Q1 2021 Tri Pointe Homes Inc (Delaware) Earnings Call
Greetings and welcome to the Tri Pointe homes, the first quarter 'twenty 'twenty One earnings conference call. At this time, all participants are in a listen only mode.
Question and answer session will follow the formal presentation, if anyone should require operator assistance. During the conference. Please press star Zero and your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to your host David Lee General Counsel and 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 first quarter of 2021.
Documents detailing these results, including the slide deck are available at Www Dot Tri Pointe home Dot com.
And the investors link and under the events and presentations tab.
The for 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.
The 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 website and in its SEC filings.
And the call today are Doug Bauer, the company's Chief Executive Officer, Glen Keeler of the Companys Chief Financial Officer, Tom Mitchell, The Companys, Chief operating officer, and President and Linda on the May the company as Chief Marketing Officer.
With that I will now turn the call over to Doug.
Well, thanks, David and good morning to everyone joining us on the call today.
And this day as the celebratory one for Tri Pointe.
As we commemorate Earth day like we do every year through our proprietary living smart program.
Let me smart as our companywide walk the walk commitment to our customers will be and the wellbeing of our planet.
We've been a leader and Green building since 2001, and our commitment is always expanding incorporating the latest innovative design materials and technologies into living smart for our homes and communities.
More of the Tri Pointe.
Tri Pointe ESG highlights are available on our website and.
And we will be publishing our 2020 ESG report and May as we strive to improve everyday life, where all of our stakeholders.
With that 2021 is off to a great start for Tri Pointe homes with the record breaking sales momentum, we experienced last year here and into the new year.
Net new orders for the first quarter increased 20%.
Year over year, thanks to a 49%.
Improvement and our absorption pace.
The order activity, we experienced was broad based both from a geographic and product standpoint.
Which is a testament to the appeal of our homes at a number of different price points as well as to the strength of the housing market across the country.
The combination of powerful millennial demographic forces low existing inventory levels.
Favorable mortgage rates and years of under building has led to a real supply.
Mandy and balance that has taken the nation's need for new housing supply to new heights.
The intensified demand for new homes brought about by the pandemic continues unabated as we see life beginning to normalize.
We put we.
And in the midst of one of the strongest housing markets of my career.
We continue to take advantage of the robust demand with ongoing price increases and reduced incentives.
Allowing us to stay ahead of the cost inflation, we're experiencing and a number of fronts.
Gross margin from home deliveries for the first quarter came in at 23, 9%, a 340 basis point expansion over last year.
We have also been successful and improving our operating leverage by keeping our costs and check.
While growing revenues, Laurie and our SG&A as a percentage of revenue by 250 basis points.
Year over year to 11, 4% for the quarter.
And another positive note for industry at large.
Mortgage rate mortgage interest rates have stabilized in recent weeks after the upward trend and the latter half of the quarter.
Rising rates have not impacted demand and based on the sensitivity analysis, we performed.
We are confident and the quality of our backlog should mortgage rates continue to rise.
As the premium lifestyle build their tri Pointe homes attracts a very well qualified buyer.
And I point connect our affiliated mortgage company is a significant asset to our operations and captures over 80% of our deliveries.
The average home buyer financing with Tri Pointe connect as the FICO score of 748.
Net income of 36% and loan to value ratio of 82%.
While we continue to see new home demand far outstripping supply.
Today's environment is not without its operational challenges.
Cycle times are being extended and all of our markets due to material shortages.
Labor availability and municipality delays.
The players are pushing for price increases of their own and an effort to offset raw material cost inflation as.
And as well as labor cost increases.
You phase releases of communities are being weighed against the existing backlog constraints.
To be sure. These are good problems of have and are indicative of a strong housing market.
Actually our leadership teams throughout our organization are made up of seasoned industry veterans.
Know how to navigate this landscape and keep Tri Pointe and are positioned to be successful.
And Tri Pointe our goal is to grow our operations and a profitable manner, achieving top 10 market share and each of our geographic segments and.
And improving returns, while maintaining a strong capital position.
We made progress and all of these fronts during the first quarter of 2021, including a return on average tangible equity of 15, 8% for the trailing 12 month period.
We posted an 18% increase of new home deliveries and the quarter and are poised to record a significant year over year increase and deliveries for the full year.
And our existing backlog.
As we got it and the last call. We opened 22, new communities during the first quarter and remain confident and our ability to open roughly 70, new communities for the full year.
And California, we continue to reap the rewards from our long dated California assets, thanks to their low land basis and excellent market positioning.
We experienced robust order activity at both of our coastal and inland communities.
