Q1 2020 Earnings Call
[music] greetings and welcome to Tri Pointe Group first quarter 2020 earnings Conference call.
At this time, all participants are in listen only mode.
The question answer session will follow the formal presentation.
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It is now as a reminder, this conference is being recorded.
It's now my pleasure to introduce your host Chris Martin Investor Relations for Tri Pointe Group. Thank you Mr. Martin you may begin good afternoon, and welcome to Tri Pointe groups earnings Conference call earlier today. The company released its financial results for the first quarter of 2020.
Documents detailing these results include any slide deck under the presentations tab are available on the company's Investor Relations website at Www Dot Tri Pointe group Dot com.
Before the call begins I would like to remind everyone that certain statements made in the course of this call, which are not historical facts, including statements concerning future financial and operating performance are forward looking statements that involve risks and uncertainties a discussion of such risks and uncertainties and other important factors that could cause actual.
All financial and operating results to differ materially from those described in the forward looking statements are detailed in the company's filings made with the FCC.
Including his most recent annual report on form 10-K, and its quarterly reports on form 10-Q.
Except as required by law the company undertakes no duty to update these forward looking statements that are made during the course of this call. Additionally, the non-GAAP financial measures will be discussed on this conference call reconciliations of these non-GAAP financial measures to the most comparable measures prepared in accordance with gap can be assessed through Tri Pointes web site and in its filings with.
The FCC.
Hosting the call today's Doug powered the company's Chief Executive Officer, Glen Keeler at the company's Chief Financial Officer, Tom Mitchell, The company's Chief operating officer, and President and Lindemann <unk>, the company's Chief marketing officer with that I will now I'll turn the call over to Doug.
Thanks, Chris and welcome everyone to today's call.
Needless to say this call is happening at unprecedented time.
At first and foremost I want to thank our first responders.
And our health care professionals across the country.
We're on the front lines, many risking their own safety and health.
There are selflessness and thousands who are sick from covert 19 or at the top of our minds as we navigate this challenging time.
That's a started the pandemic our management team has been focused on moving quickly to address the almost daily developments regarding Kobe 90.
Including track taking actions with respect to the safety.
And well being of our employees trade partners and customers.
And operationally as we work as an essential business and most of our markets to deliver homes to our customers and provide them shelter.
In late February we sent a companywide email with the CDC guidelines for businesses and employers.
And asked all our division presidents and our human resource team to work with employees to ensure that all protocols are being fall.
Surely thereafter, we adopted a work from home policy for office space Rolls on our teams and expanded our paid sick leave benefits to cover cobot related sicknesses.
And employees, who are unable to work due to school or child care provider is closures.
Strict social dispensing and sanitation policies have been instituted at all job sites.
We've also distributed educational materials.
Through our trade partners and have posted Flyers on her job sites with materials provided in English and Spanish.
We have assigned members of our customer care and construction teams to regularly monitor job size for social dispensing.
And work protocols.
Our new home galleries had been opened by private appointment only since mid March.
It is critically important to be proactive to do our part to flatten the curve.
We've also accelerated our digital sales program.
Aside from Cobot 19 in anticipation of a new era in online sales.
We have already invested heavily in the technology applications that allow consumers to go further and the online sales process than ever before.
And we have adapted and accelerated our usage of these digital platforms in the current environment.
Buyers can sell schedule appointments online take virtual tours.
Leverage interactive tools.
Access detailed company community information, including our online design studio.
Interact with our sales team and much more from the safety and comfort of their own homes.
Our technology also allows buyers to close on their homes in ways that limit the need for in person interaction.
And even more transformative to our business buyers can our reserve a quick move in home on our website.
Driving a higher percentage of our business through the web site, we can better identify and target potential buyers her in the market for a new home.
For our sales teams, we have established regular virtual training.
Which has been key in preparing them for the new era of selling.
We anticipate this trend of online shoot home shopping.
In virtual tools and facilitating self service options, we'll continue to grow and we're confident constantly innovating to stay ahead of the trends.
What we are seen in response is a higher number of appointment originated online then this time last year and more importantly, higher quality a prospect.
Well I realize that our first quarter results represent a time period, largely unaffected by the impact to the virus.
They bear mentioning it only to underscore the strength of our industry.
Yes, specifically our company as we head into this period of uncertainty.
Unit deliveries orders and backlog grew 18, 26, and 33% respectively on a year over year basis.
Home sales gross margins for the quarter came in at the high end of our guidance range at 20.5%.
Well, that's DNA as a percentage of revenue improved 180 basis points.
Year over year to 13.9%.
We sold homes, an average sales pace at 3.9 per community per month.
Represented 32% improvement over the first quarter of 2019.
