Q2 2020 TRI Pointe Group Inc Earnings Call
So the Tri Pointe group second quarter 2020 earnings conference call.
Hi, all participants are in listen only mode.
Great question and answer session will follow the presentation.
Sure.
During the conference. Please press Star zero on your telephone keypad.
This conference is being recorded it is now my pleasure introduce your host Mr., Doug Our Chief Executive Officer. Thank you. Sir you may begin good morning, and welcome to Tri Pointe Group's earnings conference call.
Earlier today the company released its financial results for the second quarter of 2020.
Documents detailing these results.
Putting a slide deck under the presentations tab or available on the company's Investor Relations website.
At Www Dot Tri Pointe group Dot com.
Before the call begins I'd like to remind everyone that certain statements made on this call which are not historical facts.
Including statements concerning future financial and operating performance are forward looking statements doesn't involve risks and uncertainties.
Hey discussion of risks and uncertainties and other factors that could cause actual results could differ materially are detailed in the company's FCC filings.
Except as required by law the company undertakes no duty to update these forward looking statement.
Additionally, reconciliations of non-GAAP financial measures.
Discussed on this call to the most comparable GAAP measures can be accessed through Tri Pointe website and its FCC finally.
Hosting the call today today, along with myself as Glen Keeler, the company's Chief Financial Officer, and Tom Mitchell, The Companys Chief operating officer in President.
And let him in May the company's Chief marketing officer.
Again, I want to thank all be for joining us today.
As we go over our results for the second quarter a 2020.
Discuss are ongoing strategic initiatives.
And provide some color on our company's Alex.
I hope all of you on your families are well unsafe our thoughts and gratitude.
Do you need to go out to those across the country, who are on the front lines risking their own safety to care for others.
Well Kobin 19 continues to impact many areas of the country.
There is positive news coming from the homebuilding industry and within Tri Pointe.
Tri Pointe group generated net income of 56.5 million in the second quarter were 43 cents per diluted share.
Representing 839% improvement over a year ago period.
Excluding the impact of costs related to the early extinguishment of debt any workforce reduction plan net income was 65.9 billion for 51 cents per diluted share.
The significant year over year jumping earnings came as a result of double digit revenue growth.
And considerable margin expansion as our teams did an excellent job of delivering homes and maintaining price discipline.
Following the initial shock to the economy brought about by the Cobot 19 pandemic.
Order activity steadily improved.
And then gain momentum as the quarter progress, culminating 80, 28% year over year improvement in orders for the month of June.
Including a 36% increase in California.
This momentum has continued into July with net orders up over 40% year over year for the first three weeks of the month with California orders up over 70%.
We believe there are several demand factors driving this improvement first it is evident that the pandemic has created a heightened interest in single family home ownership.
According to the America at home study conducted by housing experts in April.
46% of responded to our renters said covert 19 has made them more inclined to buy at home.
This means potential increase housing demand as household switch from being renters to owners.
In according to this study, 72% a response desire a single family detached homes over any multifamily housing tight.
Whether this interest stems from an exodus from high density urban locations. The rise in the number of people working from home or desire for more living space home ownership has become more of a priority for many Americans.
We believe this changing consumer behavior is not a short term phenomenon.
Rather a secular shift that we'll have long lasting impact.
On our industry and will specifically benefit Tri Pointe, both short and long term.
Second it is important to remember that housing industry fundamentals were very strong prior to the pandemic.
These fundamentals included strong job growth.
Demand from all age cohorts low inventory for both new and resale homes and very favorable interest rates.
These dynamics other than job growth are still here today.
But have additionally, been supported by historic fiscal and monetary response to the pandemic by the federal government.
These dynamics and demographic shifts have contributed to the industry's results and resiliency.
Third Tri Pointe groups continued emphasis.
On a homebuilding designing innovation has been another key factor in our recent sales success.
Due to the pandemic Americans are spending more time at home than they ever have and as a result are willing to pay a premium for features and amenities that cater to their families needs in lifestyles.
We believe this trend plays to our strengths as Tri Pointe has always been at the forefront of new home design driven by extensive consumer research and he consistent focus on product differentiation.
The pandemic has led consumers to look more critically at the live ability of their home in terms of safety technology flexibility and comfort and we feel our home offerings are ideally suited to take advantage of this trend.
We continue to pursue a balanced strategy with respect to our product offerings with a growing emphasis on the more affordable segments of the market.
In fact, an increasing number of our communities feature homes that cater to entry level and first move up buyers.
