Q4 2020 TRI Pointe Group Inc Earnings Call
Greetings and welcome to the Tri Pointe homes fourth quarter 2020 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad as a reminder, this conference is.
Reported EBITDA.
Now I'd like to turn the conference over to your host David Lee General Counsel for Tri Pointe homes. Thank you you may begin.
Good morning, and welcome to Tri Pointe homes earnings Conference call earlier. This morning, the company released its financial results for the fourth quarter and full year of 2020.
Documents detailing these results, including a slide deck are available at www Dot Tri Pointe homes dotcom through the investors link and under the events and presentations tab.
Before the call begins I would 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 that involve risks and uncertainties.
A discussion of risks and uncertainties and other factors that could cause actual results to differ materially are detailed in the company's SEC filings.
Except as required by law.
The company undertakes no duty to update these forward looking statements.
Additionally, reconciliations of non-GAAP financial measures discussed on this call to the most comparable GAAP measures can be accessed through Tri Pointe homes website and in its SEC filings.
Hosting the call today are Doug Bauer, the company's Chief Executive Officer.
When keeler, the company's Chief Financial Officer, Tom Mitchell, The company's Chief operating Officer, and President and Linda May the company's Chief marketing Officer.
With that I will now turn the call over to Doug.
Thank you David and thank you for joining us today as we go over our results for the fourth quarter and full year 2020.
Provide an update on our strategic initiatives and discuss current market trends.
Tri Pointe homes delivered another quarter of strong profitability to end the year generating net income of $115 million or 92 cents per diluted share.
Highlights from the quarter included year over year homebuilding gross margin expansion of 130 basis points to 23.2%.
Net new order growth of 14% on a 38% improvement in absorption pace.
And unit backlog growth of 69%.
These results are reflective of the housing market that is hitting on all cylinders and.
And a strategy that has emphasized margin expansion without sacrificing order growth.
Before going further I would like to thank the Tri Pointe homes team across the country for their dedication throughout 2020.
Our teams adapted and embrace new ways of working and selling homes to Americans yearning for a safe place to call home.
Our tenacious and loyal team members helped US set US set records for the full year orders deliveries and pretax income in 2020.
We are proud of the team's accomplishments, particularly in light of the obstacles we faced in dealing with the pandemic.
We believe we can build on our success into 'twenty and 'twenty one.
2020 was a challenging year for our nation, but a prosperous one for our industry and company.
Our success was driven by accelerated housing demand, especially from first time buyers and millennials.
In 2020, 60% of our customers are first time homebuyers.
And the millennial cohort made up 50% of our deliveries that were processed through our mortgage venture Tri Pointe connect.
We feel the combination of limited housing supply low mortgage rates.
Favorable demographics and pandemic related factors will continue to drive the desire for home ownership across our markets.
As a result, we enter 2021 anticipating and another successful year.
In mid January we formalized our move to operating nationally as one unified brand Tri Pointe homes.
This change is allowing us to operate more efficiently by concentrating sales and marketing efforts around one brand instead of six.
And creating a stronger national awareness for the company with the goal of further improving our financial results.
With that in mind, our focus continues to be unimproved our return on equity.
Through these strategic initiatives, we discussed at our last earnings call, namely <unk>.
Harvesting investments and our long dated California assets.
Increasing the scale and margin contribution from our early stage divisions Imp.
Improving inventory turns to a more asset light model.
Enhancing operational efficiencies and reducing the share count through our share repurchase program.
We made progress in each of these areas in 2020 and believe we are well positioned to make further strides this year given our operational focus our strong balance sheet.
And our expectation for a continuation of the favorable industry dynamics for the foreseeable future.
With respect to our long dated California assets, we continue to see the extensive development.
And investment we have made in these land holdings pay off in the form of new community openings.
Robust order activity and strong profitability.
Throughout southern California in 2020, we had over 30 active projects and seven Masterplan communities.
Which yielded over 20 1200 orders for our company.
All of these communities in Los Angeles County, San Diego County, and the inland Empire outperformed with elevated absorption paces as a unique combination of innovative home designs with an affordable price point resonated with home buyers.
Sales momentum at our Sundance Master planned community in Beaumont was so strong in 2020 that we quickly close out of our traditional homes.
With only the active adult project Altice remaining open for sale.
We have also seen strong order momentum at our newer master planned community, our well and nearby banning.