As I referenced earlier, we're open for business with new work protocols, and we are finding success selling building and closing homes for motivated new homeowners.
Right point groups homebuyers are typically well qualified.
As of April 1st our backlog buyers finance he would tri Pointe connect.
Our affiliate mortgage company, representing 75% of our total backlog.
However, an average loan to value ratio of 75% average debt to income of 40%.
And 83% of our buyers have you FICO score over 700.
This gives us greater confidence and the quality of our backlog in the current environment.
We have also implemented backlog management practices to assess the risk and focus on timely issue resolution.
Thereby facilitating a disciplined approach to our new construction starts have sold homes.
So far in the month of April we have recorded 134 net orders.
We started April with 2455 homes in backlog.
Added 224 gross orders close to 168 homes.
And have had 90 cancellations month to date, representing less than 4% of the current backlog.
Several notable community openings have occurred in late March achieving order success.
Scheduled private appointments conducted virtually or in person.
Water certain a master plan community and Gilbert, Arizona with three product types has accomplished 17 orders since opening on March 28.
L'oreal Townhome community in Bellevue, Washington.
Cheap 10 net orders since opening in early April.
And as well and Master plan community and banning California, just opened the first two neighborhoods. This past weekend garner in seven or seven orders the thus far.
We believe our order success is indicative of our premium brand strategy, which emphasizes product design.
Innovation and our focus on the customer utilizing the latest in technology.
We believe Tri Pointe group is in a solid position to navigate the new reality brought on by this ongoing pandemic.
We haven't experienced management team both in our home office executives and our divisional presidents that has been through downturns in the past and can draw upon those experiences to take the right course of action.
One of the most important strategic decisions, we've made and continue to make a priority is to maintain a well capitalized balance sheet in the event of economic slowdowns.
We ended the first quarter, what the debt to capital ratio of 45.8%.
And a net debt to capital ratio of 35.4%.
Our total availability our total available liquidity stood at 677 million at the ended the period.
624 million in cash and cash equivalents and 53 million remaining remaining on our revolver.
Well, we have ample liquidity to fund our operations for the foreseeable future.
We took the prudent step accessing a significant portion of the funds available under revolver to err on the side of caution.
Due to the impact the Kobin 19 on the lending and capital markets.
Cash is a priority during times of uncertainty like this.
And we would rather have it on hand.
Until we have more clarity on the market, we have and intend to continue to defer land acquisitions and minimize capital expenditures put to put a net around the company's liquidity.
We remain confident that Tri Pointe group has the right people.
Strategy and financial strength in place to whether the current storm.
We were ahead of the curve in investing in the kind of technology that is key to adapting to trends in the market that are likely to accelerate once the pandemic is behind us.
We believe that there will be opportunities for well capitalized innovative builders, who prioritize technology to take market share on the other side of this.
With that I'd like to turn it over to Glenn for more details on the quarter in the current state of our operations.
Thanks, Doug and good afternoon, everyone.
I'm going to briefly highlight some of our results and key financial metrics for the first quarter and then discuss our cash position an overall liquidity.
Slide six of the earnings call flood deck provides key financial and operational highlights from our first quarter.
That new home orders for the quarter were up 26% year over year due to a 32% increase in monthly absorption rate offset by 5% decrease in average selling communities.
The increase in our monthly absorption rate to 3.9 homes per community per month reflected strong market conditions in each of our markets during the quarter prior to the impacts of covered 19.
Slide 20 of the earnings call flood deck provides monthly order and absorption rate information.
To give you contacts on how order on the how demand trended during the quarter generated net new home orders were 541, which was a 71% increase year over year and represented the highest January order volume in the company's history.
Memory orders were 687, which was a 50, 353% increase year over year and represented the highest order volume of anymore and the company's history.
Due to the impact of covert 19, and the resulting shelter in place orders March orders were 433, which was a 22% decrease year over year.
Cancellation rate for the first quarter was 13% compared to 15% in the prior year.
Turning to deliveries we exceeded the high end of our stated guidance delivering 958 homes in the first quarter. This resulted in home sales revenue of 595 million, which was a 21% increase year over year.
Our homebuilding gross margin percentage of 20.5% was a 610 basis point improvement year over year due to the strength of our backlog coming into the year.
<unk> expense as a percentage of home sales revenue came in at 13.9%, which was 180 basis point improvement year over year as a result of the leverage gained from the increase in revenue.
Finally, net income came in that 32 million or 24 cents per diluted share compared to roughly breakeven in the prior year.
Moving onto our active selling communities during the first quarter. The company opened 19, new communities and closed out of 13 communities and the quarter with 143 active selling communities.
