Q4 2021 Tri Pointe Homes Inc (Delaware) Earnings Call
Speaker 1: Welcome to TriPoint Home's fourth 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.
Greetings and welcome to Tri Pointe homes fourth 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.
Speaker 1: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to David Lee, General Counsel. Thank you. The month of November 20th, 2018 he received an invitation from Portland let's see. And then finally had a meeting with Joe Vail's former president
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to David Lee General Counsel. Thank you you may begin.
Speaker 2: Good morning and welcome to TriPoint Home's earnings conference call. Earlier this morning, the company released its financial results for the fourth quarter of 2021. Documents detailing these results, including a slide deck, are available at www.tripointhomes.com through the investors link and under the events and presentations tab.
Good morning, and welcome to Tri Pointe homes earnings Conference call earlier. This morning, the company released its financial results for the fourth quarter of 2021 documents.
Documents detailing these results, including a slide deck are available at www Dot Tri Pointe homes Dot com through the investors link and under the events and presentations tab.
Speaker 2: 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.
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.
Speaker 2: The discussion of risks and uncertainties and other factors that could cause actual results to differ materially are detailed in the company's SEC filing.
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.
Speaker 2: Except as required by law, the company undertakes no duty to update these four looking statements.
Sept as required by law the company undertakes no duty to update these forward looking statements.
Speaker 2: Additionally, reconciliations of non-GAAP financial measures discussed on this call to the most comparable GAAP measures can be accessed through TriPoint's website and NFSCC DNS insurgency filing.
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.
Speaker 2: Posting 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 Linda Mamei, the company's chief marketing officer. With that, I will now turn the call over to Doug.
Hosting 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 Linda May the company's Chief marketing officer with that I will now turn the call over to Doug.
Speaker 3: Thanks, David. Good morning and thank you for joining us today as we go over our results for the fourth quarter and full year 2021, providing an update on current business conditions and give insight into the future at TriPoint Home.
Thanks, David Good morning, and thank you for joining us today as we go over our results for the fourth quarter and full year, 2020 , one providing an update on current business conditions and give insight into the future of Tri Pointe homes.
Speaker 3: 2021 was a record year for our company capped off with earnings of $1.33 per share in the fourth quarter and $4.12 for the full year.
2021 was a record year for our company capped off with earnings of $1 33 per share in the fourth quarter and $4.12 for the full year.
Speaker 3: Home sales revenue rose 15% year over year for the quarter on a similar increase in new home deliveries.
Home sales revenue rose, 15% year over year for the quarter on a similar increase in new home deliveries.
Speaker 3: And our home sales gross margin for the quarter was 24.4%. Which was an increase of 120 basis points a year over year.
And our home sales gross margin for the quarter was 24, 4%.
Which was an increase of 120 basis points year over year.
Speaker 3: SGNA expenses as a percentage of home building revenue for the quarter improved 140 basis points to 8.5%. A record low for the company.
SG&A expenses as a percentage of homebuilding revenue for the quarter improved 140 basis points to eight 5%.
A record low for the company.
Speaker 3: For the full year we delivered 6,188 homes.
For the full year, we delivered 6188 homes, which exceeded the high end of the original guidance. We gave at this time last year.
Speaker 3: which exceeded the high end of the original guidance we gave at this time last year.
Speaker 3: We're able to achieve all of this despite persistent, industry-wide supply chain challenges.
We were able to achieve all of this despite persistent industry wide supply chain challenges.
Speaker 3: We credit and thank our experience and skillful teams who look for creative solutions and took proactive approaches to new home starch.
We credit and thank our experienced and skillful teams, who look for creative solutions and took proactive approaches to new home starts material sourcing and construction to get homes completed for our customers.
Speaker 3: Material sourcing and construction to get homes completed for our customers.
Speaker 3: Our sales base for the fourth quarter came in at 4.3 homes per community per month, which is well above seasonal norms for...
Our sales pace for the fourth quarter came in at 4.3 homes per community per month.
Which is well above seasonal norms for that time of the year.
Speaker 3: Demand for new homes continue to outstrip supply in our markets during the quarter, a dynamic that has carried into 2022.
Demand for new homes continue to outstrip supply in our markets during the quarter, a dynamic that has carried into 2020 two.
Speaker 3: Buyers continue to exhibit a strong sense of urgency to own a home, driven by strong demographics, a migration to lower cost markets, and an overall change in attitude towards home ownership brought about by the pandemic.
Buyers continue to exhibit a strong sense of urgency to own a home driven by strong demographics and migration to lower cost markets and an overall change in attitude towards home ownership.