For instance, four of our five top selling communities and the first quarter and California.
And the range from premium entry level of attach homes and San Diego.
To detach homes and southern California's inland Empire as.
And as well as northern California's East Bay.
The investments, we have made and our early stage markets of Austin Dallas and.
And the Carolinas and Sacramento of generating excellent results and.
And the first quarter of these markets contributed a 157 deliveries and a combined basis.
And with an average sales price of 445000 and gross margins of 21%.
While these markets are contributing to the bottom line now they still have a considerable runway for growth.
Combined these early stage divisions currently own or control of approximately 8300 lots.
And are anticipated to deliver over 2000 homes annually.
By 2023.
We also made further strides and our efforts to acquire land any more capital efficient manner.
We increased our lots controlled via option agreement of 38% at the end of the quarter Rep.
Representing the highest option lot of percentage in our company's history.
We believe partnering with intermediaries to help facilitate the purchase and development of some of the losses, a prudent risk adverse way to acquire land.
And will also lead of better returns and our capital and the long run.
Overall, we are and are fortunate land position considering the demand environment were in.
Page 14 of the earnings call slide deck shows the detail of our lot position.
The nearly 37000 lots owned or controlled we.
We do not need to be aggressive and the current land market.
We continue to be disciplined and our underwriting approach knowing that we own or control of 100% of our forecasted deliveries in 2021.
'twenty, two and over 95% and 2023.
In addition, most of these lots were control one to three years ago or even longer and the case of the long term, California assets.
The ship proved favorable to the company and considering the rate and which both home prices and input costs of increase over the past 12 months.
Bright point How's the remains in an excellent position from the capital standpoint with over $1 billion and.
And total liquidity, including cash and cash equivalents of $585 million.
We put some of our cash of work during the first quarter and the form of share repurchases.
Buying back three 7 million shares at a weighted average price of $17 88.
The number of shares outstanding was 9% lower on a year over year basis, and we plan on reducing our outstanding shares even further as the year progresses.
With an increasing diverse and growing homebuilding operation.
Rapidly improving return profile and a strong balance sheet Tri Pointe homes is poised to take advantage of the strong housing fundamentals and the market today.
And create value for our shareholders over the long term.
We think that the current housing cycle will have long term momentum given the powerful demographic forces at play.
And the supply issues facing most of our markets.
We believe Tri Pointe homes has the right team.
Strategy and leadership in place to achieve our goals.
With that I'd like to turn it over to Glenn for more detail on the first quarter and our outlook for the rest of the year when.
Thanks, Doug and good morning, everyone.
I'm going to highlight some of our results and key financial metrics for the first quarter and and finish my remarks, with our expectations and outlook for the second quarter and full year of 2021.
And at times, I will be referring to certain information from our slide deck that is posted on our website.
I wanted to start by discussing our new reporting segments, which we have reorganized and connection with the recent the implementation of a one brand platforms Tri Pointe homes slide four of the earnings call deck shows the map of the U S and the Mark.
We currently operate in our Arizona, California, Nevada, and Washington markets will now be reported and the West segment was Colorado, and Texas and the central and finally, the Carolinas and the D C Metro markets and the east.
Slide five of the earnings call deck provides some of our financial and operational highlights from our first quarter.
As Doug mentioned earlier demand continued to be robust and the first quarter with orders up 20 per cent compared to the prior year and and absorption rate of 5.8 homes per community per month, representing a 49% increase compared to the prior year day.
And demand was strong across all geographies with the west reported and the absorption rate of six homes per community per month, and 39% increase compared to the prior year, the central hub and the absorption rate of $6, one which was a 118 per cent increase compared to the prior year and finally, the east had and absorption pace of four three which was the 4% increase.
Demand continues to be strong and April was 340 orders through this past Sunday people 18th.
We continue to focus on our new community pipeline opening 22, new communities and the first quarter for the full year, we expect to open approximately 70, new communities and and the year between 120 at 130 active selling communities.
For 2022, we continue to expect to open approximately 19, new communities and and the year between 150 and 160 active selling communities.
We reported a strong performance on all key metrics. This quarter, we delivered 1126 homes, which was an 18% increase year over year home sales revenue was 717 billion and increase of 20 per cent and our average sales price was 636000, the 2% increase compared to the first quarter of 2020.
Our homebuilding gross margin percentage for the quarter exceeded the high end of our guidance range at 23, 9%, a 340 basis point improvement year over year.
SG&A expense as a percentage of home sales revenue of 11, 4% improved 250 basis points compared to the prior year, our focus on leveraging technology and operational excellence.