Which is average over eight orders per month over the last six months within the five product segments, we offer.
Land development is progressing nicely at our 844 lot Master planning community in North San Diego County, Citro, formerly known as metal Wood, where we expect to open five new communities in the third quarter of this year.
As the transition from investment to return continues in southern California.
We're also starting to see a real transformation in some of our early stage markets mature.
As we discussed on our October earnings call. It takes time to scale operations of a new division to a level in which profitability is achieved on a consistent basis.
Yeah.
We have made the necessary investments to move these divisions past the startup phase and expect their contributions to our profitability to continue to grow this year and beyond.
For example in Sacramento, We delivered 10 homes in 2019 and 106 in 2020.
We then absorbed average absorption pace of 4.5 homes per community per month, and strong gross margins above 20%.
We plan on adding four new projects in 2021 and are on track to deliver deliver 400 homes by 2022.
We have similar growth expectations for our newer divisions in Dallas Fort worth.
Austin, Charlotte and Raleigh, where we have been aggressive in the land market to achieve our delivery goals.
We currently have approximately 6500 lots owned or controlled in these markets.
And expect to open 37, new communities over the next two years.
Another way in which we are focused on enhancing our returns is through the acquisition and management of our landholdings.
Increasingly we are finding ways to defer the investment in land through option agreements and other financial arrangements.
On our last call we discussed our near term goal of having 40 per cent of our lots controlled via option and we have made significant strides towards that goal by increasing our option percentage to 37% at the end of 2020 compared to just 24% 12 months ago.
Some of this is a function of our diversification in the markets in which Lan option arrangements are more readily available but.
But it's also a testament to our increased size and the longstanding relationships, we have with key players in the land and financing market.
We will continue to leverage these relationships enable us to control more lots to grow our business any more capital efficient manner.
Our focus on efficiencies extends to our day to day operations as well and has led to our evolution as a technology driven company.
Through the use of our technology platforms, we are finding ways to reduce costs.
And shorten cycle times some of the current innovations we're working on.
Such as the automation of home buyer in customer care portals.
Smart contracting.
And the redesign of closing services are all expected to contribute to a more seamless cost effective operating model.
On the sales and marketing front, we are seeing real cost savings from the implementation of digital assets at all of our new communities.
These technological tools have streamline the home buying process, taking cost out of our business and allowed us to work smarter and more efficiently.
The final Avenue that we have to improve our return on equity as our share buyback program.
In 2020, we repurchased over 15 million shares.
At an average price of $16.53.
Lowering our year end share count by roughly 10%.
In November our board authorized a new $250 million share repurchase authorization.
Given us the ability to lower our share count even further.
With our ability to generate positive cash flow from operations and.
And our low leverage ratios. We believe we can continue to reduce our share count without sacrificing growth per.
Regarding us the flexibility to invest our capital where we see the best return.
Again, while 2020 was a challenging year for our country. It was an excellent year for our company and we are now poised to continue to make progress on our return profile given the health of the market and the initiatives I discussed above.
That I will now turn the call over to Glenn who will provide more detail on our results and outlook going forward.
Thanks, Doug and good morning, everyone I'm going to highlight some of our results and key financial metrics for the fourth quarter of 2020, and then finish my remarks, with our expectations and outlook for the first quarter and full year 2021.
Times I'll be referring to certain information from our slide deck that is posted on our website.
Slide five of the earnings call deck provides some of the financial and operational highlights from our fourth quarter.
As Doug mentioned earlier demand continued to be robust in the fourth quarter with an absorption rate of four homes per community per month, representing a 38% increase compared to the prior year.
Demand was strong across all geographies and we continue to capitalize on that demand by raising prices in nearly all of our active communities, allowing us to meet or exceed the cost increases we experienced in both materials and labor.
The demand trends have continued into 2021.
For the first six weeks of 2021 through the pass through this past Sunday February 14th we have recorded 961 net new home orders in our absorption rate has averaged five homes per community per month.
We are excited about our future community pipeline and expect to open approximately 160, new communities over the next eight quarters.
We started the year with 112 active selling communities and for the first quarter of 2021, we expect to open 22, new communities and in the quarter between 120 and 125 active selling communities.
For the full year, we expect to open approximately 70, new communities and end the year between 125 and 135 active selling communities.
For 2022, we expect to open approximately 90, new communities and end the year between 150 and 160 active selling communities.
