Q4 2019 Earnings Call
building on our success
We believe we can continue to grow and improve and we've set a path to achieve that growth and enhance our profitability 2019 was a good year for home builders in general and four marriages particular after an initial slow start demand picked up quickly and was strong to the end of the year as housing fundamental extended models continue to improve we gain momentum across many authors measures as the year progressed are your over your accounts improve each quart or 2019 / 2018 for orders closings and back on growth both of the units and total dollar value package that was driven by higher absorption which were up 19% and 27% and 37% year-over-year from the 2nd through the fourth quarter respectively Thursday. We attributed mainly to our position in the entry-level on first move upmarket. We have the right product at the right price and the right locations, which is a basic recipe for success as a home builder.
additional volume and revenue growth
And he goes and go smart. Just improve the 2019 books sequentially by quarter and you're over a year compared to 2018. Do you efficiencies and purchasing and production as well as lower package incentives?
For the last two quarters are gross margin has been 19.8% very close to our 20% Target level. We're earning better March. Is there a live now homes and our first move out homes with a success or Studio M. Our sg&a leverage also improved through the year as a result of both volume growth and the officials who had gained by simplify and streamline our processes.
Those GPS for the fourth quarter and full-year 2019, even before the tax savings would recognize order from energy tax credits after they were officially renewed last year and retroactive the 2018.
You increase nearly $52 per share as of the year in 2019 and retire three hundred million dollars of debt in the fourth quarter using a positive cash flow from operations any of the year with over $300 in cash and the net debt-to-capital ratio of just over 26% the lowest it's ever been for the company.
Turn to slide to 6. We said that our biggest challenge was Keeping Up With The Accelerated pace of sales, which was the resulting in the early close out of many communities that we were saying a goal to get you three hundred communities by the end of 2021 point. I'm happy to report we've made significant progress towards that goal. We've read accelerator or Acquisitions of new life and communities to rebuild our pipeline after pulling back on the reins in 2018 and early 2019 after the markets load and in just the last three quarters we put approximate 16400 Lots under control bring our total for the year if you more than 18,000 New Lots added for approximately 140 new communities and 85% of those jobs Now Products.
That compares to about 10,000 lost control.
In 2018.
It's a field are twenty twenty cents and put its War way to meeting or Twenty Twenty-One goal. I commend our entire marriage team for making that happen and we're excited about the opportunity presents for us. And for our office hours are now turn it over to police to discuss some highlights of our sales Trends leave. Then you feed slide seven our orders for the fourth quarter were up 27% year-over-year which push our full-year order growth to 19% over 2018 despite its small decreasing Community count you deliver 72% year-over-year or go in the engine they made up 55% of our orders for the fourth quarter of 2019 up from 40% in last year's fourth quarter and 54% in this your third quarter off and it had of where we thought we'd be a year ago 47% of our communities at quarter-end were entry level compared to 33% of total communities a year ago while you're over your comparisons to the
fourth quarter of 2018
Easier than the first three quarters the success of our entry-level live now homes clearly clearly exceeds the broader market in terms of year-over-year absorption growth.
Is this into the success of our entry-level product the design collections were operating at the simplified process of personalizing your home in our new studio ads has been very well received if you attack has an estate in November , you heard that directly from home buyers realtor's and our own sales associates looking at a court order to be able to draw across all three readings off additional local color beginning with the west region on slightest. Our orders in the west region were up 38% over the fourth quarter of 2018 driven by a 38% increase in absorption and relatively flat to the account and total with a 43% increase in total order value while Arizona has been one of our strongest markets since we made the heart give it to the entry-level our California business page also starting to gain strength and it feels like we may be turning the corner at the very difficult 2019. We've made issue with energy level in California over the last year and our results in the fourth quarter demonstrates a successful. Yep.
with it our hours community
How grew 55% you over a year in California and we ended the year with 58% of California's communities being entry level compared to just 35% a year ago reflecting that shift along with improving in the California housing market absorbed his rep 37% for the state the combination of higher absorption and more communities result in a little over a doubling of orders in California home with just a 6% decline days P, even though the experience to close out of several transforming communities, Arizona again produced a strong message options across the company an average of 10.4 hours per address Community for the quarter of 46% year-over-year. We grew orders 18% in units and 17% in total value with the continued strength in the market wage is he was flat compared to a year ago, even as our community mixed in Arizona end of the year close to our Target with 55% empty level.