Evident and our reduced sales and marketing expense of five 6% of home sales revenue and the first quarter compared to seven 2% for the prior year period.
The evolution of our digital marketing and home shopping tools less reliance on outside brokers and our appointment of driven sales approach and enables our sales and marketing and operations to be more efficient.
For instance, we generated $8 five orders per sales employee and the first quarter of 2021 versus $5 eight orders and the same quarter of 2020.
We reduced our broker attachment rate from 71 per cent of deliveries in Q1 of 2020 down to 69 per cent of deliveries this quarter with an average broker commission, representing one 7% of our total home sales revenue.
Looking at the balance sheet at quarter, and we had approximately $3 billion of real estate inventory. Our total outstanding debt was $1 3 billion, resulting in a ratio of debt to capital of 37 five per cent and our ratio of net debt to net capital of $25 three per se.
We ended the quarter with $1 1 billion of liquidity consisting of $585 million of cash on hand, and 543 million available under our unsecured revolving credit facility.
Now I'd like to summarize the outlook for the second quarter and full year.
For the second quarter of 2021, the company anticipates delivering between 1500 and 1600 homes and <unk>.
Average sales price of 630000 to 640000 homebuilding gross margin is expected to be and the range of 22 per cent to 23% and of our SG&A expense as a percentage of home sales revenue is expected to be and the range of 10% to 10 five per cent for the second quarter.
Lastly, the company anticipates its effective tax rate for the second quarter to be approximately 25 per cent.
For the full year, we are raising our anticipated delivery guidance to between 6060, 300 homes and increasing our expected average sales price of 620000 to 630000.
We're also increasing of our homebuilding gross margin range to between 22% and 23 per cent for the full year, while lowering of our SG&A expense as a percentage of home sales revenue, which we expect to be and the range of nine 8% to 10, 3%.
Finally, the company is forecasting its effective tax rate for the full year to be approximately 25 per zone.
I'll now turn the call back over to Doug for some closing remarks.
Thanks, Glenn to sum up the the housing market and Tri Pointe homes are are hitting on all cylinders.
Our absorption pace of five eight and the first quarter was the best and our company's history.
And the same is true of our home sales gross margins of 23, 9%.
And when price and pace can both be achieved such a high level. It is clear we are experiencing exceptionally strong market.
And while we expect demand to remain elevated for the near term.
We also expect there'd be a leveling off to a more normal demand environment at some point.
This would enable the industry to be and a better balance with the supply chain as it moves more in line with the man.
Until then we will continue to take advantage of the strong housing fundamentals and grow our operations, while adhering to our underwriting discipline and.
The strong balance sheet and continuing to improve our returns.
Finally, I'd like to thank our team members for their contributions and producing a record breaking quarter results, we posted and the first quarter are a testament to your hard work and entrepreneurial spirit and.
And I am extremely proud of what we have built together.
That concludes our prepared remarks, and now we'd like to open it up for questions. Thank you.
Thank you we will now be conducting a question and answer session. If he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is and the question queue. You May also price start to if he would like to remove your question from the queue and for participants using speaker equipment and Ma.
The necessary the pickup your handset before pressing the star of keys.
Our first question is from Alan Ratner with Zelman and Associates. Please proceed.
Hey, guys. Good morning, Congrats on the great results and are glad to hear you're all doing well.
Doug you know and love to start off with the kind of the comment you just closed with and talking a little bit about and eventual normalization of demand and kind of some of the supply side challenges that the industry is facing today and you know I was poking around on your website and the and I couldn't help but notice they were quite of few communities that you guys have labeled as temporarily sold out.
And I'm guessing that that's somewhat ties into your commentary there you know we've been hearing a lot of builders intentionally slowing the sales pace just to allow the production machine the catch up a little bit. So I'm curious if you could talk a little bit about you know if you guys are doing that and to what extent and has and has the have those limitations. We have been seeing of late how has that helped at all.
And to allow the supply side of the catch up or are those problems still intensifying.
Yeah, and it's good good question.
Out of our <unk>.
Community Universe, and Linda I think you may even have the number.
A little more exact but it's if I recall, it's about 20 to 30 communities are in that mode.
And we haven't really seen that improve the supply chain.
I think the supply chain is going to be.
<unk> for the rest of the year.
As.
All of homebuilders and and.
And other industries are affected by a lot of global things and from chip.
Factoring to Suez Canal, the Snowmageddon to everything else that's gone on since the pandemic and there's just been such a rapid increase in.
And demand.
That.
Didn't correspond with the increase in the supply chain and it's going to take a little bit to catch up but I don't think it's going to all happened in the.