Brought about by the pandemic.
Speaker 3: Leading the way in this demand surge is the millennial cohort.
Leading the way in this demand surge is the millennial cohort.
Speaker 3: This demographic represents 57% of our home buyers in backlog.
This demographic represents 57% of our homebuyers in backlog.
Speaker 3: and is a sizable population that should fuel the new home market for years to come.
And as a sizeable population that should fuel the new home market for years to come.
Speaker 3: Another important demographic segment for our industry are the baby boomers, who have accumulated wealth and are now looking for new home alternatives.
Another important demographic segment for our industry are the baby boomers, who have accumulated wells and are now looking for new home alternatives.
Speaker 3: We have strategically positioned our company to address these demographics and believe we are primed for ongoing positive results.
We have strategically positioned our company to address these demographics and believe we are prime for ongoing positive results.
Speaker 3: We made significant strides in our return metrics during the fourth quarter, culminating in a return on average equity of 20.3% for the full year 2021.
We made significant strides in our return metrics during the fourth quarter, culminating in a return on average equity of 23% for the full year 2021 .
Speaker 3: We achieved this goal through several strategic initiatives.
We achieved this goal through several strategic initiatives.
Speaker 3: including our one brand launch at the beginning of the year of last year.
Including our one brand launch at the beginning of the year last year.
Speaker 3: the ongoing monetization of our long dated California asset.
The ongoing monetization of our long dated California assets.
Speaker 3: increased profitability across her home building platform.
Increased profitability across our homebuilding platform.
Speaker 3: Improved scale and early stage divisions, more efficient land management and consistent share repurchase.
Improved scale in our early stage divisions.
More efficient land management and consistent share repurchases.
Speaker 3: Our one brand launch in January of 2021 has had the impact we anticipated. Giving our company a unified brand message across our home building platform.
Our one brand launch in January of 2021 has had the impact we anticipated given our company a unified brand message across our homebuilding platform.
Speaker 3: streamlining our marketing efforts, and lowering our overhead costs as a percentage of total revenue, which was reflected in our SG&A percentage of 9.6% for the full year 2021.
Streamlining our marketing efforts and lowering our overhead costs as a percentage of total revenue.
Which was reflected in our SG&A percentage of nine 6% for the full year 2021 .
Speaker 3: With respect to our California long dated assets, we have a number of positive developments to report.
With respect to our California long dated assets, we have a number of positive developments to report.
Speaker 3: We continue to generate strong orders and profits from our existing communities, particularly in Los Angeles, San Diego County, and the Inland Empire thanks to our favorable land bases and outstanding market position.
We continue to generate strong orders and profits from our existing communities, particularly in Los Angeles, San Diego County, and the inland Empire, Thanks to our favorable land basis and outstanding market position.
Speaker 3: We open our 292 unit targeted plan community Altus at Skyline in Santa Clarita in the fourth quarter.
We opened our 292 unit targeted planned community Altice has skyline in Santa Clarita in the fourth quarter.
Speaker 3: As well as our 844 unit plan community Citroe in Fulbro.
As well as our 844 unit planned community Citro and Fallbrook.
Speaker 3: Both feature new home options at attainable prices for their respective buyer segments, and the initial response has been tremendous.
Both feature new home options at attainable prices for their respective buyer segments and the initial response has been tremendous.
Speaker 3: In the Inland Empire, our planned community of Atwell, with its detached entry level and first move-up product generated over 21 orders per month in the fourth quarter.
In the inland Empire, a planned community of out well.
With its detached entry level and first move up product generated over 21 orders per.
Her month in the fourth quarter.
Speaker 3: These California communities demonstrate our key focus on developing a mix of entry level and first move a product in core sub-market.
These California communities demonstrate our key focus on developing a mix of entry level and first move up product in core Submarkets.
Speaker 3: Despite rising home prices, our median sales price of the single family homes in the fourth quarter in California was $599,000. Compared to the state's median single family existing home price of approximately $797,000.
Despite rising home prices, our median sales price of single family homes in the fourth quarter in California was $599000 compared to the states median single family existing home price of approximately $797000.
Speaker 3: In addition to our California divisions, we saw excellent growth and financial results from our home building operations around the country.
In addition to our California divisions, we saw excellent growth and financial results from our homebuilding operations around the country.
Speaker 3: with 60% of our fourth quarter deliveries generated outside of California.
With 60% of our fourth quarter deliveries generated outside of California.