Despite our communities open on average than a year ago with affordability as a primary challenge in Denver. We have been inquiring more affordable duplex and townhome communities to replace him to move up communities. We ended the year with half. Our communities are facing the entry-level Market overall the West with our best-performing region again this quarter in terms of orders and closing growth over the fourth quarter of 2018 slide down turn into the central region, Texas had a 46% increase in absorption that was partially offset by nineteen percent decline in average communities wage number of communities are and are in the process of bringing more communities online over the next few quarters year-end 56% of our communities in Texas where entry level so despite declining Community Council or 80% and Order values up 11% year-over-year for the fourth quarter all four of our markets and taxes are doing well and plan have plenty of authors.
Use for future growth and markets.
Yes fancy. We are very pleased to see the continued to improve in their east region again during the fourth quarter year-over-year order drugs in the east region has been at about 20% off the last four quarters, even with slightly fewer ads average active communities in the fourth quarter the east region produced 25% order growth due to a 29% increase in absorption fax order value was up 90% year-over-year approximately one-third of our Industries and communities are positioned for entry level as of the year end 2019, and we are intensely focused on getting our products need to be more entry level as we are in the other reasons that Target mid shift represents a huge opportunity for these regions and marriage over the next couple of years within the region North Carolina produced The Log you over your grow with a 39% increase in orders. This was a combination of a 33% increase in absorption and four percent growth in our community council. They are absorption of 8.8 for the core birth.
Were the highest in the region?
Generated 34% quarter drove with a 13% increase in average TV account and 19% higher absorption over last year's fourth-quarter. Florida has the greatest entry-level footprint in the office at 40% as of December 31st, 2018. You may not also approved in Georgia. Where a 37% increase in absorption for the quarter was more than offset an 18% decline a vacuities for 13% order growth.
Communities in South Carolina this year which reduced our average Community down by 21% compared to last year and our orders by 26% We will be opening new live down south you live now communities over the next several quarters that should increase our absorption phase as well as reevaluate Community to drive future growth in South Carolina and lastly Tennessee produced 37% order growth with a 53% increase in absorption partially offset by declining Community count. We are set up too quickly rebuild community out there with a number of whom live you live now communities slide allowed we closed 13 has been last year with just 7% more orders and backlog has the engines the fourth quarter as we explained before this is due to having more spec home available for quick moving, which is a quartet of our entry level strategy 61% of fourth quarter 2019 closing from from spec inventory compared to 56% a year ago as a result off.
conversion rate increase to 80%
And the fourth quarter this year compared to 76% last year before we began of hard payment to the entry-level Market our conversion rate. We're in the low-to-mid 60% range. We bought the 4th quarter of 2019 with a little over 3,000 spec homes in inventory or an average of 12.4 per Community which compared to an average of 9.2 a year ago only 20% of those works that 20% of those specs were completed as of December 31st, 2019 compared to 32% in 2018. We continue to sell homes early in the construction process took a modern monitor demand constantly so that we can pull back and starts and reduce our inventory relatively quickly. Can we see a sharp downturn in the market which we aren't currently anticipating took it over to you to provide some additional analysis of our financial results you thank you for weeks. I'll provide some more detail on our p&l results as well as land and operating metrics. Yep.
and slide twelve
Margin for the fourth quarter of 2019 increased eighty bits over the fourth quarter of 2018 to 19.8% including three point 1 million in inventory write-down really into assets that don't fit our current product strategy excluding similar charges in both ears are home closing gross margin was 20.1% for the fourth quarter of 2019 for how long the tire in the fourth quarter of 2018 is gross margin of impairment and right in line with our underwriting criteria for the full year 2019 home closing gross margin improved 72-month 18.9% compared to 18.2% in 2018.