These communities or does it designed to address the affordability issues that existed in many markets through smaller lot sizes inefficient floor plans, while still providing premium home design.
As an example in California, where the cost of land is high and supply is constrain we have repositioned our product offerings to better address the affordability challenges in the state.
Year to date, 45% of our orders in California had a base price of $500000 or less.
And another 31% had a base price between 500 and $750000.
This strategy has served as well as California is generated to date absorption pace, a 3.8 homes per community per month.
This shift as part of a larger strategy.
Which aims to diversify our operations from both a product and geographic standpoint.
Through the introduction of more affordably priced communities from our longer dated assets in California.
And the continued expansion into early stage markets, such as Sacramento, Austin Dallas in the Carolinas.
Deliveries from these markets will make up an increasingly increasingly higher percentage of our company's total.
Which will lower overall S.P. profile and increase our inventory turns.
We believe this gradual transition to increasing deliveries, a new markets and more affordable price points will give us more opportunities for growth any less capital intensive manner and will lead to a better more consistent return profile overtime.
Another way, we're looking to improve our returns is through a more streamlined operating model.
In May we made the difficult decision to implement a reduction in a workforce stemming from the existing and future impacts of the pandemic on our business.
These cuts are expected to reduce our overhead expenses by $21 million this year and by $33 million on an annualized basis.
And while our business has rebounded sharply since the implement eight implementation of this head count reduction, we do not anticipate a commensurate return to prior staffing levels.
The pandemic has also given us a chance to advance how we conduct or sales efforts.
In an area of shelter in place orders and social distancing.
Consumers are becoming increasingly comfortable shopping from home.
We had anticipated that future sales would shift to an online model and had already invested significantly in this technology.
This has enabled us to quickly pivot to conduct the more of our sales efforts virtually and setting up in person one on one appointments at our communities.
Which convert into sales at a higher rate then walk in traffic.
Our online new leads grew by 8% in a second quarter compared to the first quarter. Despite a 51% reduction in digital advertising spend during that same time.
48% of our net orders in the second quarter were driven through virtual and one on one appointments, resulting from engagement with our online sales team, a 21% increase compared to the first quarter.
We have found this new sales model to be much more efficient way to sell homes and believe that this shifting consumer behavior will be long lasting.
In summary, the cobot Pant 19 pandemic has created a number of challenges for our industry.
But also a number of opportunities and Tri Pointe group is well positioned to to make the most of these opportunities thanks to our unique home offerings.
Enhance online sales capabilities in our very strong balance sheet.
I like to turn it over to Glenn who'll provide more detail about the quarter in our financial results.
Thanks, Doug Good morning, everyone I'm going to highlight some of our results and key financial metrics for the second quarter, and then finish my remarks, with our expectations and outlook for the third 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 mentioned earlier.
Slide six of the earnings call deck provide some of the financial and operational highlights from our second quarter.
The impacts of Carbonite tea on orders were significant to start the quarter with the month of April orders down 54% year over year.
We began to see demand increase in late April in early May and finished the quarter strong, resulting in an overall order decline of only 11%.
Specifically for the month of June we achieved our second highest order month in the company's history recording 624, net new home orders, which was a 28% increase year over year and was driven by an absorption rate of 4.3 homes per community per month compared to 3.3 a year ago.
The increase in absorption rates for the month of June was broad based across all reporting segments.
The cancellation rate for the second quarter was 21% and went from a high point in April of 36% down to only 13% for the month of June.
Turning to deliveries, we delivered 1229 homes during the quarter, which was a 9% increase year over year. This resulted in home sales revenue of 767 million, which wasn't 11% increase year over year on an average selling price of 624000 per home.
Our homebuilding gross margin percentage for the quarter was 21.6% representing a 400 460 basis point improvement year over year.
The increase in gross margin percentage was across all reporting segments and reflective of strong market dynamics.
In addition, there was a higher percentage of revenue from our long term, California assets compared to the prior year.
Yes, you an expense as a percentage of home sales revenue was 10.8%, which was a 130 basis point improvement year over year as a result of the leverage gained from the increase in revenue and the savings from the reduction in force that Doug mentioned earlier.
Net income for the quarter was 57 million 43 cents per diluted share, which was an increase of 139% compared to the prior year.
Reduction enforce that occurred during the quarter resulted in 5.5 million of severance related charges. In addition, during the quarter. The company refinanced a portion of the 300 million senior notes that were due in 2021, which resulted in 6.9 million early debt extinguishment costs.
Moving these items earnings per diluted share was 51 cents for the quarter.