At quarter end, we owned or controlled approximately 32000 lots of 29% of which were controlled under land option contract or purchase contract compared to 15% in the same year ago period.
There's a summary of lots owned or controlled by state on page 19 in the flight deck.
Turning to the balance sheet at quarter end, we had approximately 3.2 billion a real estate inventory. Our total outstanding debt was 1.8 billion, resulting in a ratio of debt to capital of 45.8% and a ratio of net debt to net capital of 35.4%.
We ended the quarter was 677 million of liquidity, consisting of 624 million of cash on hand, and 53 million available under our unsecured revolving credit facility as Doug mentioned, we drew 500 million on our credit facility during the quarter.
We felt the overall cost of borrowing was minimal for the peace of mind of having the liquidity on the balance sheet.
We spent the fast past few weeks modeling out various downside scenarios and feel confident that we have ample liquidity to operate successfully during this pandemic, including paying off for a 300 million in senior notes due in the middle of 2021 if needed.
Our business has a lot of variable spending that we control and as such we have made the decision to stop building spec inventory homes, and we have delayed spending for buying and developing land.
This allows the company to generate positive cash flow by delivering homes from our current inventory.
Summarize.
We commenced 2020 with a healthy backlog and experienced strong demand in the first quarter. However, due to the impacts of cobot 19, and the resulting uncertainty around the economy and consumer demand in the near term we have decided to withdraw our previous 2020 full year guidance I'll now turn the call back over to Doug for some closing remarks.
Well, thanks, Glenn I'm very proud of our organization has responded to the challenges brought on by the pandemic.
We pivoted quickly to address the pandemic, an adjusted our business practices in a way that prioritize the health and safety of our employees.
Trade partners and customers.
We also found innovative ways to conduct our business and keep the work flow moving forward, while staying ahead of trends and keeping our focus on innovation design and an exceptional customer service.
While it is still unclear what the full impact the virus would be on the economy I remain optimistic about the long term outlook for our industry post covert 19.
Given the demographic changes occurring in a country.
The undersupplied nature of our housing stock and changing home buying patterns with the view that working from home will provide comfort to families.
I'm also optimistic about Tri Pointe group's ability to work through the near term challenges and ultimately thrive over the long term, thanks to our well capitalized balance sheet, our experienced management team in our premium brand strategy.
Finally, I want to offer my heartfelt thanks to all of our team members for the way. They have responded to this adversity.
I realize that everyone's wise had been up ended by this crisis and I. Appreciate the commitment you've made to stay focused on the task at hand and work as a team during these very uncertain times.
That concludes our prepared remarks, and we'll be happy to take your questions. Thank you.
Thank you we will now be conducting a question and answer session.
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Our first question comes from the line of Alan Ratner with Zelman and Associates. Please proceed with your question.
Hey, guys. Good afternoon. Thank you so much for all the great information and glad to hear that everyone's doing okay annual rent.
Doug I think the other mortgage data you gave was very helpful. I know, there's a lot of concerns about what's going on in the mortgage market today and certainly based on some of the stats you gave it seems like you know, perhaps you're you're not overly exposed to where were you know the greatest tightening is occurring but I'm. Just curious if you could talk a little bit about what you're seeing on maybe on the edges of your your buyers whether it's at the.
Jumbo market or on the FHLB side, and if there's any if there's been any fallout or how closely have you kind of scrubbed the backlog to really analyze the the type of loans at your buyers or are qualifying for or had qualified for in and whether that loan program is still a still viable.
Hi, Alan This is Tom a great questions and as you can imagine we're spending.
The bulk of our teams time analyzing our backlog, there's nothing more important than our backlog right now and bringing that to fruition. So we do have great data on that and our team is doing a fantastic job I mean, it's an hour by hour assessment, but everyday and every week, we continue to assess the.
The risk in our backlog and work on strategy to make sure that we're going to be able to have a strong pull through of those buyers.
Couple of things just on mortgage because I know it has been a big concern overall, we operate a little bit differently. I think most people know that we really have a very strong joint venture partner and we operate through a brokerage model. So there's much less risk to us and the in the mortgage finance.
Business.
Obviously, you highlighted jumbo product has been challenging currently though only 6% up our backlog falls into that category. So we do feel good about it. We're currently working with some primary banks a divide those products for our customers, but again as Doug said, we've got.
Really strong well qualified buyers and on the FHLB V.A. side of things up Ajay represents about 7% up our backlog via about 13%. So we really are well positioned to continue to provide financing for for our buyers.
That's great time, I appreciate that that extra detail.
Your second question, just maybe thinking about your footprint a little bit you guys swing when you look at the market you operate and you have a handful of markets that a it sounds like Unfortunately, you probably haven't been able to continue constructing homes thinking about Washington, and maybe parts of the Bay area and then you've got a market like Vegas switch.