Turning to deliveries for the quarter, we delivered 1633 homes, resulting in home sales revenue of $1 billion on an average selling price of 640000.
As we mentioned on our last call, we anticipate growing our community count in our early stage divisions. These divisions focus more on the entry level and first move up segments. So we are expecting our average selling price of the company to come down over the next few years.
We anticipate our full year average selling price to be approximately 600002 thousand 21 and 550000 in 2022.
Our homebuilding gross margin percentage for the quarter exceeded the high end of our guidance range at 23, 2%, a 130 basis point increase year over year.
The strong gross margin performance reflects improvements in nearly all of our markets on a year over year basis as consumers have continued to respond well to our new community offerings cash.
<unk> continues to deliver strong gross margins for the company, but as we have previously discussed the majority of our future and the volume growth will come from outside California, where we have focused on growing our scale and more affordable and capital efficient markets, such as Arizona, Texas and the Carolinas.
In the fourth quarter, our gross margins outside of California exceeded 20% and our pre tax income increased 88 per cent compared to the prior year, which shows some of the progress we have made in increasing our scale and profitability and our growth markets outside of California.
Another part of the business that contributes to outsized gross margins and differentiates us from the competition as our investment in delivering a world class retail experience through our physical design studios and online digital shopping platform.
The past few years, we have opened eight new design studios and expect to open an additional five more in 2021.
For the full year of 2020, we generated $371 million in revenue from our design studios with an average spend of more than 70000 per home.
SG&A expense as a percentage of home sales revenue came in at the lower end of our guidance range at 9.9% leading to an overall pre tax income margin of 14, 7%, a 150 basis point improvement year over year.
We were active on the land front in the fourth quarter increase in our ending lots owned or controlled by 12% or approximately 3800 lots compared to the beginning of the quarter at quarter end, we owned or controlled over 35000 lots of which 37% were under option.
A detailed breakdown of our lots owned will be reflected in our form 10-K. In addition, there's 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 $2 9 billion of real estate inventory. Our total outstanding debt was $1 3 billion, resulting in a ratio of debt to capital of 36, 37, 6% and our ratio of net debt to net capital of $24 four per cent, which was the lowest in the company's history.
Year to date, the company generated $588 million in positive cash flow from operations and ended the year with over $1 billion of liquidity, consisting of 621 million of cash on hand, and 536 million available under our unsecured revolving credit facility.
Now I'd like to summarize our outlook for the first quarter and full year.
For the first quarter of 2021, the company anticipates delivering between.
1100, 1200 homes at an average selling price of 625000 to 635000 homebuilding gross margin is expected to be in the range of 21 five per cent to $22 five per cent and SG&A expense as a percentage of home sales revenue is expected to be in the range of 12% to 12, 5% for the first quarter.
Lastly, the company expects its book effective tax rate for the first quarter to be approximately 25 per cent.
For the full year, we anticipate delivering between 50 706000 homes at an average sales price of 600000 to 610000 homebuilding gross margin is expected to be in the range of 21% to 22 per cent for the full year, while our SG&A expense as a percentage of home sales revenue is expected to be in the range of 10% to 10 five per cent finally.
The company is forecasting an effective tax rate for the full year to be approximately 25 per cent.
I will now turn the call back over to Doug for some closing remarks.
Thanks, Glenn to sum up 2020 was a strong year for our company we ended the year with <unk>.
69% more homes in backlog as compared to the previous year.
Achieve margin expansion in most of our communities generated significant cash flow and maintained low leverage on our balance sheet.
We have set a course for better returns and have already started to see the early success of these efforts.
With a return on tangible equity in the mid teens and more room to grow in the future.
In addition, we have the financial strength to continue to expand our operations, while doing so in a profitable manner.
These positive factors gives me great optimism about the future of Tri Pointe homes.
Finally, I'd like to again, thank all of the hard working men and women of this company for the record setting year, we delivered in 2020.
The pandemic presented us with considerable challenges both personally and professionally and I'm extremely proud of how we responded to this adversity in a safe and effective manner.
Our thoughts remain with the frontline workers, who are working tirelessly to move our country past this challenging time.
That concludes our prepared remarks, and now we'd like to open it up for questions. Thank you.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question Kim.
Press Star two if you'd like to remove your question from the Kim from participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Our first question comes from the line of Alan Ratner with Zelman and Associates. Please proceed with your question.