Moving onto our active selling communities during the second quarter. The company opened 12, new communities and closed out of 10 and the quarter with 145 active selling communities for the remainder of the year, we anticipate opening approximately 15, new communities and depending on order demand potentially closing between 25 and 35 communities. This was.
This would result in an ending active community count in the range of 125 to 135.
At the outset of covered and the related stay at home orders are focused prudently shifted to managing our balance sheet and preserving cash.
As a result, we paused development spending for certain new communities and land acquisition for future communities.
We have since we started those efforts, but due to the pause the opening of approximately 15, new communities moved from the back half of 2022. The beginning of 2021, we expect to see more meaningful community count growth in 2021, and 2022 as we grow communities in our existing markets and continue to ramp up our early start divisions.
Sacramento, Austin, Dallas and the Carolinas.
At quarter end, we owned or controlled approximately 30000 lots of which 27% were under option versus 20% a year ago.
We have made solid strides on our goal of reducing our own lots by continuing to deliver homes from our long term, California assets and increasing option lots by acquiring more lots in capital efficient markets like Texas and the Carolinas.
The detailed breakdown of our lots owned will be reflected in our form 10-Q, which will be filed later today.
In addition, there was a summary of lots owned or controlled by state on page 22 in the slide deck.
Looking at the balance sheet at quarter end, we had approximately 3 billion a real estate inventory. Our total outstanding debt was 1.4 billion, resulting in a ratio of debt to capital of 39.4% and a ratio of net debt to net capital of 30.2%.
During the quarter the company issued 350 million of senior notes due in 2028. The proceeds were used to pay down through a tender offer 216 million of our 300 million in senior notes that were doing 2021.
The remaining 84 million of senior notes were redeemed in July.
As a result of this redemption, we incurred an additional 3.4 million of debt extinguishment costs in July.
During the second quarter the company generated 250 million in positive cash flow from operations and extend and ended the quarter with over 1 billion of liquidity consisting of 475 million of cash on hand, and 559 million available under our unsecured revolving credit facility.
Now I'd like to summarize our outlook for the third quarter and full year, while there's still significant uncertainty related to covert 19, and its potential impacts both short and long term on the economy, we want to provide some guidance on our expected results.
For the third quarter of 2020, the company anticipates delivering between 1100 1200 homes at an average sales price of 620000 to 630000.
But in gross margin is expected to be in the range of 20% to 21%.
And that's DNA as a percentage of home sales revenue is expected to be in the range of 10.2% to 10.7% for the third quarter.
Lastly, the company expects if the effective tax rate for the third quarter of 2020 to be approximately in the range of 25% to 26%.
For the full year, we anticipate delivering between 40 440 700 homes at an average sales price of 620000 to 630000 homebuilding gross margin is expected to be in the range of 20% 21%.
And for the full year Waller SGN expense.
Oh, sorry, our SGN expense as a percentage of home sales revenue is expected to be in the range of 11% to 11.5%.
Finally, the company is forecasting it's effective tax rate for the full year to be in the range of 24% to 25%.
I'll now turn the call back over to Doug for some closing remarks.
Well thanks Glenn.
In conclusion, I'm very pleased with our performance this quarter, particularly in light of what our expectation is worth three months ago. When we took precautionary measures to preserve capital and prepare for the possibility of a protracted slowdown.
However market dynamics during the pandemic have benefited the new home market.
Our strategic positioning diversified product offering.
And experienced management team has us well positioned for both short and long term success.
We continue to be vigilant and disappointed with our capital as there are still many uncertainties relative to the pandemic and its impact on the economy.
But based on our teams experience in how we were able to adapt to the changing environment and the second quarter I'm confident that Tri Pointe group has the right people strategy and operating discipline in place to succeed in overcome any challenges we may encounter in the future.
That concludes my prepared remarks, and now we'd be happy to take your questions [laughter].
Thank you will now be conducting a question and answer session.
The question. Please press star one on your telephone keypad confirmation telling will indicate your line is in the question.
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[laughter] seeker equipment, maybe necessary to pick up your hands that before passing the Sarkies. One moment. Please let me pull for your question.
First question comes from the line Alan Ratner with Zelman and Associates. Please proceed with your question.
Hey, guys. Good morning had a nice job navigating through this a crazy time here, but I'm glad to hear your all doing well.
My first question, if I could just digging in a little bit on the closing guidance for the back half of the year. It seems a little conservative just on the surface based on where your backlog is right now and I know, there's a lot of moving parts here you know obviously your your orders has picked up quite a bit towards the end, it's a quarter. So I'm guessing a lot of those deliveries.
