call up for any questions. Thank you.

Thank you. We'll now be conducting the question and answer session. [Operator Instructions] Our first question comes from the line of Nishu Sood with Deutsche Bank. Please proceed with your question.

Thank you and congratulations on a terrific execution in the quarter. So first question, I wanted to ask was about the gross margin guidance. So things are coming in as expected, so to get to your numbers for the year, Mike, it implies another substantial step up in gross margin in to the fourth quarter. I just wanted to review the components of that. Capitalized interest is a little bit higher, wanted to get some sense of where that might be with the mix shift. I imagine that's still the main driver, the California closing influencing the gross margins in the fourth quarter. Would we expect to also see a substantial step up in the ASP as well? So just generally wanted your thoughts on the moving parts there and what’s driving that?

Yes. Nishu, it’s Mike. I mean you kind of hit on all the components that make that up, but we do see our ASP growing slightly in the fourth quarter, primarily because of the percentage of our deliveries that we’re delivering in the fourth quarter. We had a fairly significant increase in our deliveries in California in the third quarter as we had mentioned before. So we do see some sequential improvement in our gross margin and that number is probably north of 22% to get the overall year to around 21% as we’re guiding to.

Got it. Okay.

And I think on cap interest, you had mentioned cap interest, it runs a couple of percent.

Got it. So, yeah, it went up to 2.1% I think in the quarter, so something similar or some leverage in the fourth quarter, should we expect.

It will be very similar to that.

Okay, got it. On the – Doug, you mentioned the labor concerns obviously, your 75 to 80% backlog turnover ratio, I think you had about 57. It’s almost identical to the numbers you had in the second half of ’14. I don't think there are going to be too many builders that end up with that situation. So it sounds like from your comments experiencing the same challenges that other builders are, what are the main factors that have enabled you to keep your conversion ratio level on a year-over-year basis and how should we expect that to play out next year. I mean, are you going to see some lingering effects in the first half of next year or do you think you can continue this level of kind of same execution?

It’s a good question. Nishu, we felt the labor crunch and it’s not -- this is not a national phenomenon. I mean, it's kind of sub-market specific and frankly, we felt it late spring, early summer and we made the necessary adjustments in our planning and in our operations to reflect that, but really the success that anybody -- and the success our company has in securing labor, it really starts with the relationships that our teams have formed. I mean, you got to remember that in this business, the very local business and our team’s average close to 20 years of experience in each one of their markets and have had long-standing relationships with the trade and when things get tough and they are tough, they can call on those relationships. We also pay on time, we also keep our job scheduled and are ready for the trades to come on and get to the work and keep moving through. Labor is a lagging effect. I know it's the headline noise right now and it is going to be a lagging effect. I think it will continue into 2016 to some effect. Everybody should adjust and plan accordingly, but it’s not the end for homebuilding. I mean labor will slowly pick up as building permits continue to increase. Frankly, I don’t mean to get on it here, but the labor is not the issue, education is the issue. We need to see our policy makers and businesses and educators work on an education system to provide more jobs. We had a great jobs number today that was reported and that's the key driver for housing, that's the key driver for labor. So I believe labor will continue to increase as we see continued permit activity, giving away free education at community colleges is not the answer. What we need to do as businesses and as policymakers and as educators is device programs that are met and address the need that we have in this country for labor and if we do that, everything will work out. It will take some time, but it will work out.

Got it. I appreciate the thoughts. And one more if I could, the community count, with it being pushed from 4Q to 1Q, 25 new communities being opened in Q1, where are those just state by state?

As I mentioned, it's about 25 to 30 communities about 10 of those were in California. The balance of the mix, bear with me a second, probably about 20% of those will be Maracay in Arizona, about 20% in Texas. There is no new communities opening in the Mid-Atlantic for the fourth quarter and then there is three in the Washington quadrant.

Got it, great. Thank you.

Thank you. Our next question comes from the line of Allen Ratner with Zelman & Associates. Please proceed with a question.