Our earnings from Financial Services unconsolidated were three point seven million lower in the fourth quarter of 2019 compared to 2018. We changed our mortgage joint venture structure relating to customer the profit from those transactions are now included as part of our home closing Revenue rather than being part of financial services profit, which resulted in about 30 bits of margin Improvement in the fourth quarter of 2019 / 2018. This new structure will continue into twenty-twenty and Beyond sg&a expense of 10.1% We're down fifty years as a percentage of Home closing revenue for the fourth quarter of 2019 compared to 2018 bringing our full-year sg&a expense ratio in line with 2018 10.9% off.
higher broker
Confirm incentive in late 2018 and early 2019 as well as Severance payments and accelerated Equity compensation cost of about 3.7 million earlier this year negatively impacted our full-year sg&a leverage for 2019 our total interest expense decrease in the fourth quarter of 2019 due to the early retirement of our twenty-twenty notes in December prior to early retirement. We capitalize nearly all interest and Kurds and having minimal interest expense for the fourth quarter of 2019 cents interest expense with 7.6 million dollars higher wage physical 2019 compared to 2018 is quicker inventory turns resulted in less interest capitalized to inventory this year. We announced last quarter that we expect to redeem Arthur's notes due in 2020 before the end of 2019 and we completed that we purchased in December which included a five point six million dollar loss on early extinguishment of debt, but yep.
we do start total interest incurred going for
We do not expect to have any non capitalized interest in 2020 are pre-tax earnings for the fourth quarter of 2019 or 20% higher than the fourth quarter of 2018 while our net income increased 37% as we recognize the tax benefit of approximately twenty million dollars in the fourth quarter of 2019 for energy tax credits and qualified life that we closed over both 2018 and 2019 Congress retroactively renewed an extended an energy Credit in December of 2019 through 2020 that reduce tax rate to approximately 6% for the fourth quarter and 18% for the full year 2019 compared to 20% for full-year 2018. We will continue to recognize them tax credits on a quarterly basis in twenty-twenty and expect them to reduce our effective tax rate to about 22% for the year.
As a reminder in order to achieve such a high acceptance rate on our Energy Efficiency qualification. We incur additional costs in every help rebuild to provide a high-quality energy-efficient home to all of our tires these costs allow us to earn the tax credit internally. We really need a credit as a direct offset to our cost of sales rather than a reduction in taxes.
during
A few highlights of our balance sheet and cash flow items on slide. Thirteen. We spent approximately $245 million and land development in this year's fourth-quarter putting over $68 under control 446 new communities that was about $15 more than what we spent on land and development and last year's fourth-quarter as we've said we've been purposefully reloading on a plane for new communities to materially grow our orders and market share over the next several years. We ended the fourth quarter of 2019 with a total loss supply of approximately $41,000 compared to approximately 34600 loss and December 31st, 2018 increasing are your supply of lots to approximately 4.5 years based on a 12-month clothings about 63% of total loss inventory was owned in 37% optioned at your end. We ended the year with $319 in Georgia.
even after redeeming $300
Million dollars of debt reducing our net debt to just $700 million from under from just under 1 billion at the end of 2018 and reducing our net debt-to-capital ratio to 26.2% at the end of 2019 from 36.7 at the end of last year. We're planning for approximately a billion to a billion to in land and development spending annually for the next couple of years as we continue to purchase and develop land for Community, growth retarding Community count of approximately three hundred million a year and twenty Twenty-One and we should see meaningful growth in sales and closing from that increased even with the tire expected spending will continue to manage our net data caps to in the 20s to 30% range and expect our cash to be neutral to slightly positive this year, which we believe is appropriate for our current operating structure as opposed to the mid forty percent that we targeted under our previous operations.
514 as we look for
We're encouraged by the strength of the housing market and the results we've achieved with our shift towards more affordable homes and the operating efficiencies. We're realizing we expect our earnings growth to exceed our top-line growth with the added benefit of improved gross margin and leveraged from the operational efficiencies. We've made and we will continue to refine
for the full year twenty-twenty. We are projecting $9,700 to $10,200 Total Home closings in a FPS and the 360 to 370,000 range wage and gross margin in the mid-nineteenth and the tax rate of approximately 22% for the first quarter of 2020. We're projecting $1,800 to $2,000 Total Home clothing and your speeds of approximately $380 to $390,000 and home closing gross margin in the mid-80s with that. I'll turn it back over to Steve Steve. So if you took our performance is the direct result of our strategy to focus entirely on the entry level and first move up markets, which are the strongest areas of demand across our footprint. We are not only providing buyers wage in terms of affordable high-quality homes or buildings selling and delivering those homes efficiently and cost-effectively by simplifying and streamlining our operations. Our strategy is honest to God.