Hey, guys. Good morning, Congrats on a great year and glad to hear you're all doing well.
So our first question, Doug I'd love to drill in a little bit on the pricing environment and what you guys are doing and seeing there and then maybe a kind of.
Joining that in with the gross margin guidance, Chris that you know certainly it sounds like there's a lot of pricing power out there in the market and I'm, just curious home, but the guidance it seems to imply margins do pulling a little bit as it is 'twenty. One goes on so I'm curious if you could just talk through the moving pieces there whether its mix cost inflation.
Some of the newer markets starting to contribute etcetera.
Yeah, Yeah, and it was a great 2020 and.
We look forward to having a great 'twenty 'twenty, one and we think the.
Housing industry is poised for several great years.
So to answer your question on the margin.
And pricing last year, we saw.
Across the country anywhere from six to 12, 8% to 12% price increases in six to 10 on the costs.
Costs always lag revenues. So you see cost inflation really, peaking its head up going into 'twenty. One. So you know we are forecasting cost increases of 8% to 12% at least in our planning cycle.
And then we're also opening up a what is it Glenn 60, new communities 70, new communities. So you know those communities were underwritten at an 18% to 22% margin. So when you add all that up but it's it's looking to be a great 'twenty 'twenty one.
That's incredibly helpful, especially I think that's an important point the underwriting obviously its a yeah.
Understandably below what debt and what you're currently delivering very strong margin. So there should be some mix impact on less about home prices continue going up 10% you know indefinitely. So I appreciate that.
Second question I'd love to hear a little bit about how you're thinking about the mortgage market. The cycle time. So yeah. What are you quoting a buyer today on a on a typical build job and you know is that buyer trying or attempting to lock in a rate now or are they just assuming that rates are going to stay at these low levels.
Over the next X number of months. However, long it takes you to a to build those homes because I guess the risk is if inflation does creep higher in rates or are you know up above where they are today by the time that home delivers you could have some some sticker shock from the consumers in backlog.
Good morning, Alan This is Tom Yeah. Good question certainly in the accelerated demand environment that we're currently experiencing buyers are anxious to lock in their purchase and their rates without a doubt.
They do understand because you know as part of our process setting appropriate expectations and communicating well with the buyer and providing a great customer experience is really important so we outlined that upfront.
Nobody is surprised that the.
Cadence of delivery timing.
People are jumping in usually early but we we've experienced strong success evidenced by our cancellation rate buyers understand that the current environment, but they would like to lock rates as soon as possible.
And how far out are they actually able to lock that I mean, assuming you're quoting I don't know a nine month build cycle are they actually able to lock that far out or do they have to wait three months six months.
It's more of a typical three month block cycles, what we're experiencing and as nine months is that kind of a fair assumption on what a typical bill job is being quoted out today or are you actually about that at this point.
You know that that really varies by product, but I'd say, that's a that's a fair average got it okay, great well. Thanks, a lot guys best of luck.
Thanks Al.
Thank you. Our next question comes from the line of Stephen Kim with Evercore ISI. Please proceed with your question.
Yeah. Thanks, very much guys. This is Joe orders Meyer on for Steve.
Just a quick follow up to Alan's question, you mentioned in the underwriting of the new projects, it's our understanding that in.
And the underwriting process you tend to be conservative on.
What sort of HPA you are baking in is it fair to say that you're not really baking into your guidance any additional price.
Sort of what you have in your pocket at this point, particularly since much of your growth may actually come from these new projects, especially in the back half of the year.
That's correct.
Okay, great. Thanks, and then just on the 'twenty 'twenty two ASP I understand the reason for the declining Asps certainly, though it's a.
The acceleration of the declines that you've seen in recent years could you. Maybe just also talk about what the margins are like I know you sort of touched on it a little bit but you know we.
And the idea that we can turn faster and they have better returns, but you know for.
For the purposes of modeling your earnings in 'twenty two it would be helpful to sort of understand how those margins can trend can trend and just to be just to be clear I'm not necessarily asking you to provide any comment on additional price we can make our own assumptions in that regard, but just mechanically that discrete shifts to affordable how that impacts the margin.
Hey, Joe It's Glenn you know, we've talked about it a little bit in the past and Joe for Doug Just mentioned it right now about our underwriting between 18 and 22, that's what we've been underwriting all of these newer markets too. So if those projects achieve their underwriting metrics, we don't see.
