Q4 2019 Earnings Call
[music].
Greetings and welcome to be Tri Pointe Group fourth quarter 2019 earnings Conference call.
At this time, all participants are need listen only mode. A question answer session will follow the formal presentation. If anyone should require operator systems. During the conference. Please press star there on your telephone keypad. Please note. This conference is being recorded.
Now turn the conference or what's your host Chris Martin VP of Finance Mr. Martin you may begin.
Good afternoon, and welcome to Tri Pointe Group earnings Conference call.
Earlier today, the company released its financial results for the fourth quarter and full year 2019.
MS detailing these results, including the slide deck under the presentations tab or available on the company Investor Relations website at Www Dot Tri Pointe group Dot com.
What are called begins I would like to remind everyone that certain statements made in the course of this call, which are not historical facts, including statements concerning future financial and operating performance are forward looking statements that involve risks and uncertainties <unk>.
Hey, discussion that such risks and uncertainties and other important factors that could cause actual financial and operating results to differ materially from those described in the forward looking statements.
Our detailed in the Companys filings made with the FCC, including his most recent annual report on form 10-K, and its quarterly reports on form 10-Q.
As required by law the company undertakes no duty to update these forward looking statements that are made during the course of this call. Additionally, non-GAAP financial measures will be discussed on this conference call reconciliations of the non-GAAP financial measures to the most comparable measures prepared in accordance with gap can be accessed through Tri Pointes web site <unk> filings with the FCC.
Hosting the call today doesn't Bauer, the company's Chief Executive Officer, Glen Keeler, The company's Chief Financial Officer, Tom Mitchell, The company's Chief operating officer, and President and Lindemann, They the company's Chief marketing officer without it will now turn the call over to Doug.
Thanks, Chris and good afternoon, and thank you for joining us today as we go over our results for the fourth quarter and full year 2019 discuss current market trends and provide some insight into the future of our company.
I point group delivered outstanding results for the fourth quarter and full year 2019.
Highlights in the fourth quarter included earnings per diluted share of 85 cents up 21% year over year.
Net new home orders of 1235, an increase of 52% within absorption pace, a 2.9 orders per community per month.
At a quarter any backlog of 1752 homes.
Representing a 31% increase over last year.
We're extremely proud of these results and that we met or exceeded our stated guidance for both deliveries in margins for the fourth quarter and full year 2019.
Overall market conditions were strong and all of our market at both the entry level and move up product segments.
As demonstrated by the increased orders in absorption pace.
It consistent theme, we've witnessed is improved traffic and demand at our core locations.
Driven by supply constrained resale market.
These favorable trends have continued through January with orders up 71% year over year, giving us great optimism as we move into the spring selling season.
We continue to see very favorable fundamental backdrop for our business capitalize on a pent up demand.
Low supply and a great interest rate environment that is helping affordability.
Right Board group as well position to capitalize on these favorable industry trends.
Thanks to our emphasis on core locations in our premium brand positioning which allows us to differentiate our homes from the competition through thoughtful design innovation and customer experience.
Great location product differentiation have been a foundation of Tri Pointe strategy since our beginning.
And we will continue to focus on these areas as we diversify our product offerings to achieve lower price points to address a deeper pool of buyers.
We feel that there is a great opportunity to expand the appeal of our premium brand approach to an even wider audience through smaller floorplan and higher density projects.
These projects will cater to millennials, who want the convenience and connectivity of a home with the latest smart home technologies.
Baby boomers interested in downsizing into a turnkey lifestyle.
First time homebuyers working for a great location and he thoughtfully designed affordable home.
As a result of this shift we expect first time buyers in active adult will represent 40% and 10% of our buyer profile, respectively by 2022.
Upfront, today's 30% and 3% respective mix.
As a product mix evolves over the next few years, so to our geographic mix.
Okay, California continues to be a strong market for us we've made a concerted effort over the last few years to grow our presence in several of our existing markets outside of the state.
And establish a foothold in a handful of new markets in an effort to better Diversifier operations.
This geographic shift will allow us to achieve better efficiencies of scale at the national level and lessen the impact that anyone market has on our company result.