And of short term manner, I think it's kind of going to be a challenge for the rest of the year as we continue to see strong demand across all of our marketplaces.
And that makes sense and I appreciate the candor and the cat and this their yeah. Maybe this is related maybe it's not but you know the gross margin guidance does imply a little bit of a sequential pressure from the very strong results you just put up and the first quarter. So I'm curious you know could.
Could you talk a little bit about the moving pieces there or is that does that mix is that and you know cycle times, extending that's putting some pressure on that and any color you can give there would be great.
Okay.
Hey, Alan it's Glenn.
It is a bit of mix and we had some higher and communities close out and the first quarter. So that contributed to that higher margin, but it also is reflective of some of the price or sorry cost increases that happened in the back half of last year that are delivering as are the bigger part of the mix in Q2 and Q3.
But overall as you saw from our guidance, we raised the margin guidance at the high end of 100 basis points for the full year. So.
It shows that we have been able to raise prices above cost.
<unk> to where we were through on our last call the App.
Absolutely I didn't mean to imply that it wasn't impressive just curious what the drivers were there. So I appreciate that Glen. Thanks, a lot guys. Good luck.
Thanks Al.
Our next question is from Jay Mccanless with Wedbush Securities. Please proceed.
Hey, good morning, Whit and thanks for taking my questions.
Question I had any impact from.
The February weather in Texas in terms of of delivery timing et cetera.
Yes, Jay this is Doug yes, it did.
The effect of about 20 to 30 deliveries and the first quarter and and.
And that's probably why I was looking at the consensus deliveries for the quarter, probably why we are just a few units below it but.
We picked it up from there and expect more deliveries.
As part of our overall guidance for the year out of out of Texas.
And then and in terms of the community count guidance for this year I know you all took that down a little bit is that is there any geographic bent to where.
Where that came from or are you just having to deal with some municipal issues pretty much countrywide.
No yeah, the community count lower guidance for the full year is just reflective of selling out a little bit quicker than we originally planned based on the high absorption pace and we saw in the first quarter, but we're still opening the same amount of communities that we guided to previously so from the opening perspective, we're right on where we thought we were gonna be we're just kind of Clos.
And out of a few more communities before year end quicker than we thought it's all of that of.
Jay that obviously implies.
A healthy backlog going into the second half of the year right.
Yeah, absolutely absolutely and then the the other question I had just on cycle times could you talk about where they are now versus last year.
Or versus what what.
And last year courses of Covid, but you know.
Where you think where they are now and where they should be.
Hey, Jay and good question.
As Tom and obviously, we still are dealing with COVID-19 impacts this year, although it is different but in general on average I would say our cycle times of increased.
10% to 20% of year over year.
We are battling a significant the supply and labor constraint and we're doing our best to overcome that so translated into working day, that's about a 10 to 20 and the increase on average for average construction cycle time.
So we.
We're dealing with it the biggest thing is we're making sure we're setting appropriate expectations with our customers.
And delivering their homes and the timeframe that.
As meeting their expectations. So so far so good we don't anticipate that it will have any impact on our ability to deliver a year and units that were planning on.
Sounds great. Thanks for taking my questions.
Our next question is from Stephen Kim with Evercore ISI. Please proceed.
Yeah. Thanks, a lot guys are you know.
Great job, obviously and the quarter Doug.
Doug you made mention about you.
How you ran an analysis on your backlog to determine how secure it was in the event of a rate rise and I was curious how broad that analysis was if you could shed a little more light on it and in particular I was wondering if it.
Analyzing your buyers credit quality and stress testing it for higher rates and then you know you kind of concluded it wouldn't have a negative impact of rates rose at what point.
Of mortgage rate would it have had an impact and your view.
I'll, let Tom and Lee chime and all that.
Yeah, Steve and great Great question.
We did do a stress test on our backlog as you mentioned and it was on all fronts as you indicated.
Including buyer qual.
Quality and as you know being of premium lifestyle brand, we have a <unk>.
Significant the.
Quality of buyer and that's demonstrated with an average FICO score of about 748, and our average loan to value is 82%.
With the debt to income ratio of around 36% I think Doug said and the prepared remarks as well and.
And what we did was go into into our backlog and focus primarily on a stressing of increasing.
Interest rates by a half a point and then a full point and looking at debt to income and seeing where the tipping point was and and both of the scenarios very little of our qualified buyers drop off but the ability to.
The purchase.
So the answer would be somewhere over a point and interest rate increase would begin to have any effect on our buyer pool.
And Steve and translate that.
The EBITDA into a number I <expletive>ume that's the 4%.