Speaker 3: This strategic focus to diversify our company from a geographic perspective started several years ago and is providing greater opportunities for us to offer more entry-level and first move up price points while producing more efficient and more efficient products.
This strategic focus to diversify our company from a geographic perspective started several years ago, and it's providing greater opportunities for us to offer more entry level.
And first move up price points.
Well producing more efficient returns.
Speaker 3: We are especially pleased with the progress we have made in our newer divisions in Sacramento, Austin, Dallas, and the Carolinas.
We were especially pleased with the progress we have made in our newer divisions in Sacramento, Austin, Dallas, and the Carolinas, which were making significant contributions to the bottom line with a substantial runway for growth.
Speaker 3: which are making significant contributions to the bottom line with a substantial runway for growth.
Speaker 3: We make considerable investments in our operations in 2021 by enhancing our technology platforms.
We made considerable investments in our operations in 2020 , one by enhancing our technology platforms.
Speaker 3: introducing more efficient and cost-effective floor plans, and refined our design studio process.
Introducing more efficient and cost effective floor plans and refined our design studio process.
Speaker 3: These initiatives will directly result in improved efficiency and return.
These initiatives will directly result in improved efficiency and returns.
Speaker 3: Another focus has been our lot of options agreements in land banking arrangements.
Another focus is been a lot option agreements and land banking arrangements.
Speaker 3: Total lock counts stood at over 41,000 lots that year in.
Total lot count stood at over 41000 lots at year end.
Speaker 3: with 47% controlled at year end versus 37% a year prior.
With 47% controlled at year end versus 37% a year prior.
Speaker 3: We believe this land approach lowers the risk that are inherent in the land and land development business while improving our returns over time.
We believe this land approach lowers the risk that are inherent in the land and land development business, while improving our returns over time.
Speaker 3: The final component of our return improvement strategy has been our share repurchase program.
The final component of our return improvement strategy has been our share repurchase program and.
Speaker 3: And we were once again active buyers of our stock in the fourth quarter. Purchasing more than 2.7 million shares at an average price of $22.64.
And we were once again active buyers of our stock in the fourth quarter purchasing more than two 7 million shares at an average price of $22.64.
Speaker 3: This brought our full year total to over 13 million shares repurchased at an average price of $21.13. For an aggregate dollar amount of $276 million.
This brought our full year total to over 13 million shares repurchase at an average price of $21.13 for an aggregate dollar amount of 276 million.
Speaker 3: Yesterday, our board authorized an additional 250 million under our existing stock repurchase program. As we remain committed to this program, and view it as a productive use of our capital, as well as a signal of confidence in tri-points future.
Yesterday, our board authorized an additional $250 million under our existing stock repurchase program.
We remain committed to this program and view it as a productive use of our capital as well as a signal of confidence and Tri Pointe future.
Speaker 3: 2021 was a record breaking year for our company and we believe we are poised to improve on those results in 2022 for a number of reasons.
2021 was a record breaking year for our company and we believe we are poised to improve on those results in 2022 for a number of reasons.
Speaker 3: First we started 2022 with a healthy backlog of over 3100 homes.
First we started 2022 with a healthy backlog of over 3100 homes.
Speaker 3: Our buyers and backlog have been pre-qualified to our mortgage affiliate.
Our buyers in backlog, who had been prequalified to our mortgage affiliate.
Speaker 3: have an average debt to income ratio of 39%. And an average FICO score of seven...
Have an average debt to income ratio of 39%.
And an average FICO score of 748.
Speaker 3: With this deep backlog and the quality of our buyers, we are well positioned to deliver on our guidance, even with the uncertainty of rising interest rates.
With this the backlog and the quality of our buyers we are well positioned to deliver on our guidance, even with the uncertainty of rising interest rates.
Speaker 3: Second, demand has once again accelerated in 2022. Building on already strong results we experienced in the fourth quarter.
Second demand has once again accelerated in 2022 .
Building on already strong results, we experienced in the fourth quarter.
Speaker 3: With the extremely low supply of housing about the resale and new home markets, coupled with our strong buyer profile, we feel demand will remain healthy.
With the extremely low supply of housing and both the resale and new home markets, coupled with our strong buyer profile.
We feel demand will remain healthy.
Speaker 3: We are currently managing sales at over 50% of our communities in an effort to account for rising costs and to maximize profits while matching sales cadence to our production capacity.
We are currently managing sales that over 50% of our communities in an effort to account for rising costs and to maximize profits, while matching sales cadence to our production capacity.