Which definitely seems to be overly exposed to some of the you had a hot spots from a job loss perspective. So when you think about your overall footprint today, and maybe less about what's going on today, but more about how those markets react going forward. You do you see increased risks of cancellations in a market where you know perhaps.
Yes, the delivery schedules are being pushed out or are you seeing any big price actions being taken them either by yourself or other builders in the market like Vegas anticipating drop offs in decline just curious if you can kind of give a little bit of around the horn on on what you're thinking across your footprint.
Yeah, and this is Tom again I'll take that one also you know different markets are reacting very differently depending on.
No at what stage of the pandemic, they're in and obviously a relative to job loss related to that but so far can rates have been fairly consistent across a all of our different buyer segments, but by geography, I think you identified some of those areas that have higher concerns.
Vegas has certainly been on the front end of that and similarly, or some of our buyers in the inland Empire fall into a higher risk of cancellation.
Certainly high and that a zone would be contingent buyers just with their inability to move their resale home. So we're closely monitoring that and watching it I think we had implemented you know about a year ago, a new contingency management program and so we have less exposure then.
We would have had in the past so we're thankful for that.
But one thing that we clearly see geographically is that there are still buyers out there and Oh, we are happy to service them and in any way that we can but you know it's very consistent that where we have the ability to offer well designed well located product attained.
Oil prices, we are having some success there whether it's on the attached reduce detached a product types that we're offering and I'd also add right now only 4% of our current backlog has a home to sell so we're in a really good shape on that side and you asked about price.
Actions and frankly, we haven't seen a any major price reaction so far since.
The shelter in place rules went to place a there have been increased a use of some incentives whether it's a broker co-op whether it's a you know we've got a financing by down program right. Now. So there's some is something a little things I call them, but nobody's, we haven't seen any wholesale price reaction.
At all in any of the market yet.
Doug did you say, 4% of your backlog as a home to sell that sounds shockingly low.
Yeah, Yeah, we we've spent a strategy and and Oh complement Lindemann may who's sitting here is our CMO. It's it's a strategy in a discipline that we.
Turning to put in place a probably a year and a half two years ago, because we thought it was going the other way. So it is very low and.
That's why you know, it's all about backlog management in these times just like you know we went to the SNL crisis in the mortgage crisis. So we've had a little experience. This so we were maybe we're getting better at it.
Well I really appreciate all the as a great data, there and everybody stay safe and.
So for some better times and a few months.
Thanks Alan.
Uh huh.
Our next question comes from the line of Truman Patterson with Wells Fargo. Please proceed with your question.
Hi, Good afternoon, guys are glad to hear you all are safe unhealthy. It first question in the areas, where construction is deemed essential I'm I'm, hoping you all can discuss the construction cycle times, what you're seeing it being extended buying some of the hurdles that I imagine you're facing whether from municipal.
Paul constraints or labor availability with you know all the social distancing guidelines.
Yeah. Good good question, Truman, obviously with new guidelines and distancing protocols, it's really not business as usual. The good news is that there is still a strong labor force out there that's available and desires to work.
We really haven't had any broad based schedule delays relative to that but you know we do have some slight increases to our cycle times and schedules just for pure coordination of trades are trying to work without overlap.
So that's a factor you also mentioned you know min municipalities and the other jurisdictions there have been some permitting delays as people are trying to adapt to working remotely.
So so pulling permits has definitely slowed the the process to getting a home started out there as well, but overall, we're generally pleased with our team's ability to be creative and.
Yet work happening and constructing and delivering quality homes to our buyers yeah, I'd add to that Truman no I give a shout out to one of our superintendents up in northern California. He brought in a model complex a during these times in record time. So at the same time you know the trades are also very hungry every day.
Ladies hungry for work everybody needs a paycheck. So it's it's not a material change in cycle time.
HM Okay, that's a really good to hear.
Just a clarification on your April orders I believe you said 143 is that net of the 90 cancellations or is that gross.
That was net.
Okay. Okay, great. It could you just dissect that April performance, a little bit really a I'm you know I think investors are interested to hear trying to buy consumer segment or geography, where construction isn't deemed essential I imagine that's dropped off more but just wanted to get your thoughts on that.
Yes sure Truman this is Linda.
So just a little digital just to clarify for those April numbers and that's a gross number and then the cancellations. He said 100 and you said 143 <unk>. It was actually 134 net orders.
Gotcha, Okay, Okay, and two and 224 growth.
Okay. Thanks.
And then could you guys just break out you know kind of how April demand has trended by consumer segment, a indoor geography.