Hey guys good morning, nice quarter. Doug, you mentioned the repositioning that you kind of put in place in Winchester it looks like it certainly benefited this quarter’s order results. Was curious if there was any other I think you had previously done quadrant as well. Was curious as you look at your portfolio if there is any other areas where you're looking to reposition the portfolio either to different price points may be changing around the incentives or different fore plans, and I guess tying that into Houston a little bit, nice to see the absorption pace stabilizing there and there are several other builders have highlighted incremental slowing during the quarter doesn't look like you guys experienced that based on your numbers. But with your price point at 500,000 there that kind of seems to be sweet spot of the market that’s going to hit the hardest. Was curious if that's an area where you're thinking about repositioning as well and I know there is a lot in there but hopefully you could take that one by one.

Well let's see if I can start at the beginning. On the Mid-Atlantic that market had been pretty choppy for the last couple of years, we really readjusted the organization to be a little more streamlined and we believe that refocusing of the efforts there has helped energize the team but we've also got a very experienced team there and a good brand. And it is still an incentive laden market to stimulate sales but we’re very optimistic, particularly our Cabin Branch project up to 270 a quarter over the next several years, we've got a lot of lots there with NBR, and I think it's going to be a great project to fill in the gap that Clarksburg on the east side will pick up. I mean the other thing is orders, in the month of October were excellent. The team really executed on all fronts. Throughout the Company, and we did this a little bit in quadrant, but will continue to do this in all the brands continue to focus on product and merchandizing. I mean, we're not done there in any of the companies. And frankly, we think we have a lot of improvement. Those benefits from repositioning product in merchandising and addressing the customer needs will happen over the next 12 to 24 months. In quadrant and specifically though we did focus our land efforts in [indiscernible] counties and really focus in on a premium product instead of dealing in some of what I would call B locations at. Frankly, we still are selling out this year and so we as indicated have increased our margins and should continue to do so. It's a very strong market. As far as Houston, Houston as we indicated at beginning of year the worst thing you can do as…

Allen this is Tom, just one additional thing as you’re looking towards new opportunities going forward with products and design, and marketing in merchandizing, Doug mentioned we are stressing of that. But we see an opportunity in the active adult and age qualified sector as well and we’re currently exploring that, we did do have some offerings out there but look to see that increase as we move forward in the future.

All right, I really appreciate that. Doug, just one follow-up on the strategy in Houston, you mentioned the ability to go back to land sellers and renegotiate. Has that been ongoing there and what type of success have you had because I would imagine it's still a pretty tight land market in spite of the softness we've seen recently?

Yeah, I mean the market in Houston was great at the end of ‘14 and it turned on a dime at the beginning of ’15 as you know. So we're still in the early innings and we have had some success and land sellers are slowly starting to realize that they have to report to somebody and they need to sell their lots and they want to have the trend maker brand in their community and we’ll continue to work together with our land sellers. I mean they're important to us and we’re important to them. So it's a collaborative event and it will continue. And that's the beauty of the model; it will continue to be reset so to speak over the next several 12, 24 months because I'm not sitting there with 5,000 lots at a fixed basis. That's not my issue. My issue is to continue to design and build and market homes and adjust their price points to meet the market demand.

Okay, thanks and good luck.

Thanks Allen.

Thank you. Our next question comes from the line of Mark Weintraub with Buckingham Research Group. Please proceed with your question.

Thank you, and congrats on the good quarter. Question I had was with all these new communities coming on, obviously a lot of communities coming off. And then you touched on it a little bit, but what is the makeshift isn't going to be, I apologize if you’ve already gave some color on this, but where are the communities. I think you mentioned there is a lot in California, maybe a little bit more granularity on that. And are they at higher price points and also presumably the type of communities that tend to carry higher gross margin or any color you could give on that would be helpful?

Hey Mark, this is Tom. We have some mix in new communities that Mike identified roughly 10 in California, then 20%, seven in Arizona community and then 20% in Texas as well. I wouldn't expect the makeshift to be anything different than what we're currently seeing, especially if it relates to our California project opening up so it should be very similar going forward.

Okay, and then maybe just as a quick follow-on. With the labor constraints which you’re handling well and also presumably with the cost of land having gone up in the last couple of years. Clearly there are some upside pressure on the cost side. What's your sense right now in your various locations, the ability for the market to some continued push on price to maintain that the types of margin to beat that thing.

