Q2 2021 Tri Pointe Homes Inc (Delaware) Earnings Call
Greetings and welcome to Tri Pointe homes second quarter 2021 earnings Conference 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 being recorded it is now my pleasure to introduce your host David Lee General Counsel for Tri Pointe homes. Thank you you may begin.
And welcome to Tri Pointe homes earnings Conference call earlier. This morning, the company released its financial results for the second quarter of 2021.
Documents detailing these results, including a slide deck are available at www Dot Tri Pointe homes Dot com under the investors link 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.
Additionally, reconciliations of non-GAAP financial measures discussed on this call to the most comparable GAAP measures can be accessed through Tri Pointe web site and in its SEC filings.
The call today are Doug Bauer, the company's Chief Executive Officer.
Glenn Keeler, the company's Chief Financial Officer.
Tom Mitchell, the company's Chief operating officer, and President and.
And Linda MA the Companys Chief marketing Officer.
With that I will now turn the call over to Doug.
Thanks, David and good morning to everyone joining us on the call today.
Tri Pointe homes.
<unk> strong operating results from the second quarter of 'twenty 'twenty 1 per.
The significant year over year increases to revenues profits and new home orders.
We exceeded our stated guidance of Asps.
Homebuilding gross margin and SG&A leverage as our teams did an excellent job executing our business plan.
In navigating the operational challenges that persist in our industry.
Earnings came in at a dollar per share for the quarter, representing a 133% increase as compared to the second quarter of last year.
We are extremely pleased with these results and believe we're in an excellent position to continue this operational momentum into the second half of 2021 given our sizable backlog our premium lifestyle brand positioning and the strategic growth initiatives, we have in place.
We experienced robust order activity during the second quarter.
Housing demand continued to far outstrip supply in our markets.
We averaged 4.7 orders per community per month for the quarter.
And similar to the first quarter of 2020..1 this figure was constrained by our own internal efforts to match sales with construction starts and implement price increases to offset rising costs.
These efforts have proved successful as we were able to generate home sales gross margins of 24, 6% in the second quarter.
A 300 basis point improvement over the second quarter 2020.
And an all time record for our company.
The demand that we saw during the quarter was broad based in terms of price point and geography, a sign that there is a diverse range of motivated motivated buyers in the marketplace today.
Along with a widespread lack of available housing supply to satisfy this demand.
And while we acknowledge that there is price sensitivity in some of our markets. We believe the pricing environment will remain firm.
Moving on the favorable supply demand imbalance, we expect to persist for the foreseeable future.
In addition in Tri Pointe is a much more diverse homebuilder than in the past.
With more new home communities position and affordable segments of the market than ever before.
We have highlighted our focus on improving our return profile on several quarterly calls now and this focus has continued to bear fruit.
Our trailing 12 month return on average tangible equity stood at 18.5% at the end of the quarter.
Representing 490 basis point improvement over the second quarter of 2020.
The communities within our long dated California asset base continue to generate strong absorption paces and profits for our company well our divisions outside of California continue to grow as a percentage of our company's total profits.
Our early stage markets have grown their operations significantly and many are achieving profitability levels at or above the company average.
We continue to make investments in these markets and elsewhere doing so in the most capital efficient manner possible with an emphasis on lot option agreements land banking and joint ventures.
Our returns are also be enhanced by our continued focus on operational efficiencies.
Thanks to our investments in technology and process improvements, we were able to generate more revenue with less overhead expense as evidenced by our SG&A expense ratio of 9.6% in the quarter.
The best performance in the second quarter in our company's history.
Our ample liquidity and low leverage ratios have allowed us to continue our share buyback program and improve our return on equity.
In the second quarter, we deployed $83 million in capital to repurchase just under 3.7 million shares.
Bringing our total for 2021 to 7.3 million shares repurchased.
We plan to continue to be active with our share repurchase program and earlier today, We announced our board has approved an additional $250 million per share repurchases through the next year.
The second quarter 2021 was an excellent quarter for homebuilding in general and especially for Tri Pointe homes.
Order activity remains extremely healthy from a historical standpoint, due to an ever increasing demand from millennials job growth in the post pandemic recovery and low home supply.
As a result of Tri Pointe homes is experiencing record levels of profitability.