Yes geographically, we're currently seeing the highest net sales are now southern California region, followed by Washington, and perhaps somewhat surprising leave in Las Vegas is that's currently coming instead and net sales for us April month to date.
No you probably should have listened to that Sherman and that those are in areas that are deemed non essential right.
Yeah.
Quadrant van and Oh, Yeah, we've had some phenomenal or order. So what it tells you is the consumer is adapting to these new new shelter in place new virtual world and even in state of washing although.
Deliveries and it will be pushed out a little bit as were deemed non essential and construction people are still in the technology business, especially up they're very interested in buying a home and securing a home so and that's true even down here in southern California Vegas, as we talked about <unk>.
Okay could you could you maybe just rank order kinda entry level move up.
Luxury you know the health of each of those markets a in April.
We've not yet seen it any significant difference in order to meet order activity by segment.
Were roughly 26 sand at entry level, 54% move up.
Been seem to think luxury three became active adult and that's been consistent through April.
Alright. Thank you all I appreciate it in a good luck on upcoming quarter.
Thanks, Jeremy.
Our next question comes on the line of Stephen Kim with Evercore ISI. Please proceed with your question.
Yeah.
Yeah. Thanks, a lot guys and again I'm glad to hear you guys are doing well I'm really interesting.
Commentary there about April and some of the markets you're in a quadrant not being one of your largest divisions on seems good good results. There on the sales in the most recent month I was curious if you could talk a little bit about those three figures you gave for April the the net orders a gross orders and the canceled.
Patients, particularly on the gross in the cancellation.
Can you talk a little bit about what kind of momentum you saw through April because things are changing so fast on the ground week by week, we kind of gotten some indication that things in the most recent week or so have been.
Measurably stronger than what they were on a earlier part of the month did you see that as well and can you just talked about what you're seeing on the cancellations or in that regard as well.
Well I'll start off a Steven and Linda can chime in but yes, we've we've seen some slight increase in traffic demand over the last four weeks, but.
There's no conclusion to draw from that it's way too early personally.
So, but yes in the last four weeks it has.
Seen some better activity, both traffic and sales.
We still are out cancellations peak the weekends match city it and they have been declining since then but again, that's it's early to tell.
That cancellation is that a ratio that you're referring to that percentage of backlog or is that absolute numbers of cancellation, just an absolute number just an absolute number.
Okay.
And then secondarily you mentioned.
Your.
Online activity that seems to be an area where.
Larger companies such as yourselves would seem to have an advantage over a lot of your smaller peers.
And I'm curious as to whether you can talk about the margin profile.
You expect from online orders versus traditional traditionally a acquired orders do you think theres an opportunity either you know when the current environment or maybe going forward. If this were to sort of persist.
Whether you see the opportunity for maybe a higher margin profile from orders that are processed and an acquired on an online basis, and then also with respect to margins and kind of customer receptivity I'm curious about your moving product.
Versus your built to order product you have some more quick moving product now than you usually do are you finding that customers are actually showing it any preference for that kind of a product in this environment, where they want to get in there relatively quickly.
Rather are you seeing that people are preferring to sort of design. Some features maybe which they didn't know they want it until this cold it situation around like maybe like some more flex space and things like that so are you seeing more of our preference or move in my quick movement or more customization.
I will Oh, there's somebody that can help there's about about four or five questions and that statement I think I'll start at the at the beginning into virtual world as we mentioned.
<unk> going to a website, where you can reserve now by now yes, I think in the <unk> posts co bid world.
Which.
You know our view is is a pretty far out there until there's a vaccination or the way we look at things getting back to somewhat normality, but yes, where you'll see margin improvement is probably a reduction in the broker co op.
So you're asked DNA, which is where that falls in for US right, Yeah will be less a in it because of our <unk>. They will be a a a lower number because we'll have less broker co up in the future, but you know that's a that's quite a ways out there.
There, but the consumer as they continue do shop online I think that's a definite improvement overall in the future Linda you got some of the other question. Stephen is sure. Yes in regard to the design she'll appointments, we not seen significant difference and order amounts between their chill appointments or interest unemployment. So we're happy with that.
And in Kansas preference for moving ready Han's. This is gets dot coms qualitatively, we I see more inquiries from customers, who are currently ranking wanting to get into a move and ready home center, but other other trends seem to seem to be pretty stable between people, who want to pay sun life on from the ground up this is the movement.
Uh huh.
Right, that's exactly what I was getting at thanks, Doug.
No problem. Thanks, Steven.
Our next question comes from the line of Jack Micenko from Sri Ji. Please proceed with your question.
Hi, good afternoon.
So if anything we've always taken a long due to running the company.
And certainly don't want to make short term decisions or longer hinges on short term data but.
