Tri Pointe Homes, Inc. - Quarter Report: 2023 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________________________________________________________________________

FORM 10-Q

_____________________________________________________________________________________________

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 1-35796

_____________________________________________________________________________________________

Tri Pointe Homes, Inc.

(Exact Name of Registrant as Specified in Its Charter)

_____________________________________________________________________________________________


Delaware						61-1763235
(State or other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification No.)

_____________________________________________________________________________________________

940 Southwood Blvd, Suite 200

Incline Village, Nevada 89451

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code (775) 413-1030

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

____________________________________________________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

TPH

New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

97,052,155 shares of the registrant's common stock were issued and outstanding as of October 17, 2023.

EXPLANATORY NOTE

As used in this quarterly report on Form 10-Q, references to “Tri Pointe”, “the Company”, “we”, “us”, or “our” (including in the consolidated financial statements and related notes thereto in this annual report on Form 10-Q) refer to Tri Pointe Homes, Inc., a Delaware corporation, and its consolidated subsidiaries.

TRI POINTE HOMES, INC.

QUARTERLY REPORT ON FORM 10-Q

INDEX

September 30, 2023


		Page Number
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	Consolidated Balance Sheets as of September 30, 2023 (unaudited) and December 31, 2022	3

	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited)	4

	Consolidated Statements of Equity for the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited)	5

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022 (unaudited)	7

	Notes to Consolidated Financial Statements (unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40

Item 4.	Controls and Procedures	40

Part II. OTHER INFORMATION

Item 1.	Legal Proceedings	42

Item 1A.	Risk Factors	42

Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	42

Item 5.	Other Information	42

Item 6.	Exhibits	43

SIGNATURES		44

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

TRI POINTE HOMES, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)


	September 30, 2023		December 31, 2022
	(unaudited)
Assets
Cash and cash equivalents	$	849,039	$	889,664
Receivables	119,406		169,449
Real estate inventories	3,412,797		3,173,849
Investments in unconsolidated entities	139,384		129,837
Goodwill and other intangible assets, net	156,603		156,603
Deferred tax assets, net	34,850		34,851
Other assets	158,152		165,687
Total assets	$	4,870,231	$	4,719,940
Liabilities
Accounts payable	$	55,231	$	62,324
Accrued expenses and other liabilities	509,189		443,034
Loans payable	288,337		287,427
Senior notes, net	1,093,321		1,090,624
Total liabilities	1,946,078		1,883,409

Commitments and contingencies (Note 13)

Equity
Stockholders’ equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized; no shares issued and outstanding as September 30, 2023 and December 31, 2022, respectively	—		—
Common stock, $0.01 par value, 500,000,000 shares authorized; 97,341,774 and 101,017,708 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively	973		1,010
Additional paid-in capital	—		3,685
Retained earnings	2,922,424		2,827,694
Total stockholders’ equity	2,923,397		2,832,389
Noncontrolling interests	756		4,142
Total equity	2,924,153		2,836,531
Total liabilities and equity	$	4,870,231	$	4,719,940

See accompanying condensed notes to the unaudited consolidated financial statements.

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TRI POINTE HOMES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except share and per share amounts)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Homebuilding:
Home sales revenue	$	825,295	$	1,057,491	$	2,412,777	$	2,787,386
Land and lot sales revenue	1,714		2,626		10,506		4,337
Other operations revenue	749		674		2,219		2,021
Total revenues	827,758		1,060,791		2,425,502		2,793,744
Cost of home sales	641,074		771,148		1,881,191		2,033,160
Cost of land and lot sales	1,474		1,256		10,287		2,075
Other operations expense	724		670		2,171		2,020
Sales and marketing	42,874		41,950		127,977		112,712
General and administrative	58,359		54,786		158,949		160,071

Homebuilding income from operations	83,253		190,981		244,927		483,706
Equity in income (loss) of unconsolidated entities	3		(122)		272		(34)
Other income, net	11,664		463		30,361		852
Homebuilding income before income taxes	94,920		191,322		275,560		484,524
Financial Services:
Revenues	10,758		11,005		30,004		31,985
Expenses	6,127		5,827		19,363		17,457
Equity in income of unconsolidated entities	—		—		—		46
Financial services income before income taxes	4,631		5,178		10,641		14,574
Income before income taxes	99,551		196,500		286,201		499,098
Provision for income taxes	(22,942)		(45,923)		(71,764)		(122,084)
Net income	76,609		150,577		214,437		377,014
Net income attributable to noncontrolling interests	(1,207)		(1,351)		(3,569)		(3,927)
Net income available to common stockholders	$	75,402	$	149,226	$	210,868	$	373,087
Earnings per share
Basic	$	0.77	$	1.47	$	2.12	$	3.60
Diluted	$	0.76	$	1.45	$	2.10	$	3.57
Weighted average shares outstanding
Basic	98,018,498		101,242,708		99,534,570		103,555,717
Diluted	99,030,210		102,661,222		100,458,357		104,526,594

See accompanying condensed notes to the unaudited consolidated financial statements.

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TRI POINTE HOMES, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(unaudited)

(in thousands, except share amounts)


	Number of Shares of Common Stock (Note 1)	Common Stock		Additional Paid-in Capital		Retained Earnings		Total Stockholders’ Equity		Noncontrolling Interests		Total Equity
Balance at June 30, 2023	99,094,458	$	991	$	—	$	2,895,120	$	2,896,111	$	709	$	2,896,820
Net income		—		—		75,402		75,402		1,207		76,609
Shares issued under share-based awards	361	—		—		—		—		—		—
Tax withholding paid on behalf of employees for share-based awards	—	—		(6)		—		(6)		—		(6)
Stock-based compensation expense	—	—		6,989		—		6,989		—		6,989
Share repurchases, including excise tax	(1,753,045)	(18)		(55,081)		—		(55,099)		—		(55,099)
Distributions to noncontrolling interests, net	—	—		—		—		—		(1,160)		(1,160)

Reclass the negative APIC to retained earnings	—	—		48,098		(48,098)		—		—		—
Balance at September 30, 2023	97,341,774	$	973	$	—	$	2,922,424	$	2,923,397	$	756	$	2,924,153

	Number of Shares of Common Stock (Note 1)	Common Stock		Additional Paid-in Capital		Retained Earnings		Total Stockholders' Equity		Noncontrolling Interests		Total Equity
Balance at December 31, 2022	101,017,708	$	1,010	$	3,685	$	2,827,694	$	2,832,389	$	4,142	$	2,836,531
Net income	—	—		—		210,868		210,868		3,569		214,437
Shares issued under share-based awards	789,164	8		510		—		518		—		518
Tax withholding paid on behalf of employees for share-based awards	—	—		(9,802)		—		(9,802)		—		(9,802)
Stock-based compensation expense	—	—		15,012		—		15,012		—		15,012
Share repurchases, including excise tax	(4,465,098)	(45)		(125,543)		—		(125,588)		—		(125,588)
Distributions to noncontrolling interests, net	—	—		—		—		—		(6,955)		(6,955)

Reclass the negative APIC to retained earnings	—	—		116,138		(116,138)		—		—		—
Balance at September 30, 2023	97,341,774	$	973	$	—	$	2,922,424	$	2,923,397	$	756	$	2,924,153

	Number of Shares of Common Stock (Note 1)	Common Stock		Additional Paid-in Capital		Retained Earnings		Total Stockholders' Equity		Noncontrolling Interests		Total Equity
Balance at June 30, 2022	101,860,993	$	1,019	$	—	$	2,486,547	$	2,487,566	$	1,053	$	2,488,619
Net income	—	—		—		149,226		149,226		1,351		150,577
Shares issued under share-based awards	1,876	—		—		—		—		—		—
Tax withholding paid on behalf of employees for share-based awards	—	—		(18)		—		(18)		—		(18)
Stock-based compensation expense	—	—		5,717		—		5,717		—		5,717
Share repurchases	(948,911)	(10)		(16,751)		—		(16,761)		—		(16,761)
Distributions to noncontrolling interests, net	—	—		—		—		—		(684)		(684)
Reclass the negative APIC to retained earnings	—	—		11,052		(11,052)		—		—		—
Balance at September 30, 2022	100,913,958	$	1,009	$	—	$	2,624,721	$	2,625,730	$	1,720	$	2,627,450

	Number of Shares of Common Stock (Note 1)	Common Stock		Additional Paid-in Capital		Retained Earnings		Total Stockholders' Equity		Noncontrolling Interests		Total Equity
Balance at December 31, 2021	109,644,474	$	1,096	$	91,077	$	2,355,448	$	2,447,621	$	12	$	2,447,633

Net income	—	—		—		373,087		373,087		3,927		377,014
Shares issued under share-based awards	665,865	7		23		—		30		—		30

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Tax withholding paid on behalf of employees for share-based awards	—	—		(9,110)		—		(9,110)		—		(9,110)
Stock-based compensation expense		—		16,740				16,740				16,740
Share repurchases	(9,396,381)	(94)		(202,544)		—		(202,638)		—		(202,638)
Distributions to noncontrolling interests, net	—	—		—		—		—		(2,464)		(2,464)
Net effect of consolidations of VIE's	—	—		—		—		—		245		245
Reclass the negative APIC to retained earnings	—	—		103,814		(103,814)		—		—		—
Balance at September 30, 2022	100,913,958	$	1,009	$	—	$	2,624,721	$	2,625,730	$	1,720	$	2,627,450

See accompanying condensed notes to the unaudited consolidated financial statements.

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TRI POINTE HOMES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)


	Nine Months Ended September 30,
	2023		2022
Cash flows from operating activities:
Net income	$	214,437	$	377,014
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	20,066		18,641
Equity in income of unconsolidated entities, net	(272)		(12)
Deferred income taxes, net	1		1
Amortization of stock-based compensation	15,012		16,740
Charges for impairments and lot option abandonments	12,675		5,174
Returns on investments in unconsolidated entities, net	—		2,253
Changes in assets and liabilities:
Real estate inventories	(247,846)		(555,262)
Receivables	50,043		(52,500)
Other assets	1		(9,881)
Accounts payable	(7,093)		(20,745)
Accrued expenses and other liabilities	67,773		37,019

Net cash provided by (used in) operating activities	124,797		(181,558)
Cash flows from investing activities:
Purchases of property and equipment	(19,136)		(37,743)

Net investments in unconsolidated entities	(6,434)		(17,001)

Net cash used in investing activities	(25,570)		(54,744)
Cash flows from financing activities:
Borrowings from debt	910		75,000
Repayment of debt	—		(75,504)
Debt issuance costs	—		(2,403)

Distributions to noncontrolling interests	(6,955)		(2,464)
Proceeds from issuance of common stock under share-based awards	518		30
Tax withholding paid on behalf of employees for share-based awards	(9,802)		(9,110)
Share repurchases, excluding excise tax	(124,523)		(202,638)
Net cash used in financing activities	(139,852)		(217,089)
Net decrease in cash and cash equivalents	(40,625)		(453,391)
Cash and cash equivalents–beginning of period	889,664		681,528
Cash and cash equivalents–end of period	$	849,039	$	228,137

See accompanying condensed notes to the unaudited consolidated financial statements.

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TRI POINTE HOMES, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Organization, Basis of Presentation and Summary of Significant Accounting Policies

Organization

Tri Pointe is engaged in the design, construction and sale of innovative single-family attached and detached homes across ten states, including Arizona, California, Colorado, Maryland, Nevada, North Carolina, South Carolina, Texas, Virginia, and Washington, and the District of Columbia.

Basis of Presentation

The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They should be read in conjunction with our consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022. In the opinion of management, all adjustments consisting of normal recurring adjustments, necessary for a fair presentation with respect to interim financial statements, have been included. The results for the nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the full year ending December 31, 2023 due to seasonal variations and other factors.

The consolidated financial statements include the accounts of Tri Pointe Homes and its wholly owned subsidiaries, as well as other entities in which Tri Pointe Homes has a controlling interest and variable interest entities (“VIEs”) in which Tri Pointe Homes is the primary beneficiary. The noncontrolling interests as of September 30, 2023 and December 31, 2022 represent the outside owners’ interests in the Company’s consolidated entities. All significant intercompany accounts have been eliminated upon consolidation.

Unless the context otherwise requires, the terms “Tri Pointe”, “the Company”, “we”, “us”, and “our” used herein refer to Tri Pointe Homes, Inc., a Delaware corporation, and its consolidated subsidiaries.

Use of Estimates

The preparation of these financial statements requires our management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from our estimates.

Cash and Cash Equivalents and Concentration of Credit Risk

We define cash and cash equivalents as cash on hand, demand deposits with financial institutions, and short-term liquid investments with a maturity date of less than three months from the date of acquisition, including U.S. Treasury bills and government money-mark funds with maturities of 90 days or less when purchased. The Company’s cash balances exceed federally insurable limits. The Company monitors the cash balances in its operating accounts and adjusts the cash balances as appropriate; however, these cash balances could be impacted if the underlying financial institutions fail or are subject to other adverse conditions in the financial markets. To date, the Company has experienced no loss or lack of access to cash in its operating accounts.

Revenue Recognition

We recognize revenue in accordance with Accounting Standards Topic 606 (“ASC 606”), Revenue from Contracts with Customers. Under ASC 606, we apply the following steps to determine the timing and amount of revenue to recognize: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation.

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Home sales revenue

We generate the majority of our total revenues from home sales, which consists of our core business operation of building and delivering completed homes to homebuyers. Home sales revenue and related profit is generally recognized when title to and possession of the home are transferred to the homebuyer at the home closing date. Our performance obligation to deliver the agreed-upon home is generally satisfied in less than one year from the original contract date. Included in home sales revenue are forfeited deposits, which occur when homebuyers cancel home purchase contracts that include a nonrefundable deposit. Both revenue from forfeited deposits and deferred revenue resulting from uncompleted performance obligations existing at the time we deliver new homes to our homebuyers are immaterial.

Land and lot sales revenue

Historically, we have generated land and lot sales revenue from a small number of transactions, although in some periods we have realized a significant amount of revenue and gross margin. We do not expect our future land and lot sales revenue to be material, but we still consider these sales to be an ordinary part of our business, thus meeting the definition of contracts with customers. Similar to our home sales, revenue from land and lot sales is typically fully recognized when the land and lot sales transactions are consummated, at which time no further performance obligations are left to be satisfied. Some of our historical land and lot sales have included future profit participation rights. We will recognize future land and lot sales revenue in the periods in which all closing conditions are met, subject to the constraint on variable consideration related to profit participation rights, if such rights exist in the sales contract.