Any real detriment to our overall gross margin just because the asps going down it adds a little bit of impact on SG&A leverage just because SG&A has gone down a little bit.
But overall revenue was drawing with with delivery growth in community count growth. So we should be able to make up that leverage with volume.
Great that's really encouraging and just maybe a housekeeping item if I could squeeze one in here how many homes did you actually start in the fourth quarter itself.
I don't have starts in front of me you know full starts I'll have to get back to you. Okay. We can follow up on that.
Thanks Scott.
Thanks.
Thank you. Our next question comes from the line of Mike Dahl with RBC capital markets. Please proceed with your question.
Alright, Thanks for taking my question.
But I think I missed a couple of numbers that you threw out during the comments around current trends and expectations could you just.
Repeat the comments around what the orders have been quarter to date, and if possible split that out between <unk>.
Jan and February to date, so we have a sense of monthly cadence and similarly, just the community count comments.
The cadence through the year to get from kind of where you exited the quarter at 112.
Two where you end the year at 130 ish would be great.
Sure. Thanks, Mike This is Glenn.
So I said for the first six weeks of the year you know through last Sunday, which was February 14th we have 961 orders and the absorption is running at about five homes per community per month, the way that breaks down was it was 546 orders in January.
That's a little bit lower than it would've been though we because of the name change we had some.
You know basically paperwork to be filed with the local municipalities to be able to record orders in some of our sales offices. So that number in January would have been higher if that would've been complete that has subsequently been completed in February. So that's reflective of the 961 for the first six weeks and again, we were still taking reservations.
We just weren't writing for orders for some of those communities in January but that's all caught up now and baked into the 961, Hey, Mike I'll just add a little color. There. This is Tom.
That is really only related to certain California operations is where we were inhibited from being able to write orders we were continuing to take hold reservations on lots and so we had a backlog of to be contracted.
Reservations that were now caught up on.
And through the first six weeks, Mike just so you know that's that's running at about a 13% increase compared to the prior year through those first six weeks.
I had a lower community count on a lower community count right. Okay. That's helpful and on the community accounts sorry.
The cadence of.
How your outlook <unk> and maybe if you can talk through if theres been any lumpiness in <unk> or if its more straight line.
Yeah exactly so we're opening 70 communities for the full year of 2021, we're estimating 22 of those in the first quarter and then from there on out it's pretty even throughout the remainder of the quarters to get to that 70, maybe a slight slightly more in the third quarter than the second and fourth.
As how that's kind of looking today, where we sit.
Okay and then.
We're going to end the year average you know in a range between 125 and 135 communities.
Right right right and did you say 120 at the end of <unk>.
No I I I, yeah, I set a range of.
Roughly 120, but.
Net of a range of.
I think a 115 to 125 to average about 120.
Okay.
Then I guess my follow up question is more kind of day.
Obligatory one that I, often ask about kind of he's just given you obviously have a lot of moving pieces with community mix product mix and then just underlying demand strength I mean running five a month right.
The first six weeks is the continuation of well above normal for you guys.
Balancing out kind of some some of these mix issues. How how are you thinking about how the year kind of plays out if the current market holds is it would you think that you can you can hold that kind of four a month that you did last year or are you often talk us to a more normal.
Level, that's debt lower than that any any color yeah.
Mike I'll take that as Doug Norm, you know historically, we've kind of looked at our <unk>.
Average share absorption per community of three O M I would say with our price.
The decreases in more of a what we call entry level premium first move up we would probably see that around 3.5.
Okay. Thanks, Doug.
Thanks, Mike.
Thank you. Our next question comes from the line of Jay Mccanless with Wedbush Securities. Please proceed with your question.
Hey, good morning, Thanks for taking my questions just.
I just wanted to ask first have you all been able to reload some of the spec inventory that you sold through in the second quarter and third quarter.
Hey, Jay Good morning, It's Tom we are working on that as we speak without a doubt we'd like to be able to increase that that spec inventory. We ended the year with just 68 completed.
Specs and we have ramped up starts to to increase our spec inventory throughout all of our markets.
Okay great.
<unk>.
And then the the other question I had just with everything going on in Texas.
Some of the power outages et cetera.
Are you guys thinking that could push some closings from from this quarter to next quarter or do you feel like you're on you're on track to deliver everything on time.
Well right now.
Now I would I can't really tell you because all.