Thinking about the existing franchise versus some of the desirable markets or in the question is.
Here are you on pulling back on land purchase on spend cash and not cash out.
Is that differ between the existing in the Nobel or do you want to keep moving forward of the Denovo because the more you do the Sigrity gets will break even in a in a contribution to profit.
Yeah, I think Jackie you're asking about our our greenfield markets dresses are actually talk of Yep Yep, well, Okay. Well you know we just had an earthquake in the U.S. So you know were put a big net around our liquidity.
Obviously and doing all the necessary steps that we've learned from being in this business for quite awhile.
We do sit back and look at our markets that were in both early stage and in existing and we believe long term those are all markets that we want to be in and frankly as we put a continue to increase our cash position and put a net around liquidity Oh, you know, we see an opportunity like ours.
Selves to increase market share a out in the future, but the future is quite a ways out a that's not in six months or three months. So I mean, but we do have a.
Thought process of being in the markets that we're in and continue to grow on him right. Tom Yeah. Jack on the on the short term side of things as you can imagine.
There's a real lack of clarity out there, it's really hard to get price discovery in the us get down to land residual valuations.
The one thing we are committed to is ensuring.
That on every piece of land that we buy we're buying it with the right metrics to get the right returns for our company and so.
That's why you see the strategies that Weve currently put in place until we can get better clarity on where it's going but absolute commitment to the markets that we're in and growing market share there as Doug said.
Okay, Great and then [noise].
On the buyback I don't it would appear that you bought early in the quarter.
On the averages and you didn't say it outright.
But I'm just looking for clarification, you know big discounts to book value today, but you know circling the wagons on liquidity or you are you are you sensing the buyback going forward or.
With 65, 70% of book is it still.
Interesting enough based on what do you think of liquidity needs are for the next year, you're in a house to keep buying back.
Jack It's Glenn good question, but we did buy earlier in the quarter, we stopped probably the first week of March once things started to change rapidly and I think as of right now let Tom just mentioned, there's a lack of clarity in the market and a you know we're gonna be looking to preserve cash at this time and so as of right now where we.
Don't plan on being back in the buyback market until we get more clarity on where things are going.
Right, Thanks, guys Thats it.
Thanks.
Our next question comes on the line of Mike Dahl with RBC capital markets. Please proceed with your question.
Hi, Thanks for taking my questions.
They wanted to go back to I wanted to go back to that mortgage and environment for a minute. It sounds like you guys have about 75% capture rate.
Through your three or French or do you have any insight or can you share any insight into the remaining 25% that's going outside of Tri Pointe connect can you.
Hum how much do you have in terms of that same type of credit profile are the same metrics around around those buyers somewhat well and types. They may use an LTV as detailed as ficos et cetera.
Yeah, I'd say, the the credit metrics for our buyers whether they're through Tri Pointe connect or are going to that outside provider are very similar you know, it's not a situation, where we're just trying to cherry pick the top buyers and put them into connect.
It's really primarily driven by a buyer's preference to having a long term relationship with someone that they've worked with.
I would add Mike I mean, one of the advantages now that we have by not pivoting entirely into the entry level as we have a very strong mix of buyers with a very strong credit in and down payment and fight a debt to income scores and that's always been our our mission. Since we started the company 11 years ago and will continue.
To be a well diversified company.
Focusing in on that homebuyer that wants choice wants personalization and they typically have a stronger credit profile, then that entry level buyer.
Right, Okay, and <unk> and Doug just I guess to go back one more time to the to Alans question in your answer about the 4% just just to try to clarify again is that 4% specifically with a contingency and in place or is that 4% of your total buyer pool.
Because.
It does seem awfully low wouldn't are predominantly a move up.
Yeah, Mike. The this is Tom let me clarify that that is a 4% of our backlog that has a home to sell yeah. We also have an additional 4% that they've sold their home, but it is waiting to close.
So total if you said what level of contingency has you know the needs for funds coming out of a prior residence, it's probably more likely around that 8% number.
But once it gets into that home to close.
Range, that's a much lower risk profile, that's why reciting the 4% on the home to sell yeah. We we we've <unk> weve slice and dice, our backlog to the integrated and so when you have a home to so you're in a very very high risk category under our.
Underwriting and Oh home to close which is another 4% so.
Hopefully to mislead you, but I was I I think more risk and home to close is a lower risk.
Right, Yeah, I guess, even at 8% seems to that seems low it's only a quarter. If your businesses is first time buyer.
Maybe we can dig into that a little bit.
The I think I think Mike that speaks to the high demand of our product you know our core market locations.