Other operations revenue

The majority of our homebuilding other operations revenue relates to a ground lease included in our West segment. We are responsible for making lease payments to the landowner, and we collect sublease payments from the owners of the buildings. This ground lease is accounted for in accordance with Accounting Standards Topic 842 (“ASC 842”), Leases. We do not recognize a material profit on this ground lease.

Financial services revenues

Tri Pointe Solutions is a reportable segment and is comprised of our Tri Pointe Connect mortgage financing operations, Tri Pointe Assurance title and escrow services operations, and Tri Pointe Advantage property and casualty insurance agency operations.

Mortgage financing operations

Tri Pointe Connect was formed as a joint venture with an established mortgage lender. The joint venture acts as a preferred mortgage loan broker to our homebuyers in all of the markets in which we operate, generating income from fees paid by third party lenders for the successful funding and closing of loans for homebuyers that originate through Tri Pointe Connect. Due to our ability to direct the activities of the joint venture that most significantly affect the entity’s economic performance, Tri Pointe Connect is fully consolidated under the Financial Services section of our consolidated statements of operations, with the noncontrolling interest recorded on the consolidated statements of operations as net income attributable to noncontrolling interests.

Title and escrow services operations

Tri Pointe Assurance provides title examinations for our homebuyers in the Carolinas and Colorado and both title examinations and escrow services for our homebuyers in Arizona, the District of Columbia, Maryland, Nevada, Texas, Washington and Virginia. Tri Pointe Assurance is a wholly owned subsidiary of Tri Pointe and acts as a title agency for First American Title Insurance Company. Revenue from our title and escrow services operations is fully recognized at the time of the consummation of the home sales transaction, at which time no further performance obligations are left to be satisfied. Tri Pointe Assurance revenue is included in the Financial Services section of our consolidated statements of operations.

Property and casualty insurance agency operations

Tri Pointe Advantage is a wholly owned subsidiary of Tri Pointe and provides property and casualty insurance agency services that help facilitate the closing process in all of the markets in which we operate. The total consideration for these services, including renewal options, is estimated upon the issuance of the initial insurance policy, subject to constraint. Tri Pointe Advantage revenue is included in the Financial Services section of our consolidated statements of operations.

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Recently Issued Accounting Standards Not Yet Adopted

No recent accounting pronouncements or changes in accounting pronouncements have been issued or adopted since those discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 that are of material significance, or have potential material significance, to the Company.

2. Segment Information

We operate two principal businesses: homebuilding and financial services.

In accordance with ASC Topic 280, Segment Reporting, in determining the most appropriate reportable segments within our homebuilding business, we have considered similar economic and other characteristics, including product types, average sales prices, gross profits, production processes, suppliers, subcontractors, regulatory environments, land acquisition results, and underlying demand and supply. Based upon these factors and in consideration of the geographical layout of our homebuilding markets, we have identified three homebuilding reporting segments and, as such, our homebuilding segments are reported under the following hierarchy:

West region: Arizona, California, Nevada and Washington

Central region: Colorado and Texas

East region: District of Columbia, Maryland, North Carolina, South Carolina and Virginia

Our Tri Pointe Solutions financial services operation is a reportable segment and is comprised of our Tri Pointe Connect mortgage financing operations, our Tri Pointe Assurance title and escrow services operations, and our Tri Pointe Advantage property and casualty insurance agency operations. For further details, see Note 1, Organization, Basis of Presentation and Summary of Significant Accounting Policies.

Corporate is a non-operating segment that develops and implements company-wide strategic initiatives and provides support to our homebuilding reporting segments by centralizing certain administrative functions, such as marketing, legal, accounting, treasury, insurance, internal audit, risk management, information technology and human resources, to benefit from economies of scale. Our Corporate non-operating segment also includes general and administrative expenses related to operating our corporate headquarters. All of the expenses incurred by Corporate are allocated to each of the homebuilding reporting segments based on their respective percentage of revenues.

The reportable segments follow the same accounting policies used for our consolidated financial statements, as described in Note 1, Organization, Basis of Presentation and Summary of Significant Accounting Policies. Operational results of each reportable segment are not necessarily indicative of the results that would have been achieved had the reportable segment been an independent, stand-alone entity during the periods presented.

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Total revenues and income before income taxes for each of our reportable segments were as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenues
West	$	544,168	$	751,218	$	1,550,905	$	1,952,406
Central	165,322		206,861		529,952		558,360
East	118,268		102,712		344,645		282,978
Total homebuilding revenues	827,758		1,060,791		2,425,502		2,793,744
Financial services	10,758		11,005		30,004		31,985
Total	$	838,516	$	1,071,796	$	2,455,506	$	2,825,729

Income before income taxes
West	$	60,965	$	150,030	$	186,372	$	380,191
Central	19,075		32,109		50,917		78,956
East	14,880		9,183		38,271		25,377
Total homebuilding income before income taxes	94,920		191,322		275,560		484,524
Financial services	4,631		5,178		10,641		14,574
Total	$	99,551	$	196,500	$	286,201	$	499,098

Total real estate inventories and total assets for each of our reportable segments, as of the date indicated, were as follows (in thousands):


	September 30, 2023		December 31, 2022
Real estate inventories
West	$	2,340,537	$	2,258,606
Central	706,218		598,700
East	366,042		316,543
Total	$	3,412,797	$	3,173,849

Total assets(1)
West	$	2,618,605	$	2,552,121
Central	875,489		761,082
East	420,530		376,129
Corporate	916,611		978,748
Total homebuilding assets	4,831,235		4,668,080
Financial services	38,996		51,860
Total	$	4,870,231	$	4,719,940

__________

(1) Total assets as of September 30, 2023 and December 31, 2022 includes $139.3 million of goodwill, with $125.4 million included in the West segment, $8.3 million included in the Central segment and $5.6 million included in the East segment. Total Corporate assets as of September 30, 2023 and December 31, 2022 includes our Tri Pointe Homes trade name. For further details on goodwill and our intangible assets, see Note 8, Goodwill and Other Intangible Assets.

3. Earnings Per Share

The following table sets forth the components used in the computation of basic and diluted earnings per share (in thousands, except share and per share amounts):

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	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Numerator:
Net income available to common stockholders	$	75,402	$	149,226	$	210,868	$	373,087
Denominator:
Basic weighted-average shares outstanding	98,018,498		101,242,708		99,534,570		103,555,717
Effect of dilutive shares:
Stock options and unvested restricted stock units	1,011,712		1,418,514		923,787		970,877
Diluted weighted-average shares outstanding	99,030,210		102,661,222		100,458,357		104,526,594
Earnings per share
Basic	$	0.77	$	1.47	$	2.12	$	3.60
Diluted	$	0.76	$	1.45	$	2.10	$	3.57
Antidilutive stock options and unvested restricted stock units not included in diluted earnings per share	2,605,025		1,562,094		2,692,950		1,819,016

4. Receivables

Receivables consisted of the following (in thousands):


	September 30, 2023		December 31, 2022
Escrow proceeds and other accounts receivable, net	$	67,667	$	113,082
Warranty insurance receivable (Note 13)	51,739		56,367
Total receivables	$	119,406	$	169,449

Receivables are evaluated for collectability and allowances for potential losses are established or maintained on applicable receivables based on an expected credit loss approach. Receivables were net of allowances for doubtful accounts of $472,000 as of both September 30, 2023 and December 31, 2022.

5. Real Estate Inventories

Real estate inventories consisted of the following (in thousands):


	September 30, 2023		December 31, 2022
Real estate inventories owned:
Homes completed or under construction	$	1,522,232	$	1,293,681
Land under development	1,275,024		1,279,394
Land held for future development	152,570		140,725
Model homes	285,759		231,157
Total real estate inventories owned	3,235,585		2,944,957
Real estate inventories not owned:
Land purchase and land option deposits	177,212		228,892

Total real estate inventories not owned	177,212		228,892
Total real estate inventories	$	3,412,797	$	3,173,849

Homes completed or under construction is comprised of costs associated with homes in various stages of construction and includes direct construction and related land acquisition and land development costs. Land under development primarily consists of land acquisition and land development costs, which include capitalized interest and real estate taxes, associated with land undergoing improvement activity. Land held for future development principally reflects land acquisition and land development costs related to land where development activity has not yet begun or has been suspended, but is expected to occur in the future. The increase in land held for future development as of September 30, 2023 compared to December 31, 2022 is attributable to one project located in our West reporting segment that was transferred from land under development.

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Real estate inventories not owned represents deposits related to land purchase and land and lot option agreements. For further details, see Note 7, Variable Interest Entities.

Interest incurred, capitalized and expensed were as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Interest incurred	$	36,919	$	31,893	$	111,792	$	89,235
Interest capitalized	(36,919)		(31,893)		(111,792)		(89,235)
Interest expensed	$	—	$	—	$	—	$	—
Capitalized interest in beginning inventory	$	220,352	$	188,877	$	191,411	$	173,563
Interest capitalized as a cost of inventory	36,919		31,893		111,792		89,235
Interest previously capitalized as a cost of inventory, included in cost of sales	(27,264)		(26,611)		(73,196)		(68,639)
Capitalized interest in ending inventory	$	230,007	$	194,159	$	230,007	$	194,159

Interest is capitalized to real estate inventory during development and other qualifying activities. During all periods presented, we capitalized all interest incurred to real estate inventory in accordance with ASC Topic 835, Interest, as our qualified assets exceeded our debt. Interest that is capitalized to real estate inventory is included in cost of home sales or cost of land and lot sales as related units or lots are delivered. Interest that is expensed as incurred is included in other (expense) income, net.

Real Estate Inventory Impairments and Land Option Abandonments

Real estate inventory impairments and land and lot option abandonments and pre-acquisition charges consisted of the following (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Real estate inventory impairments	$	—	$	—	$	11,500	$	—
Land and lot option abandonments and pre-acquisition charges	197		3,277		1,175		5,174
Total	$	197	$	3,277	$	12,675	$	5,174

Impairments of real estate inventory relate primarily to projects or communities that include homes completed or under construction. During the nine months ended September 30, 2023, we recorded a real estate inventory impairment charge of $11.5 million related to one active community in the West reporting segment where the carrying value of the community exceeded the fair value based on a discounted cash flows analysis. The impairment charge occurred in our second quarter reporting period, and the discount rate used to calculate fair value was 10%. We considered both market risk and community-specific risk to arrive at a discount rate appropriate for the level of total risk associated with this community.

In addition to owning land and residential lots, we also have option agreements to purchase land and lots at a future date. We have option deposits and capitalized pre-acquisition costs associated with the optioned land and lots. When the economics of a project no longer support acquisition of the land or lots under option, we may elect not to move forward with the acquisition. Option deposits and capitalized pre-acquisition costs associated with the assets under option may be forfeited at that time.

Real estate inventory impairments and land option abandonments are recorded in cost of home sales in the consolidated statements of operations.

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6. Investments in Unconsolidated Entities

As of September 30, 2023, we held equity investments in thirteen active homebuilding partnerships or limited liability companies. Our participation in these entities may be as a developer, a builder, or an investment partner. Our ownership percentage varies from 8% to 50%, depending on the investment, with no controlling interest held in any of these investments.

Aggregated assets, liabilities and equity of the entities we account for as equity-method investments are as follows (in thousands):


	September 30, 2023		December 31, 2022
Assets
Cash	$	41,910	$	34,556
Receivables	39,846		30,893
Real estate inventories	457,961		458,121
Other assets	20,395		7,751
Total assets	$	560,112	$	531,321
Liabilities and equity
Debt obligations and other liabilities	$	147,098	$	149,172
Company’s equity	139,384		129,837
Outside interests’ equity	273,630		252,312
Total liabilities and equity	$	560,112	$	531,321

Guarantees

The unconsolidated entities in which we hold an equity investment generally finance their activities with a combination of equity and secured project debt financing. We have, and in some cases our joint venture partner has, guaranteed portions of the loan obligations for some of the homebuilding partnerships or limited liability companies, which may include any or all of the following: (i) project completion; (ii) remargin obligations; and (iii) environmental indemnities.

In circumstances in which we have entered into joint and several guarantees with our joint venture partner, we generally seek to implement a reimbursement agreement with our partner that provides that neither party is responsible for more than its proportionate share or agreed-upon share of the guaranteed obligations. In the event our joint venture partner does not have adequate financial resources to meet its obligations under such a reimbursement agreement, or otherwise fails to satisfy its obligations thereunder, we may be responsible for more than our proportionate share of any obligations under such guarantees.

As of September 30, 2023 and December 31, 2022, we have not recorded any liabilities for these obligations and guarantees, as the fair value of the related joint venture real estate assets exceeded the threshold where a remargin payment would be required and no other obligations under the guarantees existed as of such time. At September 30, 2023 and December 31, 2022, aggregate outstanding debt for unconsolidated entities, included in the “Debt obligations and other liabilities” line of the aggregated assets, liabilities and equity shown in the table above, was $122.1 million and $138.8 million, respectively.

Aggregated results of operations from unconsolidated entities (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net sales	$	17,588	$	8,111	$	77,483	$	30,833
Other operating expense	(17,422)		(8,410)		(76,361)		(31,189)
Other income, net	100		—		94		94
Net income (loss)	$	266	$	(299)	$	1,216	$	(262)
Company’s equity in income (loss) of unconsolidated entities	$	3	$	(122)	$	272	$	12

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7. Variable Interest Entities

Land and Lot Option Agreements

In the ordinary course of business, we enter into land and lot option agreements in order to procure land and residential lots for future development and the construction of homes. The use of such land and lot option agreements generally allows us to reduce the risks associated with direct land ownership and development, and reduces our capital and financial commitments. Pursuant to these land and lot option agreements, we generally provide a deposit to the seller as consideration for the right to purchase land at different times in the future, usually at predetermined prices. These deposits are recorded as land purchase and land option deposits under real estate inventories not owned on the accompanying consolidated balance sheets.

We analyze each of our land and lot option agreements and other similar contracts under the provisions of Accounting Standards Topic 810 (“ASC 810”), Consolidation to determine whether the land seller is a VIE and, if so, whether we are the primary beneficiary. Although we do not have legal title to the underlying land, if we are determined to be the primary beneficiary of the VIE, we will consolidate the VIE in our financial statements and reflect its assets as real estate inventory not owned included in our real estate inventories, its liabilities as debt (nonrecourse) held by VIEs in accrued expenses and other liabilities and the net equity of the VIE owners as noncontrolling interests on our consolidated balance sheets. In determining whether we are the primary beneficiary, we consider, among other things, whether we have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. Such activities would include, among other things, determining or limiting the scope or purpose of the VIE, selling or transferring property owned or controlled by the VIE, or arranging financing for the VIE.