Speaker 3: Third, we are extremely pleased with our land pipeline and expect to open between 180 and 200 new communities over the next 24 months.
Third we are extremely pleased with our land pipeline and expect to open between 180 and 200 new communities over the next 24 months.
Speaker 3: The majority of those communities are located in our growth areas outside of California and in the more affordable entry level and first move-up segments.
The majority of those communities are located in our growth areas outside of California and into more affordable entry level and first move up segments.
Speaker 3: Finally, with an all-time low net debt to net capital ratio of 21.1%.
Finally, with an all time low net debt to net capital ratio of 21, 1%.
Speaker 3: Our balance sheet strength and our ability to generate positive cash flow from operations.
Our balance sheet strength, and our ability to generate positive cash flow from operations.
Speaker 3: gives us the necessary liquidity to continue to grow our business and we purchase stock for strong return to our shareholders.
US the necessary liquidity to continue to grow our business and repurchase stock for strong returns to our shareholders.
Speaker 3: With that, I'd like to turn it over to Glenn, who will provide more detail on our results as quarter and give an update on our forward-looking guidance. Glenn?
With that I'd like to turn it over to Glenn who will provide more detail on our results this quarter and give an update on our forward looking guidance Glenn.
Speaker 4: Thanks Doug and good morning. I'm going to highlight some of our results and key financial metrics for our fourth quarter and then finish my remarks with our expectations and outlook for the first quarter in full year 2022.
Thanks, Doug and good morning, I'm going to highlight some of our results and key financial metrics for our fourth quarter, and then finish my remarks, with our expectations and outlook for the first quarter and full year of 2022.
Speaker 4: At times I will be referring to certain information from our slide deck which is posted on our website.
At times I'll be referring to certain information from our slide deck, which is posted on our website.
Speaker 4: Flight six of the earnings called DEQ provides some of the financial and operational highlights from our fourth quarter. As Doug mentioned earlier, demand continue to be strong in the fourth quarter with an absorption rate of 4.3 homes per community per month, which is an elevated sales pace for a fourth quarter from a historical perspective.
Slide six 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 strong in the fourth quarter with an absorption rate of four three homes per community per month, which is an elevated sales pace for a fourth quarter from a historical perspective.
Speaker 4: Order activity was healthy across all geographies with the West region reporting an absorption rate of 4.3 homes per community per month. The Central Region experienced an absorption rate of 3.9 and the East had an absorption rate of 4.9.
Order activity was healthy across all geographies with the West region reporting an absorption rate of four three homes per community per month, the central region experienced an absorption rate of 3.9.
East had an absorption rate of four nine.
Speaker 4: Demand has further accelerated into the first quarter of 2022 with an absorption rate over five for the first six weeks of the year.
Demand has further accelerated into the first quarter of 2022 with an absorption rate over five for the first six weeks of the year.
Speaker 4: We reported outstanding results on all key metrics this quarter that either met or exceeded our stated guidance. We delivered 1,885 homes, which was a 15% increase year over year. Home sales revenue was $1.2 billion, also an increase of 15%, and our average sales price was $637,000.
We reported outstanding results on all key metrics this quarter that either met or exceeded our stated guidance. We delivered 1885 homes, which was a 15% increase year over year home sales revenue was $1 2 billion also an increase of 15% and our average sales price was 637000.
Speaker 4: Our home building gross margin percentage for the quarter was 24.4%, a 120 basis point improvement year over year. If you were to exclude impairments, our home building gross margin would have been 26.1% for the quarter.
Homebuilding gross margin percentage for the quarter was 24, 4% 120 basis point improvement year over year. If you were to exclude impairments our homebuilding gross margin would've been 26, 1% for the quarter.
Speaker 4: The strength of our margins were a result of our ability to raise prices during the year to more than cover the cost increases we experience.
Strength of our margins were a result of our ability to raise prices during the year to more than cover the cost increases we experienced.
Speaker 4: Finally, SGNA expense as a percentage of home sales revenue came in at 8.5% a record for any quarter for the company representing 840 basis point improvement as compared to the fourth quarter of 2020.
Finally, SG&A expense as a percentage of home sales revenue came in at eight 5% a record for any quarter for the company, representing 840 basis point improvement as compared to the fourth quarter of 2020.
Speaker 4: The improvement was the result of several factors, including increased leverage on our fixed cost due to the growth and revenue. Efficiency is related to our shift to one brand and taking advantage of the strong market conditions to streamline our advertising spend.