Depend to 21, but I guess, what I'm really trying to get US an understanding of is is that is the guidance assuming any oh, yeah as far spec supply I like where are your current spec inventory is is it assuming.
Just a lower than normal availability of spec product heading into the back half of the year compared to what do you normally have or is there something else that that would drive your conversion rate to be so much lower than it's been a in the past.
Hey, Alan Good question this is Glenn.
We did start the quarter speaking specifically to your question about specs, we had only roughly 300 specs to start the quarter and we finished the quarter with 198, which is 1.4 per community. So we don't have a lot of specs to pull into this year and so you're right in that on the surface the backlog conversion looks lower than normal it's because we had such a strong.
On June of orders and those are all you know majority of those are being delivered in 21. So that's why the percentages look lower.
Got it Okay. That's helpful. And then just as far as a strategy on specs have you have you on accelerated the pace of new speculative starts or are you still taking somewhat of a wait and see approach to see if the the strengthened demand here persists for another few months.
Yeah on this Doug you know to kinda tag onto the last question and then one yeah, obviously that pandemic put everybody reacted to all the company's reacted to it differently. You know, we we definitely did take a kind of a pause for a roughly 45 days we did a.
Hey, good more conservative view on starting spec since that time, we have opened up a our operations to normal looking to run at three to five specs per community. So a in a nutshell, we are increasing our spec level.
And it's at community level, it's driven by community level to their son.
Tremendous a demand in the a entry level first move up out in the its pick on banning Beaumont for example, a where we've sold how many homes or.
Tom we've sold about 83.
Oh, I'm, sorry hundred 15 homes that a year to date 79.
And what the last 65 to 85 days. So its its you know in those markets. We've had a very strong appetite to increasing spec level.
That's really helpful. Thank you for that and then if I could just had one more on the pricing side. You know obviously very strong order activity here in June and July curious what steps if any you've taken on on pricing and you know just as far as the impact to margin is there any mix impact that we should be aware of just given the timing of deliveries in the back half of the or it seems.
Like you're you're expecting fairly stable margins, but I wasn't sure. If there's there's any a mixed nuances he would want to point out from that.
Good morning, Allen. This is Tom I'm, obviously, we continue to try to manage and balance a pace in price, but we are really encouraged buyer demand profile overall and so for the most part or the majority of our product offerings, we have been able to increase price.
Or either reduce incentives and al Dor increased price. So we're encouraged by that trend.
As always we do have some of our higher price long dated a legacy assets that have an impact on mix as we deliver those so you should be aware of that but nothing out of the normal.
Alan a this Doug just to clarify my last comment on banning at our out well masterplan.
Pretty amazing statistics out to two communities, we sold 114 homes, Ned and 95 days this no different than what you've heard from the other builders is tremendous demand you know Lake Elsinore and all these communities started 295000 that we sold 42 net sales at 52 days. So there's obviously a term men.
Just a man of the the pandemic has definitely created a sense of urgency for that for a especially that entry level first move up buyer.
It's great to hear good luck guys.
Hey, thanks. Thanks.
Thank you. Our next question comes from the line of Mike Dahl RBC capital markets. Please proceed with your question.
Good morning, Thanks for taking my questions and nice nice to see the a rebound this last couple of months.
Just go back to Alans question on on pricing power I guess it it's good to kind of feed the machine a little bit over the that to rebuild some of the backlog that was.
Maybe you Austin in April until a lesser extent in may, but even with your your mix shift.
I don't think the businesses really.
You haven't really run this business such as a for sale.
So a month type of absorption model and so as you look at the back half the year how much.
In terms of incremental pricing power acceleration in pricing power, how actively or you're going to look at really managing that pace back down.
Versus letting run a little hot for now and so just just looking for a little more color there.
Well, it's it's a balance of probably might as Doug. It's a balanced approach we're constantly and analyzing.
In adjusting all the communities a you know for example.
We were just talking about banning a we've got a lot of lots out there and we've got a lot of products offer. So we won't were definitely pushing pay silver price I also feel that yeah. There's just an incremental view towards a little bit of pay silver price building into a nice.
Backlog going into 21, and the reason I say that is because there's just tremendous uncertainty you're running into this continued wave of.
Scores going up pandemic issues, a political election year issues fiscal stimulus issue. So there's enough out unknowns out there that you know we're going to continue a balanced approach are and where there's communities that have less inventory and less runway will definitely push it'd be pushing on price.