the faster Pace in the market
And taking market share while improving our margins and operating leverage to deliver better earnings and grow and grow our shareholder Equity. We've been generating positive cash flow and have strengthened our balance sheet what we're buying sufficient Capital to reinvest in future growth. I'm proud of our entire marriage team for putting our customers first and working hard everyday to make the company successful. The Outlook is positive for housing Pac-Man based on employment and income levels low inflation and interest rates and solid consumer confidence. Demand is especially good for home to deliver Great Value a lower price point, which may want to do with the investors who made over the last several quarters, and if committed to continue to and have and have committed to continue in order to expand our pipeline for community control over the next couple of years, we are positioned deliver strong volume growth as those committees open anticipating that recent demand Trends continue that concludes our prepared remarks your day. I'd like to thank you for your support of marriage.
And will now take some questions operator. We will now begin the question-and-answer session to ask a question. You may press star than one on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press * then two, please limit your
To one question and one follow-up. If you have further questions, you may re-enter the question Queue at this time. We will pause momentarily to assemble our roster.
Our first question comes from Michael real with JPMorgan, please go ahead.
This is a lot on for Mike congrats on another impressive quarter first. Would you be able to share any monthly sales Pace Trends in the corridor and so far in January and any early indications for the spring selling?
I could tell you that order growth in the fourth quarter was strong and steady throughout the quarter December that was was stronger than traditionally December's seasonally slow month for sales. It was less seasonal this year off very strong buff and it will tell you that January has been exceptionally strong seen our internal expectations, but it also said we shouldn't get carried away. Um, because uh, we have some some challenging cops in February and March particularly in March, but we're very encouraged by what I'm seeing so far in January . It's been a real strong month.
Great.
It's helpful. And then also are you still expecting 20/20 Community count to be rushed left early like flattish. And what's the potential for the community opening to be pulled forward before 2021 and it's specifically like how should we think about Community kind of growth in 1 Q?
Community count growth will be a flattish to slightly up this year. I know Community Council Grove is important. It's something that everybody's focused on Thursday, but we don't see it as the end-all be-all. You know, what would really matters is absorption our absorption. Um increases have been been very strong throughout 2019 and we expect him to continue to to improve. Um, High rep options allows us to leverage or overhead allows us to uh off improve our our return on invested Capital. It has many advantages to the company more than just growing Community cap that said as as we commented it off earlier we bought uh, more than 18,000 lost last year that's going to result in strong Community kind of growth next year.
precisely
What quarter that comes in? It's it's really too early to tell we think it would be relatively even throughout the year. Um, but I'm not I'm not ready. It's a lot of things have to fall into place, you know from a development entitlement perspective for us to give specific guidance on on each Corner in 2021, but we think 2021 is going to be a really really big year for the coming for Community cap growth and receive 20/20 will be relatively it's lots of tomatoes, sweetheart.
Thank you.
Our next question comes from Alan Ratner and Associates, please go ahead. Hey, good morning guys congrats on another great quarter and a strong into the year. I'm not sure which one of you want to take this but my first question is just kind of on the the driver's of the guidance for the year. And you know, I think closing growth somewhere in that kind of made high single-digit range definitely makes sense given the concert coming up against and and what your comments are on community count but you know given the fact that your business right now is is predominantly aspect business the way I generally am thinking about choices, you know to some extent you're you're going to control the volume that comes through and and perhaps price and margin becomes more of the you know, more of the the solid Point based on where demand is I'm just curious if you know when I look at your spec count, it's up about 20% right now. You're over a year if the market continues on this solid footing and certainly your January comments are really encouraging.
Is there potential to take that?
Volume growth higher or in that scenario. Would you kind of keep that that steady mid high single-digit growth rate and push more on the price and margin front just just curious how you're thinking about that?
