Greetings, and welcome to the TRI Pointe Group First Quarter 2018 Earnings Results. At this time, all participants are in a listen-only mode. A 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 begin.

Good morning, and welcome to TRI Pointe Group's earnings conference call. Earlier today, the company released its financial results for the first quarter of 2018. Documents detailing these results, including a slide deck under the Presentations tab are available on the company's Investor Relations Web site at www.tripointegroup.com. Before the call begins, I would like to remind everyone that certain statements made in the course of this call, which are not historical facts, including statements concerning future financial and operating performance, are forward-looking statements that involve risks and uncertainties. A discussion of such risks and uncertainties and other important factors that could cause actual financial and operating results to differ materially from those described in the forward-looking statements are detailed in the company's filings made with the SEC, including in its most recent Annual Report on Form 10-K and its quarterly report on Form 10-Q. Except as required by law, the company undertakes no duty to update these forward-looking statements that are made during the course of this call. Additionally, non-GAAP financial measures will be discussed on this conference call. Reconciliations of these non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP can be accessed through the TRI Pointe's Web site and in its filings with the SEC. Hosting the call today is Doug Bauer, the company's Chief Executive Officer; Mike Grubbs, the company's Chief Financial Officer; and Tom Mitchell, the company's Chief Operating Officer and President. With that, I will now turn the call over to Doug.

Thanks, Chris, and good morning everyone, and thank you for joining us on today's call. I'm pleased to announce that 2018 is off to a great start for TRI Pointe Group. As first quarter new home deliveries increased 22% year-over-year, homebuilding gross margin expanded 390 basis points, and fully diluted earnings per share rose to $0.28 per share from $0.05 per share in 2017. Net new orders for the quarter increased 15% against a tough comp last year; thanks to an absorption pace of 3.8 orders per community per month. This sales pace was 11% higher than the first quarter of 2017, which appears to be a good indication that the newly implemented tax reform rule and the recent rise in interest rates have not had a significant impact on our business. We believe that job growth, household formation, and higher wages are the fuel for housing demand, not interest rates or tax policy. And these fundamental drivers continue to improve. All this serves as a positive sign that housing dynamics in our markets remain healthy, and there are motivated buyers within each market segment as we continue to produce a differentiated product that appeals to the entry level, move-up, luxury, and active adult segment. At TRI Pointe Group, we are building homes that are specifically designed for lifestyles and life stages, homes that go beyond really satisfying the need for shelter, and instead create an emotional connection with the buyer. As evidenced by our consistently strong sales pace in gross margins there is a considerable segment of buyers that will pay a premium for this type of product. Fortunately, we have seen this market niche become increasingly less crowded as several of our competitors have either moved away from providing a premium brand experience or have moved down in…

Thanks, Doug. Good morning. I would also like to welcome everyone to today's call. I'm going to highlight some of our results and key financial metrics for the first quarter, and then finish my remarks with an update on our expectations and outlook for the second quarter and full-year 2018. At times, I'll be referring to certain information from our slide deck posted on our Web site that Chris mentioned earlier. Overall, for the first quarter, was marked with strong results as highlighted on page six of our earnings call slide deck. Home sales revenue was up with $583 million for the quarter on 924 homes delivered at an average sales price of $630,000. Our homebuilding gross margin percentage for the quarter was 22.7%, and our SG&A expense as a percentage of home sales revenue was 12.9%. Net income came in at $43 million or $0.28 per diluted share. For the quarter, we posted a 15% increase in net new home orders on a 3% increase in our average selling communities on a year-over-year basis. 16% of our new home orders were from our long-term California assets. Overall, absorption rate increased 11% to 3.8 homes per community per month in the quarter compared to 3.5 homes per community in the prior year period. You can see the historical monthly cadence of orders on slide 28. As for our overall selling communities, during the first quarter we opened 10 new communities, five in California, three in Arizona, one in Nevada, and one in Texas. We closed nine communities resulting in an ending active selling community count of 131. Our active selling communities at the end of the quarter is shown by state on slide seven. So far through the first three weeks of April we have continued to see strong demand…