Like north of 4% of obviously.
And that north of 4%.
And that debt.
75% of our 75% to 80% of our backlog.
Thanks.
Okay.
Great well, that's really interesting I appreciate that.
And then.
I guess and another question is about the gross margin got it and you mentioned that there were some unusual are the high gross margin communities of kind of closed in one queue.
But you know you beat your <unk> guide pretty handily. So I'm. Just curious you know is it right to think that youre using pretty much the same methodology for guiding your margins and <unk> as you did for <unk>.
It's a similar methodology, yes and that.
We're guiding based on where prices and costs are today.
And in some of that was like I said, a mixed shift and there were some communities that pulled into Q1 that are higher margin that we thought were going to go into Q2, so that the mix definitely plays a part into it but but yeah.
And where we're basing that on what's in backlog right now what we know the margins to be.
Obviously, theres still houses to sell throughout the year. So if we can continue to raise price above the cost increases there could be margin upside to the full year guide, but obviously theres still a lot of the time left and the year to get there.
Yeah sure Great I appreciate that my mind, I think you guys know which side of the my my my bet is going on but other that's great. Good job and good luck with the rest of the year.
Yeah. Thanks Steven.
Okay.
Yeah.
Our next question is from Mike Dahl with RBC capital markets. Please proceed.
Hi, Thanks for taking my questions I wanted to ask more detailed.
The question around privacy and based on the work that we've been doing it seems like for a lot of the past six months or so you had good pricing power, but essentially the slightly lagging the peer group in terms of breadth of the magnitude and more recently kind of.
Fully caught up and maybe even.
And exceeded which certainly seems to be requested and the margin guide.
And I'm wondering if.
That's fair characterization and B, yes.
How much of that is really kind of of the market strength, continuing to broaden out and get the higher and stronger pricing power versus more of kind of the.
Company specific actions that you are.
And whether it's the a lot of allocations are.
Or just the more aggressive approach the pricing Kevin given how strong the sales basis.
Hey, Mike Good good question, obviously, the pricing environment is very fluid out there right now.
And we continue to see strength and elasticity and our ability to continue to raise prices really in all markets and at all price points. So we see it being pretty broad based off of.
The affordability is a general concern out there, although as I, just said with Stephen our stress testing of our backlog appears that we've got.
Our room to move there and we're going to try to take advantage of that where we can Linda do you have anything else the add on on pricing.
No again, and she said I mean and seen it has been very broad based and as they become to link the supply of home sites remaining and the community, we fit and really had more opportunity to continue to push price and the one thing I'll add Mike This is Glenn.
And I wouldn't say, we lagged the rest of the group from a pricing power perspective, but if you look at pure percentages because we are of higher asps that may be the case, but when you look at total dollars.
I think we're definitely getting our fair share of the price increases as you mentioned and that's reflected in the the margin guidance. So.
Yeah I think.
I think we've been able to raise prices throughout the the entire run up and the homebuilding market just as everybody else's.
Okay. That's helpful and good point there. Thanks.
My second question just on the.
On the April of commentary and sales pace and in general understand its you know its the only halfway.
Halfway through our two and a half weeks there.
The months, but it seems like that number would suggest maybe pace of closer to five.
And versus the six plus.
Iran and and <unk>.
And March and clearly it sounds like you've ever articulated the six is the right number.
For you guys, but just.
Curious to get your take on given the actions that you like.
And you've taken around communities given the pricing given the demand you're seeing.
And when you're thinking through the balance of the year and and the guidance.
But what are you guys and then I understand its always community by community, but high level. What are you guys <expletive>uming in terms of.
Sales pace right now.
I think it's similar to what we talked about before I mean, obviously, we we had a really strong Q1 and your math is correct. It was around the five for the first couple of weeks of of April.
But part of that is just again us limiting some of the releases to allow construction to catch up to two.
The sales pace. So we're not seeing of any real drop off and demand. If that's part of the question and demand is still really strong out there, but we what we do think of that it will get back to a little bit more of a seasonal norm and slowdown in the back half of the year from the order pace perspective is our <expletive>umption and the plan we could be surprise.
Some of the upside on that but that is how we built the plan.
I think the other thing.
Go ahead go ahead Tom.
I think the other thing to think about there Mike is as we are limiting releases, you're going to see continued choppiness and potential spikes and absorption rates as we hit the new releases. There is strong pent up demand. So we have the.
The strong absorption pace on those releases and the.
And then we're bringing a lot of new communities to market as well and there is significant pent up demand at those new communities. So as we bring those releases on I think we'll have accelerated.