In the Carolinas, we started our organic Charlotte and Raleigh presence in November 2018.
As of yearend 2019, we have approximately 1700 lots owned and controlled representing 22 future communities.
Three of which will open in the second half of 2020.
Arizona and Texas are great examples in markets, where we believe we can double our annual deliveries over the next three to four years.
In each of our divisions, which are all located in the top 25 homebuilding markets.
Our goal is to be a top 10 builder, which is currently the case and many of the markets rebuilding.
In addition, we have strategically manage our balance sheet to allow us to expand our geographic presence through accretive acquisitions, and we will continue to look for opportunities that make sense from an economic strategic and cultural standpoint.
Our optimism and position with respect to the California markets is very strong.
Radek orders in absorptions have improved in all of our California markets.
With orders up 37% and absorption pace of three orders per community per month.
In the fourth quarter.
We continue to acquire new projects in great core locations at more affordable price point.
The redesign and implementation of our long term assets have proven to be very successful.
We continue to develop and bring these assets to market.
In addition to our active long term assets.
We're excited to open attwell.
New Master plan and banning.
As well as starting land development at our metal what community in San Diego County.
These long term assets are a key differentiator from our competitors.
Provide us with a very strong land pipeline with a favorable cost basis in several highly constrain land markets for years to calm.
We're also extremely pleased with our organic startup efforts in Sacramento.
The three new project openings are off to a strong start.
We believe the Sacramento Division will further diversify and strengthen our California presence.
With this in my we remain bullish on the outlet for California, given its strong and vibrant economy, and Undersupplied housing market and the desirable quality of life that is unique to California.
In summary, Tri Pointe group is in a great position to capitalize on the strong market conditions of today.
And we're taking steps to make sure we're positioned to succeed in the housing market up tomorrow.
Our premium brand strategy at lower price points, coupled with our ongoing efforts diversify our company from a geographic standpoint.
Give us great optimism about the future our company.
In addition, our strong balance sheet gives us the financial flexibility to both reinvest in our business and return capital to shareholders via opportunistic share repurchases overtime.
Evidenced by the 6.1 million shares we repurchased in 2019.
With that I'd like to turn it over to Glenn who will provide more detail on our results for the fourth quarter and full year.
Thanks, Doug and good afternoon, everyone I'm going to highlight some of our results and keeping natural metrics for the fourth quarter and then finish my remarks, with our expectations and outlook for the first quarter and full year 2020 at times I'll be referring to certain information from our slide deck that is posted on our website as Chris mentioned earlier.
Slide six of the earnings call deck provides some of the financial and operational highlights from our fourth quarter.
New home orders for the quarter were up 52% year over year due to a 40% increase in monthly absorption rate and a 9% increase in average selling communities the increase in monthly absorption rate.
To 2.9 reflected stronger than normal seasonal market conditions during the fourth quarter in each of our markets. Those strong market conditions have carried over into the first quarter with orders up 71% in January 2020, compared to 2019 as we achieved the highest January absorption pace and our company's history at 3.9 orders pork per community.
As Doug mentioned, we exceeded the high end of our stated guidance.
Delivering 1795 homes in the fourth quarter. This resulted in home sales revenue of 1.1 billion, which was a 2% increase year over year homebuilding gross margin percentage of 21.9% also exceeded the high end of our stated guidance for the quarter adjusted homebuilding gross margin, which excludes interest impairments and deposit write offs increased 140 bed.
This points year over year to 26.2%.
SGN expense as a percentage of home sales revenue came in at 9.2%, which was a 10 basis point increase year over year.
We continue to focus on her on expanded our financial services income that are proud reported 36% year over year increase income from our mortgage title escrow and insurance services.
Our tax rate for the quarter improved 400 basis points to 21.8% largely due to the recent approval the energy tax credits.
Finally, net income came in that 118 million or 85 cents per diluted share compared to 99 billion or 70 cents per diluted share in the prior year.
Moving onto our active selling communities during the fourth quarter. The company opened five new communities and as a result of our strong sales success. During the fourth quarter closed out of 18 to end the year with 137 active selling communities. In 2020, we have already opened six new communities in January and anticipate opening another nine during the balance of the quarter for a total of 15 new committed.