Moving forward, we expect the market and our sales pace to trend towards a more normalized and healthy level of 3 to 4 homes per community per month.
Which is a great cadence for our business.
This pace Optimizes, our operations and creates efficiencies in the sales construction and delivery process.
With this healthy demand backdrop, and a significantly growing community count Tri Pointe is set up for a strong 2022.
Our goal of Tri Pointe remains the same grow our operations in a profitable manner achieved top 10 market share in each of our geographic segments and generate strong returns, while maintaining a healthy capital position.
We made positive strides in each of these fronts in the second quarter and believe we can make further progress through the remainder of the year and beyond.
With that I'd like to turn it over to Glenn for more details on our results for this quarter.
Thanks, Doug and 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 of 2021.
At times I'll be referring to certain information from our slide deck that is posted on our website.
5 of the earnings call deck provides some of the financial and operational highlights from our second quarter.
As Doug mentioned demand remains strong in the second quarter and orders up with orders up 22% compared to the prior year and an absorption rate of 4.7 homes per community per month, representing a 53% increase compared to the prior year day.
<unk> was strong across all geographies with the west reported an absorption rate of 5.3 homes per community per month, the central had an absorption rate of 4 and the east had an absorption rate of 3.4.
We reported an outstanding performance on all key metrics this quarter and either met or exceeded all of our stated guidance.
We delivered 1545 homes, which was a 26 per cent increase year over year.
Home sales revenue was $1 billion, an increase of 32% and our average selling price was 653005 per cent increase compared to the second quarter of 2020.
Our homebuilding gross margin percentage for the quarter exceeded the high end of our guidance range at 24, 6%, a 300 basis point improvement year over year.
SG&A expense as a percentage of home sales revenue came in at 9.6%, which was 120 basis point improvement compared to the prior year.
Our focus on leveraging technology and operational excellence as well as taking advantage of the current market conditions is evident in our reduced sales and marketing expense of 4.5% of home sales revenue in the second quarter compared to 5.9% in the prior year period.
We continue to focus on our new community pipeline and opened 13, new communities in the second quarter for the full year, we expect to open approximately 70, new communities and end the year between 120 to 130 active selling communities.
For 2022, we expect to open approximately 19, new communities and end the year between 150 to 160 active selling communities.
We had previously provided guidance on anticipated average selling prices in 2022 of approximately 550000 as prices have increased in all of our markets. We are revising that guidance up to approximately 620000.
Looking at the balance sheet at quarter end, we had approximately $3.1 billion of real estate inventory. Our total outstanding debt was $1.3 billion, resulting in a ratio of debt to capital of 37, 1% at a ratio of net debt to net capital of 25, 7%.
We ended the quarter with $1.2 billion of liquidity, consisting of 557 million of cash on hand, and $593 million available under our unsecured revolving credit facility.
During the quarter, we extended both our term loan facility and our revolving credit facility out until June of 2026 as a result, our next debt maturity is not until 2024.
Now I'd like to summarize our outlook for the third quarter and full year for the third quarter of 2021, the company anticipates delivering between 1450 homes and 1550 homes at an average sales price of 620000 to 630000.
Gross margin is expected to be in the range of $23.5 per cent to 24.5 per cent and SG&A expense as a percentage of home sales revenue is expected to be in the range of 9.5% to 10 per cent for the third quarter Lastly, the company expects its effective tax rate for the third quarter to be approximately 25 per cent.
For the full year, we anticipate delivering between 6060.300 homes and we are raising the range of the expected average sales price to 625000.635000.
We are also increasing our homebuilding gross margin range to 23.5 per cent to $24.5 per cent for the full year.
Our SG&A expense as a percentage of home sales revenue continues to be in the expected range of 9.8% and 10, 3%.
Finally, the company is forecasting its effective tax rate for the full year to be approximately 25 per cent I'll now turn the call back over to Doug for some closing remarks.
Well, thanks, Glenn to sum up we are extremely pleased with our performance this quarter as we set company records for deliveries.
Operating margin net income orders in backlog value in the second quarter.
Demand remained healthy in all of our markets while supply continues to be constrained.
We successfully implemented price increases that more than offset cost inflation and achieved our results and our delivery guidance. Thanks to our team's ability to execute and overcome the supply chain issues.