Creditors of the entities with which we have land and lot option agreements have no recourse against us. The maximum exposure to loss under our land and lot option agreements is generally limited to non-refundable option deposits and any capitalized pre-acquisition costs. In some cases, we have also contracted to complete development work at a fixed cost on behalf of the landowner and budget shortfalls and savings will be borne by us. Additionally, we have entered into land banking arrangements which require us to complete development work even if we terminate the option to procure land or lots.

The following provides a summary of our interests in land and lot option agreements (in thousands):


	September 30, 2023						December 31, 2022
	Deposits		Remaining Purchase Price		Consolidated Inventory Held by VIEs		Deposits		Remaining Purchase Price		Consolidated Inventory Held by VIEs

Unconsolidated VIEs	$	162,989	$	983,823	N/A		$	207,846	$	1,129,369	N/A
Other land option agreements	14,223		173,395		N/A		21,046		210,964		N/A
Total	$	177,212	$	1,157,218	$	—	$	228,892	$	1,340,333	$	—

Unconsolidated VIEs represent land option agreements that were not consolidated because we were not the primary beneficiary. Other land option agreements were not with VIEs.

In addition to the deposits presented in the table above, our exposure to loss related to our land and lot option contracts consisted of capitalized pre-acquisition costs of $11.4 million and $13.8 million as of September 30, 2023 and December 31, 2022, respectively. These pre-acquisition costs are included in real estate inventories as land under development on our consolidated balance sheets.

Tri Pointe Connect Joint Venture

During the first quarter of 2022, a reconsideration event under ASC 810 occurred for our Tri Pointe Connect joint venture that gave us the ability to direct the activities of the joint venture that most significantly affect the entity’s economic performance. Based on our reassessment, we concluded that the mortgage financing joint venture is a VIE and we are the primary beneficiary based on our controlling financial interest. As a result, beginning in January 2022, the joint venture is accounted for as a consolidated VIE. As of January 1, 2022, the accompanying consolidated balance sheets include the assets, liabilities and noncontrolling interests of this VIE. As of September 30, 2023, the accompanying consolidated balance sheets included the carrying value of the VIE’s assets of $0.7 million of cash and $5.4 million of other assets, $4.0 million of accrued expenses and other liabilities, and $0.7 million in noncontrolling interests.

8. Goodwill and Other Intangible Assets

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As of September 30, 2023 and December 31, 2022, $139.3 million of goodwill is included in goodwill and other intangible assets, net on each of the consolidated balance sheets, which was recorded in connection with our merger with Weyerhaeuser Real Estate Company (“WRECO”) in 2014. In addition, as of September 30, 2023 and December 31, 2022, we have one intangible asset with a carrying amount of $17.3 million comprised of a Tri Pointe Homes trade name, which has an indefinite useful life and is non-amortizing, resulting from the acquisition of WRECO in 2014.

Goodwill and other intangible assets are evaluated for impairment on an annual basis, or more frequently if indicators of impairment exist.

9. Other Assets

Other assets consisted of the following (in thousands):


	September 30, 2023		December 31, 2022
Prepaid expenses	$	14,164	$	20,471
Refundable fees and other deposits	8,582		5,226
Development rights, held for future use or sale	1,192		1,192
Deferred loan costs—loans payable	5,435		6,515
Operating properties and equipment, net	66,608		67,430
Lease right-of-use assets	61,235		63,918

Other	936		935
Total	$	158,152	$	165,687

10. Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consisted of the following (in thousands):


	September 30, 2023		December 31, 2022
Accrued payroll and related costs	$	52,469	$	60,682
Warranty reserves (Note 13)	95,109		104,375
Estimated cost for completion of real estate inventories	117,231		108,072
Customer deposits	48,977		42,027

Accrued income taxes payable	80,801		17,280

Accrued interest	24,529		9,351

Other tax liability	2,427		4,099
Lease liabilities	75,535		77,728
Other	12,111		19,420
Total	$	509,189	$	443,034

11. Senior Notes and Loans Payable

Senior Notes

The Company’s outstanding senior notes (together, the “Senior Notes”) consisted of the following (in thousands):


	September 30, 2023		December 31, 2022
5.875% Senior Notes due June 15, 2024	$	450,000	$	450,000
5.250% Senior Notes due June 1, 2027	300,000		300,000
5.700% Senior Notes due June 15, 2028	350,000		350,000
Discount and deferred loan costs	(6,679)		(9,376)
Total	$	1,093,321	$	1,090,624

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In June 2020, Tri Pointe issued $350 million aggregate principal amount of 5.700% Senior Notes due 2028 (the “2028 Notes”) at 100.00% of their aggregate principal amount. Net proceeds of this issuance were $345.2 million, after debt issuance costs and discounts. The 2028 Notes mature on June 15, 2028 and interest is paid semiannually in arrears on June 15 and December 15 of each year until maturity.

In June 2017, Tri Pointe issued $300 million aggregate principal amount of 5.250% Senior Notes due 2027 (the “2027 Notes”) at 100.00% of their aggregate principal amount. Net proceeds of this issuance were $296.3 million, after debt issuance costs and discounts. The 2027 Notes mature on June 1, 2027 and interest is paid semiannually in arrears on June 1 and December 1 of each year until maturity.

Tri Pointe and its wholly owned subsidiary, Tri Pointe Homes Holdings, Inc., are co-issuers of the $450 million aggregate principal amount 5.875% Senior Notes due 2024 (the “2024 Notes”). The 2024 Notes were issued at 98.15% of their aggregate principal amount in June of 2014. The net proceeds from the offering of the 2024 Notes was $429.0 million, after debt issuance costs and discounts. The 2024 Notes mature on June 15, 2024, with interest payable semiannually in arrears on June 15 and December 15 of each year until maturity.

As of September 30, 2023, there were $5.9 million of capitalized debt financing costs, included in senior notes, net on our consolidated balance sheet, related to the Senior Notes that will amortize over the lives of the Senior Notes. Accrued interest related to the Senior Notes was $18.8 million and $3.2 million as of September 30, 2023 and December 31, 2022, respectively.

Loans Payable

The Company’s outstanding loans payable consisted of the following (in thousands):


	September 30, 2023		December 31, 2022
Term loan facility	$	250,000	$	250,000
Seller financed loans	38,337		37,427
Total	$	288,337	$	287,427

On June 29, 2022, we entered into a Third Modification Agreement (the “Modification”) to our Second Amended and Restated Credit Agreement dated as of March 29, 2019. The Credit Facility (as defined below), consists of a $750 million revolving credit facility (the “Revolving Facility”) and a $250 million term loan facility (the “Term Facility” and together with the Revolving Facility, the “Credit Facility”). The Modification, among other things, (i) increased the maximum amount of the “Revolving Facility” under the Credit Agreement from $650.0 million to $750.0 million, (ii) increased the sublimit for issuance of letters of credit under the Revolving Facility from $100 million to $150 million and (iii) extended the maturity date of both the Revolving Facility and the Term Facility under the Credit Agreement to June 29, 2027. We may increase the Credit Facility to not more than $1.2 billion in the aggregate, at our request, upon satisfaction of specified conditions. We may borrow under the Revolving Facility in the ordinary course of business to repay senior notes and fund our operations, including our land acquisition, land development and homebuilding activities. Borrowings under the Revolving Facility will be governed by, among other things, a borrowing base. Interest rates under the Revolving Facility will be based on the Secured Overnight Financing Rate (“SOFR”), plus a spread ranging from 1.25% to 1.90%, depending on the Company’s leverage ratio. Interest rates under the Term Facility will be based on SOFR, plus a spread ranging from 1.10% to 1.85%, depending on the Company’s leverage ratio.

As of September 30, 2023, we had no outstanding debt under the Revolving Facility and there was $699.9 million of availability after considering the borrowing base provisions and outstanding letters of credit. As of September 30, 2023, we had $250 million of outstanding debt under the Term Facility with an interest rate of 6.50%. As of September 30, 2023, there were $5.4 million of capitalized debt financing costs, included in other assets on our consolidated balance sheet, related to the Credit Facility that will amortize over the remaining term of the Credit Facility. Accrued interest, including loan commitment fees, related to the Credit Facility was $1.8 million and $1.5 million as of September 30, 2023 and December 31, 2022, respectively.

At September 30, 2023 and December 31, 2022, we had outstanding letters of credit of $50.1 million and $58.9 million, respectively. These letters of credit were issued to secure various financial obligations. We believe it is not probable that any outstanding letters of credit will be drawn upon.

- 17 -

construction of homes. Principal on these loans are expected to be fully paid by the end of fiscal year 2024, provided certain achievements are met. One of the seller-financed loans, representing $37.4 million of the total balance, accrues interest at an imputed interest rate of 4.50% per annum. The second seller-financed loan represented $910,000 of the total balance as of September 30, 2023.

Interest Incurred

During the three months ended September 30, 2023 and 2022, the Company incurred interest of $36.9 million and $31.9 million, respectively, related to all debt and land banking arrangements during the period. Included in interest incurred are amortization of deferred financing and Senior Note discount costs of $1.3 million and $1.2 million for the three months ended September 30, 2023 and 2022, respectively. During the nine months ended September 30, 2023 and 2022, the Company incurred interest of $111.8 million and $89.2 million, respectively, related to all debt and land banking arrangements during the period and amortization of deferred financing and Senior Note discount costs of $3.8 million and $3.5 million for the nine months ended September 30, 2023 and 2022, respectively. Accrued interest related to all outstanding debt at September 30, 2023 and December 31, 2022 was $24.5 million and $9.4 million, respectively.

Covenant Requirements

The Senior Notes contain covenants that restrict our ability to, among other things, create liens or other encumbrances, enter into sale and leaseback transactions, or merge or sell all or substantially all of our assets. These limitations are subject to a number of qualifications and exceptions.

Under the Credit Facility, the Company is required to comply with certain financial covenants, including those relating to consolidated tangible net worth, leverage, liquidity or interest coverage, and a spec unit inventory test. The Credit Facility also requires that at least 95.0% of consolidated tangible net worth must be attributable to the Company and its guarantor subsidiaries, subject to certain grace periods.

The Company was in compliance with all applicable financial covenants as of September 30, 2023 and December 31, 2022.

12. Fair Value Disclosures

Fair Value Measurements

ASC Topic 820, Fair Value Measurements and Disclosures, defines “fair value” as the price that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at measurement date and requires assets and liabilities carried at fair value to be classified and disclosed in the following three categories:

•Level 1—Quoted prices for identical instruments in active markets

•Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are inactive; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets at measurement date

•Level 3—Valuations derived from techniques where one or more significant inputs or significant value drivers are unobservable in active markets at measurement date

- 18 -

Fair Value of Financial Instruments

A summary of assets and liabilities at September 30, 2023 and December 31, 2022, related to our financial instruments, measured at fair value on a recurring basis, is set forth below (in thousands):


		September 30, 2023				December 31, 2022
	Hierarchy	Book Value		Fair Value		Book Value		Fair Value
Senior Notes(1)	Level 2	$	1,099,216	$	1,059,095	$	1,098,425	$	1,040,750

Term loan(2)	Level 2	$	250,000	$	250,000	$	250,000	$	250,000
Seller financed loans(3)	Level 2	$	38,337	$	38,337	$	37,427	$	37,427

__________

(1)The book value of the Senior Notes is net of discounts, excluding deferred loan costs of $5.9 million and $7.8 million as of September 30, 2023 and December 31, 2022, respectively. The estimated fair value of the Senior Notes at September 30, 2023 and December 31, 2022 is based on quoted market prices.

(2)The estimated fair value of the Term Loan Facility as of September 30, 2023 and December 31, 2022 approximated book value due to the variable interest rate terms of this loan.

(3)The estimated fair value of our seller financed loans as of September 30, 2023 and December 31, 2022 approximated book value due to the short term nature of these loans.

At September 30, 2023 and December 31, 2022, the carrying value of cash and cash equivalents and receivables approximated fair value due to their short-term nature.

Fair Value of Nonfinancial Assets

Nonfinancial assets include items such as real estate inventories and long-lived assets that are measured at fair value on a nonrecurring basis when events and circumstances indicating the carrying value is not recoverable. The following table presents impairment charges and the remaining net fair value for nonfinancial assets that were measured during the periods presented (in thousands):


		Nine Months Ended September 30, 2023				Year Ended December 31, 2022
	Hierarchy	Impairment Charge		Fair Value Net of Impairment		Impairment Charge		Fair Value Net of Impairment
Real estate inventories (1)	Level 3	$	11,500	$	39,970	$	—	$	—

__________

(1) Fair value of real estate inventories, net of impairment charges represents only those assets whose carrying values were adjusted to fair value in the respective periods presented.

The impairment charge recorded during the nine months ended September 30, 2023 related to one community in the West reporting segment where the carrying value exceeded the fair value based on a discounted cash flow analysis. For further details, see Note 5, Real Estate Inventories.

13. Commitments and Contingencies

Legal Matters

Lawsuits, claims and proceedings have been and may be instituted or asserted against us in the normal course of business, including actions brought on behalf of various classes of claimants. We are also subject to local, state and federal laws and regulations related to land development activities, house construction standards, sales practices, employment practices, environmental protection and financial services. As a result, we are subject to periodic examinations or inquiry by agencies administering these laws and regulations.

We record a reserve for potential legal claims and regulatory matters when they are probable of occurring and a potential loss is reasonably estimable. We accrue for these matters based on facts and circumstances specific to each matter and revise these estimates when necessary. In view of the inherent difficulty of predicting outcomes of legal claims and related contingencies, we generally cannot predict their ultimate resolution, related timing or eventual loss. Accordingly, it is possible that the ultimate outcome of any matter, if in excess of a related accrual or if no accrual was made, could be material to our financial statements. For matters as to which the Company believes a loss is probable and reasonably estimable, we had zero legal reserves as of September 30, 2023 and December 31, 2022, respectively.

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Warranty

Warranty reserves are accrued as home deliveries occur. Our warranty reserves on homes delivered will vary based on product type and geographic area and also depending on state and local laws. The warranty reserve is included in accrued expenses and other liabilities on our consolidated balance sheets and represents expected future costs based on our historical experience over previous years. Estimated warranty costs are charged to cost of home sales in the period in which the related home sales revenue is recognized.