<unk> more show a for example down in San Diego, a there'll be more push on pricing down there. So it's it's all project by project, but I am encouraged to build a strong backlog.
Because there's a lot unknowns as I said, we'll see we'll see where 21 could shape up or after this a year and election.
Okay. Thanks, <unk>, Yeah, and I asked that makes sense given the uncertainty.
You know you are running running down your community count a bit and into yearend and you do have a lot of went behind it. So that's what just curious.
Got to take their <unk> second question, just sticking with banning and maybe just taking your investment portfolio in California in total as an example.
You do you have any any [noise] data or anecdotes on how many of your recent buyers have been effectively in market buyers first is in migration from more coastal areas.
Yeah, Mike This is Tom or nothing specifically, but we are seeing a trend.
It's a happening throughout the country relative to the pandemic with people working remotely it does provide people or the opportunity to go a little further out.
To get more attainable pricing so.
Certainly there has been some of that but nothing are extremely out of the normal.
Okay and last one if I could sneak one in <unk> I mean, Doug you mentioned the urgency buyer.
You know, where we're a handful of months since the pandemic. So obviously it continues to roll along on unfortunately, but.
From a from a buyer standpoint piracy pets sometime to adjust and think about what they want or need at this point so when.
When you're when you're hearing about or what kind of urgency in the market any any shift in the dynamic in terms of buyers coming in the door and whether there's actually more of a patients now in a willingness to take a delivery. That's that's maybe six nine months out versus needing to be an IND in the next yeah.
Well a months.
Hi, Mike This is Linda and there's definitely an.
Understanding with buyers now that there is high demand and the new home market, especially as they see such lottery supply levels on the resale market. So yes, we do see buyers willing to be patient a waiting to pitches on but they also want to personalize that one.
They want they want and they can attain more with historically low rate so that prioritizing things like home offices private outdoor living space.
I don't children with pertaining to harden renewed interest in things like cooking on technology. So that's definitely a motivating factor for out to be Bell south.
Okay. Thank you.
Thanks, Mike Thanks, Mike. Thank you I next question comes online Stephen Kim with Evercore ISI. Please proceed with your question.
Yeah, Thanks, very much Guy and a you know certainly I would think the with the lower rates or as a.
As a benefit here that all the things that you just mentioned about Pee on things on People's Wish list. They now have the actual ability to pay for those things.
So that's the that's encouraging.
I'm curious about the timing of when.
You started raising prices because you know Doug obviously, when you're talking in April things, where you know pretty scary. A you know you talked about 45 day sort of if you know halt to the disaster so to speak but things have really started coming back quickly and I'm wondering if kind of like Meritage mentioned yesterday. If maybe you know you started you would say that you kind of started raise.
Selling prices in earnest.
Some time in maybe mid to late July June it is that a fair gas.
Hey, Steven This is Tom you know I think everyone needs to remember that the year started off strong. So we started raising prices very early in the year and then we took a pause obviously is a pandemic.
Really had a significant impact and slow down and then obviously is order demand began to pick back up we've been constantly looking at our pricing models and where we've had the ability to raise prices, we have and I'd say that probably started.
Bakken earlier June would be up a better get says the resurgence in price.
That's true Steven its stack I mean, what Tom saying is is you know very logical right. I mean, we were the industry was very strong through February early March.
Then you're you come out of this thing Nobody Oh, you know a we were all stare at each other thinking you know this is gonna be the ultimate depression recession is housing gonna be just one of those bleak industries and then we turned around and in the most obvious thing that a lot of US Miss was the fact that.
People are split sheltered in place in the home is now the most important asset nobody's traveling nobody's going out much they're saving money blah blah blah and so we started selling Uh huh sales start ramping up you know to start pushing the pricing level returns pandemic, because you want to see that that momentum gets going to momentum gets.
Going and certain communities yet you start pushing price he may be in early June, but probably more later middle that latter part of June so it's a very logical progression when you're trying to manage your business. During the one of the most uncertain times I've ever had in my career show I think it all makes sense.
Oh for sure and I guess, where I was kind of going with it is that in light of you know a backlog turnover ratio that's going to be below 50% here in the third quarter from from your guide that at by the same by the same token if you've had it sort of a reacceleration in pricing and sort of June and then maybe in July and then going forward you know, we're really not going to see the bulk of that.
Price increase flowing through your gross margins until really kind of like <unk>.
Not really late in the year and really into 2021 and that was what I was just trying to make sure that that I was correct on.
Yeah, I think you're thinking about that correct.