Given what we see in our markets today and what we have in backlog we are extremely optimistic about the remainder of 2021.
Longer term, we remain bullish on the housing industry, given the favorable demographic trends and low home supply.
We have positioned our company to benefit from these trends through the careful cultivation of our premium lifestyle brand strategy and through the land investments. We have made which will result in double digit community count growth in both 'twenty, 2 and 'twenty 3.
We believe we can achieve growth, while maintaining a strong balance sheet and positive cash flows while generating strong returns for our shareholders as <unk> as a result, we believe the future of our industry and especially for Tri Pointe remains bright.
Finally, I want to thank all of our talented and hard working team members, who embody our company values.
And are at the heart of the passionate culture that is so important to our success.
I'm extremely proud of how they support and take care of the company our customers and each other.
It is because of them that Tri Pointe recently received its certification as a great place to work.
Which is the global benchmark for identifying companies with outstanding cultures.
It's gratifying to be part of a team that is deeply committed to tri Pointe mission of being in the life changing business.
That concludes our prepared remarks, and now we'd like to open the call to questions. Thank you.
Thank you we will now be conducting a question and answer session. If you'd like to ask a question you May press star 1 on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star 2 if you would like to remove your question from the Q4.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star kit.
Our first question comes from the line of Stephen Kim with Evercore. Please proceed with your questions.
Yeah. Thanks, a lot guys are strong results. Thanks for all the commentary and the guidance.
I guess my first question relates to this.
This dynamic of the sales restructuring, which is obviously something that we've been observing in the market for many months now with.
I was curious.
I mean since the goal of that effectively is H M H.
<unk> your inventory in a way basically match your into your production I'm curious as to whether or not you feel that.
That process is largely complete.
Or do you expect sales restrictions to continue in the September quarter, or perhaps beyond at a similar rate or a similar degree of severity as it was in the second quarter.
Yeah. Stephen This is Doug Yeah, I would expect that to continue through the third quarter and probably through the rest of the year.
And how are you preparing in terms of ramping your production capability. If we look at let's say starts for example, what should we think about with respect to your ability to increase starts would it be reasonable to anticipate that that would be somewhat.
Insistent with the growth in community count that you laid out for fiscal 'twenty, 2 or do you anticipate that your your starts growth.
Are you be able to start more homes.
The growth would be greater than what you see with your community count or less.
And 'twenty 2 P M.
Hey, Steven This is Tom Yeah, I think it would be very consistent with our community count growth that's our expectation.
Okay.
That's and then you talked about 3 to 4 absorptions per community, Doug I think as being sort of a more normal kind of environment. I believe you sort of characterized it almost says that that is sort of a sweet spot I don't want to put words in your mouth, though.
So I'm curious is did you do you you know number 1 I guess do you believe that this level of 3 to 4 absorptions per community is something that you would expect to run at in 2022, because you're obviously running well above that now.
And is there anything about your community mix that would drive that in other words like maybe higher end mix or something like that or is that just something that you were speaking about longer term sort of as a generality and I guess that would basically be where we can make that the question.
Well, obviously the pandemic created.
Some very significant absorption paces throughout the industry, but the sweet spot is in a healthy level is 3 to 4 homes per community per month, and that's that's been our business plan forecast.
Going into 'twenty, 2 and beyond it's always been our our forecast and it really optimizes our operations creates efficiencies in sales construction deliveries.
Which you are seeing right now the inefficiencies are they rapid a pandemic induced market. So yeah, we think that's a sweet spot.
Got it and that's something that you are is there going to be any effect from community count or your community mix.
No.
Okay. So in other words, you're you're basically just saying that that's a level that you expect because that's sort of what your business plan runs out but it doesn't sound like you're going to take any specific action to try to get your absorptions back down there would that be a fair comment.
That's correct.
Okay, great. Thanks, a lot guys I appreciate it.
Our next question comes from the line of Truman Patterson with Wolfe Research. Please proceed with your question.
Hey, good morning, guys. Thanks for taking my question. So first Tom I wanted to ask you are in the release you mentioned you know leveraging technology to improve the processes reduce cost I'm, just hoping you can elaborate a little bit on some of the key initiatives across both the <unk>.