No, I think you know I think in the entry-level space there are some price ceilings. Obviously we can we can push price to some degree wage. You know, there's significant competitors out there that are really focused, you know on driving volume and if we're going to be competitive with them that we're going to have to we're going to have to do the same. I think we have the speculative or to produce, you know higher volumes, but we're just going to have to you know, uh balance balance price and paste wage and
You know and I think we can do that. I think we can do that. But but I think you know for us it's about leveraging our overhead and be more efficient and and and we get there more volume than we do through price. Yeah, I think Alan's your point the guidance. The midpoint of the guidance is high single-digit, but the top end of the guidance is low double-digit. So depends on what the Market's going to give us, but we're not willing to sacrifice volume for margin at this point. Got it. That's very helpful. Just to hear you're thinking on that and Steve you touched on the overhead so I know you haven't given birth in a guidance. But you know with with the kind of the midpoint of Revenue being roughly flattish, maybe up a tad. How should we think about sg&a leverage in 2020?
I think we'll be able to continue to to reduce sg&a.
The revenue but I don't want to give any specific numbers, you know at this point but directionally down.
Got it. Thanks guys. Good luck in the spring. Our next question comes from Stephen Kim is I please go ahead.
Yeah, thanks a lot guys 3/4 Steve just to touch on that follow on on that answer regarding sgna. Is it right to think first of all the way down I assume you mean year-over-year and then is it right to think that sg&a dollars increase a quarter or two ahead of when the communities the community Ram actually comes online or should we think about the you know, the dollars you spend on sg&a sort of increasing as the communities come online. Well, my answer the first part and yes, I'm going to take the rest of the so a big piece of the increase that we have before a community goes like if you guys know we have a really big ramp up to three hundred communities. I apologize that said $300 million communities any type of your remarks. So obviously 300, um the ramp that is actually dead.
at the margin line, so it's
That overhead component where we have folks on the ground and piping for a community. It's not so much in the way of like maybe just a hair in the g n a line. So even with that increased burden off in our margin ourselves holding so that you know mid-nineties for full-year.
Marjan Marjan and a seems that directionally lower for full-year sg&a. Margin, you know, there's a couple of noise issues that we called out in 2019. That won't be recurring in 2020. Although the cost of operating our studio and obviously will continue. Yeah, obviously if you go back to the first question we have like today, you know volumes are better than that'll allow us to do even a better job with our sg&a cuz we'll be able to leverage it even more. Um, um, um, but directionally down sg&a for the year driving that mid nineteen s gross margin based upon the guidance. We put out for closings.
Got it, and then regarding the gross margin just wanted to clarify a couple of things. First of all, there was the commentary about moving about I think you said forty bits of margin bring it in to the GM out of the financial services. I got the impression. That was a fourth-quarter event. I assume it did not affect any of the other quarters of last year. I wanted to know whether or not what we can expect basically in terms of that kind of a transition from one line to the next or from from the out of the financial services into the gross margin in 2026. You could dimensional eyes that for us and then regarding the gross margin broad or gross margin comment and pricing comment Steve that you you made earlier to Allen. I think I'm talking about balancing pice price versus Pace you talked about the fact that there's kind of a ceiling at the entry level but isn't it right to think that with mortgage rates, you know, probably birth.
coming down, uh
With a little bit of loosening perhaps coming in the form of maybe less onerous DTI calculations that that the entry level, you know Prospect wage really good here from an affordability perspective near-term, as you know, sequentially, you know from the last let's say six months to the next six months and in that context, you know, you do have the ability just because of these other factors in terms of lower borrowing costs and so forth and you would be positioned to take advantage of that is that I mean, that's a correct way of thinking about it, right? Of course. Yeah, of course, I mean, it's certainly what we've seen in January so far. It's been, you know, really encouraging but you also got to keep in mind that you know more volume that means probably higher costs and you know, we're already starting to see a little bit of pressure on lumber prices. So, um dead
No.
The bottom line but clearly, uh, I you know, I'm not saying that we're not you can't raise prices at all the entry-level certainly you can but you got to keep the homes affordable to drive the value of case equation and be competitive. I want to heal to talk about the the mortgage or Adventure what we're doing there. Sure so Stephen, you're right if it was a Q4 event. It will continue on Thursday for a basis. So it's not impacting the first three quarters of the year and just to clarify. It was 30 not 40 bucks. We still have Financial Services operations with our Title and Insurance companies that will continue to flow through our financial services with our insurance company. Just starting to ramp up you'll see that become more meaningful into 2020 and Beyond but it's just the mortgage component that's life changed and it will continue to be in uh revenue and margin versus Financial Services on a go-forward basis.