Thanks, Mike. In conclusion, I am extremely pleased with our results this quarter. We met or exceeded all of our stated guidance for the quarter and the ended the period with 39% increase in backlog dollar value as compared to last year. We also generated an order base of 3.8 homes per community per month despite selling homes at an average price that is significantly higher than our peer group average. We believe that our performance this quarter is a direct result of our strategic emphasis on quality, design, and innovation, while providing for an excellent customer experience. This strategy drives traffic, orders, premium pricing, and leads to higher customer satisfaction. Given the recent consolidation in our industry and increasing focus on the entry-level buyers' segment by our competition, we see an improving competitive landscape on the horizon for TRI Pointe Group which we believe will lead to market share gains for our six homebuilding brands. We have a lot of great opportunities ahead of us, and I'm excited for what the future holds. Finally, I'd like to thank all of our team members for a job well done this quarter. Growing a unique and differentiated company like ours takes a lot of teamwork and collaborative effort. I appreciate your contributions in making TRI Pointe Group what it is today. With that, that concludes our prepared remarks. And now we can open it up for questions. Thank you.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Alan Ratner from Zelman & Associates. Please proceed with your question.

Hey guys, good morning. Nice quarter. Thanks for taking my questions. So first one on the gross margin, obviously the companywide improvement is really impressive. But I think probably what's even more impressive from your release you mentioned that you actually saw improvement in each of your brands. So it shows that the companywide improvements not just driven by a mix from more California deliveries. So was hoping that maybe you could just talk a little bit more about what you're seeing on the cost side of the business. There's a lot of chatter about higher lumber prices, and concern that that's going to result in some roll-off of the improvement later in the year or into 2019. So how are you finding the ability to push price in excess of cost inflation across the entire country kind of adjusting for the mix on the land side?

That's obviously an important question, Alan. And this is Doug. Generally speaking we've been able to pass along pricing increases due to the strong demand which has been offsetting some rather large increases in material price, and in specifically lumber as well noted, and also the challenges with labor and the cost of labor. Through the first quarter our company had a weighted average of about 2.2% increase in costs. Our pricing across all the different brands that it depends on different markets and submarkets ranges from flat to 5% in the first quarter. So it varies. And so generally speaking we're offsetting that cost channel. And as we look to the rest of the year I still think material cost and labor are going to continue to be an issue. [Technical difficulty] a lot of keys to our success in the labor front, and it really starts with the relationships that we have with subcontractors and the vendors. And constantly developing a strong bench strength that allows our operating teams to build the homes timely and convert them into successful closing. So it's a very challenging environment, but generally speaking we're able to offset those cost challenges with pricing.

Great. Thanks for that, Doug. And then second question if I could. So it looks like you guys actually generated some cash -- positive cash flow in the first quarter which is pretty unusual given the seasonality of the business. So I was just curious if you can talk a little bit about your expectations on cash flow for the year maybe relative to the $90 million or so you generated in '17. And how are you thinking about the balance sheet these days given all the various potential uses of cash? Thank you.

Yes, Alan, it's Mike. Yes, we did generate about $50 million of positive cash flow for the quarter. We had anticipated that because of the amount of land [indiscernible] and land acquisition dollars that were being spent in the first quarter was relatively light to the balance of the year. So we still think we'll be cash flow positive this year probably in the tune of around $100 million, pretty consistent with last year. We do have the expectations of still spending between $900 million and $1.2 billion on land and land development throughout the year. Balance sheet-wise, again, we're kind of at a low point from a net debt to cap I think since we put the company together at 36.9. We still see operating in a debt-to-cap in the low to mid 40s throughout the year, kind of peaking in the third quarter and then falling off again at year end.

Okay, thanks guys. Good luck.

Thanks, Alan.

Our next question comes from the line of Stephen East with Wells Fargo. Please proceed with your question.

Thank you, and good morning guys. Maybe I'll just follow on Alan's gross margin. Strong gross margin this quarter, your full guide moves up a little bit but it's still below. I guess is that -- what's the driver of that? Is that mix shift in California will ease off or was it, Doug, what you were talking about, the inflation in materials that are continuing to accelerate? And then if you could just talk a little bit about how you all buy your lumber and how you lock that in versus how you all are pricing the house?