Our division President Houston's bundle up in front of a gas fired oven to stay warm.
No.
I'm I'm laughing, but it's not a laughing matter so give us give us another week to assess the situation, but its a obviously a significant weather event and we hope and pray that everybody in Austin, and Houston, and Dallas stays warm in and it comes out of this strong I didn't think anything could stopped taxes other than an ice.
Snowstorm now.
Agreed okay, great. Thanks for taking my questions.
Thank you. Our next question comes from the line of so home Bansal.
Please proceed with your question.
Hey, guys hope you're all well.
Just trying to make sure I understand I guess your expectations for order growth in 2021 because.
Just looking at the guide it looks like can they use accounts can be flat to down this year.
You sort of put that together with the delivery guide and what seems like a preference for price over pace. So should we sort of expect I guess.
Flattish order growth year.
I guess much better margins, all said and done.
Hey, Hey, so home, it's Glenn it's a good question.
You don't we're not guiding specifically to orders like Doug said on the previous call you know absorption pace of in the mid threes is kind of where we're seeing the year you know based on our <unk> to our pipeline.
Line and how we see the year folding out, but you know obviously, what the community Count guide or community count starting the year much lower than the previous year.
You know that's going to be some tough comps throughout the year or so.
You know I wouldn't be surprised if flat to potentially down could could happen on the older side, but just we'll have to see how the spring selling season, and how people react to our new community openings.
So I guess index more.
I'll add a little color on that I mean.
It's pretty hard to to compare yourself to a pandemic so.
Sure you know there is accelerated demand the selling season happened in the spring fall and winter.
All the builders across the country are sitting with great backlogs like ourselves in an accelerated demand means that you've got to reload the pipeline that pipeline gets reloaded.
Obviously some of the development work was delayed a little bit whether it was 30 days or 45, but that all adds up so.
You know I'm very very excited about the year you know we're gonna have.
Most notably double digit delivery growth, our revenue and EPS growth and we will have a great year compared to 2021, while we reload the pipeline with 160, new community. So you know that this isn't a this business isn't done in our manufacturing plants. So it doesn't happen evenly every quarter or so and especially in light of a P.
Endemic and how it accelerated demand in a very.
Different part of the year when you usually are showing in the spring and early summer and now you're selling in the summer and fall and winter. So it's a we're all adjusting to it and it's it's tough for you guys to really compare it to.
Yeah, no that makes sense and then Doug I guess, you know you highlighted some of the levers around ROE available earlier, and so I'm wondering if there's sort of an ROE target that you are comfortable putting out today for 'twenty, one and maybe 2022 even.
Well as I mentioned in the earnings script, I mean, we're very proud of our five strategic objectives, and we're going to stick to those objectives. We talked about those in October harvesting investments are growing our early stage divisions, increasing our inventory turns are inc.
Kris profitability and then through our programmatic share repurchases. So we we are aiming to be very consistent in generating Roy we we got to the mid teens by the end of the year and we expect to maintain.
Maintain that and hopefully improve on that.
Subject to market conditions. So we are very very focused on providing a strong return to our shareholders over the next several years and be very consistent about it and we're very excited about that it's we've got a great team. We have great land, that's teed up for basically the next three years to do that so I'm very excited.
Yeah.
Alright, thanks, guys.
Thank you. Our next question comes from the line of Carl Reichardt with <unk>. Please proceed with your question. Thanks. Good morning, guys. Oh, My Texas question you got my earlier question. So Glenn I wanted to just ask about M. This quarter your topline and gross margin.
Fair degree above your guide SG&A was kind of in the range.
Were there I would've expected I guess, a little more leverage on SG&A given the top line, where there's some additional expenses either related to branding or store openings debt that hit this quarter and can you talk a little bit about how that SG&A might rollout over the course of the year cadence wise given the store opening plans and the rebranding.
Sure Good question, Carl and for the fourth quarter, there wasn't anything unusual in the expenses. We did came in at the lower end of our range because we did get a little bit more high you know higher deliveries in and we're higher on the revenue side. So that was within our our expectations. I think are you know there was a little bit of cost to the <unk>.
But I wouldn't say that move the needle that much.
And then as far as how it rolls out we had our guide for the first quarter of 12 to 12, 5% and it continues to go down from there as we deliver the majority of our homes in the back half of the year M to get to that full year guidance of 10 to 10 and a half.
So pretty much normal cadence then I'm okay.