<unk> margin and SG&A lines.
Yeah, we are making significant strides in the infrastructure of our company through technology to really.
Facilitate our both gross margin expansion when possible and eliminate some of that overhead that are historically has been in our in our business, we're really moving to towards a more digital environment and we're seeing strong results from that.
Oh, Okay Gotcha and.
Whenever I'm thinking more more.
Intermediate term right into 2022, and you all are expecting to get you know, 24% more communities open a year over year, which you know implies 24% higher starts.
I'm really thinking about material shortages shortages you know from your suppliers. You know there are a handful of products that seem fairly constrained depending on which market you're in right, but you know it.
I guess.
Have you all had those discussions with your material suppliers will they be able to actually support that level of growth.
Are they expanding capacity et cetera.
Okay true minutes, Doug when we put together guidance like that we've already had.
Incorporated the current supply chain environment.
Yeah.
Perfect.
Alright so.
That's it.
That's what a strong management team should be doing.
[laughter] fair enough thanks, guys.
Our next question comes from the line of Alex Rigel with B Riley. Please proceed with your question.
Thank you Doug good morning, gentlemen, very nice quarter.
We're getting a lot of questions with rig we're getting a lot of questions from investors with regards to gross margin and how they should think about gross margins either increasing or decreasing in 2022.
No. It's early here and I know, you're not going to give us any specific guidance, but can you help us to understand some of the day dynamics that could affect gross margins as you think about it in 2022.
Sure. Thanks, Alex this is Glenn.
I think the setup for 22 was strong because you know we're going into it will be going into 'twenty, 2 with a healthy backlog, there's been a lot of pricing power.
And our margins in 'twenty, 1 as evidenced by our increase in our margin guide for the year and so it is a strong set up into 22 that said, we're opening 19, new communities. So there's a mix that happens there when you open new communities like that and so we obviously haven't given guidance for margins, but.
It's a strong set up for 'twenty, 2 but there is going to be a mix of communities that impact margin.
And then sort of on that same topic of gross margins earlier, you referenced the movement into the digital environment.
Can you help us just sort of bracket or think about whether or not the movement into the digital environment is sort of permanently lifted gross margins and are there other things inside your business that you are changing right now that could give us a sort of a permanent step up in gross margin.
Yeah. Alex This is Doug I mean, there's a couple of aspects of the digital environment that affects gross margin and operating margin.
Are the gross side, it's the digital platform that we have for options has a significant impact and we continue to be offering a choice to our consumers as a premium Americas premium brand builder.
As far as pre tax margin, there's significant efficiencies in the digital customer journey and buying homes are.
Linda M. A R. C C M O can talk for hours on it but that's been.
Reflective in our current SG&A numbers as well. So those are the those are the 2 ways that the digital environment impacts our business.
Thank you very much.
Yep.
Our next question comes from the line of Tyler Battery with Janney Capital markets. Please proceed with your question.
Hi, good morning, Thanks for taking my questions.
First question I have.
I'm interested if you could talk a little bit more about demand and traffic and how those trended through the quarter and perhaps in July as well I think there's a lot of folks out there that are more concerned about demand, perhaps being a little bit choppy, perhaps being a little bit volatile.
I'm concerned that maybe price or or seasonality or something else might be impacting demand and clearly the results that you put up in your commentary thus far.
It was really good and certainly quite positive, but just interested if you can give a little bit more detail in terms of what youre seeing on the ground with respect to demand and buyer traffic as well.
Demand remains very strong we don't feel any weakness in demand.
4.7 orders per community per month for the quarter is above the company.
The thought process and where we think a sweet spot from a market is as I mentioned earlier.
And we continue to see that demand.
What went well.
What's causing the order change year over year is everybody's comparing us comparing the industry to a pandemic, which we've never been through and frankly, we're all restraining sales releases. So when your restrained sales releases and rapidly sell homes through the end of 'twenty 'twenty to 'twenty, 1 and you see all these new community counts come.
And in 'twenty, 2 the math is pretty easy theres not a cyclical downturn here, it's just pure math and if the demand is there and we continue to see it through the end of the year as I mentioned earlier for many of our communities will continue to monitor sales releases through the rest of this year.
Okay excellent.
To follow up.