We maintain general liability insurance designed to protect us against a portion of our risk of loss from warranty and construction defect-related claims. We also generally require our subcontractors and design professionals to indemnify us for liabilities arising from their work, subject to various limitations. However, such indemnity is significantly limited with respect to certain subcontractors that are added to our general liability insurance policy.

Our warranty reserve and related estimated insurance recoveries are based on actuarial analysis that uses our historical claim and expense data, as well as industry data to estimate these overall costs and related recoveries. Key assumptions used in developing these estimates include claim frequencies, severities and resolution patterns, which can occur over an extended period of time. Our warranty reserve may also include an estimate of future fit and finish warranty claims to the extent not contemplated in the actuarial analysis. These estimates are subject to variability due to the length of time between the delivery of a home to a homebuyer and when a warranty or construction defect claim is made, and the ultimate resolution of such claim; uncertainties regarding such claims relative to our markets and the types of product we build; and legal or regulatory actions and/or interpretations, among other factors. Due to the degree of judgment involved and the potential for variability in these underlying assumptions, our actual future costs could differ from those estimated. There can be no assurance that the terms and limitations of the limited warranty will be effective against claims made by homebuyers, that we will be able to renew our insurance coverage or renew it at reasonable rates, that we will not be liable for damages, cost of repairs, and/or the expense of litigation surrounding possible construction defects, soil subsidence or building related claims or that claims will not arise out of uninsurable events or circumstances not covered by insurance and not subject to effective indemnification agreements with certain subcontractors.

We also record expected recoveries from insurance carriers based on actual insurance claims made and actuarially determined amounts that depend on various factors, including the above-described reserve estimates, our insurance policy coverage limits for the applicable policy years and historical recovery rates. Because of the inherent uncertainty and variability in these assumptions, our actual insurance recoveries could differ significantly from amounts currently estimated. Outstanding warranty insurance receivables was $51.7 million and $56.4 million as of September 30, 2023 and December 31, 2022, respectively. Warranty insurance receivables are recorded in receivables on the accompanying consolidated balance sheets.

Warranty reserve activity consisted of the following (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Warranty reserves, beginning of period	$	99,243	$	103,454	$	104,375	$	103,976
Warranty reserves accrued	6,337		7,065		18,523		18,666

Warranty expenditures	(10,471)		(6,802)		(27,789)		(18,925)
Warranty reserves, end of period	$	95,109	$	103,717	$	95,109	$	103,717

Performance Bonds

We obtain surety bonds in the normal course of business to ensure completion of certain infrastructure improvements of our projects. The beneficiaries of the bonds are various municipalities. As of September 30, 2023 and December 31, 2022, the Company had outstanding surety bonds totaling $703.7 million and $710.8 million, respectively. As of September 30, 2023 and December 31, 2022, our estimated cost to complete obligations related to these surety bonds was $433.7 million and $443.7 million, respectively.

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Lease Obligations

Under ASC 842 we recognize a right-of-use lease asset and a lease liability for contracts deemed to contain a lease at the inception of the contract. Our lease population is fully comprised of operating leases, which are now recorded at the net present value of future lease obligations existing at each balance sheet date. At the inception of a lease, or if a lease is subsequently modified, we determine whether the lease is an operating or financing lease. Key estimates involved with ASC 842 include the discount rate used to measure our future lease obligations and the lease term, where considerations include renewal options and intent to renew. Lease right-of-use assets are included in other assets and lease liabilities are included in accrued expenses and other liabilities on our consolidated balance sheet.

Operating Leases

We lease certain property and equipment under non-cancelable operating leases. Office leases are for terms of up to ten years and generally provide renewal options. In most cases, we expect that, in the normal course of business, leases that expire will be renewed or replaced by other leases. Equipment leases are typically for terms of three to four years.

Ground Leases

In 1987, we obtained two 55-year ground leases of commercial property that provided for three renewal options of ten years each and one 45-year renewal option. We exercised the three 10-year extensions on one of these ground leases to extend the lease through 2071. The commercial buildings on these properties have been sold and the ground leases have been sublet to the buyers.

For one of these leases, we are responsible for making lease payments to the landowner, and we collect sublease payments from the buyers of the buildings. This ground lease has been subleased through 2041 to the buyers of the commercial buildings. For the second lease, the buyers of the buildings are responsible for making lease payments directly to the landowner, however, we have guaranteed the performance of the buyers/lessees. See below for additional information on leases (dollars in thousands):


	Three Months Ended September 30, 2023		Three Months Ended September 30, 2022		Nine Months Ended September 30, 2023		Nine Months Ended September 30, 2022
Lease Cost
Operating lease cost (included in SG&A expense)	$	2,555	$	2,336	$	7,808	$	7,315
Ground lease cost (included in other operations expense)	724		663		2,170		1,990
Sublease income, operating leases	—		—		—		—
Sublease income, ground leases (included in other operations revenue)	(734)		(674)		(2,202)		(2,020)
Net lease cost	$	2,545	$	2,325	$	7,776	$	7,285

Other information
Cash paid for amounts included in the measurement of lease liabilities:
Operating lease cash flows (included in operating cash flows)	$	2,407	$	1,682	$	7,279	$	6,106
Ground lease cash flows (included in operating cash flows)	$	663	$	663	$	1,990	$	1,990
Right-of-use assets obtained in exchange for new operating lease liabilities	$	1,804	$	125	$	3,820	$	1,517


	September 30, 2023		December 31, 2022
Weighted-average discount rate:
Operating leases	4.8	%	4.7	%
Ground leases	10.2	%	10.2	%
Weighted-average remaining lease term (in years):
Operating leases	6.4		7.0
Ground leases	44.6		45.3

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The future minimum lease payments under our operating leases are as follows (in thousands):


	Property, Equipment and Other Leases		Ground Leases (1)
Remaining in 2023	$	2,355	$	809
2024	9,703		3,237
2025	9,214		3,237
2026	7,909		3,237
2027	7,098		3,237
Thereafter	18,723		78,641
Total lease payments	$	55,002	$	92,398
Less: Interest	7,721		64,292
Present value of operating lease liabilities	$	47,281	$	28,106

__________

(1) Ground leases are fully subleased through 2041, representing $58.6 million of the $92.4 million future ground lease obligations.

14. Stock-Based Compensation

2022 Long-Term Incentive Plan

On April 20, 2022, our stockholders approved the Tri Pointe Homes, Inc. 2022 Long-Term Incentive Plan (the “2022 Plan”), which had been previously approved by our board of directors. The 2022 Plan replaced the Company’s prior stock compensation plan, the TRI Pointe Group, Inc. Amended and Restated 2013 Long-Term Incentive Plan (the “2013 Plan”). The 2022 Plan provides for the grant of equity-based awards, including options to purchase shares of common stock, stock appreciation rights, restricted stock, restricted stock units, bonus stock and performance awards. The 2022 Plan will automatically expire on the tenth anniversary of its effective date. Our board of directors may terminate or amend the 2022 Plan at any time, subject to any requirement of stockholder approval required by applicable law, rule or regulation.

The number of shares of our common stock that may be issued under the 2022 Plan is 7,500,000 shares. No new awards have been or will be granted under the 2013 Plan from and after February 23, 2022. Any awards outstanding under the 2013 Plan will remain subject to and be paid under the 2013 Plan, and any shares subject to outstanding awards under the 2013 Plan that subsequently expire, terminate, or are surrendered or forfeited for any reason without issuance of shares will automatically become available for issuance under the 2022 Plan.

To the extent that shares of our common stock subject to an outstanding option, stock appreciation right, stock award or performance award granted under the 2022 Plan are not issued or delivered by reason of the expiration, termination, cancellation or forfeiture of such award or the settlement of such award in cash, then such shares of our common stock generally will again be available under the 2022 Plan. However, the 2022 Plan prohibits us from re-using shares that are tendered or surrendered to pay the exercise cost or tax obligation for stock options and SARs.

As of September 30, 2023, there were 6,443,937 shares available for future grant under the 2022 Plan.

The following table presents compensation expense recognized related to all stock-based awards (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Total stock-based compensation	$	6,989	$	5,717	$	15,012	$	16,740

Stock-based compensation is charged to general and administrative expense on the accompanying consolidated statements of operations. As of September 30, 2023, total unrecognized stock-based compensation expense related to all stock-based awards was $27.9 million and the weighted average term over which the expense was expected to be recognized was 1.4 years.

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Summary of Stock Option Activity

The following table presents a summary of stock option awards for the nine months ended September 30, 2023:


	Options	Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value (in thousands)
Options outstanding at December 31, 2022	159,255	$	15.08	0.9	$	565
Granted	—	—		—	—
Exercised	(68,592)	$	14.70	—	—
Forfeited	—	$	—	—	—
Options outstanding at September 30, 2023	90,663	$	15.36	0.5	$	1,087
Options exercisable at September 30, 2023	90,663	$	15.36	0.5	$	1,087

The intrinsic value of each stock option award outstanding or exercisable is the difference between the fair market value of the Company’s common stock at the end of the period and the exercise price of each stock option award to the extent it is considered “in-the-money”. A stock option award is considered to be “in-the-money” if the fair market value of the Company’s stock is greater than the exercise price of the stock option award. The aggregate intrinsic value of options outstanding and options exercisable represents the value that would have been received by the holders of stock option awards had they exercised their stock option award on the last trading day of the period and sold the underlying shares at the closing price on that day.

Summary of Restricted Stock Unit Activity

The following table presents a summary of RSUs for the nine months ended September 30, 2023:


	Restricted Stock Units	Weighted Average Grant Date Fair Value Per Share		Aggregate Intrinsic Value (in thousands)
Nonvested RSUs at December 31, 2022	3,679,521	$	19.93	$	68,402
Granted	1,242,883	$	23.34	—
Vested	(1,174,296)	$	19.21	—
Forfeited	(222,034)	$	19.25	—
Nonvested RSUs at September 30, 2023	3,526,074	$	21.37	$	75,351

RSUs that vested, as reflected in the table above, during the nine months ended September 30, 2023 include previously granted time-based RSUs. RSUs that were forfeited, as reflected in the table above, during the nine months ended September 30, 2023 include performance-based RSUs and time-based RSUs that were forfeited for no consideration.

On February 22, 2023, the Company granted an aggregate of 505,200 time-based RSUs to certain employees and officers. The RSUs granted vest in equal installments annually on the anniversary of the grant date over a three-year period. The fair value of each RSU granted on February 22, 2023 was measured using a price of $23.21 per share per share, which was the closing stock price on the date of grant. Each award will be expensed on a straight-line basis over the vesting period.

On February 22, 2023, the Company granted an aggregate of 704,408 performance-based RSUs to the Company’s Chief Executive Officer, Chief Operating Officer and President, Chief Financial Officer, General Counsel, Chief Marketing Officer, Chief Human Resources Officer and division presidents. These performance-based RSUs are allocated to two separate performance metrics, as follows: (i) 50% to homebuilding revenue of the applicable Company division, and (ii) 50% to pre-tax earnings of the applicable Company division. The vesting, if at all, of these performance-based RSUs may range from 0% to 100% and will be based on the applicable Company division’s percentage attainment of specified threshold, target and maximum performance goals. The performance period for these performance-based RSUs is January 1, 2023 to December 31, 2025. The fair value of these performance-based RSUs was measured using a price of $23.21, which was the closing stock price on the date of grant. Each award will be expensed over the requisite service period.

On April 10, 2023, the Company granted an aggregate of 2,589 time-based RSUs to certain employees. The RSUs granted vest in equal installments annually beginning on anniversary of the grant date over a three-year period. The fair value of

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the RSUs granted on April 10, 2023 was measured using a price of $25.09 per share, which was the closing stock prices on the date of grant. Each award will be expensed on a straight-line basis over the vesting period.

On May 1, 2023, the Company granted an aggregate of 29,150 time-based RSUs to the non-employee members of its board of directors. The RSUs granted to the non-employee directors vest in their entirety on the day immediately prior to the Company’s 2024 annual meeting of stockholders. The fair value of each RSU granted on May 1, 2023 was measured using a price of $28.30 per share, which was the closing stock price on the date of grant. Each award will be expensed on a straight-line basis over the vesting period.

The Company granted an aggregate of 1,536 time-based RSUs to certain employees in July and August, 2023. The RSUs granted vest in equal installments annually beginning on anniversary of the grant date over a three-year period. The fair value of the RSUs granted were measured using prices of $32.69 and $32.38 per share, respectively, which were the closing stock prices on the applicable date of each grant. Each award will be expensed on a straight-line basis over the vesting period.

On February 22, 2022, the Company granted an aggregate of 629,520 time-based RSUs to certain employees and officers. The RSUs granted vest in equal installments annually on the anniversary of the grant date over a three-year period. The fair value of each RSU granted on February 22, 2022 was measured using a price of $21.00 per share per share, which was the closing stock price on the date of grant. Each award will be expensed on a straight-line basis over the vesting period.

On February 22, 2022, the Company granted an aggregate of 668,150 performance-based RSUs to the Company’s Chief Executive Officer, Chief Operating Officer and President, Chief Financial Officer, General Counsel, Chief Marketing Officer and Chief Human Resources Officer. These performance-based RSUs are allocated to two separate performance metrics, as follows: (i) 50% to homebuilding revenue, and (ii) 50% to pre-tax earnings. The vesting, if at all, of these performance-based RSUs may range from 0% to 100% and will be based on the Company’s percentage attainment of specified threshold, target and maximum performance goals. Any award earned based on performance achieved may be increased or decreased by 25% based on the Company’s total stockholder return (“TSR”) relative to its peer-group homebuilders. The performance period for these performance-based RSUs is January 1, 2022 to December 31, 2024. The fair value of these performance-based RSUs was determined to be $22.30 per share based on a Monte Carlo simulation. Each award will be expensed over the requisite service period.

On February 22, 2022, the Company granted an aggregate of 235,078 performance-based RSUs to the Company’s division presidents. These performance-based RSUs are allocated to two separate performance metrics, as follows: (i) 50% to homebuilding revenue of the applicable Company division, and (ii) 50% to pre-tax earnings of the applicable Company division. The vesting, if at all, of these performance-based RSUs may range from 0% to 100% and will be based on the applicable Company division’s percentage attainment of specified threshold, target and maximum performance goals. The performance period for these performance-based RSUs is January 1, 2022 to December 31, 2024. The fair value of these performance-based RSUs was measured using a price of $21.00, which was the closing stock price on the date of grant. Each award will be expensed over the requisite service period.