And people really taking those steps to sell their home because of the desirability of our home to get in a better position to be able to to purchase ours, even before they come <unk>. It's also the quality of the buyer profile I mean, it's just we're in a different I'm.
I'm just guessing who's the other I mean, the other big move up Guy is what toll I mean tolls luxury, though I'm, assuming there buyer profiles very strong too.
But you know everybody else is obviously pivoted entry level, they probably have a higher risk profile, but that's not for me to judge I'm, just tonia, we've always manage our business that way and very proud of it.
Sure I mean, it's that's impressive one more question on my end you guys. Obviously have a few larger and long dated development project. So when you talk about delaying some of the development can you give us anymore detail around.
You know projects, either specific projects or or I'm, just any more color around how you're thinking about facing some of these longer developments and any metrics around enough cash preservation that that's going to.
Provide for you guys.
Sure you know as we started through this the first thing was to try to.
Dimension, our balance sheet to make sure we're doing all the prudent things to preserve liquidity, we analyze each and every one of those assets and depending on the scenario that we've chosen to assume as a baseline assumption weve made varying a different degrees.
Of.
Development decisions to how to move forward. So you can take an asset like Skyline Ranch, which is up in Los Angeles County in Santa Clarita that market continues to perform very well, we continue to see a little bit of flight from density to a more suburban environment, but.
We'll close to employment centers [noise].
So we are choosing to continue our presence there and be moving through the next phase of development and if you remember way back I think November of 2016, we talked about these long dated assets and how we had redesign them to be implemented on a phased basis that strategy is proven.
Itself out very valuable right now so that's kind of what's happening at skyline on the opposite end of the spectrum.
Down in San Diego County, where we were just entering into land development on a 840 unit Master plan community called Meadow would we made the decision to wait to see if we get more clarity on where the market was because of the amount of upfront land spend that was gonna be Rick.
Wired to even move through that grading operation.
So that's two different examples and as I said it depends on the market depends on the dynamics of the the buyers and our ability to do things appropriately on a phase basis, where ultimately we feel good about harvesting the cash that we're putting into these a longer term developments.
Okay. Thank you stay safe stay healthy.
Thanks, Mike.
Our next question comes from the line of Jay Mccanless with Wedbush. Please proceed with your question.
Thanks, Good afternoon, everyone. The first question I had could you maybe talk about how many communities are shut down right now because of non essential orders and maybe when those those orders are scheduled to roll off.
Oh the community Yeah, we'll have to get back in that all of that number right off top of my head. It's it's obviously a few it's just there's a few up in Washington, a and then there's a.
I mean were partially open in the Bay area, and Solano County, and Central Valley. So wanted to get back down I'd say, it's not a material amount, but but on the order side. Jay you know it's important to note well.
Sales offices might be close even in those areas that they're they're non essential.
In others, we are absolutely open under different protocols I'm you know a across the country were opened my appointment only and even in those areas in the in the Bay or Seattle are a team is still working remotely to to cultivate sales activity and you know on the order front you heard.
Let's talk about Seattle, and quadrant, specifically, having some very strong new project openings in the middle of them being a shut down so there's still a buyer preference there still engaging with us and going through this new process that we have even though our sales offices are close were able to.
Achieved new orders.
Jay just to give me a some numbers I mean, the quire quadrant Division has a 10 active communities.
And are.
Barry only has seven but I think half of those are open because they're out in the central Valley, let's call. It two or three that are affected so out of 143, let's call. It 12 or 13 communities that are quote non essential but as Tom mentioned a lot of the put those projects it both in the bear in Washington.
The cities and counties, where you are about what does it Tom 30 to 60 days from completion.
You know there being sympathetic to the fact that a family needs to move in and they're letting us finish it or they're letting us make sure that homes are safe before that so.
There's a lot of workarounds that are going on so it's it's not as it doesn't have as much finality is as it seems that's for sure.
Got it and then if I could maybe yes, Mike's question about land a different way for the communities that that and maybe if you guys have a number on this.
I mean, how many communities have you decided to go ahead and Greenlight because you were very close on the.
Road sidewalks and et cetera.
And I know you guys don't want to give guidance, but if you have a number or a ballpark of how many communities are going to go ahead with a new opened this year that might help us from a modeling side.
Hey, Jay its Doug first of all Mikes retired I think that was afraid anyway.
Okay, Yeah, I'd say, we're talking about drugs [laughter] listen <unk> wish you could help you with your model, but we're modeling stress testing everything here and I'm you know there's not a lot of models that I can I can really help you with on that it's it's all over the.
Yep.
But I mean, it is safe to say think about it logically if we were under construction on a new project and a new community opening.
We desire to get our models open so that we can try to assess demand and pricing and that would give us insight into our ability to sell deliver and generate cash flow out of that so if it had been in process. We think the right thing to do is to move it forward to a state of completion and get it into the market.