This is Doug, Mark. We've continue to see some price elasticity in markets like Seattle, California, modest, but a little timing of incentives in Phoenix, but some modest price improvement. And frankly in Phoenix, if you get 2% to 3% price improvement a year that's kind of a perfect recipe for continued success. Houston is obviously is a more incentive laden market right now and as I mentioned, so is the Mid-Atlantic. Las Vegas is, depending on the price point, we've had some elasticity, but a little bit flat. So we've been able to combat some of the labor cost increases. Generally speaking though, this is a company I would tell you that direct costs, not labor but direct costs, all our building costs inclusive of labor. This year are generally going up 2% to 5%, Tom. And so, I mean we've been able to mitigate most of that with as we've demonstrated our margin improvement, so in most of our locations.

Great, very helpful thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Will Randow with Citigroup. Please proceed with your question.

Hey good morning guys and congrats on the progress.

Thanks Will.

I guess in terms of integration, given that you have a year under your belt. So can you talk about number one your appetite for potential further M&A and two some of the challenges and opportunities you're still facing particularly, you mentioned you're not adding communities in Winchester, right Winchester in the near term if I heard that correctly. And then I’m assuming there is margin pressure at Houston, but I would love to get some color?

Yeah, I will take the M&A question. We continue to see that as a – I guess, we see two growth prongs. Well, number is, we’ve got the six homebuilding brands that we see continue to grow over the next three to five years as we continue to expand their operations in a smart way. The other thing that we will continue to look at is geographic expansion opportunities. We’ve mentioned Austin and frankly Austin and San Antonio kind of go together, but we’ve already planted a couple of seeds in Austin. It’s an organic method, so it takes a while to really feel the bottom line effect, but that’s part of our program. And then we will continue to explore regional bolt-on type of acquisitions. The market right now is obviously a little sticky and we will continue to be very smart about our growth. We are focused primarily in looking at opportunities in Texas to bolster what we’re doing there outside of Houston and/or the Southeast. Tom, you want to take some of Will’s other questions?

Yeah, Will, I guess relative to margin pressure in Houston, there is no surprise there. We’ve certainly have had challenging market condition. Our team has performed admirably. They have been through it before. They know how to operate in these market conditions and we are confident they are going to be successful. But one thing I would add is, we’re just moving down to what has been more historically normalized margins and that is right where we are at and that’s where we anticipated it will continue. I think the subsidized margins we’ve seen over the last few years were obviously because of positive market conditions, but we anticipate being able to operate in the normalized market conditions in those markets.

Okay. And then just on I guess Winchester growth aspirations there and as you look into 2016, how are you thinking about the balance sheet in terms of being cash flow neutral or on growth mode?

Well, as far as Winchester, we’ve got the land to serve our business plan needs for 2016 and ‘17 and we’ve indicated that for the company. We have focused on land acquisition efforts. We recently secured an opportunity in Fairfax County, very close to the Tysons Corner area for those listening. So that is an example of what we are going to focus in on closer into the main employment and transportation corridors. Those properties and deals typically take 18 to 24 months to bring to the market. So we are frankly focused on land acquisitions in Winchester for 2018 and frankly as Mike mentioned earlier that is true for the entire company. I mean that is, if you ask me what am I thinking about right now, it’s really 2018 on the land side.

Okay, great. Thanks again and good luck on the next quarter

Will, drop me an email about that meeting in December as a footnote.

Okay, great.

Thanks.

Thank you. Our next question comes from the line of Jay McCandless with Sterne Agee. Please proceed with your question.

Good morning, guys. Mike, first question for you, the community push you guys are talking about in 1Q16, how should we think about our SG&A modeling for that? I would assume it is going to probably add a little bit outsized expense versus what we normally expect, right?

Yeah, I mean, well, our SG&A for the full year, though, should be pretty comfortable within the same range that we are seeing in 2015. For next year, it is just going to be spiky among the quarters, because the amount of deliveries will change affecting the homebuilding rate.

Okay. And then, Doug, could you repeat what you said about the Mid-Atlantic in terms of the order growth and march up, I missed that? I mean, the order growth in October, I missed that comment.

Yeah, Jay, we had – October was a great month and actually if you look at the trend off the top of my head, Tom and Mike, July, August were very good in the Mid-Atlantic. They fell a little bit off in September and then they spiked again in October. So we had some seasonal trends, people going back to school in September and then all of a sudden again it pops up in October. I think it was a 55% increase year over year. So the team is well positioned as I mentioned to earlier, Jay. We’ve got the land necessary to meet our goals for ‘16 and ‘17. It is really positioning the company for ‘18 at closer and as I mentioned to the previous caller the Fairfax opportunity. So we are very excited about our team in Winchester and their ability to grow closer in to the employment quarters is going to be a great opportunity. I mean we have a land team and leadership team that’s been there for nearly 20 years. They are very well respected and continue to source opportunities closer in.