On April 25, 2022, the Company granted an aggregate of 38,385 time-based RSUs to the non-employee members of its board of directors. The RSUs granted to the non-employee directors vest in their entirety on the day immediately prior to the Company’s 2023 annual meeting of stockholders. The fair value of each RSU granted on April 25, 2022 was measured using a price of $20.19 per share, which was the closing stock price on the date of grant. Each award will be expensed on a straight-line basis over the vesting period.

In June 2022, the Company granted an aggregate of 2,620 time-based RSUs to certain employees. The RSUs granted vest in equal installments annually beginning on anniversary of the grant date over a three-year period. The fair value of the RSUs granted were measured using prices of $21.07 and $17.43 per share, respectively, which were the closing stock prices on the applicable date of each grant. Each award will be expensed on a straight-line basis over the vesting period.

As RSUs vest for employees, a portion of the shares awarded is generally withheld to cover employee tax withholdings. As a result, the number of RSUs vested and the number of shares of Tri Pointe common stock issued will differ.

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15. Income Taxes

We account for income taxes in accordance with ASC Topic 740, Income Taxes (“ASC 740”), which requires an asset and liability approach for measuring deferred taxes based on temporary differences between the financial statements and tax bases of assets and liabilities using enacted tax rates for the years in which taxes are expected to be paid or recovered. Each quarter we assess our deferred tax asset to determine whether all or any portion of the asset is more likely than not unrealizable under ASC 740. We are required to establish a valuation allowance for any portion of the asset we conclude is more likely than not to be unrealizable. Our assessment considers, among other things, the nature, frequency and severity of our current and cumulative losses, forecasts of our future taxable income, the duration of statutory carryforward periods and tax planning alternatives.

We had net deferred tax assets of $34.9 million as of both September 30, 2023 and December 31, 2022. We had a valuation allowance related to those net deferred tax assets of $3.4 million as of both September 30, 2023 and December 31, 2022. The Company will continue to evaluate both positive and negative evidence in determining the need for a valuation allowance against its deferred tax assets. Changes in positive and negative evidence, including differences between the Company’s future operating results and the estimates utilized in the determination of the valuation allowance, could result in changes in the Company’s estimate of the valuation allowance against its deferred tax assets. The accounting for deferred taxes is based upon estimates of future results. Differences between the anticipated and actual outcomes of these future results could have a material impact on the Company’s consolidated results of operations or financial position. Also, changes in existing federal and state tax laws and tax rates could affect future tax results and the valuation allowance against the Company’s deferred tax assets.

Our provision for income taxes totaled $22.9 million and $45.9 million for the three months ended September 30, 2023 and 2022, respectively and $71.8 million and $122.1 million for the nine months ended September 30, 2023 and 2022, respectively. The Company classifies any interest and penalties related to income taxes assessed by jurisdiction as part of income tax expense. The Company did not have any uncertain tax positions recorded as of September 30, 2023 and December 31, 2022. The Company has not been assessed interest or penalties by any major tax jurisdictions related to prior years.

The Company files income tax returns in the U.S., including federal and multiple state and local jurisdictions. We are

currently under examination by California for the 2020 and 2021 tax years. The outcome of this examination is not yet determinable.

16. Related Party Transactions

We had no related party transactions for the nine months ended September 30, 2023 and 2022.

17. Supplemental Disclosure to Consolidated Statements of Cash Flows

The following are supplemental disclosures to the consolidated statements of cash flows (in thousands):


	Nine Months Ended September 30,
	2023		2022
Supplemental disclosure of cash flow information:
Interest paid (capitalized), net	$	(18,954)	$	(20,047)
Income taxes paid, net	$	7,919	$	136,122
Supplemental disclosures of noncash activities:
Increase in share repurchase excise tax accrual	$	1,065	$	—
Amortization of senior note discount capitalized to real estate inventory	$	791	$	742
Amortization of deferred loan costs capitalized to real estate inventory	$	2,985	$	2,732

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are based on our current intentions, beliefs, expectations and predictions for the future, and you should not place undue reliance on these statements. These statements use forward-looking terminology, are based on various assumptions made by us, and may not be accurate because of risks and uncertainties surrounding the assumptions that are made.

Factors listed in this section—as well as other factors not included—may cause actual results to differ significantly from the forward-looking statements included in this Quarterly Report on Form 10-Q. There is no guarantee that any of the events anticipated by the forward-looking statements in this Quarterly Report on Form 10-Q will occur, or if any of the events occurs, there is no guarantee what effect it will have on our operations, financial condition, or share price.

We undertake no, and hereby disclaim any, obligation to update or revise any forward-looking statements, unless required by law. However, we reserve the right to make such updates or revisions from time to time by press release, periodic report, or other method of public disclosure without the need for specific reference to this Quarterly Report on Form 10-Q. No such update or revision shall be deemed to indicate that other statements not addressed by such update or revision remain correct or create an obligation to provide any other updates or revisions.

Forward-Looking Statements

Forward-looking statements that are included in this Quarterly Report on Form 10-Q are generally accompanied by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “future,” “goal,” “intend,” “likely,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would,” or other words that convey the uncertainty of future events or outcomes. These forward-looking statements may include, but are not limited to, statements regarding our strategy, projections and estimates concerning the timing and success of specific projects and our future production, land and lot sales, the outcome of legal proceedings, the anticipated impact of natural disasters or contagious diseases on our operations, operational and financial results, including our estimates for growth, financial condition, sales prices, prospects and capital spending.

Risks, Uncertainties and Assumptions

The major risks and uncertainties—and assumptions that are made—that affect our business and may cause actual results to differ from these forward-looking statements include, but are not limited to:

•the effects of general economic conditions, including employment rates, housing starts, interest rate levels, home affordability, inflation, consumer sentiment, availability of financing for home mortgages and strength of the U.S. dollar;

•market demand for our products, which is related to the strength of the various U.S. business segments and U.S. and international economic conditions;

•the availability of desirable and reasonably priced land and our ability to control, purchase, hold and develop such parcels;

•access to adequate capital on acceptable terms;

•geographic concentration of our operations;

•levels of competition;

•the successful execution of our internal performance plans, including restructuring and cost reduction initiatives;

•the prices and availability of supply chain inputs, including raw materials, labor and home components;

•oil and other energy prices;

•the effects of U.S. trade policies, including the imposition of tariffs and duties on homebuilding products and retaliatory measures taken by other countries;

•the effects of weather, including the occurrence of drought conditions in parts of the western United States;

•the risk of loss from earthquakes, volcanoes, fires, floods, droughts, windstorms, hurricanes, pest infestations and other natural disasters, and the risk of delays, reduced consumer demand, and shortages and price increases in labor or materials associated with such natural disasters;

•the risk of loss from acts of war, terrorism, civil unrest or public health emergencies, including outbreaks of contagious disease, such as COVID-19;

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•transportation costs;

•federal and state tax policies;

•the effects of land use, environment and other governmental laws and regulations;

•legal proceedings or disputes and the adequacy of reserves;

•risks relating to any unforeseen changes to or effects on liabilities, future capital expenditures, revenues, expenses, earnings, synergies, indebtedness, financial condition, losses and future prospects;

•changes in accounting principles;

•risks related to unauthorized access to our computer systems, theft of our homebuyers’ confidential information or other forms of cyber-attack; and

•other factors described in “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2022 and in other filings we make with the Securities and Exchange Commission (“SEC”).

The following discussion and analysis should be read in conjunction with our consolidated financial statements and related condensed notes thereto contained elsewhere in this Quarterly Report on Form 10-Q. The information contained in this Quarterly Report on Form 10-Q is not a complete description of our business or the risks associated with an investment in our securities. We urge investors to review and consider carefully the various disclosures made by us in this report and in our other reports filed with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2022 and subsequent reports on Form 8-K, which discuss our business in greater detail. The section entitled “Risk Factors” set forth in Item 1A of our Annual Report on Form 10-K, and similar disclosures in our other SEC filings, discuss some of the important risk factors that may affect our business, results of operations and financial condition. Investors should carefully consider those risks, in addition to the information in this report and in our other filings with the SEC, before deciding to invest in, or maintain an investment in, our common stock.

Overview and Outlook

Throughout the third quarter and into October, mortgage rates remained elevated, facing headwinds from both Federal Reserve policy and commentary, as well as the continued effects of quantitative tightening. Additionally, concerns have emerged regarding the fiscal deficit and the growing supply of treasury issuance necessary to fund it. These factors, along with a historically wide spread between the 10-year treasury and the 30-year mortgage rates, have supported these elevated mortgage rates.

Despite the challenges posed by the current interest rate environment in terms of affordability, the demand for new housing remained strong during the third quarter, continuing a trend that originally emerged in January 2023. The long-standing supply shortage, which has endured since the Global Financial Crisis, has played a pivotal role in bolstering the homebuilding industry’s performance. Furthermore, the widely reported shortage of resale supply, stemming from the rapid rise in mortgage rates, has effectively locked in many existing homeowners with favorable mortgages at rates substantially below current levels and has contributed to the new housing market’s resiliency.

Although the near-term outlook for our industry includes the potential for further volatility in mortgage rates, we maintain an optimistic outlook for our industry’s overall fundamentals and our capacity to thrive within this landscape. The ongoing disparity between housing supply and demand, coupled with favorable buyer demographics, serve as a foundational leading indicator for our industry. We are confident in our ability to strategically adjust pricing and navigate what we anticipate are the latter stages of this particular rate-hiking cycle.

Highlights of the quarter include 1,513 net new home orders at a monthly absorption rate of 3.3 orders per average selling community. This activity represents a 122% increase in net new home orders compared to the prior year period, a reflection of both current quarter strength as well as the magnitude of prior year weakness we were experiencing as the rise in mortgage rates was still being fully digested by the market. During the quarter, we expanded our community count by opening 30 new communities, bringing our total to 163 and resulting a 23% increase in our ending community count compared to the prior-year period. Our home sales revenue was $825.3 million, as we delivered 1,223 new homes at an average sales price of $675,000. Our homebuilding gross margin percentage for the quarter was 22.3% and our sales and marketing and general and administrative (“SG&A”) expense as a percentage of home sales revenue was 12.3%. These factors led to net income available to common stockholders of $75.4 million, or diluted earnings per share of $0.76. In addition, we ended the quarter with total liquidity of $1.5 billion, including cash and cash equivalents of $849.0 million and $699.9 million of availability under our Credit Facility, as described below. Further, our ratio of debt-to-capital of 32.1% as of the end of the quarter was yet another all-time low for us. We believe our strong balance sheet and favorable outlook for earnings and cash flow generation will continue to support our organic expansion and/or merger and acquisition opportunities.

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Consolidated Financial Data (in thousands, except per share amounts):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Homebuilding:
Home sales revenue	$	825,295	$	1,057,491	$	2,412,777	$	2,787,386
Land and lot sales revenue	1,714		2,626		10,506		4,337
Other operations revenue	749		674		2,219		2,021
Total revenues	827,758		1,060,791		2,425,502		2,793,744
Cost of home sales	641,074		771,148		1,881,191		2,033,160
Cost of land and lot sales	1,474		1,256		10,287		2,075
Other operations expense	724		670		2,171		2,020
Sales and marketing	42,874		41,950		127,977		112,712
General and administrative	58,359		54,786		158,949		160,071

Homebuilding income from operations	83,253		190,981		244,927		483,706
Equity in income (loss) of unconsolidated entities	3		(122)		272		(34)
Other income, net	11,664		463		30,361		852
Homebuilding income before income taxes	94,920		191,322		275,560		484,524
Financial Services:
Revenues	10,758		11,005		30,004		31,985
Expenses	6,127		5,827		19,363		17,457
Equity in income of unconsolidated entities	—		—		—		46
Financial services income before income taxes	4,631		5,178		10,641		14,574
Income before income taxes	99,551		196,500		286,201		499,098
Provision for income taxes	(22,942)		(45,923)		(71,764)		(122,084)
Net income	76,609		150,577		214,437		377,014
Net income attributable to noncontrolling interests	(1,207)		(1,351)		(3,569)		(3,927)
Net income available to common stockholders	$	75,402	$	149,226	$	210,868	$	373,087
Earnings per share
Basic	$	0.77	$	1.47	$	2.12	$	3.60
Diluted	$	0.76	$	1.45	$	2.10	$	3.57

Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

Net New Home Orders, Average Selling Communities and Monthly Absorption Rates by Segment


	Three Months Ended September 30, 2023			Three Months Ended September 30, 2022			Percentage Change
	Net New Home Orders	Average Selling Communities	Monthly Absorption Rates	Net New Home Orders	Average Selling Communities	Monthly Absorption Rates	Net New Home Orders		Average Selling Communities		Monthly Absorption Rates
West	827	78.8	3.5	439	77.0	1.9	88	%	2	%	84	%
Central	493	58.5	2.8	138	30.8	1.5	257	%	90	%	88	%
East	193	17.5	3.7	104	20.5	1.7	86	%	(15)	%	117	%
Total	1,513	154.8	3.3	681	128.3	1.8	122	%	21	%	84	%

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Net new home orders for the three months ended September 30, 2023 increased by 832, or 122%, to 1,513, compared to 681 during the prior-year period. The increase in net new home orders was due to an 84% increase in monthly absorption rates, and a 21% increase in average selling communities. The current-year period experienced strong demand, with the resale market still showing limited activity, which not only increased the market share of homebuilders but also led to strong seasonal absorption rates across most of our markets. Conversely, the prior-year period was heavily impacted by increasing mortgage interest rates, which were in the early stage of a rapid incline, and the market at large was recalibrating in response to overall higher borrowing costs. Furthermore, our increase in average selling communities played a significant role in driving increased orders in the current year, as we opened 30 new communities during the quarter.

Our West segment reported an 88% increase in net new home orders due to an 84% increase in monthly absorption rates and a 2% increase in average selling communities. The large increase in monthly absorption rates was largely due to the depressed monthly absorption rate of 1.9 in the prior-year period, which is well below our historical norms, as the onset of higher mortgage rates significantly slowed demand in the prior-year. Our Central segment reported a 257% increase in net new home orders due to an 88% increase in monthly absorption rates and a 90% increase in average selling communities. Similar to our West segment, monthly absorption rates in the prior-year period were negatively impacted by the onset of higher mortgage rates, which were substantially impacting buyer sentiment at the time. The 90% increase in average selling communities was due to significant growth in each of our Austin, Dallas-Fort Worth, Houston and Colorado markets. Our East segment reported an 86% increase in net new home orders due to a 117% increase in monthly absorption rates, offset by a 15% decrease in average selling communities. The increase in the monthly absorption rate in our East segment was due to the same factors mentioned for our West and Central segments, as reflected by the monthly absorption rate of 1.7 in the prior-year period. The decrease in average selling communities was primarily due to our DC Metro market, where our average community count decreased from 6.8 to 3.0.