Yes, Stephen, this is Mike. On the margins, yes, margins do fall off a little bit throughout the year as we mentioned what our full-year guide is compared to what we delivered in 1Q. 1Q was relatively high, as we guided to, because of the mix of deliveries in California. And then even so a large percentage of those were coming from our long-term California assets for the quarter. So it's pretty much all mix driven. We raised the bottom end because of the fact that all of our brands saw some margin accretion throughout the quarter. And we've been able to see some pretty good price movement that is offsetting our cost increases at some of our projects. And then another reason, probably margins were anticipated to fall off a little bit. We have a significant amount of deliveries still coming from communities that are not yet open for the balance of the year. We only open 10 communities in the first quarter. We said we're going to open around 65 for the full-year. So most of those are happening in the back half of the year, and that's why we didn't raise our overall delivery guidance still.

Yes, got you.

Hey, Stephen, this is Tom. On the lumber topic, obviously it is a hot topic out there. And we have seen a lot of activity and movement, and it is a significant cost for us. As we look at lumber we try to be smart about it. And each one of our brands is doing it a little bit differently [technical difficulty] all the brands. Some are buying direct, and some are buying turnkey through our framing contractors. But one thing we do have the ability to do is typically get about a 90-day lock. And so right now we're again buying smartly and locking for those 90 days when we have the ability to see a little movement in the lumber price.

Okay.

Stephen, I would add. This is Doug. I mean, we saw lumber kind of peak, Tom, in the first quarter. It settled out a little bit after the end of the quarter for the first couple of weeks. But I think it was a -- it could be a false settlement. We obviously are locked in to Q2 because we, as Tom mentioned, lock in our contracts for 90 days. But I think it's going to continue to be a challenging environment on the cost side. And I think all builders will be working very hard to keep pricing ahead of their cost environment. It's just that's the nature of the beast right now.

Okay, all right. And then the other question I had revolved around orders. One, on your closeouts and your openings, any significant mix shift toward or away from California. And then are you seeing any change in buyer behavior with options, square footage, et cetera, as they go through the order process?

Yes, Stephen, this is Tom again. Nothing of a significant shift relative to mix, we are excited about several new community openings coming in California, and specifically at Pacific Highlands Ranch down in San Diego. We have the remaining western planning areas that are some of the premium lots. And later this year we'll be opening five different products there. So that is one to highlight and note.

Yes, and Stephen, just to follow-up on that, just on the mix. We opened five in California. We actually closed six in California. So that's [indiscernible] a lot of the higher margins are coming from.

Yes, got you. And buyer behavior?

Yes, it's very consistent. I guess we're operating in really high demand low supply markets and so our buyers out there are motivated, and we see good engagement in really all our markets and all our product offerings.

All right, thank you all.

Thanks, Stephen.

Our next question comes from the line of Stephen Kim with Evercore ISI. Please proceed with your question.

Hi, good morning. This is actually Chris on for Steve. Thanks for taking my questions. So you're guiding for another big jump in closing ASPs in Q2 '18. Can you speak to what's driving that increase? And also, with your backlog ASP up to $644,000 during the course I think you previously mentioned you're moving away from specs. So what's preventing you from lifting the full-year closing ASP guide?

Yes, this is Mike. On the ASP guide, so it's primarily mixed -- for the increase. I mean, if you look at last year, last year from 1Q to 4Q we went from the low ASP to a high ASP. This year, we're kind of going from a high ASP to a lower ASP when you go through the quarters from 1Q to 4Q. So the comp specs are going to look kind of funny in the first couple of quarters. And you right on the spec, which is one of the reasons why our backlog conversion is maybe not going up in the second quarter, we talked about that. When you look at -- I'll explain maybe backlog conversions a little bit. When you look at the orders, on page 28, it was like lightning struck in March. We got this surge of orders in March, and our absorption pace when up to 4.4. We had probably about 150 more sales than we anticipated, so we're having to bring down our backlog conversion [technical difficulty]. Related to the spec, last year going into the second quarter we had 350 completed specs and this year we only have 201. So you're right, we are going away from completed specs, and we're seeing better revenue in our dirt starts and better margins in our dirt starts moving forward.