The improvement was the result of several factors, including including the increased leverage on our fixed costs due to the growth in revenue efficiencies related to our shift to one brand and taken advantage of the strong market conditions to streamline our advertising spend.
Speaker 4: Turning to communities, in line with our guidance, we open 21 new communities during the quarter, bring in our total to 72 new community openings for the full year.
Turning to communities in line with our guidance, we opened 21, new communities during the quarter, bringing our total to 72, new community openings for the full year.
Speaker 4: For 2022, we plan to open 15 new communities in the first quarter and 35 new communities in the second quarter. We expect to open another 40 to 50 new communities in the second half of the year to bring the total for the year to between 90 and 100 new communities. As a result, we anticipate ending 2022 with between 150 to 160 active selling communities.
For 2022, we plan to open 15, new communities in the first quarter and 35, new communities in the second quarter, we expect to open another 40 to 50, new communities in the second half of the year to bring the total for the year to between 90 and 100 new communities. As a result, we anticipate ending 2022 with between 150 to one.
60 active selling communities.
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 debt to capital ratio of 35, 3% and a net debt to net capital ratio of 21, 1%.
We ended the quarter with $1 3 billion of liquidity, consisting of 682 million of cash on hand, and 601 million available under our unsecured revolving credit facility.
We generated positive cash flow from operations of $420 million for the full year of 2021, while spending approximately $875 million on land and land development for the full year.
For 2022, we expect to generate positive cash flow from operations and spend between one one and 1.3 billion on land and land development.
Speaker 4: Now I'd like to summarize our outlook for the first quarter and four year. For the first quarter, we anticipate delivering between 900 and 1100 homes at an average sales price between 650,000 and 660,000.
Now I'd like to summarize our outlook for the first quarter and full year for the first quarter, we anticipate delivering between 911 hundred homes at an average sales price between 650000 and 660000, we expect homebuilding gross margin percentage to be in the range of 25% to 26% for the first quarter of 2022.
Speaker 4: We expect home building gross margin percentage to be in the range of 25% to 26% for the first quarter of 2022 and anticipate SGNA expense as a percentage of home sales revenue to be in the range of 13% to 13.5%.
We anticipate SG&A expense as a percentage of home sales revenue to be in the range of 13% to 13, 5% Lastly, we estimate our effective tax rate for the first quarter of 2022 to be in the range of 25% to 26%.
Speaker 4: Lastly, we estimate our effective tax rate for the first quarter of 2022 to be in the range of 25% to 26%.
Speaker 4: For the four year, we anticipate delivering between 6,568 homes at an average sales price of 660,000 to 670,000.
For the full year, we anticipate delivering between 6500 6800 homes at an average sales price of 660000 to 670000, we expect our homebuilding gross margin range to be 25% to 26% for the full year. Our SG&A expense ratio is expected to be in the range of nine 7% to 10 points.
Speaker 4: We expect our home building gross margin range to be 25% to 26% for the full year. Our SG&X banks ratio is expected to be in the range of 9.7% to 10.2%.
Speaker 4: Finally, the company is forecasting that's effective to tax rate for the full year to be in the range of 25 to 26%. Now I'll now turn the call back over to Doug for some closing remarks.
2%.
Finally, the company is forecasting that's effective tax rate for the full year to be in the range of 25% to 26%.
I'll now turn the call back over to Doug for some closing remarks, well. Thank you.
Speaker 3: Well, thanks, Glenn. We have a lot to be proud of with our results in the fourth quarter in four year 2021.
Glenn we have a lot to be proud of with our results in the fourth quarter and full year 2021 .
Speaker 3: We met or exceeded our previously stated guidance on key operational metrics.
We met or exceeded our previously stated guidance on key operational metrics.
Speaker 3: with a return on average equity of more than 20% for the year. Despite ongoing industry-wide supply chain challenge.
With a return on average equity of more than 20% for the year, despite ongoing industry wide supply chain challenges.
Speaker 3: We also position our company for further growth in 2022 and beyond. Thanks to a sizable year in backlog and a substantial increase to our total lock count outside of California.
We also position our company for further growth in 2020 , two and beyond thanks to a sizeable year end backlog and a substantial increase to our total lot count outside of California.
Speaker 3: We achieved this while also repurchasing more than 13 million shares of our stock during the year.
We achieved this while also repurchasing more than 13 million shares of our stock during the year.
Speaker 3: Generate positive cash flow from operations and maintaining a healthy balance sheet.
Generating positive cash flow from operations and maintaining a healthy balance sheet.