Backlog Units, Dollar Value and Average Sales Price by Segment (dollars in thousands)


	As of September 30, 2023					As of September 30, 2022					Percentage Change
	Backlog Units	Backlog Dollar Value		Average Sales Price		Backlog Units	Backlog Dollar Value		Average Sales Price		Backlog Units		Backlog Dollar Value		Average Sales Price
West	1,760	$	1,329,241	$	755	1,865	$	1,648,692	$	884	(6)	%	(19)	%	(15)	%
Central	827	487,975		590		702	475,263		677		18	%	3	%	(13)	%
East	468	300,103		641		477	303,346		636		(2)	%	(1)	%	1	%
Total	3,055	$	2,117,319	$	693	3,044	$	2,427,301	$	797	—	%	(13)	%	(13)	%

Backlog units reflect the number of homes, net of actual cancellations experienced during the period, for which we have entered into a sales contract with a homebuyer but for which we have not yet delivered the home. Homes in backlog are generally delivered within seven to ten months from the time the sales contract is entered into, although we may experience cancellations of sales contracts prior to delivery. Our cancellation rate of homebuyers who contracted to buy a home but cancelled prior to delivery of the home (as a percentage of overall orders) was 10% and 27% during the three months ended September 30, 2023 and 2022, respectively. This cancellation rate represents a return to a level below our historical norms, which can be attributed largely to the surge in demand resulting from a shortage of supply in the housing market. The dollar value of backlog was $2.1 billion as of September 30, 2023 compared to $2.4 billion as of September 30, 2022. The average sales price in backlog decreased 13% to $693,000 as of September 30, 2023, compared to $797,000 at September 30, 2022. This decline in average sales price comprised the vast majority of the decrease in backlog dollar value, and can be attributed to a combination of factors, including variations in the geographical market mix and a weaker pricing environment as the housing market adjusted to higher mortgage rates. Affordability issues related to mortgage rates that began to rise in 2022 contributed to the decline in the current-year period, whereas our prior-year backlog dollar value had not yet been meaningfully impacted by the higher rate environment, as many homes in backlog were locked into significantly lower interest rates.

Backlog dollar value in our West segment decreased 19% due to a 15% decrease in average sales price and a 6% decrease in backlog units. The decrease in backlog average sales price is due largely to product mix and the existence of higher incentives in the current-year period backlog. The decrease in backlog units is largely due to the slower market conditions experienced in the second half of 2022, which led to a lower backlog balance leading into the current-year period. Backlog dollar value in our Central segment increased by 3% due to an 18% increase in backlog units, offset by a 13% decrease in average sales price. The increase in backlog units is due the combination of both higher monthly absorption rates and a 90% increase in average selling communities in the current-year period. Backlog dollar value in our East segment decreased by 1% due to a 2% decrease in backlog units offset by a 1% increase in average sales price. Sales demand in our East segment has remained strong, as evidenced by a monthly absorption rate above our Company average for the current year-period.

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New Homes Delivered, Homes Sales Revenue and Average Sales Price by Segment (dollars in thousands)


	Three Months Ended September 30, 2023					Three Months Ended September 30, 2022					Percentage Change
	New Homes Delivered	Home Sales Revenue		Average Sales Price		New Homes Delivered	Home Sales Revenue		Average Sales Price		New Homes Delivered		Home Sales Revenue		Average Sales Price
West	743	$	543,398	$	731	970	$	750,152	$	773	(23)	%	(28)	%	(5)	%
Central	304	163,629		538		332	204,627		616		(8)	%	(20)	%	(13)	%
East	176	118,268		672		161	102,712		638		9	%	15	%	5	%
Total	1,223	$	825,295	$	675	1,463	$	1,057,491	$	723	(16)	%	(22)	%	(7)	%

Home sales revenue decreased $232.2 million to $825.3 million for the three months ended September 30, 2023 compared to the prior-year period. The decrease was comprised of $173.5 million related to a 240-unit decrease in new homes delivered in the three months ended September 30, 2023, and $58.7 million related to a $48,000 decrease in average sales price for the three months ended September 30, 2023. Despite experiencing a 49% decline in backlog units at the beginning of the current-year period compared to the prior year, we have effectively mitigated some of the impact of the lower backlog by successfully selling and closing speculative homes throughout the current-year period. Additionally, we have observed notable improvements in cycle times, enabling us to deliver homes at a faster pace than the prior year, during which supply chains faced more significant challenges. The reduction in backlog units at the start of the current-year period can be primarily attributed to the influence of higher interest rates during the second half of 2022, which had a negative impact on our net new home orders and depleted our backlog leading into the current year.

Home sales revenue in our West segment decreased 28% due to a 23% decrease in new homes delivered and a 5% decrease in average sales price during the current-year period. The decrease in new homes delivered was due to a decrease in backlog units to start the current-year period compared to the prior-year period, partially offset by an increase in backlog conversion rate as well as an increase in spec homes sold and closed during the current-year period. The improvement we experienced in our backlog conversion rate was due to supply chain improvements and overall reductions in construction cycle times that had been disrupted due to the pandemic. The increase in average sales price was due to market and product mix factors, as a larger percentage of homes delivered in our West segment were from markets and communities with higher average sales prices. Home sales revenue in our Central segment decreased 20% due to an 8% decrease in new homes delivered, along with a 13% decrease in average sales price. The decrease in new homes delivered was due to a decrease in backlog units to start the current-year period compared to the prior-year period. Similar to our West segment, this impact was offset some by a higher backlog conversion rate in the current-year period, as well as more spec homes sold and closed within the current-year period. Home sales revenue in our East segment increased by 15% due to a 5% increase in average sales price and a 9% increase in new homes delivered. Although the units in backlog within our East segment were down by 2% entering the current-year period compared the prior-year period, our conversion of backlog improved significantly, due in part to successfully selling and closing speculative homes throughout the current-year period. A shift in the product mix in our DC Metro market was the primary contributor to the overall increase in average sales price.

Homebuilding Gross Margins (dollars in thousands)


	Three Months Ended September 30,
	2023			%		2022			%
Home sales revenue	$	825,295		100.0	%	$	1,057,491		100.0	%
Cost of home sales	641,074			77.7	%	771,148			72.9	%
Homebuilding gross margin	184,221			22.3	%	286,343			27.1	%
Add: interest in cost of home sales	27,035			3.3	%	26,531			2.5	%
Add: impairments and lot option abandonments	197			0.0	%	3,034			0.3	%
Adjusted homebuilding gross margin(1)	$	211,453		25.6	%	$	315,908		29.9	%
Homebuilding gross margin percentage	22.3		%			27.1		%
Adjusted homebuilding gross margin percentage(1)	25.6		%			29.9		%

__________

(1)Non-GAAP financial measure (as discussed below).

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Our homebuilding gross margin percentage decreased to 22.3% for the three months ended September 30, 2023 compared to 27.1% for the prior-year period. The decline in gross margin percentage was primarily attributed to the increased utilization of incentives in response to higher interest rates and diminished affordability compared to the prior-year period, when deliveries were comprised of homes sold before interest rates and affordability became more challenging. Excluding interest, impairments and lot option abandonments in cost of home sales, adjusted homebuilding gross margin percentage was 25.6% for the three months ended September 30, 2023 compared to 29.9% for the prior-year period.

Adjusted homebuilding gross margin is a non-GAAP financial measure. We believe this information is meaningful as it isolates the impact that leverage and noncash charges have on homebuilding gross margin and permits investors to make better comparisons with our competitors, who adjust gross margins in a similar fashion. Because adjusted homebuilding gross margin is not calculated in accordance with GAAP, it may not be comparable to other similarly titled measures of other companies and should not be considered in isolation or as a substitute for, or superior to, financial measures prepared in accordance with GAAP. See the table above reconciling this non-GAAP financial measure to homebuilding gross margin, the most directly comparable GAAP measure.

Sales and Marketing, General and Administrative Expense (dollars in thousands)


	Three Months Ended September 30,				As a Percentage of Home Sales Revenue
	2023		2022		2023		2022
Sales and marketing	$	42,874	$	41,950	5.2	%	4.0	%
General and administrative (G&A)	58,359		54,786		7.1	%	5.2	%
Total sales and marketing and G&A	$	101,233	$	96,736	12.3	%	9.1	%

Total SG&A expense as a percentage of home sales revenue increased to 12.3% for the three months ended September 30, 2023, compared to 9.1% in the prior-year period. Total SG&A expense increased $4.5 million to $101.2 million for the three months ended September 30, 2023 from $96.7 million in the prior-year period.

Sales and marketing expense as a percentage of home sales revenue increased to 5.2% for the three months ended September 30, 2023, compared to 4.0% for the prior-year period. This increase was largely due to reduced leverage on our fixed components of sales and marketing expenses, which is directly linked to the lower home sales revenue in the current-year period. Sales and marketing expense increased to $42.9 million for the three months ended September 30, 2023 compared to $42.0 million for the prior-year period, largely driven by an increase in broker commissions, which was a direct response to the shift in year-over-year market conditions.

General and administrative (“G&A”) expense as a percentage of home sales revenue increased to 7.1% of home sales revenue for the three months ended September 30, 2023 compared to 5.2% for the prior-year period. This increase was due primarily to lower leverage on our fixed components of G&A expenses, which is directly associated with the lower home sales revenue in the current-year period. G&A expense increased to $58.4 million for the three months ended September 30, 2023 compared to $54.8 million for the prior-year period, largely driven by an increase in wage-related costs.

Interest

Interest, which we incurred principally to finance land acquisitions, land development and home construction, totaled $36.9 million and $31.9 million for the three months ended September 30, 2023 and 2022, respectively. All interest incurred in both periods was capitalized.

Other Income, Net

Other income, net for the three months ended September 30, 2023 and 2022 was income of $11.7 million and $463,000, respectively. The increase was primarily due to higher interest income stemming from the higher interest rates realized on our existing cash balances, which have been significantly higher in the current-year period compared to the prior-year period.

Income Tax

For the three months ended September 30, 2023, we recorded a tax provision of $22.9 million based on an effective tax rate of 23.0%. For the three months ended September 30, 2022, we recorded a tax provision of $45.9 million based on an effective tax rate of 23.4%. The decrease in provision for income taxes is due to a $96.9 million decrease in income before income taxes to $99.6 million for the three months ended September 30, 2023, compared to $196.5 million for the prior-year period.

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Financial Services Segment

Income before income taxes from our financial services operations decreased to $4.6 million for the three months ended September 30, 2023 compared to $5.2 million for the prior-year period. Beginning in the fiscal year ended December 31, 2022, Tri Pointe Connect was fully consolidated under the Financial Services section of our consolidated statements of operations, with the noncontrolling interest recorded on the consolidated statements of operations as net income attributable to noncontrolling interests.

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

Net New Home Orders, Average Selling Communities and Monthly Absorption Rates by Segment


	Nine Months Ended September 30, 2023			Nine Months Ended September 30, 2022			Percentage Change
	Net New Home Orders	Average Selling Communities	Monthly Absorption Rates	Net New Home Orders	Average Selling Communities	Monthly Absorption Rates	Net New Home Orders		Average Selling Communities		Monthly Absorption Rates
West	2,932	78.2	4.2	2,481	71.4	3.9	18	%	10	%	8	%
Central	1,380	48.4	3.2	871	30.5	3.2	58	%	59	%	—	%
East	732	17.7	4.6	581	18.8	3.4	26	%	(6)	%	35	%
Total	5,044	144.3	3.9	3,933	120.7	3.6	28	%	20	%	8	%

Net new home orders for the nine months ended September 30, 2023 increased by 1,111, or 28%, to 5,044, compared to 3,933 during the prior-year period. The increase in net new home orders was due to a 20% increase in average selling communities in addition to an 8% increase in monthly absorption rates. The increase in average selling communities is a reflection of our organic growth initiatives, as we opened 65 new communities during the nine-month period ended September 30, 2023. Although monthly absorption rates have increased by 8% in the current-year period, the seasonal composition of our absorption levels has differed substantially on a year-over-year basis. The first nine months of 2022 were characterized by very strong demand during the first half of the year, followed by a very slow third quarter in response to the rapid rise in mortgage rates. The current-year period has realized a more orderly level of demand leading to consistently strong monthly absorption rates. The overall demand environment has been supported by the favorable supply and demand function, which has helped offset the affordability pressures brought about by higher mortgage rates.

Our West segment reported an 18% increase in net new home orders due to a 10% increase in average selling communities along with an 8% increase in monthly absorption rates. The increase in average selling communities was due to growth in our Bay Area, Inland Empire, Orange County-Los Angeles, Arizona, Las Vegas and Washington markets. Our Central segment reported a 58% increase in net new home orders due to a 59% increase in average selling communities. The increase in average selling communities was due primarily to growth in Texas, as we grew our community count in our Austin, Dallas-Fort Worth and Houston markets. We also expanded our average selling communities in Colorado. The strong community count growth in our Central market is not only a reflection of our diversification efforts outside of the West, but more broadly our initiative of achieving organic growth throughout our existing markets. Our East segment reported a 26% increase in net new home orders due to a 35% increase in monthly absorption rates. The 4.6 monthly absorption rate in the current-year period demonstrates a very healthy demand environment coming from our East market, with particularly robust contributions from our DC Metro and Charlotte markets.

New Homes Delivered, Homes Sales Revenue and Average Sales Price by Segment (dollars in thousands)


	Nine Months Ended September 30, 2023					Nine Months Ended September 30, 2022					Percentage Change
	New Homes Delivered	Home Sales Revenue		Average Sales Price		New Homes Delivered	Home Sales Revenue		Average Sales Price		New Homes Delivered		Home Sales Revenue		Average Sales Price
West	2,008	$	1,547,057	$	770	2,627	$	1,948,282	$	742	(24)	%	(21)	%	4	%
Central	885	521,074		589		989	556,126		562		(11)	%	(6)	%	5	%
East	568	344,646		607		431	282,978		657		32	%	22	%	(8)	%
Total	3,461	$	2,412,777	$	697	4,047	$	2,787,386	$	689	(14)	%	(13)	%	1	%

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Home sales revenue decreased $374.6 million to $2.4 billion for the nine months ended September 30, 2023 compared to the prior-year period. The decrease was comprised of $403.6 million related to 586 fewer homes delivered during the nine months ended September 30, 2023 compared to the prior-year period, offset by an increase of $29.0 million related to an $8,000 increase in average sales price of homes delivered during the nine months ended September 30, 2023 compared to the prior-year period. The decline in the number of homes delivered was due to a lower backlog entering the current year. The increase in the average sales price was due to product and community mix, as well as the resiliency of pricing despite higher mortgage interest rates.