The accelerated absorptions as well Doug did you have something that yeah, I was just going to add to Glen's comment Mike.
With.
And hopefully our society of getting back to normal and.
Seeing some of the travel statistics from the airlines, we do see of seasonal pattern at least we forecast of that in our plan for the last three quarters typically we see some seasonal slowdown and the summer months and a little bit of of pickup before the fall so I.
We think with.
The country of getting back to normal a little bit and families travelling and hopefully the school year starts off on a normal beat.
So again, that's our thinking.
We can be surprised of the upset.
Right, Okay, great that's very helpful.
Oh.
Our next question is from Tyler that's Hillary with Janney capital markets. Please proceed.
Hey, good morning, Thanks for taking my questions just a few for me and.
The start on the on the land side of things just curious.
What did you guys are seeing out there in terms of land prices generally interested in the.
The other instances, perhaps where prices might book a little bit of extended in terms of what some of your peers or competitors might be might be willing to pay.
Yes.
Good question.
As we pointed out we're in a and a very very strong position, we were very aggressive and the land market.
One of three years ago. So we've got a great book going through 'twenty three on a per cent for 'twenty, two covered and 95% for 'twenty three so.
And where we're in the land market oriented every day.
Continue to underwrite the current.
The market conditions are there examples of land deals getting.
The bid up beyond the tips of your skis and Theres a few but.
Generally speaking all of the builders that we work with and we joint venture with a number of them now two are still being very disciplined and their underwriting.
And land values are a function of your land residual and if home prices go up land prices are going to go up so.
But your input cost has also gone up so you've got to factor all of that into the equation and that's how we look at the land business, Bob do you want to add anything to that.
No well said.
We are really positive on our existing land pipeline in all of our markets and we continue to look for the rate pieces, the AD and as Doug said and the prepared remarks, we're in great position and we're really looking for land to finish off the last 5% and 23, but its for 'twenty four and beyond that our focus is.
Sean.
Okay, Great. That's very helpful. And then just as a follow up wondering if you can elaborate a little bit more on what youre seeing and some of your early stage divisions. Just curious how those are progressing versus your expectations. Thank you sorry, the 21% margin.
For those overall so interested.
And that's that's pointed out and <unk>.
And so what you had originally expected in the net I think you've talked about the 2000 annual sales volume by 2023, just wondering if you can talk a little bit more in terms of progression and time line over the next year or two and moving towards that target and some of these earlier stage locations.
Well, obviously, we are very bullish on our early stage divisions and hence the reason why we.
Share that information and 21% margins are very strong for early stage divisions, but more importantly.
And that we own and control over 8300 lots that will generate.
2000 homes the.
Annually by 'twenty three so.
Within that three year for two years from now so very very pleased with the Carolinas.
The day.
Dallas, Austin, and Sacramento teams have done an excellent job of sourcing land and again net land was sourced one to three years ago.
And so with the.
The rapid increase in prices and input costs were and are very good position to deliver those 2000 homes annually and 23 and <unk>.
And hopefully we'll be able to deliver a very.
The consistent margin profile with that.
Okay, Great. That's all for me and I'll leave it there. Thank you very much of the detail.
Our next question is from Truman Patterson with Wolfe Research. Please proceed.
Hey, good morning, guys. Thanks for taking my question.
First just wanted to touch back on your 21 gross margin guide.
Even though you'd be pretty materially and <unk>.
Q3 of <unk> It seems like you're still lifted your guidance for the remainder of the year as well so.
Could you just discuss that a little bit more in depth are you expecting theres more higher margin, California.
The mix and there or you're just really seeing of general lift across the country, where pricings out stripping costs.
And then finally, what sort of cost inflation or are you all really expecting and the best part of the year.
Hey, trim and it's Glenn I'll take the first part it was really the latter part of your comment. It is reflective really of just us being able to raise prices above costs, which gave us the.
And the ability to raise that gross margin guidance based on what we see and backlog currently.
And then as far as cost inflation and I'll, let Tom take that one.
Hey, Jim and good good question, we're not dissimilar to everything else that youre hearing out there relative to cost and there is significant pressure in that arena right now.
So far we're expecting cost to increase on our direct side of the business, 5% to 15% and the magnitude of.
What we've been experiencing lately.
Okay, Tom and and that's five.
The 15% I imagine that labor and materials blended but.
On the lumber side is that really one of the largest swing factors is in that number and where I'm going with this is look over the past month I mean, one of your lumber futures and spike like 50% plus.
Very rapidly moving target on the day to day basis, but.