It's those ones that hadn't started yet that we thought was more prudent to to hold off on so in the near term you will see some of those communities that had started you know in the in the first quarter moving forward like the model. So we just opened out it out well yeah. We had seven net sales last weekend was at three new models for.
Three yeah, the two to two.
We just had a beginning of the month a out it's a.
Sandy or Phoenix, we open up at a waterston or three product types, there and had some success. So it's.
You know that it's a you know strategy of generating revenues and an increase in your cash flow. That's the strategy right now.
Okay, great for shell, taking my questions.
Thanks fixture.
Yeah.
Our next question comes from the line of Carl writer with BTG. Please proceed with your question. Thanks.
I wanted to ask about SGN a.
Fixed expense are you beginning to to look at that and given the uncertainty just give me your senses to what's your anticipation is as far as as folks folks go.
Well, Yeah, you know we're.
Evaluating changes to it or organization based on current and future demand environments and you know <unk> nobody has the perfect Crystal ball, but a we are evaluating changes as we look at the demand curve going out in the future that's for sure.
But nothing announced it internally planned wise, it's spokes staying businesses over the time be no furloughs.
No Sir that's that's so I can tell ya okay. Thanks.
And then on your backlog at the end of the quarter. When we're trying to gauge sort of how that converts.
We are normally assuming 50% them with backlog roughly this time of year, 40% or something like that.
As you look at your backlog now can you, possibly divided up is that sort of dry in or later versus you know slab.
Or just trenching I'm, just trying to get a sense effectively at how completed is it at this point and if that completion.
Of construction is any different than what we typically see into first quarter for you.
Yeah I call them. It's a good question I don't have the specific stats in front of me to probably be able to give you a real good answer I would say that for the most part it is fairly normalized as to the stage of construction that you would expect but I can look into that and get back to you.
Okay. Thanks them and if you don't let me sneak in one where I would just also wanted to ask about supply chain, you talked and gave a great answer to treatment on cycle times its supply chain in terms of.
Finished goods or raws appliances anything like that a is that delivery of that product to lead you in any meaningful way and thanks very much yeah. No. We haven't seen any delays and we have seen lumber prices fall, though so that's a good thing.
Yeah, you know were similar to everybody on the front end there was a big concern about.
Goods produced in China or that was very short lived we adjusted to that we are now beginning to see some impacts of you know U.S. manufacturers that are dealing and adjusting to demand and they own cove it impacts that they have.
So we would anticipate in Q3, if a few bumps in the road, but we're trying to get out ahead of that we're working with our trade partners and manufacturers to generate early lead times demand issue. The issue. So we don't see it being a big issue, which is a positive.
Thanks for that.
Our next question comes on the line.
Well I go with B. Riley FBR. Please proceed with your question.
Thank you a quick question can you talk a little bit about some of the cost you've taken out of your structure, both fixed and variable.
<unk>.
I'd say the question against a you know.
Okay can you be little bit more specific and some of the costs that you've taken out of your fixed cost structure.
Well, we haven't taken anything out yet on the fixed cost side I think are you talking about from our prepared remarks, where we said, we we looked at our fixed and variable expenses and and Weve.
Chosen to you know really look at the variable or side of the spending equation and not start spec homes delay Landon and Atlanta acquisition. The land development dollars. That's what we now we have not yet made a change to our fixed component.
Okay, and then as it relates to inventory out in your markets not necessarily your inventory, but others. How do you see that playing out right now how do you anticipate that impacting pricing over the next quarter or too.
You're talking about inventory for other builders.
Yes.
Racks, whether or not it's up existing home inventory or other builder inventory, how do you see that out in the market right now yeah, but right now you know right now I think I mentioned that the.
A number builders have increased their broker co-op.
And increase some of their closing costs, Oh offered interest mortgage by down programs to move some of their inventory and that's primarily what we've seen so far in the marketplace are you talking about supply in general and the market.
Yes.
Oh, Yeah, I think overall, we feel that supply is still relatively low but as more you know if it depends on how demand trends.
Go into the future to see if you're more completed homes will be out in the market, but I think if you're comparing us specifically to the financial crisis. Obviously, we feel like we're in good position going into this crisis from a supply side for the industry.
And then again with with most of our projects being in core markets a locations.
A lot of things, particularly in California, or infill of nature, we probably have less competitive set than than others out there. So there's a lower amount of inventory to begin with by nature of what we do.
Thank you.
Thanks, Alex well, thanks, everybody, we look forward to Ah, providing more updates in july or be safe be healthy. Thank you.
Ladies and gentlemen, this does conclude todays teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.