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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 June 30, 2020
or
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 Group, 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.)
_____________________________________________________________________________________________ 
19540 Jamboree Road, Suite 300
Irvine, California 92612
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code (949438-1400
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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareTPHNew 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 filerAccelerated filer
Non-accelerated filerSmaller 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  
130,325,865 shares of the registrant's common stock were issued and outstanding as of July 10, 2020.



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 report) refer to TRI Pointe Group, Inc., a Delaware corporation (“TRI Pointe Group”) and its consolidated subsidiaries.





TRI POINTE GROUP, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
June 30, 2020
 
Page
Number
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 6.

- 2 -


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

TRI POINTE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
 
June 30, 2020December 31, 2019
(unaudited)
Assets
Cash and cash equivalents$474,545  $329,011  
Receivables87,580  69,276  
Real estate inventories3,012,622  3,065,436  
Investments in unconsolidated entities36,040  11,745  
Goodwill and other intangible assets, net159,626  159,893  
Deferred tax assets, net39,744  49,904  
Other assets167,747  173,425  
Total assets$3,977,904  $3,858,690  
Liabilities  
Accounts payable$71,086  $66,120  
Accrued expenses and other liabilities314,818  322,043  
Loans payable250,000  250,000  
Senior notes, net1,166,189  1,033,985  
Total liabilities1,802,093  1,672,148  
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 of June 30, 2020 and
   December 31, 2019, respectively
    
Common stock, $0.01 par value, 500,000,000 shares authorized;
   130,325,865 and 136,149,633 shares issued and outstanding at
   June 30, 2020 and December 31, 2019, respectively
1,303  1,361  
Additional paid-in capital482,111  581,195  
Retained earnings1,692,385  1,603,974  
Total stockholders’ equity2,175,799  2,186,530  
Noncontrolling interests12  12  
Total equity2,175,811  2,186,542  
Total liabilities and equity$3,977,904  $3,858,690  
 
See accompanying condensed notes to the unaudited consolidated financial statements.

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TRI POINTE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except share and per share amounts)
 
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Homebuilding:
Home sales revenue$766,942  $692,138  $1,361,780  $1,184,841  
Land and lot sales revenue220  5,183  220  6,212  
Other operations revenue648  637  1,266  1,235  
Total revenues767,810  697,958  1,363,266  1,192,288  
Cost of home sales601,434  574,684  1,074,316  996,220  
Cost of land and lot sales374  5,562  576  7,057  
Other operations expense624  627  1,248  1,217  
Sales and marketing45,194  47,065  87,831  86,054  
General and administrative37,554  36,854  77,391  75,451  
Restructuring charges5,549    5,549    
Homebuilding income from operations77,081  33,166  116,355  26,289  
Equity in loss of unconsolidated entities(25) (26) (39) (51) 
Other (expense) income, net(6,328) 153  (5,955) 6,394  
Homebuilding income before income taxes70,728  33,293  110,361  32,632  
Financial Services:
Revenues2,296  756  3,890  1,058  
Expenses1,285  627  2,364  948  
Equity in income of unconsolidated entities2,932  1,972  4,488  2,747  
Financial services income before income taxes3,943  2,101  6,014  2,857  
Income before income taxes74,671  35,394  116,375  35,489  
Provision for income taxes(18,143) (9,132) (27,964) (9,156) 
Net income$56,528  $26,262  $88,411  $26,333  
Earnings per share  
Basic$0.43  $0.18  $0.67  $0.19  
Diluted$0.43  $0.18  $0.67  $0.18  
Weighted average shares outstanding
Basic130,292,563  142,244,166  132,326,856  142,055,766  
Diluted130,506,567  142,471,191  132,763,775  142,431,725  
 
See accompanying condensed notes to the unaudited consolidated financial statements.

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TRI POINTE GROUP, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(unaudited)
(in thousands, except share amounts)
 