Home sales revenue in our West segment decreased 21% due to a 24% decrease in new homes delivered, offset by a 4% increase in average sales price during the current-year period. The decrease in new homes delivered was due to a decrease in backlog units to start the current-year period compared to the prior-year period, partially offset by a large increase in backlog conversion rate. The decline in backlog units to start the current-year period was due largely to the impact of higher interest rates in the second half of 2022, which negatively impacted our net new home orders. The improvement we experienced in our backlog conversion rate was due to supply chain improvements and overall reductions in construction cycle times that had been disrupted due to the pandemic. The increase in average sales price was due to market and product mix factors, as a higher percentage of homes delivered in our West segment were from markets and communities with higher average sales prices. Home sales revenue in our Central segment decreased 6% due to an 11% decrease in new homes delivered, offset by a 5% increase in average sales price. The decrease in new homes delivered was due to a decrease in backlog units to start the current-year period compared to the prior-year period. The increase in average sales price is a reflection of the strong pricing power that existed through the first half of 2022 compared to the pricing levels that fueled deliveries that took place during the first half of 2022. Home sales revenue in our East segment increased by 22% due to a 32% increase in new homes delivered, offset by an 8% decrease in average sales price. The increase in new homes delivered was due to a higher backlog conversion rate during the current-year period compared to the prior-year period. All of the year-over-year delivery growth came from our newer Charlotte and Raleigh operations, where combined deliveries grew from 152 in the prior-year period to 439 during the current-year period. The decrease in average sales price was also due to our growth in the Carolinas, as housing prices tend to be generally lower in this market compared to our other markets in the East, which are located in the DC Metro area, where our current-year average sales price is in excess of $1.1 million.

Homebuilding Gross Margins (dollars in thousands)


	Nine Months Ended September 30,
	2023			%		2022			%
Home sales revenue	$	2,412,777		100.0	%	$	2,787,386		100.0	%
Cost of home sales	1,881,191			78.0	%	2,033,160			72.9	%
Homebuilding gross margin	531,586			22.0	%	754,226			27.1	%
Add: interest in cost of home sales	72,627			3.0	%	68,559			2.5	%
Add: impairments and lot option abandonments	12,675			0.5	%	4,495			0.2	%
Adjusted homebuilding gross margin(1)	$	616,888		25.6	%	$	827,280		29.7	%
Homebuilding gross margin percentage	22.0		%			27.1		%
Adjusted homebuilding gross margin percentage(1)	25.6		%			29.7		%

__________

(1)Non-GAAP financial measure (as discussed below).

Our homebuilding gross margin percentage decreased to 22.0% for the nine months ended September 30, 2023 compared to 27.1% for the prior-year period. The decrease in gross margin percentage was due largely to higher incentives utilized in the current-year period compared to the prior-year period, as current-year period deliveries were largely impacted by the higher interest rate environment that emerged during June 2022. As our homes are generally delivered within seven to ten months from the time we enter into a sales contract, the demand slowdown we experienced during the second half of 2022 put downward pressure on current-year period gross margins, as a much higher percentage of homes delivered during such period were impacted by higher incentives and/or price decreases. Additionally, our current-year performance was impacted by an impairment charge of $11.5 million related to a single community in the Bay Area of California, as well as a market mix that included more deliveries from lower-priced markets with lower gross margins. Excluding interest, impairments and lot option abandonments in cost of home sales, adjusted homebuilding gross margin percentage was 25.6% for the nine months ended September 30, 2023 compared to 29.7% for the prior-year period.

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Sales and Marketing, General and Administrative Expense (dollars in thousands)


	Nine Months Ended September 30,				As a Percentage of Home Sales Revenue
	2023		2022		2023		2022
Sales and marketing	$	127,977	$	112,712	5.3	%	4.0	%
General and administrative (G&A)	158,949		160,071		6.6	%	5.7	%
Total sales and marketing and G&A	$	286,926	$	272,783	11.9	%	9.8	%

Total SG&A expense as a percentage of home sales revenue increased to 11.9% for the nine months ended September 30, 2023, compared to 9.8% in the prior-year period. Total SG&A expense increased $14.1 million to $286.9 million for the nine months ended September 30, 2023 from $272.8 million in the prior-year period.

Sales and marketing expense as a percentage of home sales revenue increased to 5.3% for the nine months ended September 30, 2023, compared to 4.0% for the prior-year period. The increase was primarily due to higher broker commissions and increased marketing and advertising expenses, which were driven by weaker market conditions and community count growth.

G&A expense as a percentage of home sales revenue increased to 6.6% of home sales revenue for the nine months ended September 30, 2023 compared to 5.7% for the prior-year period. G&A expense decreased in absolute terms to $158.9 million for the nine months ended September 30, 2023 compared to $160.1 million for the prior-year period.

Interest

Interest, which we incurred principally to finance land acquisitions, land development and home construction, totaled $111.8 million and $89.2 million for the nine months ended September 30, 2023 and 2022, respectively. All interest incurred in both periods was capitalized.

Other Income, Net

Other income, net for the nine months ended September 30, 2023 and 2022 was income of $30.4 million and $852,000, respectively. The increase was primarily due to higher interest income stemming from the higher interest rates realized on our existing cash balances, which have been significantly higher in the current-year period compared to the same prior-year period.

Income Tax

For the nine months ended September 30, 2023, we recorded a tax provision of $71.8 million based on an effective tax rate of 25.1%. For the nine months ended September 30, 2022, we recorded a tax provision of $122.1 million based on an effective tax rate of 24.5%. The decrease in provision for income taxes is due to a $212.9 million decrease in income before income taxes to $286.2 million for the three months ended September 30, 2023, compared to $499.1 million for the prior-year period.

Financial Services Segment

Income before income taxes from our financial services operations decreased to $10.6 million for the nine months ended September 30, 2023 compared to $14.6 million for the prior-year period. Beginning in the fiscal year ended December 31, 2022, Tri Pointe Connect was fully consolidated under the Financial Services section of our consolidated statements of

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operations, with the noncontrolling interest recorded on the consolidated statements of operations as net income attributable to noncontrolling interests.

Lots Owned or Controlled by Segment

Lots owned or controlled include our share of lots controlled by our unconsolidated land development joint ventures. Investments in joint ventures are described in Note 6, Investments in Unconsolidated Entities, of the notes to our unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q. The table below summarizes our lots owned or controlled by segment as of the dates presented:


	September 30,		Increase (Decrease)
	2023	2022	Amount	%
Lots Owned
West	11,872	13,879	(2,007)	(14)	%
Central	5,523	5,137	386	8	%
East	1,526	1,682	(156)	(9)	%
Total	18,921	20,698	(1,777)	(9)	%
Lots Controlled(1)
West	4,366	5,045	(679)	(13)	%
Central	6,466	7,830	(1,364)	(17)	%
East	3,211	3,696	(485)	(13)	%
Total	14,043	16,571	(2,528)	(15)	%
Total Lots Owned or Controlled(1)	32,964	37,269	(4,305)	(12)	%

__________

(1)As of September 30, 2023 and 2022, lots controlled represented lots that were under land or lot option contracts or purchase contracts. As of September 30, 2023 and 2022, lots controlled for Central include 3,042 and 3,388 lots, respectively, and East include 86 and 154 lots, respectively, which represent our expected share of lots owned by our unconsolidated land development joint ventures.

Liquidity and Capital Resources

Overview

Our principal uses of capital for the nine months ended September 30, 2023 were operating expenses, land purchases, land development, home construction and repurchases of our common stock. We used funds generated by our operations to meet our short-term working capital requirements. We monitor financing requirements to evaluate potential financing sources, including bank credit facilities and note offerings. We also continue to monitor the credit markets as we remain focused on generating positive margins in our homebuilding operations and acquiring desirable land positions in order to maintain a strong balance sheet and keep us poised for growth. As of September 30, 2023, we had total liquidity of $1.5 billion, including cash and cash equivalents of $849.0 million and $699.9 million of availability under our Credit Facility, as described below, after considering the borrowing base provisions and outstanding letters of credit.

Our board of directors will consider a number of factors when evaluating our level of indebtedness and when making decisions regarding the incurrence of new indebtedness, including the purchase price of assets to be acquired with debt financing, the estimated market value of our assets and the availability of particular assets, and our Company as a whole, to generate cash flow to cover the expected debt service.

Senior Notes

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costs and discounts. The 2027 Notes mature on June 1, 2027 and interest is paid semiannually in arrears on June 1 and December 1.

Our outstanding senior notes (the “Senior Notes”) contain covenants that restrict our ability to, among other things, create liens or other encumbrances, enter into sale and leaseback transactions, or merge or sell all or substantially all of our assets. These limitations are subject to a number of qualifications and exceptions. As of September 30, 2023, we were in compliance with the covenants required by our Senior Notes.

Loans Payable

On June 29, 2022, we entered into a Third Modification Agreement (the “Modification”) to our Second Amended and Restated Credit Agreement dated as of March 29, 2019. The Modification, among other things, (i) increases the maximum amount of the revolving credit facility (the “Revolving Facility”) under the Credit Agreement from $650.0 million to $750.0 million, (ii) increases the sublimit for issuance of letters of credit under the Revolving Facility from $100 million to $150 million and (iii) extends the maturity date of both the Revolving Facility and term loan facility (the “Term Facility”) under the Credit Agreement to June 29, 2027. We may borrow under the Revolving Facility in the ordinary course of business to repay senior notes and fund our operations, including our land acquisition, land development and homebuilding activities. Borrowings under the Revolving Facility will be governed by, among other things, a borrowing base. Interest rates under the Revolving Facility will be based on the Secured Overnight Financing Rate (“SOFR”), plus a spread ranging from 1.25% to 1.90%, depending on the Company’s leverage ratio. Interest rates under the Term Facility will be based on SOFR, plus a spread ranging from 1.10% to 1.85%, depending on the Company’s leverage ratio.

As of September 30, 2023, we had no outstanding debt under the Revolving Facility and there was $699.9 million of availability after considering the borrowing base provisions and outstanding letters of credit. As of September 30, 2023, we had $250 million of outstanding debt under the Term Facility with an interest rate of 6.50%. As of September 30, 2023, there were $5.4 million of capitalized debt financing costs, included in other assets on our consolidated balance sheet, related to the Credit Facility that will amortize over the remaining term of the Credit Facility. Accrued interest, including loan commitment fees, related to the Term Facility was $1.8 million and $1.5 million as of September 30, 2023 and December 31, 2022, respectively.

As of September 30, 2023 we had $38.3 million outstanding related to two seller-financed loans. As of December 31, 2022 we had $37.4 million outstanding related to one seller-financed loan. All seller-financed loans are to acquire lots for the construction of homes. Principal on these loans are expected to be fully paid by the end of fiscal year 2024, provided certain achievements are met. One of the seller-financed loans, representing $37.4 million of the total balance, accrues interest at an imputed interest rate of 4.50% per annum. The second seller-financed loan represented $910,000 of the total balance as of September 30, 2023.

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Under the Credit Facility, we are required to comply with certain financial covenants, including, but not limited to, those set forth in the table below (dollars in thousands):


	Actual at September 30,			Covenant Requirement at September 30,
Financial Covenants	2023			2023
Consolidated Tangible Net Worth	$	2,763,012		$	1,929,726
(Not less than $1.58 billion plus 50% of net income and 50% of the net proceeds from equity offerings after March 31, 2022)
Leverage Test	16.5		%	≤60%
(Not to exceed 60%)
Interest Coverage Test	5.0			≥1.5
(Not less than 1.5:1.0)

In addition, the Credit Facility limits the aggregate number of single family dwellings (where construction has commenced) owned by the Company or any guarantor that are not presold or model units to no more than the greater of (i) 50% of the number of housing unit closings (as defined) during the preceding 12 months; or (ii) 100% of the number of housing unit closings during the preceding 6 months. However, a failure to comply with this “Spec Unit Inventory Test” will not be an event of default or default, but will be excluded from the borrowing base as of the last day of the quarter in which the non-compliance occurs. The Credit Facility further requires that at least 95.0% of consolidated tangible net worth must be attributable to the Company and its guarantor subsidiaries, subject to certain grace periods.

As of September 30, 2023, we were in compliance with all of these financial covenants.

Stock Repurchase Program

On February 15, 2023, our board of directors approved a share repurchase program (the “2023 Repurchase Program”), authorizing the repurchase of shares of common stock with an aggregate value of up to $250 million through December 31, 2023. Purchases of common stock pursuant to the 2023 Repurchase Program may be made in open market transactions effected through a broker-dealer at prevailing market prices, in block trades, or by other means in accordance with federal securities laws, including pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 under the Exchange Act. We are not obligated under the 2023 Repurchase Program to repurchase any specific number or amount of shares of common stock, and we may modify, suspend or discontinue the program at any time. Company management will determine the timing and amount of any repurchases in its discretion based on a variety of factors, such as the market price of our common stock, corporate requirements, general market economic conditions, legal requirements and applicable tax effects. During the three months ended September 30, 2023, we repurchased and retired an aggregate of 1,753,045 shares of our common stock under the Repurchase Program for $54.5 million. For the nine months ended September 30, 2023, we repurchased and retired an aggregate of 4,465,098 shares of our common stock under the Repurchase Program for a total of $124.4 million.

Leverage Ratios

We believe that our leverage ratios provide useful information to the users of our financial statements regarding our financial position and cash and debt management. The ratio of debt-to-capital and the ratio of net debt-to-net capital are calculated as follows (dollars in thousands):

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	September 30, 2023			December 31, 2022
Loans Payable	$	288,337		$	287,427
Senior Notes	1,093,321			1,090,624
Total debt	1,381,658			1,378,051
Stockholders’ equity	2,923,397			2,832,389
Total capital	$	4,305,055		$	4,210,440
Ratio of debt-to-capital(1)	32.1		%	32.7		%

Total debt	$	1,381,658		$	1,378,051
Less: Cash and cash equivalents	(849,039)			(889,664)
Net debt	532,619			488,387
Stockholders’ equity	2,923,397			2,832,389
Net capital	$	3,456,016		$	3,320,776
Ratio of net debt-to-net capital(2)	15.4		%	14.7		%

__________

(1)The ratio of debt-to-capital is computed as the quotient obtained by dividing total debt by the sum of total debt plus stockholders’ equity.