Big picture on the lumber side, how do you think that plays out over we'll call. It. The next nine months I mean is this level of lumber pricing here to stay or are we going to see any relief as they can and continue accelerating upward just wanting to get kind of your big picture thoughts on that.
The chairman of this Doug.
Yeah.
We're not in the the business of forecasting some of these crazy swings obviously lumber is the major component of those cost increases as I mentioned earlier the Allen.
We're anticipating a continued supply chain headache for the rest of this year as we continue of.
Builders are trying to.
Provide housing for for the consumer right now so.
I don't.
And I don't know, where Schlumberger is going to go I mean, a year ago. It was what $3 70 to 400 Bucks.
Yes.
Your guests and get as ours, but as Tom mentioned.
Our cost inflation ranges and 15 divisions, 5% to 15% the pricing has also increased 5% to 20% so.
That's a big component of what's going on and hence the reason why we provided and increase in our gross margin guidance for the year. The first quarter was.
The little bit of mix and is it.
Is it stretches out for the year, we're looking at increasing our margins of 100 bps as we provide and our guidance. So we still think price will be able to.
Cover those cost increases.
Hey, Doug just for clarity that divisional cost inflation range of 5% to 15%.
That is and what Youre seeing.
Lee or previously right. That's what you all are expecting kind of flows through based on today's contracts over the next two to three quarters is that correct.
Well, that's the that's what we experienced in the first quarter.
Okay.
Okay.
Gotcha.
And Tom I don't know if you have that metric of what you're kind of baking into guidance for.
And maybe even for Q3 Q4, Q or is it kind of and in the same range of that 5% to 15%.
Yeah, it's within that same range.
Okay Alright. Thank you guys. Good luck on the upcoming quarter.
Thanks, Jeremy.
Our next question is from Deepa Raghavan with Wells Fargo. Please proceed.
Hi, Good morning. My first question is the pricing I know you provided good color, especially to the last question.
The pricing within the auditors you mentioned you know given all of the inflation out there you're increasing prices for inflation and then some more which means of capturing some amount of profit and you mentioned pricing. Despite the 20% constant despite the fee and so there's a spread there.
And just curious is that spread actually been increasing and the slate.
Given that demand is so strong absorption spacing strongly which means you do have the pricing power, but also you should be able to you know that that additional spread is going to give you the.
Power to offset some of the volatility and the second half you alluded to just curious is that spread.
Are you is that increasing and you're seeing that and you order levels and do you anticipate that will go higher.
Yes.
And this is Doug what we what we quoted as far as pricing.
The band of 5% to 20% of cost, 5% to 15% is and the FERC, what we experienced in the first quarter, we don't forecast in our.
The business planning revenue and and.
The increases we do have current costs.
Cost of inputs and are in our plan so.
And if revenues were to.
The sustained themselves and in this manner, there could be as Glenn mentioned earlier, some margin expansion and the latter half of the year.
Okay is there like it was asking of the if theres the delta between even have you you did your clothing worst of your order book.
<unk> is a lot like the pricing delta between your other pricing and the closing pricing strong enough to capture additional.
And our support as well.
Well I think based on raising the guidance the gross margin guidance for the year shows of the spread was positive obviously and the first quarter is the spread increasing and if I understand your question right I'm not sure. It's increasing I think it's been there thankfully right and we've been able to raise prices above cost.
Throughout the last nine months.
I wouldn't expect the spread the increase because costs are rising pretty rapidly.
Thankfully, we can raise prices to cover costs right now and Thats, a good position of being.
And it also really varies wildly on the community by community basis, some communities the spread.
It is increasing because there is a limited supply of houses and then other communities. It's less so so it's a tough question to ask her to the answer.
The macro basis.
Alright, no no. That's helpful and that was my question My follow up is I'm looking at the Q1 performance across regions.
The semi ASP decreases and make central and east.
Just curious what's driving that.
Year on year decreases.
Especially I see some margin and central one thing like the good strong markets at this point in time any color there.
The all of that is pure mix, so the mix of home.
And we will have lower asps this year, our percentage of attached homes and our mix is higher this year than it was last year again.
Thinking ahead to affordability, we're just trying to and each market. We're in target the right price points for the buyer pool and so.
Reflective of pricing and it's just pure mix of types of homes, we're selling.
Got it that's that's pretty helpful. Thanks, so much I'll p<expletive> it on.
Thanks Deepa.
Our next question is from Karl Reinhardt with D. P. I G. Please proceed thanks good morning, guys.
One of the asks about the SDA and and I'm, sorry, if I missed it so that it was quite better than your guidance of the dollars were actually down but the delivery volume was sort of at the low end of the guidance. So I'm kind of curious.