Can you talk a little bit more about the price environment right now I'm talking about perhaps how you're thinking about affordability and then the commentary on price for 'twenty 'twenty..2 you took that outlook up quite a bit. So interested if you could talk a little bit more about how much of that is market driven or maybe there is some mix shifts that are going on there.
As well.
Hey, Tyler, it's Glenn I'll take that 1 the raising the pricing.
<unk> for the full year, the selling price guidance for the full year is mainly just the pricing power we've been able to have this year and covering our cost increases with price increases so nothing really to do with mix. It's more just that price increase.
Okay.
And then 1 more quick 1 if I could.
Can you talk about cycle times, and how those are trending or how those did trend in the quarter versus.
2020, or even versus the first quarter.
Are you seeing timeline to get extended even though a little bit more and then are there specific markets or geographies, where that is having more of an issue than others.
Yeah. Tyler this is Tom I'll take that 1 we have seen cycle times increase this year about 10 to 20 per cent and it's fairly uniform across all of our markets all of our markets have been impacted by labor material shortages in general supply chain issues.
But again, we don't see that 10 to 20 per cent really limiting our ability to deliver our target volume for this year.
Okay, Great. That's all from me I appreciate it.
Our next question comes from the line of Jay Mccanless with Wedbush. Please proceed with your question.
Hey, good morning, Thanks for taking my questions. The first question I had with lumber prices finally, starting to tick back down.
When do you think we'll see the maximum gross margin hit from that and I guess.
What are you seeing or hearing in the field in terms of lumber price is staying at these levels.
Hey, Jay this is Doug we've seen dimensional lumber down 20% to 30% and it continues to fall, but Oh S. OSB and Suntrust pricing has also seen some relief but AWP.
Citing other materials have gone still stayed pretty healthy and then there's other trades that have offset some of those cost savings, but I think you'll see some margin improvement and some improvement from the lumber drop to the end of this year going into the first quarter next year.
As you you really actually now I think about it you're going to have it in the first quarter next year, because you're going to get it in starts in the third quarter that will be delivered in the first and second quarter.
Okay, great. Thank you Doug.
And then second question I had just any commentary around July orders or traffic, what youre seeing so far for from third quarter.
Very seasonal very strong demand throughout the marketplace is very normal.
Yeah, we're continuing to monitor our sales releases due to the supply chain.
Sounds great. Thanks, guys.
Thanks.
Our next question comes from the line of Mike Dahl with RBC capital markets. Please proceed with your question.
Hi, Thanks for taking my questions Doug I appreciate the color, so far and I'm sorry to beat.
Horse on the demand side, but if we look at your pace, obviously impressive in the quarter. It does look like June did come down already to around that 4 sales per month. So I guess, a 2 part question would really be what was that incremental.
M constraints or supply.
This supply that that work was implemented versus early in the quarter or was that seasonality or the price sensitivity that you kind of alluded to earlier in the call and the second part is you know then.
Piggybacking off a few others. So far if we were already at.
June and seasonally you tend to slow a little from there should we that 3 to 4 per month should.
Should we already be using that for the back half of this year.
We continue to restrain sales releases, which has affected that absorption pace like the rest of the industry.
And there is definitely some seasonality in that coming out of a post pandemic world.
And then Mike for for normal cadence I'm. We're at 5.2 in April May was at 4.8, and then June you're right on it at 4.1 and going forward, we expect that normalized 3 to 4 for the back half of the year.
Okay. Thanks, and the follow up is related just because it certainly seems like with.
Yeah with the with the margin margin progression and with the community ramp that youre going to have a it does look like you know a decent trends heading into heading into next year, but from a from an orders standpoint.
The year on year change.
Well, yes, the pandemic provided some unprecedented times it is still going to produce a fairly tough comparison.
For you guys at least through the first half of the year or so so if paces in that 3 to 4 and communities kind of ramp steadily through the year is it fair to think that units could could more or less plateau in in 'twenty 2 vs versus 'twenty, 1 just because of that pace of normalization and timing of community ramp.
I think based on the timing of communities and the communities where to open in the back half of this year than the front half of next year.
Even at that absorption levels, we're talking about in a new more normalized market, you're going to see higher orders next year based on the community count.
Okay got it thank you.