Number of
Shares of Common
Stock
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Total
Stockholders’
Equity
Noncontrolling
Interests
Total
Equity
Balance at March 31, 2020130,236,981  $1,302  $478,122  $1,635,857  $2,115,281  $12  $2,115,293  
Net income—  —  —  56,528  56,528  —  56,528  
Shares issued under share-based awards88,884  1  230  —  231  —  231  
Minimum tax withholding paid on behalf of employees for restricted stock units—  —  (27) —  (27) —  (27) 
Stock-based compensation expense—  —  3,786  —  3,786  —  3,786  
Share repurchases      —    —    
Balance at June 30, 2020130,325,865  $1,303  $482,111  $1,692,385  $2,175,799  $12  $2,175,811  
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, 2019136,149,633  $1,361  $581,195  $1,603,974  $2,186,530  $12  $2,186,542  
Net income—  —  —  88,411  88,411  —  88,411  
Shares issued under share-based awards734,555  8  913  —  921  —  921  
Minimum tax withholding paid on behalf of employees for restricted stock units—  —  (5,473) —  (5,473) —  (5,473) 
Stock-based compensation expense—  —  7,411  —  7,411  —  7,411  
Share repurchases(6,558,323) (66) (101,935) —  (102,001) —  (102,001) 
Balance at June 30, 2020130,325,865  $1,303  $482,111  $1,692,385  $2,175,799  $12  $2,175,811  
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 March 31, 2019142,210,147  $1,422  $658,743  $1,396,858  $2,057,023  $13  $2,057,036  
Net income—  —  —  26,262  26,262  —  26,262  
Shares issued under share-based awards48,516  1    —  1  —  1  
Minimum tax withholding paid on behalf of employees for restricted stock units—  —  (7) —  (7) —  (7) 
Stock-based compensation expense—  —  3,351  —  3,351  —  3,351  
Balance at June 30, 2019142,258,663  $1,423  $662,087  $1,423,120  $2,086,630  $13  $2,086,643  
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, 2018141,661,713  $1,417  $658,720  $1,396,787  $2,056,924  $13  $2,056,937  
Net income—  —  —  26,333  26,333  —  26,333  
Shares issued under share-based awards596,950  6  193  —  199  —  199  
Minimum tax withholding paid on behalf of employees for restricted stock units—  —  (3,612) —  (3,612) —  (3,612) 
Stock-based compensation expense—  6,786  6,786  6,786  
Balance at June 30, 2019142,258,663  $1,423  $662,087  $1,423,120  $2,086,630  $13  $2,086,643  

See accompanying condensed notes to the unaudited consolidated financial statements.



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TRI POINTE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
 
 Six Months Ended June 30,
 20202019
Cash flows from operating activities:  
Net income$88,411  $26,333  
Adjustments to reconcile net income to net cash provided by (used in) operating activities:  
Depreciation and amortization12,176  11,561  
Equity in income of unconsolidated entities, net(4,449) (2,696) 
Deferred income taxes, net10,160  3,097  
Amortization of stock-based compensation7,411  6,786  
Charges for impairments and lot option abandonments1,729  5,490  
Changes in assets and liabilities:  
Real estate inventories53,902  (50,700) 
Receivables(18,304) (6,778) 
Other assets3,677  (1,774) 
Accounts payable4,966  (18,221) 
Accrued expenses and other liabilities(5,784) (80,964) 
Returns on investments in unconsolidated entities, net5,475  3,927  
Loss on extinguishment of debt6,858    
Net cash provided by (used in) operating activities166,228  (103,939) 
Cash flows from investing activities:
Purchases of property and equipment(12,002) (13,142) 
Proceeds from sale of property and equipment17  46  
Investments in unconsolidated entities(25,715) (712) 
Net cash used in investing activities(37,700) (13,808) 
Cash flows from financing activities:
Borrowings from debt850,000  400,000  
Repayment of debt(721,673) (381,895) 
Debt issuance costs(4,768) (3,125) 
Proceeds from issuance of common stock under share-based awards921  199  
Minimum tax withholding paid on behalf of employees for share-based awards(5,473) (3,612) 
Share repurchases(102,001)   
Net cash provided by financing activities17,006  11,567  
Net increase (decrease) in cash and cash equivalents145,534  (106,180) 
Cash and cash equivalents–beginning of period329,011  277,696  
Cash and cash equivalents–end of period$474,545  $171,516  
 
See accompanying condensed notes to the unaudited consolidated financial statements.