These in the quarter, we expect to close seven communities to end the first quarter with 145 active selling communities.
Full year 2020, we anticipate opening over 60, new communities, which is a 40% increase compared to the 43, we opened in 2019 and after factoring in community closings, we expect to our ending active selling community count will be in the range of 140 245.
Looking out to 2021 with a continued growth in our existing markets and our expansion into markets like Sacramento and the Carolinas, we expect to see more meaningful community count growth.
At quarter end, we owned or controlled approximately 30000 law as of yearend, 24% of our lot supply was under option versus 70% in 2018 and 12% in 2017.
Detailed breakdown of our lots owned will be reflected our annual report on form 10-K, which will be filed this week. In addition, there was a summary of lots owned or controlled by state on page 32 in the slide deck.
Turning to the balance sheet at year end, we had approximately 3.1 billion a real estate inventory. Our total outstanding debt was 1.3 billion, resulting in a ratio of debt to capital of 37% and a ratio of net debt to net capital of 30.4%.
For the full year 2019, we generated 316 billion and cash flow from operations and ended the year with 896 million of liquidity consisting of 329 million of cash on hand, and 567 million available under our unsecured revolving credit facility.
With respect to our stock repurchase program during the fourth quarter, we repurchased 3.1 million shares for an aggregate dollar value of 47 million and as Doug mentioned for the full year. The company repurchased approximately 6.1 million shares for a total aggregate dollar amount of 89 million.
Last week, we replaced our previous stock repurchase program with a new 200 million dollar authorization that will expire in March of 2021.
Now I'd like to summarize our outlet for the first quarter and full year 2020.
For the first quarter of 2020, the company anticipate delivering between 875 and 950 homes at an average sales price of approximately 600000.
Homebuilding gross margin percentages expected to be in the range of 19.5% to 20.5% and that's DNA expense as a percentage of home sales revenue is expected to be approximately 15% for the first quarter.
Our SGN a expense as a percentage of home sales revenue normally runs higher in the first half of the year due to the lower delivery volume compared to the backup the here.
For the full year, we anticipate delivering between 5100 5300 homes at an average sales price of 605000 to 615000.
Homebuilding gross margin percentage is expected to be in the range of 19.5% to 20.5% for the full year, while our SGN expense as a percentage of home sales revenue is expected to be approximately 11.5%.
Finally, the company is forecasting in its effective tax rate for both the first quarter and full year to be approximately 25% I'll now turn the call back over to Doug for some closing remarks.
Thanks, Glenn in conclusion, we are very pleased with our results for the fourth quarter and for the full year 2019.
Particularly in light of how the year began the order activity rebounded from a period of softness and state consistently strong throughout the year, resulting in a 31% higher unit backlog to start 2020 as compared to 2019.
We met or exceeded our stated guidance each quarter and delivered on the full year outlook, we set forth at the beginning of 2019.
Demonstrated an ability to plan manage and forecast our business on a consistent basis.
We have strong momentum as we head into the spring selling season and the strategy in place that positions Tri Pointe for success for years to come.
Based on current market conditions enables shareholder value to increase overtime.
These factors coupled with one of the most experienced management teams in the industry and a healthy balance sheet hemi excited for what the future holds.
Finally, I would like to thank our team members for everything they did to make 2019 a success.
Your hard work collaborative energy and ability to adapt to an ever changing housing landscape are what make tri Pointe grade.
That concludes our prepared remarks, and now we'll be happy to take your questions.
At this time, we will be conducting a question answer session. If you'd like to ask your question. Please press star one under telephone keypad, a confirmation tunnel in King. Your line is in the question Q You May Press Star too if you would like to remove your question from Q4 participant do you think speaker equipment, maybe an answer to pick up your handset before pressing the star one on the please while we pull for questions.
Our first question is from Thomas Maguire Zelman and Associates. Please proceed with your question.
Hey, guys nice job on a strong quarter unimpressive finish to the or.