Our next question comes from the line of Alan Ratner with Zelman and Associates. Please proceed with your question.
Hey, guys. Good morning, a really strong quarter congrats.
You know maybe just continuing on <unk>.
Mike's question, just there because I think earlier in the call. Tom you made a comment in response to a question about your starts pace for next year that it should largely kind of track the community count growth of 20% and you're just doing that math that you just kind of gave to Mike I mean, while orders could be up it would seem like if absorptions are back in that 3 to 4 range that you know, they're not going to be up 2.
Per cent. So I'm just curious from thinking about that correctly like is the goal to build inventory or you know is there just you Wanna get inventory on the ground in case the demand remains at this 4 to 5 level to say you have that to supply to support it.
Yeah, that's a good question Alan.
I'm not sure that it would track sequentially to a 20% increase in and starts exactly but we are going to try to maximize our our starts relative to the demand profile that we see and I think we've got the operational capacity to do that.
Got it so I mean, just just to clarify that then so you're starting right now as many homes as you could start and if that level is above the 3 to 4 range per month that you kind of view as normal longer term you are okay with that.
No I mean, I think what Tom is saying and what we're all saying is that we're going to continue to optimize our business based on the level of demand we see right. So where we are trying to start as many homes as we can right now we don't have many spec homes right now as you can see from our financials.
Right and so we're just trying to maximize that that cadence based on the demand environment. We're in.
Got it okay. Thanks Glenn.
Maybe on that spec point, because that was where I was going to go next you know we've seen a number of builders that are predominantly built to order builders kind of temporarily shift the sales strategy to more of a spec model because they get more visibility on costs and obviously you benefit from from extra price depreciation given how strong the the inflation has been in the market.
Can you talk a little bit about the mix of your business right now spec versus build to order or what the margin differential looks like on on those different homes and then when you talk about restricting sales are you holding back sales until the home is started and at a certain point of construction or are you just holding back sales to manage a certain start pace.
But it's not really affecting the mix of your business.
Margins are the same Allen and when we restrict sales we were basically.
It's like California, you're doing phase building throughout the country and so you're once you have your cost now in your release those homes and you sell them out and we still can see continue to see strong demand in that process right now.
Because the supply chain is still pretty wonky and Alan let me add that we'd like to get back to our normal 2 to 4 specs per community. You know that's how we like to run our business. Because we are we do sell a lot of options and upgrades. So we like to sell their homes in the front end of that process. So we give the consumers a chance to have that choice, but we do think it also is why is that.
Have you know some spec inventory for those quick moving homes and so that's what we're trying to get back to you.
Understood. Thanks, guys.
Our next question comes from the line of Carl Reichardt with B T. I G. Please proceed with your question. Thanks, Good morning, everybody.
When you look at the 22 and 23, new community openings on a gross basis and store count growth can you talk about 2 things, 1 whether or not the mix geographically or from a price point perspective is likely to change much from where you are now and into.
Do you have a sense of of what percentage of those communities will be on land that you purchased pre pandemic.
Yeah, Karl as Doug, it's mostly our expansion in the central and east regions of the country and most of that almost all of that you know actually all that land was was tied up at a price pre pandemic.
Okay. Thanks, and in terms of price points, Doug is there any any shift of.
Towards towards high end high end low end or or moved up any any significant. It's it's it's primarily entry level plus and first move up based on those markets like Doug said are our new kind of growth markets like Charlie Charlotte Raleigh.
Dallas, Austin and places like that.
And then on Alan's question.
Given the ramp in communities that Youre anticipating how are you feeling about staffing both at the sales level and at the division management level, putting additional stores on top of what you did.
The folks you've got how is hiring internally we.
Tightened the subcontractor trade side, but just for a builder managing a large business. How are you looking at the ability to add people in this environment.
Well as we noted we were due to our team's tremendous work certified as a great place to work and we have a very strong culture. So that.
It gives us the ability to attract people to tri Pointe and even even in this tough environment in the supply chain and in talent recruitment. That's 1 of the great advantages. We have is our culture and in a great place to work.
Okay. Thanks, Doug Thanks, guys.
Our next question comes from the line of Deepa Raghavan with Wells Fargo. Please proceed with your question.
Hi, Good morning, everyone first question.