All right, excellent. And then, so, yesterday one of your competitors discussed long-term opportunities in offsite construction. Is this something that you have been exploring even though you're continuing to build a higher price point?

I'm sorry, I didn't hear. This is Doug…

Yes, so a competitor discussed technology-backed offsite construction opportunities yesterday, and so this is something that we've sort of heard more about like companies such as Cantera [ph]. Are these -- like have you considered, I guess, employing more offsite construction or potentially partnering with any of these ventures?

Yes, Chris, this is Tom. It's certainly been a topic and we have had multiple discussions with a number of companies, and we're exploring that technology. And we certainly see that as a wave of the future. Right now we currently are not operating in that capacity. But we do again want to invest and improve our ability to do some offsite panelization in the future.

Excellent. Thank you very much.

Our next question comes from the like of Jay McCanless with Wedbush Securities. Please proceed with your question.

Hey, good morning guys. Thanks for taking my questions. The first one I had, the number you gave for April orders, I think you said 388 for the first three weeks. How does that compare to last year?

Well, last year, if you look at that chart -- again, Jay, it's Mike, we had 524 orders. This year we're averaging around 125 to 130 a week for the first three weeks. So if you throw that on top of that we'd be around that 500-510 number, which is pretty comparative to last year we were at 524.

Got it okay.

But, yes, we did pull forward a lot of orders -- I mean, when you look at March compared to the previous year, we're up 130 orders in the month alone in March. So some of that got pulled forward, so we feel good about being close to that comp in April, that was a very difficult comp step for us.

Absolutely. And just to kind of play off of that, can you talk about what drove the additional strength in March, and then play that into, as you go into the back-half of the year, the way we're modeling it looks like you guys are going to have a ramp in the community count which ought to give you a nice order pop as we move into '19. Is that the right way to think about it?

Well, our expectation is we hope to get order pops as we open new communities. And as I mentioned, I think in our guidance we're opening about 26 new communities in the first-half of the year. But we'd be opening close to 40 in the back-half of the year, so. And some of those are delivering units this year, so we hope to have a pretty good backlog going into '19.

As far as demand -- Jay, this is Doug -- it's really broad based, it's across all product segments, entry level, move-up, luxury and active adult. It's across all of our brands through the first three months of the year. Again, we're not -- the whole discussion about rates and the tax falls definitely are not having any effect on demand. I continue to focus on -- I call it Econ 101, I mean, there's just not as much supply as there is demand and there's enough constraints in the marketplace. The resale market is -- went reported yesterday at 3.6 I think months of supply. So most of our markets are very undersupplied. I think the data just came out that showed that consumer pricing plans despite higher rates are showing a cyclical high of about 6 months out. The consumers are continuing to focus on purchasing and you're seeing that obviously in the millennial all the way to the baby boomer. And so we're seeing it broad based and we don't want to jinx it, but we hope the second quarter continues to do well. It's one quarter under our belt but we got a lot of wood to chop.

Jay, the other thing just to note is our new product offerings continue to sparkle with the consumer. So we consistently get a higher order and absorption phase out of those new product offerings as we open new communities.

Thank you. And the last thing I wanted to ask about -- could you update us on how much I'll have left on your stock repurchase authorization? And with the shares trading basically just above tangible book why aren't you guys talking more about share repurchase opportunities?

Jay, it's Mike, as you mentioned our current authorization is a $100 million. We did not use any of that during the first quarter. We intend to use that from an opportunistic perspective, but right now we're not currently in the market.

Okay, great, thanks for taking my question.

Our next question comes from the line of Carl Reichardt with BTIG. Please proceed with your question.

Thanks. Good morning guys. I wanted to ask a little bit about Las Vegas, which as you noted has shown a lot of strength and can you just refresh my memory as to the land base there, if that was part of the RICO come-over and then how margins in general look relative to the long dated California asset?

Yes, Carl, this is Tom, good question. Vegas has not had a lot of legacy assets relative to the RICO transaction. So we continue to be able to source new land opportunities that consistently perform in our general underwriting guideline. And so we're really pleased with the personnel that we have in Vegas, the long-term relationship that they have in that market and their ability to source great land opportunities and as you know, they've grown their market share consistently over the last four years. So we really feel like we're hitting on all cylinders there.