I know, there's a lot of works to be done between now and year end than we had this selling season coming up which can move things dramatically, but wanted to drill in full year closings guidance in and just thinking about that being up in the mid single digit range is there anything you see on the horizon with what's backlog up 30% plus an order so strong in the quarter and can.
Taking into January that would imply things are going to slow or just qualitatively can you talk about the moving pieces going into that outlook.
Sure Hi, this is Doug.
Our absorption pace in.
2019 that as Thomas asking the question is that right.
Yes, Sir yes, Yeah was 3.1 for 2020, Oh, we our plan is to have an absorption pace at 3.2, obviously a early results for 2020 are very good coming in with a strong backlog.
The one and a half months doesn't make a year.
Actually.
Going into the back half a year with an election uncertainty but.
Should orders continue to be strong through June July.
We would anticipate upside to our deliveries and possibly margins.
We are also straddling community growth or we have 60 communities were opening this year that we gave guidance they're better balance between the first half in the second half.
Not a perfect science when those things come online. So yeah. It's something we told me about balance as we go Ford and then 2021, we've got an increase as we look into the new year. So it's all a matter of continue to fine tune our op.
Our ability to introduce new communities going into the rest of this year and next year.
Got it that makes sense and I think being conservative is pretty not at this point and then if we just shift to the margin you know there there's mix in the longer dated assets.
So swaying things around a little bit quarter to quarter can you just talk about how you feel about pricing cost in the market now and I think you just alluded to but if we if we just took out all the impact what kind of margin environment Directionally. It doesn't feel like rent today, and if there's any pricing power at all.
On the margin side Thomas this is Glenn on the margin side.
I don't think you'll see the same lumpiness on our margin that you saw and doesn't 2019 as you as you'll see in 2020, I think it'll be a little bit more consistent along the lines of our guidance in each quarter.
And on on the cost side, you know, we're still seeing some headwinds of the lumber.
Labour, it's not getting any easier, but I think we have a handle on it and I don't think it's as big of a headwind as it has been in years past, Tom If you want to add anything to that yeah. Thomas This is Tom I mean overall, we feel really good about where the markets positioned most of our markets are seeing the ability to have some price elasticity.
Without a doubt.
Incentives are trending downward and where we have strong market conditions. You are really just saying the traditional closing costs financing incentives in those marketplaces. So we anticipate as demand hold strong through the spring selling season and ability to to work on the price equation to to maximize our.
Potential there.
Awesome. Thanks, guys I appreciate you taking the questions.
Our next question is from Truman Patterson Wells Fargo. Please proceed with your question.
Hey, good afternoon, guys and thanks.
Thanks for taking my questions and a nice results.
First one into piggy back a little bit on that closing guidance, you know up only or 5% to 6%.
Just wanted to follow up on that there is nothing.
Structural that's kind of keeping your closing guidance cap that only 5% to 6% growth I'm thinking lander labor constraints. They there's nothing along those lines that are necessarily keeping you all from thinking that it could go above that.
No not at all German, but as I said I mean.
We had our business plan at 3.2 monthly orders, yet hearse 45 days are good.
I'm not ready to the mail and the results for 2020 got a lot a lot of work ahead of us but it's.
Encouraging as we head into the spring selling season.
In addition.
Having 60, new communities opened this year.
For which are in the back half of the year that really affect 21 and beyond so all those factors come in play as you look at running your business you know one of the things that weve focusing here a tri Pointe is to be.
A little more predictable steadier as you go every every year continued to see some steady growth and and that's what we'll take a good market and hopefully ride maybe some upside down on both deliveries in margins by the end of the year.
Okay, Okay, thanks for that and in.
California orders were up nicely, 37% could you just break out a bit more detail on the more affordable price points more in line versus the coastal market health are you seeing a return of the international buyer on the coast and then one other item then I think is making your gross margin cadence Oh.
You know a little bit more even then maybe past quarters is the Pacific Highlands Ranch deliveries could you just.
Give us what kind of pipeline what kind of land pipeline you have there how do you.
Yes, sure Im and this is Tom all all good questions and as you would expect the results.
Relative to the absorption pace in demand.