And so just to clarify you're you're basically assuming in your gross margin commentary of mid nineteen s roughly Thirty basis points of betterment year of a year largely because of this Factor Thursday.
Got it.
Thank you.
Our next question comes from Susan Susan with Goldman Sachs, please. Go ahead. Good morning. Thank you for taking my question. I guess, you know to begin with can you take a little bit to some of the regional trends that you've been seeing you highlighted the fact that you know, California seems to be stabilizing. Can you just give us a bit more color on that? This is Felisha be you know, last year California was um a difficult Market there was a lot of incentives the man wasn't there by our confidence was pretty low coming out of 18 months. I've seen it for about quite a bit here in the last two quarters prices prices are definitely starting to firm up more importantly demand. Is there the quality of traffic, um, the buyer interest, you know, the consumer confidence is much better so early on, you know, again the back half of last quarter and early in January . We're just seeing much dead.
Kind of conditions I think.
To get back to where we were before this all happened. I would tell you Northern California feels a little bit stronger than Southern California and I would also tell you that, you know, obviously wage level feels a little stronger than you know, anything else. But overall we're feeling optimistic that California is kind of turning the corner I think in status will still be part of part of a game out there. But um, you know a much firmer pricing structure that we were seeing last year. Okay, great. That's that's very helpful. And then, you know turning to the land side wage, you know, you noted that you put I don't know more than 16,000 Lots under control in the last few quarters. Can you talk to how you're thinking about the option, you know piece of that how we should be thinking about that going forward?
Sure, so I can see that our options percentage of land increased to 37% from 12:30 is where we've been the last couple of years. So that that was in fact, we're definitely looking to get to that large community, growth leveraging. Um our own balance sheet, of course, but also off-balance-sheet opportunities that we're actively seeking increments off-balance-sheet, uh financing for our lot Acquisitions, and hopefully you'll see that number continue to increase
Okay, great. Thanks.
Our next question comes from John Rallo with Bank of America, please. Go ahead. Hey guys. Thank you for taking my questions as well. The first one I guess four thousand Northern California feeling a little bit better in particular. What are the price points that you're seeing the most interest at there?
I think if you're you know below 450, it's definitely feels much stronger. That's essentially most of our communities that we're opening up our live now commuting more focused on that, you know 500 price point but even closer to $400 where it feels really good.
Okay, that that's helpful and then you know in terms of the the gross margin Outlook hila can just help us with some of the underlying thoughts on you know cost inflation and maybe the change in in in product mix that year that you guys are contemplating in that and that Outlook.
The product mix is not going to look too different than where we are. Right now. We've we've pretty much hit our Target with the only exception being the contribution from our non-core products that non-GAAP level. And first time left is going to be pretty de minimis in 2020 so that that, you know incremental 10% Is that still coming from not first time or entry-level job. First time you've ever entry level is going to shift to those two categories. You can see that with the ASP reductions that we've guided to 360-2370 for the full year is notably lower than where we were in 2019. And then in the gross margin, I think Steve mentioned it we're starting to see a little bit of noise around Lumber. Everything else is feeling pretty normal. We still have some pricing power. You've covered it fairly well with do what we can and can't and won't push, you know above a certain point, but we don't we don't feel like what we're seeing on the cost side is going to um, uh,
Give us, you know concerned Beyond.
We can all set on the revenue side and even with all of that and the incremental labor burden that we've talked about with getting these new communities online for 20 20. We're still we're still very comfortable guiding to a higher overall gross margin great sounds encouraging. Thanks guys.
Our next question comes from Truman Patterson with Wells Fargo, please go ahead. Hi. Good morning guys. Let me throw out there another congrats on a good quarter first. I want to Clarity on a on the prior question regarding Community account that flapped up that's by year-end. Correct correct page through the year, but we should finish the year flights up.
Okay. Okay. Thanks for that. You know you've gone out and aggressively purchase waps, you know in 2019. Are you still finding a tract of land that's hitting or exceeding your song writing hurdles? Have you had to adjust some of those hurdles in certain regions and then just wanted to get an update on you know that 300 community community account Target by the end of 2021 Chef much more. Do you have to go on the land side or do you pretty much have all of your land bank in hand?
I would say.
We're absolutely continuing to find land that we like that fits our strategy for both entry level and first move up number two. We have that change our underwriting criteria at all.