Yeah, and so so hence when you get your guidance, that's what we should be thinking with respect to be asked you DNA I was really intrigued by your comment about how this new way of going about merchandising your homes and in are facing with your customers.
It has really providing some increasing efficiency and I think that's an area that we know we've kind of heard but it feels like this environment has covered environment really has created like that's really interesting test case, it sort of forced everybody that's sort of try to try to pass this new way of doing business and.
Your next Gen eight guidance given your revenue outlook suggests that the strong SGN a performance we saw or a sham controlled we saw this quarter is going to really continue or even.
You know eggs or get even better in the third quarter and beyond and so I'm really wondering if you could <unk>, maybe a numerate from some of the things specific things about this more digital way of of Mark marketing your homes.
That are resulting in in real tangible savings.
They were able to see like right now.
Steven This is Linda I think there are several factors at play.
Certainly over the longer can we do believe that a and then all digital online sales platform will have cost efficiencies.
With the high demand we currently seeing in the market, we have been able to pull back on advertising spend and focused on middle and lower fine no final customers that are already showing high on buying team.
We do see a short 10 left and broken because resale supply it sounds like right now, but over time, we still believes that the online model will result in savings and that sales cost area as well.
And Steven Glenn just to add to that I think the other part that you're seeing flow through that as DNA line is the reduction enforce that we took and were just a really focusing on operating at a little bit more of a streamlined basis and being more efficient we've invested in technology over the last couple of years, including our back office systems, and we're starting to see.
Some of the benefits of that.
Additionally, Steve I mean, you look we look to the future you know when we think about the virtual experience and our ability to do maybe some unintended access some self guided tour ring and more things will be able to be done virtually versus having to have the amount of capital invested in a fully merchandise.
Model complex, we will have models out and available, but we think we'll be able to do it more efficiently.
<unk>.
Although its makes sense. Thanks, a lot guys it'll be interesting to see how things progress, but it's looking good. Thanks.
Thanks, Dave even.
Thank you question comes from the line of Truman Patterson with Wells Fargo. Please proceed with your question.
Hi, Good morning, guys. Thanks for taking my question and a nice quarter.
So so first your July order growth accelerated Oh versus June which is a little atypical relative to some of your peers, but I was just hoping could you just dissect this for us how the trends are playing out geographically are you seeing you know the relatively underperforming areas and in April and May.
Hey, which might have been you know hit a little bit harder from the cobot shutdowns are.
They are those areas, starting a rebound more quickly and kind of catch up on a relative basis in June and July I'm, just trying to understand some of the current trends as.
You know how your July order trends outperform June.
Yeah. That's good question term as Doug you know, where we're seeing a lot of tremendous growth is a in California in the entry level first move up or segments I mentioned, a out bandied about them on its it it is very very strong.
But we're also feeling a lot of strain in the Phoenix market and that's really a move up buyer a we've opened up a master plan and the Gilbert.
Chandler area called Waterston, ER, and we've had a sales pace of about 4.9 per week price and the five to seven so it's a very broad base sales effort order effort, it's across all segments, but I think the strongest I'd say Tom is in.
As we've seen in the last four weeks is has been in California, and Phoenix, Yeah, without a doubt trim and the other thing where it maybe is not so much geographically driven I think theres a correlation to our new product offerings. I mean, specifically, we have introduced as jug just talked about some a new master plans.
And the Gilbert Chandler area in Arizona as well those new products, we've offered in inland Empire, but across the board our new product offerings seemed to have more receptivity and a higher absorption pace, which is.
Giving you that strong July order trend.
Okay. Thanks, I take it those new designs, probably have some form of study or something that really target the needs of kind of the covert buyer today.
Yes. This is one that we have always focused on flexibility within our floor plan designs.
Easily being able to they got those spaces to people's needs at the time.
Okay. Okay. Thanks for that and just a follow up on on Alans question on your closings guidance. You know we were expecting a a little bit more and I understand there's some spec issues, but want to come at it from a little bit of a different angle, but is there anything else that's capping your back half closings as it from.
You know the stay closures early on in encoded in Muni closures, you know construction delays from labor shortages or any other muni issues or you know on top of you know some of the spike items.
You know is it somewhat out of just caution that you don't necessarily know how the cobot situation is going to play out in the back half the year.
He trimming as Doug I.
I mean, this remember from March 15 through.
End of April there is a pretty heavy shelter in place orders. Yeah. There were some parts of that I mean housing was deemed essential but there were a lotta issues in working around that and particular in it. We don't we don't generate huge volume in the Bay area right now compared to the other areas, but and then Seattle were very.