From entry level through luxury and active adult is about what you would expect as you move up and price points entry level and first and second time move up has been very strong throughout.
California, and with the exception of Pacific Highlands Ranch, we have very little in the luxury category. So we feel we're really well positioned throughout California, and certainly the the buyer demand has been strong relative to the four national buyer specifically.
We really saw that tail off about 18 months ago. So for the last 12 months it hasn't had a significant impact on our business.
Overall, it's only about 7% of our orders for the annual basis for 2019.
So really haven't seen much of a change relative to that.
But fundamentally we just feel really good about our positioning I think in the prepared remarks, we mentioned the opening of two new long term, California legacy assets right, one would be at well out and banning and that's kind of a replacement product for our very successful Sundance community.
In Beaumont. So we're excited to get a five new products into the market in the second half of this year and then also we mentioned about a land development being under way in Meadow would which is in north San Diego County, inland, which is going to be a very very affordable alternative and we're super.
Excited about that and that'll be opening the second half of 2021.
Relative to the amount of lots that we have remaining at a at PHR, we are managing that to optimize that over the next several years.
And we're down to just under about 400 lots remaining there.
I don't have an in front of me, but you could to review our our project table in the 10-K. When it's filed later this week treatment until they will show what's left at Pacific Highlands Ranch. Okay. Perfect. Thank you guys. Good luck on upcoming quarter.
Thank you.
Our next question is from Stephen Kim Evercore ISI. Please proceed with your question.
Hey, guys is actually tray on for Steve. So first part is I didn't have any catch if you guys gave your land spend.
For the quarter and then just broadly about your land spend post acquisition development really over the past four or five quarters. It seemed to have dropped in terms of units year over year growth and relative kind of what your peers have been doing just wondering what your thoughts are behind the moderation and I know you kind of talked about coming out this year and expanding next year.
But I'm wondering how this moderation lance and we've seen now is driving.
This year flatten maybe are you seeing inflection going forward.
So let me give you some of the details we didnt give it on the call but in Q4, we spent about 114 million on land acquisition and 45 million in development.
Next year, we're estimating about 900 million to 1 billion in total land and land development and the number 19 was down a little bit compared to years past, but I think that reflects the slower.
Market that we saw in the back half of 18, where we just saw left land deals during that period of time and I'd also add to it with our appetite of growing outside of California. The absolute dollars to actually have gone down I think we also would note that our percentage of lots option has increased.
These 224% so one of the things that were.
Spending a lot of time on his is looking at ways to maximize our returns through land banking.
Partnerships with other land builders.
And a rolling options. So we can maximize the returns so those all come into play as far as dollar span a you know as we look forward into 2009 to 2020.
We do projected B pack cash flow positive.
And we're blessed to be cash flow positive by the long term assets that generate a significant amount of cash flow for us from California.
Okay.
Thanks for that and I Wonder mentioned on on cap allocation a bit you highlighted in the press release, a new repurchase program of of 200 million.
And you made the comment how it will be used opportunistically, but I'm wondering how you. If you could reconcile those comments with your comments last quarter about how it seems like you're trying to be more aggressive on the M&A front and if if you are be ultimately active M&A would we also expect up full 200.
Million to be used.
So.
When you look at the capital allocation strategy for Tri Pointe, we have 200 million available to us for share repurchases and we will look at Opportunistically.
We do generate a lot of cash also we will look at accretive M&A opportunities in market specialty markets in the southeast that we're targeting right now.
And then thirdly.
Look at our own land acquisition efforts to grow our division. So it's a balanced approach.
And we'll continue to look at it that way, while we keep our our balance sheet.
Very strong and we're very proud of the fact that our net debt to cap was roughly 30% at year end, which gives us a lot of ER, so powder available for acquisitions or other means of growth.
Yes, thanks, very much guys know good luck next quarter.
Thanks.
Our next question is from Jay Mccanless Wedbush. Please proceed with your question.
Hey, guys. Good afternoon, thanks for taking my questions.
The first question I had the gross margin guidance for for the first quarter. It seems like with roughly 45 days left to go 19, and a half to 20 and a half seems like a big range are you guys try to closeouts in communities or what's going on there.