Closings for the fully our siem.
It seems like it's tracking at the low end of the range.
That includes Q3 outlook.
That also implies a midpoint and implies a pretty strong Q4 rent I'm. Just curious is there enough visibility to keep the upper end of the range or.
Should we think about the full year more tracking towards the low end of the range.
I mean your community count is unchanged, but you have all these supply chain constraints that are pushing out delivery. So just curious how to think about yards.
<unk> thousand to 6300, you're going to close them delivery guide.
Hey, Deepa, it's Glenn.
Yeah, I think the fourth quarter is obviously a ramp in deliveries. If you look at the full year of guidance compared to the third quarter and some of that is the supply chain pushing deliveries from the third quarter to the fourth quarter, but the range of deliveries will depend on the side the supply chain and how we're able to navigate that and theres going to be a lot of.
<unk>.
Our competitors in the same boat as far as building a lot of houses in the back half of the year. So our success of getting to the higher or the lower and the range will depend on the supply chain.
Okay.
Okay got it right now.
Q4, it's still TBD, but you know it just depends on the supply chain okay.
My second follow up is.
Hum.
General tone I think on the last call previous calls, Doug and Glen I thought there was a decent those costs.
Cautious tone from a macro perspective, it looks like you're feeling a lot better.
And Kim.
I'm just curious what changed last few months.
No change yet tone for the battery not that I'm complaining.
So they can't.
It seems to feel a lot better than you did last quarter.
Well.
I'm not here to judge a tone, but I can tell you I've been very bullish.
To be very bullish on the housing industry. When you look at the demographics of the millennial buyers that represent just over 50% of our buyers that are buying houses at an average price of over 600000, and we're just tapping into that demographic.
I think the rhetoric around comparing the rapid absorption in a pandemic world to a more normalized absorption.
Is greatly overblown there we we don't have a demand issue we have Oh, we've got challenges in the supply chain and we're very very bullish about the long term nature of housing over the next 5 to 10 years, it's gonna be a good housing market there always be some bumps in the road, but long term. We're we've got a company here that's positioned for.
<unk> tremendous growth when we laid out our community count growth of double digit over the next 2 years. So.
And that's credit to the team here and we've got a great team.
Oh great.
From a long if I can squeeze in your you talked to some of the operational channel you mentioned some operational challenges is that more of just the same challenges persisting or did you witness any new or challenge in the quarter no. It's the same challenges.
Got it thanks I'll pass it on.
Our next question comes from the line of Alex Barron with housing Research Center. Please proceed with your question.
Okay.
Thank you gentlemen, and good job on the quarter.
I guess my first question was on the production side.
Curious if you guys could share you know how many homes you guys started and you know.
Is there an intent to kind of get ahead of the curve by starting more homes and letting those homes H before you sell them.
My first question.
Well, we're always starting as many homes as we can to meet demand and right now as I mentioned, we're continue to restrain.
That that order pace with.
Sales releases that are being structured because of the supply chain.
And then with the increased community count growth will we're going to see continued ramp of our starts.
Alex This is Tom and M.
As Glenn mentioned, where we're operating our business in a normalized environment as possible.
Yes, we would love to increase our spec counts to our normal of 2 to 4 per community per month, but we're not doing anything drastically different than our normal operating procedures.
And we're definitely trying to match our production capacity to the demand levels that we're experiencing.
Got it and then on the on the actual sale and pricing of the homes.
I've seen various approaches I guess in the last.
Quarter. So I'm curious if you guys have switched you know or what you're using I use and lotteries are weightless first count per server highest and best offer like how are you guys managing the pricing side and who gets to buy the homes.
Yes, Alex we use a priority system.
Alex I'll I'll add to that this is Linda and we think that the customer experience is extremely important for the long term health of our business. So as Doug said, we invite our customers to Prequalify with our affiliated mortgage company and we based on what are the sales on the timing of when.
Prequalified.
Got it okay. Thanks, so much.
Thanks Al.
There are no further questions in the queue I'd like to hand, the call back over to Doug Bauer for closing remarks.
Well, thank you and thank you to the team at Tri Pointe great quarter looking to have a great year, and we look forward to talking to everyone next quarter I appreciate it. Thank you.
Yes.
This does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.
Yeah.