Oh, we're very constrained, although Seattle was selling homes under the most constrained environment I've ever seen in my life.
But we couldn't buildup or could only build them. So so quickly. So I mean, that's face it and then as as we mentioned, Tom and I put a a very tight affirm grip on the number of spec starting so when you factor that in and that was all very prudent management at a time and then you you gradually let your.
Your foot off the break in and you start pushing on the gas Bill maybe some people push harder or earlier or later in <unk>, but that's just how we viewed it as we were working our way through the pandemic and managing our business and our cash on our balance sheet.
Yeah, Truman relative to you know supply chain constraints or labor constraints as well as efficiencies within a various jurisdictions.
No we're not seeing any significant global impact relative to that we still are operating so I wouldn't say that is a a hindrance or an obstacle to our deliveries, although our cycle times, a and construction schedules have have extended anywhere from about 3% to 10%.
So there is some timing delays there different municipalities certainly our short handed.
The ability to obtain approvals permits and a inspections are probably seeing some delays, but overall I think you have to factor in like Doug said relative to that initial pause.
That pushed back the opening and production starts on several new communities that are Glenn spoke to in his prepared remarks that also is probably putting the biggest factor on our limited ability to ramp up more production for year end completions.
Okay. Thank you I appreciate it.
Thank you. Our next question comes from the line.
With Wedbush. Please proceed with your question.
Hey, good morning, Thanks for thanks for taking my question I.
I guess first on Vegas looks like the absorption there was was pretty rough during the quarter, where youre seeing now as you move into the third quarter <unk> on that market.
Yeah. Jay This is Tom we're we're encouraged in Vegas, I mean surprisingly so you can imagine what what that market economy. It looks like with its dependence on a on entertainment and gaming.
But we have seen kind of a broad base return at all price segments are from that consumer so positive trends going through June and continuing into July and so we look to a continued to have a a bright optimistic outlook for the Vegas market to put some numbers on that a J.
They are absorbed sessions in April were 1.3, and 2.2 in May and 2.6 in June. So we continue to see a ramp up and it's still pulling a lot of consumers from the higher cost states, namely, California next door. So that's been a if you.
Going to the casinos. It if there is there are opening partially you'll see a lot of California is in there that's for sure.
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Great Great here.
And then Doug your commentary about.
Try to go to lower price points more entry level more I guess more affordable first move up could you maybe remind us where we're tri pointes entry level exposure is now and where you expect it to be over the next two to three years.
Well, we talk any entry level is relative to each market. The trend right. We've got a very strong entry level first move up exposure here in California, which we highlighted a in the scripts are in inland Empire up in L.A.O. long term, California assets, we we'd be.
And able to reposition those two.
Pretty much most of those assets are starting at or below 750, and and that's a very attractive price and then how many of the inland Empire. We're starting at 295. So we've got a very very strong line up a we also have an another community they'll come onto the next.
18 months calm down in San Diego call metal Wood, which will continue that kinda that first move up strong price point. When you look at that the growth of the company, though its going to happen more east.
Especially when you think about Texas.
The Carolinas, Colorado those are all going to be driving more entry level premium first move up so there's tremendous growth.
All the land deals that we had tied up at the beginning of the year, we were successful one and pushing those out with the sellers and now they're slowly being brought back through the system and that's where you're going to see tremendous growth over the next couple of years is east of California. It will still be a dominant player here in California, probably doing about 2000 deliveries a year.
There are so, but but the big growth is coming out outside and that's all entry level premium first move up.
Yeah, Jay relative to overall percentages right now for the second quarter about 33% of our orders came from entry level about 49 from from move up. So we have seen a interest even over this last year, a a slight improvement or in those numbers in a a little bit of a reduction in.
Our overall luxury category I would add Jay that did that move to a more affordable price points, while still providing that premium brand experience. I mean, we started to add back in 18 or as you recall you know there's been ER.
Pretty strong affordability issue when rates that are kind of spike a little bit, but overall pricing has made a lot of markets less affordable whether you're in Colorado Phoenix wherever so you know we've always we intentionally drove our business towards that.
Product offerings smaller lots, both attached detached and more affordable price points, because before you know it when interest rates go up another hundred bets that everybody's going to say Oh My God [laughter]. This guy is falling because we're all spoiled right now the consumer gets very a acclimated very quickly so being in in.
Affordable price points is gonna be important for the future.
Sounds great. Thanks, Thanks again.
Yeah.
Thank you our next question comes online.
Oh.