No. It just you know we've talked about before there's a big impact to our margins are the long term, California assets and so if some of those move in or out of the quarter. It could have an impact, especially because the first quarter is a lower delivery number for us. So just has a bigger impact on the number which is why we went with the wider range.
Okay.
The second question I had I was wondering for both the quarter and for for 14 19, and then also for the full year your impairments and options were up pretty meaningfully over the prior year, what's the split on those numbers between impairments versus a lot options and did some of this increase is that is part.
This increase the reason that you're thinking community count is basically going to be flat for the full year.
It doesn't really have any impact on community count we can break down that's on the fourth quarter is roughly about $18 million of impairments and deposit write offs.
7 million of that related to legacy asset in Sacramento that we.
We purchased as part of Rico transaction, that's been on hold now that we have a sacramento team up there.
Made sense to activate that so thats actually a than added community going forward for us because we're able to activate that now.
And then we had about $3 million for some underperforming projects and in Houston that we're just towards the end of their life and it made sense to lower some pricing and get out doesn't reflect the broader Houston market our margins in Houston are very strong.
And finally, we had some deposits and the Seattle area that we walked from that was kind of the remainder of the balance and those were again kind of unique transactions that don't really reflect on our community count going forward.
Yeah. Jay This is Tom I gave you a little more color up in Seattle.
Greenway, a complex entitlement arena and.
So that we walked from were really entitlement related issues or delay is where it just didn't make economic sense to try to keep pushing that ball forward.
Relative to the project in Sacramento, We're excited about that that's it's a small single assets 94 small lot single family detached that's going to be great for us getting.
That into the marketplace.
Our story is not too much different on the.
Softness in community Count Q3, Q4, 2018 had a significant impact on everyone and when that happened, we just pulled our foot off the gas a little bit but.
By a Q2 of 2019, everybody was was back in play and that's why we're we're guiding that a 2021 and beyond we'll have more significant community count growth going forward.
Got it.
The last question I had.
Good and write fast enough. When you were talking about where were you guys expect active adult and first time buyer market shares to go by 2022 Kids I'll give that data again that also if there's any geographical right you know favoring one geography over another any kind of color on that will be great.
Sure I think we said we were.
Moving.
First time buyer up to 40% versus the around 30% his words out now and active adult to 10% versus 3%, which is where it that now.
And Thats a Jay this Doug I mean, that's that's across the country.
You know there's a obviously we've got a big exposure here in California, but we're also very active on the east coast set it with our Winchester brand.
So it's it's a cross the country.
Okay that sounds great crushing I'll take my question.
Thanks Jay.
Our next question is from Mike Dahl RBC capital markets. Please proceed with your question.
Hi, Thanks for taking my questions.
First question.
Great results in terms of the recent order strength I guess, if I'm I'm looking at it.
Yes seasonally based on the start to the year, even if you really.
Dial down the normal seasonal progression.
In fact that March you'd be pacing above four.
On absorption for the first quarter, which is even better than what we saw and 18, which I think was.
Was a peak so.
With respect to doing a four in one Q and a three to for.
For the year I guess, just trying to reconcile.
How to think about the balance of the year and how much you're really looking too.
Actively manage that pace down be a incremental pricing versus just some sort of.
Maybe more.
Conservative assumption about market demand.
But.
This Doug I mean, we're always managing both pricing and pace.
And in margin pace, I should say and the other thing that and again. This is we give act community counts, but yes commute accounts are Oh, I mean, I don't know I.
It's a little misleading as communities can end up a closing out at different times. So then your whole number isn't going to be just four O I mean, there's.
There's different lies to these communities. So as we are they mentioned a the number of communities that we'd open but we also talked about our active community count at the ended the year. So we're closing out a lot of communities. This year do so that all has a in effect on how you look at the overall business.
But as I said earlier I mean, it's the spring selling season through June July feeds a into where we see it right now we definitely will look at seeing some upside in deliveries, but it's it's not off the charts because you've got so many communities with so many lots left to build while you're bringing on new community. So it's.
Well, we'll also be pushing margin.