Basically, we've continued to refine it and tighten it and number three. We have identified off much of the land most of the land almost all the land that we need to get to that 300 Community count, but we still need to get the land, you know fully contracted documented through the entitlement process developed open excetera so still much work to do but we see a pathway to getting their home and you know, we're going to work real hard to make that happen.
Okay, great.
Jumping over to your backyard in Phoenix, you know, it's been pretty red hot over the past year or so historically it's it's going through these, you know, mini boom and bust Cycles back. At least this cycle. It seems like the Phoenix orders decelerate it a bit. They were they were you know still up about 18% But do you think Phoenix is at risk of of softening at all, or or how should we think about that market in twenty-twenty? Absolutely absolutely not, you know, the the Ebbs and flows of the orders in Phoenix are really more related to our community openings and closings and you know, it's not it's not straight line on store count and and a lot availability. So, you know, we we close some communication days. We we waited on some lots to be available in some communities. We're opening some new communities, you know, we're getting rid of some some older to Mu communities. Um, yep.
make some
Uh Acquisitions of lots in 2919 that we bring it on in 20 21 to really fuel that entry-level Market the Phoenix Market, um, you know, it's made uh-huh tremendous strides in job growth over the last several years. Uh-huh. I think that feeds markets been averaging almost a hundred thousand jobs a year off and uh good news and bad news is a lot of those jobs are are more lower-wage jobs that really feed into the entry-level market and that's why I Market is so strong versus the move up and you know luxury Market being, you know a little bit more challenged and I don't I don't see that continuing. I think there's a there's a there's a pent-up demand for for quality affordable entry level homes. And and the Phoenix Market is going to be taking advantage of that.
Okay. Thank you.
Our next question comes from Carl with btig, please. Go ahead. Thanks morning guys. Can you talk about or Steve's the sort of the lounge opens and close out to you if you flat to slightly up communities and in twenty, but what percentage of the total you've got now, will you close out versus open?
I think I don't have the exact number. But I think you know most of the things they're going to be open are going to be entry-level. I know when the first quarter we're closing out six or seven to Mu communities. So we just continuing to move towards.
Better absorbing communities. We have some really exciting large well-positioned communities. We're going to be opening in Texas. I'm in the next quarter to that. You should drive some meaningful absorption. So, you know, I'm not trying to try to undersell the community count issue that wage. Um, but I think you know, it's it's quality over quantity and you know, we're continuing to move our business to the right place in the market where there's the most demand and off and that's the that's the repeal off the top line for us if the market continues to remain strong car. I look at it, you know, we we've been very vocal about our faith and to have a 45 year supply of lost. It takes about a year to a year and half to get lots going that means you're selling through a community three issues. Of course, there's some that are forced on there to some of their 5 so for us
if you think about
Hopefully a three-year community life about a third of your communities are turning annually a little less a little more but that's just like a rough figure on any given year that's with our shift to Thursday. We've been focused on buying larger larger La positions to reduce the turnover, cuz the turnover smaller La positions with higher turn off does it doesn't help with leverage or overhead? There's a cost to getting in and getting out and we'd rather find bigger positions that are more in a sweet spot of the entry-level Market that we can stay in office. So, you know our our our average number of lots that we're buying per transaction is continues to increase and as we move into into later years, we think the the deterrent is going to decline and and that will help a lot of the other metrics as well. Yeah. Okay that that makes sense. Thank Steve that that's sort was going to be my next question. So you just answered it wrong.
I did want to ask believe though just in terms of the the mix shift in the East it if it just want to make sure I understand this if you think your your your
Or mix right now of Live Now versus other for the company is going to be roughly similar to you know through this year, but the East still needs to make more of a move towards towards live now. Is that the right way to think about the most move toward next move in 20 towards live now will be in the East. Yeah. That's the right way to think about it. As I think I said in our prepared, we're around 30 mid-30s in East for entry-level and our you know, our Target our goal if you will for each each Region's to get to near 15% So there's a lot of opportunity that most of the communities that we're opening up this year and next year uh-uh in the East are live now and to local communities, which is really going to propel our options in the other regions. We've achieved the goal. Although there's still some opportunity there as well and taxes, Florida Etc. Okay, that's what all right. Thanks so much. I appreciate it. Thank you.