Yes, I would add, Carl, like Tom said, there's no legacy land that came over. I would applaud that team in Las Vegas lead by Cliff Anders, they have really epitomized the culture and the strategy of our company of designing and innovating new product both at the entry level, move up. They are killing it with some new product and with that comes -- with good absorption, they're getting good pricing. We're pricing product at $1 million in Vegas all the way down to $300,000 to $400,000. So that falls right in line with our opportunistic nature of being in marketplaces in all four of those quadrants. So I applaud the team lead by Cliff. They continue to do well and it's a strong market. And as you know it's also a very land constrained market. But the relationships and the amount of time that our party brand has existed in Las Vegas gives us a big advantage and hence the reason for their success.

Thanks. And then I asked about Arizona as well. So that's a market where your lot position is relatively thin and store counts down. I'm curious as to the strategy to re-grow that business given the fact that it's a little bit of a drag on a relative growth basis, thanks.

Yes, good question. Andy and his team at Maracay are poised for growth. As you may remember they pulled in a lot of sales and orders from '18 into '17, which created a little bit of a timing difference and a reduction in their active communities. Their absorption pace though continues to be very strong. We're very bullish on Phoenix and more importantly their margins continue to increase as we told the investors at our November 2016 Investor Day that our goal was to get our margins up to 18%. As Mike mentioned, a number of our brands are rising to that challenge. But we have a lot of new communities opening in the second half and really into the first half of next year that are going to be very, very strong. We see a lot of growth out of Phoenix. It's really just timing differences. And with Andy's leadership there in that team, I'm not worried about the growth that's going to happen there, it's going to be great and they're executing at all levels. And they are also doing a wonderful job of designing product, developing new sites with great place making that create a sense of place for homebuyers that resonate. We see it in our absorption pace. We keep highlighting it. But there is a huge differentiator that all our teams are working on every day to make ourselves different than the competition and the results continue to pan out that way.

Just to add to that, Carl, this is Mike. I mean, we are kind of community challenged there at Maracay for the whole year just because -- even though we're opening, I believe, seven or eight new communities, we're closing out a corresponding amount of communities. So you won't see the growth in community count appear until probably '19.

All right. Thanks a lot guys.

Thank you.

[Operator Instructions] Our next question comes from the line of Jack Micenko from SIG. Please proceed with your question.

Good morning, guys. I wanted to ask a little bit about the SG&A ratio of the guide, it's still flat year-to-year. If you back into what ASPs are doing in the conversion rates, it looks like that may be a little conservative, although it does sound like you're opening some more communities in back-half. Mike, can you just talk about why that number maybe is staying flatter than it would maybe otherwise suggest?

Yes, you're referring to SG&A -- you cut out a little bit, Jack, on your question -- referring to the page of that…

Yes.

Yes, remember we talked last quarter about the implementation ASC 606, and as we open more communities, we're going to get a larger impact of expense associated with that, which would've been previously capitalized and amortized as the units closed. So that is what's primarily having the impact.

Okay. And then going back to something you had said in the prepared comments. You had talked about maybe the niche becoming less crowded. I'm curious, is that just in California or are you seeing that throughout the footprint, and then where are you seeing that, is it less buyers for land deals, it depend on density of neighboring communities, where are you seeing the tangible evidence of that -- that gave you the confidence to call that out of the fall?

-- :

All right. Thanks, appreciate the color.

Thank you, Jack.

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

Thank you. Question relating to those long-term California assets, as you are seeing the market continue to feel tighter and tighter as we think about the pace at which you can bring on a Skyline [indiscernible] et cetera, is that pace a function of process? Or, is it market condition? And if the market condition continue to look as good as they are, could we see some acceleration in how you go about monetizing the longer-term California asset?

Hey Mark. This is Tom. Good question certainly. While both market conditions and process come into play in making those decisions, I would say relative to our near-term, it's more process driven. And so, the timing of those assets coming to market are really with our ability to perfect the planning and design and land development to bring in the market. As you said and suggested, Skyline is right in the Wheelhouse. That land development is underway and models are to be started there soon. So, we are looking forward to that as we are positively moving through our Sundance community with the introduction of Altis and new 700 units age targeted active adult community, we will be beginning land development on Banning [Ph] as well. And as I said earlier, the big news is down that Pacific Highland Ranch for moving into our more Westerly planning areas and we are going to have five new product offerings coming later this year that will begin to see deliveries from next year.