As I mentioned in and that comment as well so it's.
That's it it's partly art and a little bit asylum science.
Okay fair enough and I guess on the absorption point or are there to your comment on community count are there any specific kind of larger projects that are particularly a.
Fast turning our fast pace.
Yeah that are closing out in the first half and being replaced by.
For and different mix or newer community aware the absorption woodstar slower and is that potentially driving some some of that shift to lower as well.
That's not always the case I mean, there's there's always some of that youre going to have that every year, though in that mix up and down but in January specifically, we did have a couple of really good openings, which.
Boosted that number pretty well and so we've got we've got a 54 more to go openings. This year. So it just depends on how all those hit their Allison.
We don't want to downplay order pace, either we're really pleased with where we're at and for the most hard we're getting that that a pretty broad range of products. So we're pleased that encouraged and hopeful that there is some upside to our guidance.
It's a it's a great start, particularly seeing that it sounds like it's pretty broad based across geographies and price points.
Last question on my end.
I guess just back to the delivery question and that that the risk of beating the horse a little.
The <unk>.
You know I understand some of the moving pieces and there is not always perfect visibility by.
In terms of cycle times could you quantify what you're seeing with with cycle times right now and how that compares to what what you were out last year.
Yeah. This is Doug this is Tom Mike we have a again very conditions by market place, but we're certainly seeing the pressure would the labor force out there and it's very competitive I think our teams are doing a great job, but all in all in some of the higher volume market.
Cycle times have a continued to increase and we're working to get more than our fair share of that labor pool to help us deliver.
The products that we need to to make our plans happen, we're doing a really good job trying to manage our.
Our specs that we're bringing in a market as well and we're certainly positioning ourselves to to be ahead of it. So that we're not going to have a afore Q crunch. So.
We're encouraged but it is a constant battle on a week to week basis.
Okay got it thank you.
As a reminder, we're now conducting a question answer session. If he would like to ask your question. Please press star one under telephone keypad.
One moment, please while we pull for questions.
Our next question is from Carl Reichardt BTG. Please proceed with your question.
Thanks. This is Ryan on for Carl on first question just on.
The extent that you're seeing a inability to price over cost in the market currently and if theres any product types or geographies, where consumers seem particularly oh, I guess receptive probably isn't the right word but be able to absorb price increases.
[noise], it's Doug.
I think our strongest market that has been able to.
See continued pricing lift would be Phoenix, but thats offset.
With costs increases to last year net.
Quarter to date 2019, they had about a 4% pricing increase but that was.
Offsetting about a 2% to 3% costs increase too so.
That's that's the strongest market the rest of markets.
Or either breakeven to slightly ahead on price many of our Mark has actually enjoyed a lot of cost savings one of the things that we spent a lot of time last year as a lot of value NJ engineering initiatives and many of our markets actually enjoyed cost savings as well.
And Ryan I would add that given the very favorable interest rate environment.
It is a little easier to have the consumer absorb some of those.
Price increases and there's certainly a high degree of demand at all of our price points, but the entry level. It really helps the qualification factors. So.
They're around for us right now.
Okay got it. Thank you on and then I guess, just just on the affordable.
Communities that you've been opening on I think you said that they are pretty geographically dispersed but.
Is there any mark in particular, where you've had particular success opening those communities and then how does absorption pace.
Compare with your with your core product.
So year to date in 2019 absorption pace entry level was 4.2.
A move up was 2.9 luxury 2.6 and active adult 1.8, so that was year to date.
2019, which.
Pretty much all trended better than 2018, except for active adult.
And then at both of those.
Product levels entry in early move outs.
Phoenix has been a strong performer for us as Doug mentioned.
The Vegas market also.
Performance in those product types as well as a California inland Empire, and our San Diego County.
Both performed very well.
Okay, great. Thank you very much.
We have reached the end of the question answer session I will now turn the call back over to Doug power for closing remarks.
Well. Thank you for joining us on today's call 'em, we look forward to share in our results after the first quarter.
Coming up here in April so thank you very much and have a great week. Thank you.
This concludes todays conference you may disconnect your lines at this time. Thank you for your participation.
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