Okay. Thanks, and then just on <unk>.
As you transition to quicker turn product and in markets outside of California. It is there when you think about the the lower end stuff.
Are you thinking to move more towards spec oriented or are you going to continue to focus on sort of the premium first time first time buyer market, which I'm guessing is sort of a combo of spec.
And build to suit.
Yeah, Carl it's Tom you nailed it with the with that hybrid product concept. We certainly are focused in and those new early stage divisions on a lower ASP overall, but it's still a premium first time buyer position.
M with the ability to to personalize and you know the build to order market is strong the consumers heavily desirous of that type of product right now, but we do try to balance that we wanted to improve our overall returns and our cycle times and so that does involve them.
Prudently planning appropriate amount of spec building. So we're trying to find that appropriate balance point.
Great. Thanks, Tom Thanks Al.
Thank you.
Thank you. Our next question comes from the line of Alex <unk> with B Riley FBR. Please proceed with your question.
Thank you gentlemen.
What's a more comfortable level of specs and how long do you think it'll take to get there.
Alex we are as I mentioned trying to increase our spec starts obviously were very low comparatively historically, we'd like to have you know three to five specs per community I'm going I think it's going to take multiple quarters to be able to get us back to that.
Range, just because you know order demand is so strong and anything that we are putting out there is getting purchased in and under contract. So continue to try to balance that.
Focus on our our backlog and get the appropriate number of spec starts out there and Alex I would add to that I mean, historically, we've run about three specs per community per per community that number will probably go up as our E. S. P goes down because we will get more comfortable with more specs, but you were obviously well.
Fully below that right now because of the strong demand environment that we're working in.
Sure and I apologize if this was already asked but the construction times today for contracts signed basically this week, where do they stand and how does that compare to maybe a year ago.
Yeah, we've looked at that very closely and obviously you know a pandemic environment has had an impact on on cycle times I'd say on average our cycle times compared to a year ago or about increased by 10%.
And as we talked about earlier one of the questions on average it varies very much by byproduct and community, but on average we're probably.
Nine months.
In terms of our total.
Contract completion cycle time.
Thank you.
Thank you, ladies and gentlemen, as a reminder, if you'd like to join the question queue. Please press star one on your telephone keypad. Our next question comes from the line of Alex Barron with housing Research Center. Please proceed with your question.
Thank you, thank you gentlemen, and great job on the quarter.
I wanted to ask if you guys have kind of started to see I guess, what I would call an acceleration and the.
Traffic in orders coming from out of state buyers in other words people, leaving California people, leaving.
Hum.
Other states.
And then is that having an impact from pricing.
Hello, Alex This is Linda yes, there are some markets, where we're seeing an acceleration of out of state buyers and so for example in our Las Vegas Division.
In the last 12 months, 20%, if the buyers have come from California, and about 33% from out of state for all states.
Often is another market, where we're seeing a higher percentage of out of state buyers currently at 10% coming from California.
And then the next one you know very typical we're used to seeing more California buys in Arizona and that was six 5% of our Arizona sales in the last 12 months.
Okay very helpful.
And is that is that having a.
A noticeable impact from pricing or just from the velocity.
You know what as a percentage that's still out of state buyers are still not that significant in most states. So I would say pricing is more driven by local market supply and demand conditions.
And suddenly we still see a very healthy order pace in California as well.
Okay, Great and then my other question was related to the delivery guidance for next quarter.
It seemed a little bit low compared to any of the <unk>.
Orders that you guys received in the last four quarters. So I was just curious if that was just like the lag effects back from the past when the pandemic started or was there something else happening there.
Alex It's Glenn that's just timing of our you know if youre thinking about backlog conversion we had.
So many orders in the back half of the year. So our backlog is maybe on the younger side compared to historically, how it is to start the year from an age perspective so.
All of that is timing.
Got it okay, well great best of luck for the year. Thank you.
Thanks, Alex.
Yeah.
Thank you, ladies and gentlemen that concludes our question and answer session I'll turn the floor back to Mr. Bauer for any final comments.
Well. Thank you. Thank you everyone for joining us on this year in 2020 earnings call and we.
We hope everybody stays safe and warm I know most of the country is.
Under a pretty pretty strong freeze warnings, so stay safe and warm during these times of coming out of this pandemic and we'll look forward to talking to you in the first quarter of this year have a great day. Thank you.
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