Okay, great. And then, understanding that certainly the near term stuff it's going to be process dictated to large extent. I know in the pack you provided projection going out all the way to 2022 for a number of these projects. As we look at some of those out years, could those be more market impacted where we could say yes, for the further out years 2020-2021 et cetera some of that if market conditions are right could be accelerated or even in that timeframe is it more process?

Yes. I mean -- this is Doug, Mark. Definitely, it's good question and that could be case. We will look at those numbers at the end of the year. As Tom mentioned, we are opening skyline with some new models end of this year. Altis is opening out at Banning. So, when we get a better gauge on the market conditions in the second half of the year, we'll update some of the build out conditions of those long-term assets and demonstrate whether there has been improvement and timing changes, so we will go ahead and do that.

This is Mike. Just to follow-on to that, you are asking about '21 and '22, I mean that's really process oriented. There is no opportunity to pull forward units that we were expecting in '21 and '22 because the current market conditions are better from a hypothetical. Those are process-oriented land development projects.

Okay. Thanks very much.

Our next question comes from the line of Nishu Sood with Deutsche Bank. Please proceed with your question.

Thanks. Yes, so following up on the development of long-term assets, looking at the land and land development bucket on the balance sheet, you have been able to kind of continue with the plans of development of long-term assets without really moving that bucket too much or putting too much into it. How should we expect that to unfold in '18? And maybe looking into '19, will you be able to continue to bring those assets to market and drive closings out of them in a way without driving that bucket too high? Or, are we getting to the stage where they are going to need more capital and it might require putting little more on the balance sheet?

I don't see that -- this is Mike, Nishu. I don't see that changing significantly. I mean we try to phase most -- even though it's large infrastructure projects, we try to phase most of that so that we are not incurring lot of dollars upfront. And those assets, they are turning relatively well. So we just kind of -- it's just long continuation project, so I don't see a lot of movement on the balance sheet from that perspective.

Got it. Got it, okay. And also just thinking about California, Doug, I think you addressed this pretty well in the preamble. There obviously have been concerns about rising rates and tax reform. And with your folk's strong portfolio in California and obviously very good performance out of it, it's kind of a directly countered to the fears. I think there is still some fear out there though that maybe what we are seeing is a pull forward. So I was just wondering if you could address that. Are there anecdotes or data points out of your California operations that would either confirm or deny that we are seeing pull forward of activity due to the changes in rates and the tax environment?

That's a good question. Actually I will share a data point just recently came out relator.com actually studied 30 of the most affluent U.S. counties. Obviously, a lot of those are in California. And actually from their data -- and this is after this is the November-December, January–February timeframe obviously tax reform had been implemented. Everybody knew about the mortgage cap and the sole deduction. Homes at $750,000 and above increased double digits compared to homes below $750,000. So, there is a data point for you when you look at the higher price of housing on east and west coast. And frankly, Nishu, it's really it's all good in a way to talk about rates and tax cut. But, the fundamentals of the business or what drives housing and there is a just scarcity of supply and more demand. Google is just recently got approved and expanding their campus -- not their campus Mount View. They are actually expanding Mount View, but they are also expanding I think it's 20 - 25,000 jobs in San Jose. And frankly, Northern California has a housing crisis. It's a very acute housing crisis. So, no matter how you cut it, you still got to get down to ECON 101 and there is greater demand than supply even at those price points. And you look at the median income level of the prospective buyers in the Bay area is strong and along the coastal part of California. I mean in San Diego [technical difficulty] led the company in the first quarter with absorption and pace. So, it continues to [technical difficulty] the lack or scarcity of supply.

Got it. Thank you.

There are no further questions in the queue. I would like to hand the call back to over to Doug Bauer for closing comments.

Well, thank you everybody for joining us on this first quarter. We are very encouraged by our start. And we look forward to talking with all of you after June. So, have a great week and a great day. Thank you.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.