Okay, all right. Thank you. And then just the last question. Haven’t heard much this time around about first-time buyers. What percentage of your closings do you think were first-time buyers and are you getting any better insight into that customer now that you have your own captive mortgage company?

Yeah, Jay, this is Tom. I would say, we are running pretty typically right now about 35% of our deliveries in the new home entry-level buyer position, [indiscernible] luxury market. We’re certainly getting insights. TRI Pointe Connect, our new market operation is up and running and fully operational in all our markets and we continue to evolve and get more information and I think we’ve got a very positive outlook on the entry-level buyer reemerging.

Actually, Jay, just to give you some mortgage stats for the September 30 period ending, the year-to-date we had average FICO scores and this does not include TRI Pointe in California because we have not been licensed as of September . I think we had got license in the middle of month if I recall, so it really didn’t have any bearing on it, but just to give you some feel, our average FICO score quarter was 735, our product mix was 60%, 61% conventional and about 40% govi, [ph] so it is kind of that mix. As Tom said 30%, 35% entry level. Now that entry-level is defined differently in price points in each submarket too. I mean we can be building an entry level town home in Orange County for $650,000, at $700,000 that will fly off the handle.

Got it. Okay, great. Thank you guys. I appreciate the color.

Thank you our next question comes from the line of Alex Barron with Housing Research Center. Please proceed with your question.

Good morning guys and great job. I wanted to start with land, so I guess this year hoping we can get an update on any – if there is going to be any large land sales in the fourth quarter and then I guess looking into next year on the same topic, we just expect more of a smaller contribution to profits coming from land?

Hey, Alex, this is Mike. For the balance of this year, obviously we are still guiding to roughly our $100 million of land sales, so that would mean that we would have some land sales here in the fourth quarter. We haven’t given specific guidance as to 2016, but as we historically said, RICO [ph] companies prior to this acquisition and then this last year have historically done about $100 million average of land sales over the last five, six years and we see that trend continuing into 2016. I don’t think it is going to be similar on the margin side because of some of the PHR site that we had was a pretty significant sale, it was $53 million sale at 94% gross margin. So we don’t see that replicating itself every year, but we do see pretty good margins in our land sales moving forward.

Okay. And then the other question I guess just wanted to clarify your commentary on the October orders, was that just for Winchester or is that across the company kind of the month to month –

It is Mike again, you will see it in our slide deck as well. I think we had 318 orders for the month of October which was up pretty significantly from September and it is running about 28% year-over-year ahead from a total standpoint.

And then if I could ask a more general one on your spec strategy, does that tend more towards -- are you guys more of a spec builder at this point or often has been a build to orders or is it – does it vary a lot by brand?

Well, it is pretty different by brand. I mean you have to bear in mind that since we are -- significant amount of our businesses is California, I mean technically the way it works in California you could build in phases and so we are usually starting construction prior even potentially prior to sale. So you could look at those as the raw spec, but by the time that we finish the phases they are all sold out. But Houston is a heavy spec market for us. We do see more spec at Maracay in Arizona. I think at the end of the quarter we were around 220 spec units completed that would be available to close for the whole company which has averaged at about two per sales.

What about the DC market and Washington.

Yeah, Alex, this is Dough. You will have a portion of your sales split between some specs and dirt starts. [ph] And generally all the markets, a little heavier as Mike indicated in Houston with our Trendmaker brand, but the rest of the country is accommodation of dirt starts and spec building and we probably keep it around 1.75 to 2 per community per month, I mean overall as a ratio, but it’s not a heavy – we are not a heavy spec builder in markets outside of California.

Okay, thank a lot.

Thanks.

There are not further questions at this time. I would like to turn the floor back over Mr. Bauer for closing comments.

Well, I want to thank everyone for attending our third quarter call. We look forward to talking to many of you hopefully next Monday evening and Tuesday and if not, as I mentioned earlier, our investor day information and slide deck and link will be on our website for your use and if we don’t talk to you, have a great holiday season. Thank you very much.

This concludes today’s teleconference, you may disconnect your lines at this time. Thank you for your participation.