The leverage why the leverage was so strong and even why the dollars were down and is that in part of function of the cost cuts from last year of rolling through.
Yep that Carl this is Glenn good question and that's part of it for sure. We haven't had the higher back as many as we would've thought considering the volume increases because we're just more efficient like we talked about and some of our prepared remarks. In addition, because of the.
Strong demand, we saw and the first quarter, we spent a little bit less on advertising than we originally thought we would have to because you know when you have such strong demand and you just don't need to spend as much on advertising and so that between the sales per employee and advertising spend and that's where we saw some of the meaningful savings.
Thanks, and then and then the bigger picture one for Doug Doug You mentioned.
Sort of broader goal of wanting to be the and the top 10, and all of the geographic markets Tri Pointe in and and I.
Was interested in if there's something special about that number I mean, and why not top 15 or why not top line, what's the sort of the driver behind that long term goal for you what is one of the economics behind it for you.
Well.
And we're never.
Looking to be the biggest we want to be the best and we want to be the best of what we do.
In order to be the best thing.
In order to generate the type of revenues and profit.
When you back into to the various markets, we're in we need to be and our minds and the top 10.
But and the yen.
Our focus is on generating higher profits and higher returns and be more efficient and our overall attorney of our inventory and we believe as we you see great expansion.
The east of California, and those markets are very efficient and so we'll be hitting on as I mentioned and you got it.
And over 8300 lots and our early stage divisions, and and there'll be hitting on all cylinders by 2023. So.
Those are just macro goals that we have to to keep our position and the market and and.
And again, it's not about being the biggest it's about being the best.
Carl This is Tom we have had several conversations about this and I think you have and.
And the opinion on it but certainly.
Scale does provide leverage and so there is an economic benefit to having certain scales and certain markets and and.
And we believe that and we've seen it.
Move out so and all of our early stage divisions, we're looking to get through and optimization level that is within that top 10 that provides the volume to produce leverage.
Thank you Tom Thanks, Doug.
Thanks Carl.
And our final question is from Alex Barron with the housing Research Center of please proceed.
Yeah, Thanks, gentlemen, and the job on the quarter and thank you had previously indicated you expected the.
Pricing tend to be heading down.
And obviously.
I think pricing power is going the other way so and.
And you kind of.
And I guess walk me through your expectations on that going forward.
Alex This is Doug and I'll, let Tom and Greg chime in but I don't think we indicated pricing power is going down and we just don't forecast.
Significant price increases the market is very strong right now demand is very strong and we experienced some pretty significant pricing power and the first quarter. So.
Yes.
Right now the housing business is as good as I've seen in my 30, plus years and I think it'll continue to be very strong this year.
Doug.
And I think the power.
I think what you were asking is relative to us guiding to a lower ASP coming up over the next couple of years and that is that is correct. As we are bringing on new products through our early stage divisions.
Those asps are lower so overall, that's going to be lowering our asps has the company, we still believe that to be true, but obviously with the pricing power we have experienced over the last.
Four quarters, we've actually had an increase to our ASP overall, even though we are projecting and asps.
The reduction due to the mix of new units coming into our portfolio.
Okay. Yeah, that's what I meant and then in terms of that mix is it because of the geographic exposure that you think that's why.
That trend would be going down or is it more because you're introducing like smaller floor plans more entry level housing next type of thing.
Yes.
And really due to the expansion of east of California, Although even in California, we're expanding more affordable price point, especially in the inland Empire and down in San Diego.
But generally speaking.
It is the expansion east of California, and a very slight reduction and the.
The overall square footage for the company.
And I suppose.
The Big example, and the Carolinas, we only have three communities opened right now and those price points are and the $3 50 to $4 50 range and and a couple of years, we're going to have over 10% to 15 communities open. There. So it's part of just that geographic mix of these early stage divisions.
Okay, and then I think I also heard you say you you're indicating more.
Emphasis on share buybacks.
I was just curious if that's something you expect to be.
And like the percentage of profit or just the puts and mistake or more of programmatic. How are you thinking about that.
We're looking to be a little bit more programmatic and.
And you can see we've been more consistent over the last couple of quarters and we're forecasting of the near term that continuing to be the case.
Got it okay, well best of luck.
Look for the year. Thanks.
Thanks, Alex Alex.
We have reached the end of our question and answer session I would like to turn the conference back over to Doug Bauer for closing comments.
Well, thanks, everyone for attending our Q1 call and we look forward to.
The meeting all of you next quarter.
You all have a great weekend. Thank you.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.