(2)The ratio of net debt-to-net capital is a non-GAAP financial measure and is computed as the quotient obtained by dividing net debt (which is total debt less cash and cash equivalents) by the sum of net debt plus stockholders’ equity. The most directly comparable GAAP financial measure is the ratio of debt-to-capital. We believe the ratio of net debt-to-net capital is a relevant financial measure for investors to understand the leverage employed in our operations and as an indicator of our ability to obtain financing. See the table above reconciling this non-GAAP financial measure to the ratio of debt-to-capital. Because the ratio of net debt-to-net capital is not calculated in accordance with GAAP, it may not be comparable to other similarly titled measures of other companies and should not be considered in isolation or as a substitute for, or superior to, financial measures prepared in accordance with GAAP.

Cash Flows—Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

For the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022:

•Net cash provided by (used in) in operating activities increased by $306.4 million to net cash provided of $124.8 million for the nine months ended September 30, 2023 compared to net cash used in operating activities of $181.6 million for the prior-year period. The change was comprised primarily of a decrease in cash used for real estate inventory purchases of $307.4 million, offset by a mix of other offsetting changes in net income, other assets, receivables, accounts payable, accrued expenses and other liabilities, deferred income taxes and returns on investments in unconsolidated entities.

•Net cash used in investing activities was $25.6 million for the nine months ended September 30, 2023, compared to $54.7 million for the prior-year period. The decrease in net cash used in investing activities was due to a reduction in cash used related to both investments in unconsolidated entities and purchases of property and equipment.

•Net cash used in financing activities was $139.9 million for the nine months ended September 30, 2023, compared to net cash used in financing activities of $217.1 million for the prior-year period. Net cash used in financing activities in the current-year period was primarily comprised of $124.5 million of cash used for share repurchases, compared to $202.6 million during the prior-year period.

Off-Balance Sheet Arrangements and Contractual Obligations

In the ordinary course of business, we enter into purchase contracts in order to procure lots for the construction of our homes. We are subject to customary obligations associated with entering into contracts for the purchase of land and improved lots. These purchase contracts typically require a cash deposit and the purchase of properties under these contracts is generally contingent upon satisfaction of certain requirements by the sellers, including obtaining applicable property and development entitlements. We also utilize option contracts with land sellers and land banking arrangements as a method of acquiring land in staged takedowns, to help us manage the financial and market risk associated with land holdings, and to reduce the use of funds from our corporate financing sources. These option contracts and land banking arrangements generally require a non-refundable deposit for the right to acquire land and lots over a specified period of time at pre-determined prices. We generally have the right, at our discretion, to terminate our obligations under both purchase contracts and option contracts by forfeiting our cash

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deposit with no further financial responsibility to the land seller. In some cases, however, we may be contractually obligated to complete development work even if we terminate the option to procure land or lots. As of September 30, 2023, we had $177.2 million of cash deposits, the majority of which are non-refundable, pertaining to land and lot option contracts and purchase contracts with an aggregate remaining purchase price of $1.2 billion (net of deposits). See Note 7, Variable Interest Entities, to the accompanying condensed notes to unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q.

Our utilization of land and lot option contracts and land banking arrangements is dependent on, among other things, the availability of land sellers or land banking firms willing to enter into such arrangements, the availability of capital to finance the development of optioned land and lots, general housing market conditions, and local market dynamics. Options may be more difficult to procure from land sellers in strong housing markets and are more prevalent in certain geographic regions.

As of September 30, 2023, we held equity investments in thirteen active homebuilding partnerships or limited liability companies. Our participation in these entities may be as a developer, a builder, or an investment partner. See Note 6, Investments in Unconsolidated Entities, to the accompanying condensed notes to unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q.

Supplemental Guarantor Financial Information

2027 Notes and 2028 Notes

On June 5, 2017, Tri Pointe issued the 2027 Notes and on June 10, 2020, Tri Pointe issued the 2028 Notes. All of Tri Pointe’s 100% owned subsidiaries that are guarantors (each a “Guarantor” and, collectively, the “Guarantors”) of the Credit Facility, including Tri Pointe Homes Holdings, are party to supplemental indentures pursuant to which they jointly and severally guarantee Tri Pointe’s obligations with respect to these Notes. Each Guarantor of the 2027 Notes and the 2028 Notes is 100% owned by Tri Pointe, and all guarantees are full and unconditional, subject to customary exceptions pursuant to the indentures governing the 2027 Notes and the 2028 Notes, as described in the following paragraph. All of our non-Guarantor subsidiaries have nominal assets and operations and are considered minor, as defined in Rule 3-10(h) of Regulation S-X. In addition, Tri Pointe has no independent assets or operations, as defined in Rule 3-10(h) of Regulation S-X. There are no significant restrictions upon the ability of Tri Pointe or any Guarantor to obtain funds from any of their respective wholly owned subsidiaries by dividend or loan. None of the assets of our subsidiaries represent restricted net assets pursuant to Rule 4-08(e)(3) of Regulation S-X.

A Guarantor of the 2027 Notes and the 2028 Notes shall be released from all of its obligations under its guarantee if (i) all of the assets of the Guarantor have been sold; (ii) all of the equity interests of the Guarantor held by Tri Pointe or a subsidiary thereof have been sold; (iii) the Guarantor merges with and into Tri Pointe or another Guarantor, with Tri Pointe or such other Guarantor surviving the merger; (iv) the Guarantor is designated “unrestricted” for covenant purposes; (v) the Guarantor ceases to guarantee any indebtedness of Tri Pointe or any other Guarantor which gave rise to such Guarantor guaranteeing the 2027 Notes or the 2028 Notes; (vi) Tri Pointe exercises its legal defeasance or covenant defeasance options; or (vii) all obligations under the applicable supplemental indenture are discharged.

2024 Notes

Tri Pointe and Tri Pointe Homes Holdings are co-issuers of the 2024 Notes. All of the Guarantors (other than Tri Pointe Homes Holdings) have entered into supplemental indentures pursuant to which they jointly and severally guarantee the obligations of Tri Pointe and Tri Pointe Homes Holdings with respect to the 2024 Notes. Each Guarantor of the 2024 Notes is 100% owned by Tri Pointe and Tri Pointe Homes Holdings, and all guarantees are full and unconditional, subject to customary exceptions pursuant to the indentures governing the 2024 Notes, as described below.

A Guarantor of the 2024 Notes shall be released from all of its obligations under its guarantee if (i) all of the assets of the Guarantor have been sold; (ii) all of the equity interests of the Guarantor held by Tri Pointe or a subsidiary thereof have been sold; (iii) the Guarantor merges with and into Tri Pointe or another Guarantor, with Tri Pointe or such other Guarantor surviving the merger; (iv) the Guarantor is designated “unrestricted” for covenant purposes; (v) the Guarantor ceases to guarantee any indebtedness of Tri Pointe or any other Guarantor which gave rise to such Guarantor guaranteeing the 2024 Notes; (vi) Tri Pointe exercises its legal defeasance or covenant defeasance options; or (vii) all obligations under the applicable indenture are discharged.

Tri Pointe’s non-Guarantor subsidiaries are considered minor, as defined in Rule 3-10(h) of Regulation S-X, therefore the consolidated financial statements represent the full issuer and guarantor subsidiary results.

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Inflation

Inflation in the United States remained elevated during the three months ended September 30, 2023, despite notable improvement from the prior-year peak levels. In 2022, inflation materially exceeded a target range generally deemed appropriate in the United States, and despite the improvements achieved since the Federal Reserve began increasing its benchmark rate, current levels remain elevated above the acceptable target. Our operations can be adversely impacted by inflation, primarily from higher land, financing, labor, material and construction costs. In addition, inflation can lead to higher and more volatile mortgage rates, which can significantly affect the affordability of mortgage financing to homebuyers, as well as the confidence of our consumer base. While we attempt to pass on cost increases to customers through increased prices, when weak housing market conditions exist, we are often unable to offset cost increases with higher selling prices.

Seasonality

We have experienced seasonal variations in our quarterly operating results and capital requirements. We typically take orders for more homes in the first half of the fiscal year than in the second half, which creates additional working capital requirements in the second and third quarters to build our inventories to satisfy the deliveries in the second half of the year. We expect this seasonal pattern to continue over the long-term, although it may be affected by volatility in the homebuilding industry (including developments and volatility resulting from the war in Ukraine). In addition to the overall volume of orders and deliveries, our operating results in a given quarter are significantly affected by the number and characteristics of our active selling communities; timing of new community openings; the timing of land and lot sales; and the mix of product types, geographic locations and average sales prices of the homes delivered during the quarter. Therefore, our operating results in any given quarter will fluctuate compared to prior periods based on these factors.

Critical Accounting Estimates

The preparation of our consolidated financial statements requires the use of judgment in the application of accounting policies and estimates of uncertain matters. There have been no significant changes to our critical accounting policies and estimates during the nine months ended September 30, 2023 from those disclosed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the year ended December 31, 2022.

Recently Issued Accounting Standards

See Note 1, Organization, Basis of Presentation and Summary of Significant Accounting Policies, to the accompanying condensed notes to unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risks related to fluctuations in interest rates on our outstanding debt. We did not utilize swaps, forward or option contracts on interest rates or commodities, or other types of derivative financial instruments as of or during the nine months ended September 30, 2023. We did not enter into during the nine months ended September 30, 2023, and currently do not hold, derivatives for trading or speculative purposes.

Item 4. Controls and Procedures

We have established disclosure controls and procedures to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and accumulated and communicated to management, including the Chief Executive Officer (the “Principal Executive Officer”) and Chief Financial Officer (the “Principal Financial Officer”), as appropriate, to allow timely decisions regarding required disclosure. Under the supervision and with the participation of senior management, including our Principal Executive Officer and Principal Financial Officer, we evaluated our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act. Based on this evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2023.

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Our management, including our Principal Executive Officer and Principal Financial Officer, has evaluated our internal control over financial reporting to determine whether any change occurred during the three months ended September 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, there has been no such change during the three months ended September 30, 2023.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The information required with respect to this item can be found under Note 13, Commitments and Contingencies—Legal Matters, to the accompanying condensed notes to unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q and is incorporated by reference into this Item 1.

Item 1A. Risk Factors

There have been no material changes to the risk factors in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022. If any of the risks discussed in our Annual Report on Form 10-K occur, our business, prospects, liquidity, financial condition and results of operations could be materially and adversely affected, in which case the trading price of our common stock could decline significantly and you could lose all or a part of your investment. Some statements in this Quarterly Report on Form 10-Q constitute forward-looking statements. Please refer to Part I, Item 2 of this Quarterly Report on Form 10-Q entitled “Cautionary Note Concerning Forward-Looking Statements.”

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities

On February 15, 2023, our board of directors approved the 2023 Repurchase Program, authorizing the repurchase of shares of common stock with an aggregate value of up to $250 million through December 31, 2023. Purchases of common stock pursuant to the 2023 Repurchase Program may be made in open market transactions effected through a broker-dealer at prevailing market prices, in block trades, or by other means in accordance with federal securities laws, including pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 under the Exchange Act. We are not obligated under the 2023 Repurchase Program to repurchase any specific number or amount of shares of common stock, and we may modify, suspend or discontinue the program at any time. Company management will determine the timing and amount of any repurchases in its discretion based on a variety of factors, such as the market price of our common stock, corporate requirements, general market economic conditions, legal requirements and applicable tax effects. During the three months ended September 30, 2023, we repurchased and retired an aggregate of 1,753,045 shares of our common stock under the Repurchase Program for $54.5 million, excluding commissions. For the nine months ended September 30, 2023, we repurchased and retired an aggregate of 4,465,098 shares of our common stock under the Repurchase Program for a total of $124.4 million, excluding commissions.

During the three months ended September 30, 2023, we repurchased and retired the following shares pursuant to our repurchase programs:


	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced program	Approximate dollar value of shares that may yet be purchased under the program
July 1, 2023 to July 31, 2023	300,400	$	30.48	300,400	$	170,929,134
August 1, 2023 to August 31, 2023	1,298,085	$	31.47	1,298,085	$	130,084,532
September 1, 2023 to September 30, 2023	154,560	$	29.23	154,560	$	125,567,033
Total	1,753,045	$	31.10	1,753,045

Item 5. Other Information

(c) During the quarter ended September 30, 2023, no director or officer subject to Section 16 of the Exchange Act adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements (in each case, as defined in Item 408(a) of Regulation S-K).

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Item 6. Exhibits


Exhibit Number						Exhibit Description

3.1						Amended and Restated Certificate of Incorporation of Tri Pointe Homes, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (filed July 7, 2015))

3.2						Certificate of Amendment to Amended and Restated Certificate of Incorporation of Tri Pointe Homes, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8‑K (filed January 21, 2021))

3.3						Amended and Restated Bylaws of Tri Pointe Homes, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (filed October 19 , 20 23 ))

22.1						List of guarantor subsidiaries of Tri Pointe Homes, Inc. (incorporated by reference to Exhibit 22.1 to the Company’s Annual Report on Form 10-K (filed February 21, 2023))

31.1						Chief Executive Officer Section 302 Certification of the Sarbanes-Oxley Act of 2002

31.2						Chief Financial Officer Section 302 Certification of the Sarbanes-Oxley Act of 2002

32.1						Chief Executive Officer Section 906 Certification of the Sarbanes-Oxley Act of 2002

32.2						Chief Financial Officer Section 906 Certification of the Sarbanes-Oxley Act of 2002

101						The following materials from Tri Pointe Homes, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statement of Cash Flows, and (iv) Condensed Notes to Consolidated Financial Statement.

104						Cover page from Tri Pointe Homes, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in Inline XBRL (and contained in Exhibit 101).

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	Tri Pointe Homes, Inc.

Date: October 26, 2023	By:	/s/ Douglas F. Bauer
		Douglas F. Bauer
		Chief Executive Officer
		(Principal Executive Officer)
Date: October 26, 2023	By:	/s/ Glenn J. Keeler
		Glenn J. Keeler
		Chief Financial Officer
		(Principal Financial Officer)

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