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TRI POINTE GROUP, 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 through its portfolio of six quality brands across ten states, including Maracay in Arizona, Pardee Homes in California and Nevada, Quadrant Homes in Washington, Trendmaker Homes in Texas, TRI Pointe Homes in California, Colorado and the Carolinas and Winchester Homes in Maryland and Virginia.
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, 2019. 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 three and six months ended June 30, 2020 are not necessarily indicative of the results to be expected for the full year ending December 31, 2020 due to seasonal variations and other factors, such as the effects of the novel coronavirus (“COVID-19”) and its influence on our future results.
The consolidated financial statements include the accounts of TRI Pointe Group and its wholly owned subsidiaries, as well as other entities in which TRI Pointe Group has a controlling interest and variable interest entities (“VIEs”) in which TRI Pointe Group is the primary beneficiary.  The noncontrolling interests as of June 30, 2020 and December 31, 2019 represent the outside owners’ interests in the Company’s consolidated entities.  All significant intercompany accounts have been eliminated upon consolidation.
Use of Estimates
Our financial statements have been prepared in accordance with GAAP. 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.
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.
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 is 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.
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Land and lot sales revenue
Historically, we have generated land and lot sales revenue from a small number of transactions, although in some years 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 at our Quadrant Homes reporting segment. We are responsible for making lease payments to the landowner, and we collect sublease payments from the buyers of the buildings. This ground lease is accounted for in accordance with ASC Topic 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 and is accounted for under the equity method of accounting.  We record a percentage of income earned by TRI Pointe Connect based on our ownership percentage in this joint venture. TRI Pointe Connect activity appears as equity in income of unconsolidated entities under the Financial Services section of our consolidated statements of operations.
Title and escrow services operations
TRI Pointe Assurance provides title examinations for our homebuyers in Austin (Texas), Colorado and Maryland and both title examinations and escrow services for our homebuyers in Arizona, Nevada, Texas 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.
Restructuring Charges
In May 2020, due to the existing and anticipated future impact of the COVID-19 pandemic on our business, we implemented a workforce reduction plan. As a result of the workforce reduction plan, we incurred $5.5 million of pre-tax restructuring charges consisting of severance and related costs, substantially all of which had been paid as of June 30, 2020.
Recently Issued Accounting Standards Not Yet Adopted
In December 2019, the FASB issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for the Company beginning after December 15, 2020. We do not expect the adoption of ASU 2019-12 to have a material impact on our consolidated financial statements.
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Adoption of New Accounting Standards
In January 2017, the FASB issued ASU No. 2017-04, IntangiblesGoodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment (“ASU 2017-04”), which removes the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019, with early adoption permitted, and applied prospectively. We adopted ASU 2017-04 on January 1, 2020 and our adoption did not have a material impact on our consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial InstrumentsCredit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which replaces the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to estimate credit losses for financial instruments, including receivables from community facilities districts or similar municipalities. ASU 2016-13 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019, with early adoption permitted. We adopted ASU 2016-13 on January 1, 2020 and our adoption did not have a material impact on our consolidated financial statements.


2. Segment Information
We operate two principal businesses: homebuilding and financial services.
Our homebuilding operations consist of six homebuilding brands that acquire and develop land and construct and sell single-family detached and attached homes. In accordance with ASC Topic 280, Segment Reporting, in determining the most appropriate reportable segments, we considered similar economic and other characteristics, including product types, average selling prices, gross profits, production processes, suppliers, subcontractors, regulatory environments, land acquisition results, and underlying demand and supply. Based upon these factors, our homebuilding operations are comprised of the following six reportable segments: Maracay, consisting of operations in Arizona; Pardee Homes, consisting of operations in California and Nevada; Quadrant Homes, consisting of operations in Washington; Trendmaker Homes, consisting of operations in Texas; TRI Pointe Homes, consisting of operations in California and Colorado, as well as early stage operations in the Carolinas; and Winchester Homes, consisting of operations in Maryland 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 and 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. A portion of the expenses incurred by Corporate is allocated to the homebuilding reporting segments.
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 June 30,Six Months Ended June 30,
2020201920202019
Revenues  
Maracay $86,674  $55,653  $158,426  $95,214  
Pardee Homes242,282  194,699  420,684  329,562  
Quadrant Homes37,298  71,066  81,372  114,937  
Trendmaker Homes121,257  121,963  217,377  192,784  
TRI Pointe Homes206,474  192,752  365,144  364,543  
Winchester Homes73,825  61,825  120,263  95,248  
Total homebuilding revenues767,810  697,958  1,363,266  1,192,288  
Financial services2,296  756  3,890  1,058  
Total$770,106  $698,714  $1,367,156  $1,193,346  
Income (loss) before income taxes
Maracay $8,042  $2,986  $12,604  $4,176  
Pardee Homes48,980  14,735  82,459  13,944  
Quadrant Homes2,246  5,193  4,943  2,554  
Trendmaker Homes10,512  6,908  15,309  5,310  
TRI Pointe Homes15,741  12,280  20,101  22,489  
Winchester Homes4,670  2,555  5,716  1,789  
Corporate(19,463) (11,364) (30,771) (17,630) 
Total homebuilding income before income taxes70,728  33,293  110,361  32,632  
Financial services3,943  2,101  6,014  2,857  
Total$74,671  $35,394  $116,375  $35,489  
 
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Total real estate inventories and total assets for each of our reportable segments, as of the date indicated, were as follows (in thousands):
June 30, 2020December 31, 2019
Real estate inventories
Maracay$352,316  $338,259  
Pardee Homes1,209,444  1,218,384  
Quadrant Homes270,446  264,437  
Trendmaker Homes240,467  268,759  
TRI Pointe Homes699,708  737,662  
Winchester Homes240,241  237,935  
Total$3,012,622  $3,065,436  
Total assets
Maracay$389,587  $382,262  
Pardee Homes1,306,846  1,300,047