Please proceed with your question.
Hi, good morning.
I was hoping to start by maybe talking in broad strokes.
Around potential 2021.
Muni Count, let's think about you guys mentioned 15 communities pushed into next year.
What are some of these new markets I think coming online in 2021.
I'm not looking back historically, you've been sort of a mid single digit or lost five or six years ex acquisitions.
With that push out with the new markets coming online.
Is it fair to assume.
With what we know now around the uncertainty is it fair to assume that community count growth should be well above.
Historical averages in 2021 for those factors or is there.
Component that will might be missing that would reduce that.
Sort of backing up a little better.
No I think you're you know like I said in my prepared remarks that <unk> it'll be more meaningful community count growth than you've seen in the last couple of years and we'll get more specific guidance, obviously as we get closer to 21 regarding community count, but you will see it at a higher percentage then and it has been over the last few years.
How much of that can you say at this point as from some of the new markets.
A good bit of it you know, we're obviously growing in the Carolinas, we only we're going to end this year with with three communities in the Carolinas and that's only going to grow from there Sacramento is another area, where we've just really got going that's another area, that's gonna grow Austin Dallas.
Colorado and then there's some organic growth in our existing markets as well.
Okay and then.
You know historically and even in the early part of the quarter you've been.
You know sort of strategic about buying back stock and [noise].
The context of this forward growth.
How do you think about share repurchases.
You can see the balance of the year what would it will take you know.
If not now what what it's like you.
See in the business.
Ladies and stuff.
Just curious and thoughtful.
Yeah, Jay you know as we mentioned in the remarks were very return focus whether it's a building more entry level premium firsts, a first time move up focusing in on on higher inventory turns a better returns on our equity are driven obviously by increase earnings which is our.
Are we are a growth company, that's going to grow and increase our scale and leverage and at the same time. You know we're also focus on what I call the financial levers that can affect and manage our.
Our balance sheet, and and and our growth and those types of returns. So we'll be looking at all that we've got a very very strong balance sheet with Oh, a lot of liquidity.
To handle our growth and also use the right financial levers to move forward and enhancing those returns whether it's through acquisition.
<unk> buying back stock and so on and so forth I mean, no those are all available to us.
Okay alright. Thanks.
Thanks.
Thank you. Our next question comes from the line apparel.
Yes.
With your question, Thanks, Hey, guys.
Got my questions, but I would ask just to go back to a long time that you've talked about the multiple brand strategy. It's still here. It's it's important to you guys can you walk through if you're thinking is changed on that at all that the idea that that maybe as a national builder a single brand might be more cost effective more more efficient or are there things that.
At the multiple brand strategy that that continued to be enhancements or advancements for you all.
Well I think a the multiple brand strategy as it sits today is still.
Bodes well for us when you go into Texas, and especially with the consumer the Trendmaker brand.
Resonates very very well I mean, I've always argued brand is it earned over time.
And so you know we continue to see some strong acceptance by the consumer obviously when it comes to any sort of brand strategy. It really comes down to the culture and people that you can have in place to execute whether its buying having the relationships by land subcontractors attract people. So it can be done in it.
Neither format and but we're still a happy and focused on on the best the big and small.
But Carla I would add you know as we continue to look at ways to become more efficient and effective in in our business. We do look at a overall strategies to you know streamline it and there maybe opportunities for us to to improve as.
We look at maybe some regionalization and then some economies relative to some of our home office shared services.
Thanks, and then you talked a little bit about California its importance.
Your share their growth in new markets you Kinda look out the next three to five years, let's assume things get a little better and 21.
With that they normalize market are you still thinking that half your your asset base will be a county, California or as you sell throughs legacy assets. There. It take that cash are you expecting to reinvest it in California spread it out more just trying to get a sense of several years from now what the geographic panoply looks like thanks guys.
They call. This is Glenn good question I think you will see a shift to more if you look at our overall lots supply to more outside of California, just because we've had such a long term supply of those lots and as we work through those lots and those convert to cash we're investing that cash still within California, obviously because.
There are certain markets that don't have those long term, California assets that we need to invest in but by and large you'll see more of a balanced a lot supply throughout the U.S.
Hey, Scott Thanks, guys.
Thank you will see I never question and answer session I'd like to turn the call back over to Mr. Bauer for any closing remarks.
But I want to thank everyone and I hope, everyone stay safe and healthy and we look forward to talking to all of your next quarter. Thank you very much.
Thank you. This concludes todays teleconference. You may disconnect your lines at the time. Thank you for your participation have a wonderful day.