Our next question comes from Alex Barone with housing Research Center, please go ahead. Hey guys, great job offer. I wanted to ask you about the point you just made about the the larger communities. Can you give us a sense of roughly, you know how much larger box versus a year or two ago before you guys kind of shift and strategies in other words, you know, what is the new community look like is it like two hundred Lots which is a hundred laps or can you just kind of give us a sense of what what's the changes versus two years ago when it before you come to ship the strategy the average today is about 140 and a couple of years ago a couple of years ago was probably about eighty. Uh, but I'd say the median is probably even higher than than 140 cuz we've while Lauda
You know.
Three four hundred positions last year, we bought many positions what we're going to have multiple product offerings. Um, you know, we may have uh off, you know, Forty Foot value homes and townhouses together and in a community, we may have an entry-level na-1 mu position together so long, um that also allows us to leverage our overhead better and be more efficient, you know from a marketing perspective from a construction supervision perspective so long, you know, that is that's you know, that's where we're heading.
Okay, that's helpful. So basically even if you have a flattish quote Community account doesn't necessarily mean there's a an equivalent wage order order, please.
No, that's why we're buying bigger deals is because they absorbed much faster than that the deals we were buying two years ago. We were primarily focused on move up. We're not buying entry level package deals where the adoptions are, you know want to half times what what we were thinking a couple of years ago. We're focused on a higher price point. I mean that's reflective in the guidance. We gave you know, we we guided to, you know, ten thousand or so ugh closings, uh versus around little less than $9,300 this year on a flat community, So that means we're going to have higher wage or you know higher of options. I mean, that's the whole deal you take, you know, X percent of our land book that's absorbing that you know, three a month and you replace it with another group of our TVs are absorbing at 6, you know, the lower ASP but still the volume is huge volume difference that makes sense now a couple of your larger.
commented that
They are starting to turn a field labor shortage issues again. I'm just wondering you know, whether you guys are seeing that or whether you have any concerns that availability will affect, you know your ability to deliver homes.
You know right now it feels pretty stable to us. We're not seeing very much on the labor side. I mean still tight out there. I'm still have all some of the macro issues that were all trying to deal with but it seems like um, it's pretty stable right now, uh, like seek said earlier, you know right now, what's what's what's nice to see it out. There is Lumber some increasing lover but not necessarily the labor piece of that. Um, but spring selling season is really strong, you know, we'll have to see what that looks like. I believe our strategy, you know, focusing on a steady Cadence expects. Um, we've really simplified what we're doing think our homes are easier to build than some some others are competitors. So we have a pretty good access to labor right now. We feel like we're a builder of choice out there. So we hope that helps us solve a little bit better than everyone else but right now labor wage,
Pretty stable and feels like it has capacity.
Great. Thanks and best of luck.
Thank you. Our next question comes from Jace Romani, please go ahead. Thanks very much. In terms of the guidance. The biggest deferential was vulpes and was wondering if you could give any color on that particularly, uh given the one cute guidance that you provided on ASP of 380 the 390 which is worse than what you expect for the full year. And you continue to close out of those move up communities throughout the year. You're going to see Ras pee continue to decline. So it's the combination of the close out the higher-end communities and the accelerated openings of the uh, first time move up and entry-level communities are going to see a a pretty notable, um, mix shift jobs throughout the year. It's pretty successive. So you'll see that decline throughout twenty-twenty. But yes, this will be our highest KSP quarter that it like quarter that we're in right now if you one will be our highest wage.
Quarter and then we'll continue to ratchet back down to get to that 360 370 full year number. Thanks for that on the home builder m&a with respect to local private school. Are you seeing
Anything notable in terms of Trends in terms of deal flow and what are your overall thoughts about whether that makes sense, um to to add to Meritage as platform.
There's nothing going on right now. That's unusual. It's pretty much steady with what it's been the last few years, you know, we continue to keep an open mind off many different opportunities and to the extent that if it's with our strategy and our culture and the price is Reese is fair, you know, we will, we will be pursuing, you know, private Builder Acquisitions, but um, I can't say that it's uh a stronger we can Market at this moment than it has been the last couple of years pretty much the same.
Thank you.
So, I think that was our last question operator, and I will thank everybody for participating in our 2019 year in call and we'll look forward to talking to you in April with our took the results. Thank you.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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