Speaker 3: Given these positives, the extremely low supply of housing and strong demographics, we believe Tripoint Holmes is poised for a very bright future.
Given these positives the extremely low supply of housing and strong demographics, we believe tri Pointe homes is poised for a very bright future.
Speaker 3: Finally, I'd like to thank all of the triple and home team members who have contributed to this record setting year.
Finally, I'd like to thank all of the Tri Pointe homes team members, who have contributed to this record setting year.
Speaker 3: Are people continuously impressed me with their talent, dedication and creativity that help make this company what it is?
Our people continuously impressed me with their talent dedication and creativity that help make this company what it is.
Speaker 3: We achieved several milestones in 2021, including record-breaking revenues, operating margin, and
We achieved several milestones in 2020 , one including record breaking revenues.
Operating margin and earnings per share.
Speaker 3: And our successful year was not just revenue driven. We are constantly looking for ways to build on our passion and culture, which is validated by our great place to work certification.
And our successful year was not just revenue driven we are constantly looking for ways to build on our passionate culture.
Which is validated by a great place to work certification.
Speaker 3: I am gratified to work with our exceptional teams and I deeply appreciate their efforts.
I'm gratified to work with our exceptional teams and I deeply appreciate their efforts.
Speaker 3: That concludes our prepared remarks and now we'd like to open the call for questions. Thank you.
That concludes our prepared remarks, and now we'd like to open the call up for questions. Thank you.
Speaker 1: Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. And for a participant choosing speaker equipment and maybe necessary to pick up your hands that before pressing the star keys. Our first question is from Steven Kim with Evercore ISI. Please proceed.
Thank you if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star he is.
Our first question is from Stephen Kim with Evercore ISI. Please proceed.
Speaker 3: Thanks very much guys. Yeah, strong results. And, you know, I'm really curious if you could provide a little bit of more color around
Thanks, very much guys, yeah strong results and you know I'm really curious if you could provide a little bit more color around your comment about the first six weeks in absorptions being over five you know obviously, that's a that's a that's a strong result, but.
Speaker 3: You're comment about the first six weeks and absorption's being over five. Obviously that's a strong result. But I was wondering if you could give us some sense of how your pricing power has been moving as well. And probably more importantly is the starts and your cycle times, how that's been progressing in the first six weeks from what you can tell.
I was wondering if you could give us some sense of how are your pricing power has been moving as well and at the end probably more importantly, how is the starts and your cycle times, how that's been progressing in the first six weeks from what you can tell.
Good morning, Steven This is Tom.
Speaker 5: There's a big question there. There's a lot there. But all fairly good news. Relative to absorbent in orders this year, we're off to a really strong start. And we anticipate results that are going to be equal to or greater than next year. Our January was phenomenal. And that's continued right into February . So we're expecting a strong spring selling season.
A big question there, there's a lot there but are all fairly good news relative to absorptions and orders are this year, we're off to a really strong start and we anticipate results that are going to be equal to or greater than next year. Our January was phenomenal and that's continued right into.
February so we're expecting a strong spring selling season on.
Speaker 5: Unpricing, we continue because of high demand to have pricing power. And so we continue to be able to price our product to offset the rising cost pressures that we continually feel.
On pricing, we continue because of high demand to have pricing power and so we continue to be able to.
Price our product to offset the rising cost pressures that we continually feel and we feel in good shape, but that's going to continue through the spring selling season as well as Stephen This is Doug I'll add that our our goal as a company is to have everything started by.
Speaker 5: And we feel in good shape that that's going to continue through the spring selling season as well. Steven, this is Doug. I'll add that our goal as a company is to have everything started by the end of May.
The end of May.
Speaker 6: because it's a very uncertain environment, the best way to, because of supply chain, as you know, it's well documented, so this is not new news. So, you know, we're pushing all our teams to get everything in the ground by May so we can have a successful year. So, we're pushing all our teams to get everything in the ground by May so we can have a successful year.
Because it's a it's a very uncertain environment are you know the best way to say it because of the supply chain as you know it's well documented show. This is not new news. So you know where where we're pushing all of our teams to get everything in the ground by May. So we can have a successful year.
Gotcha so.
Speaker 3: I take it from that comment that certainly we're not seeing any improvement in the cycle times here You know as we enter this year So I guess are you seeing any worsening of cycle times and could you give us a specific number on what you did in terms of Starts in the fourth quarter
I take it from that comment that certainly we're not seeing any improvement in the cycle times here are you know as we enter this year. So I guess are you seeing any worsening of cycle times and could you give us a specific number on what you did in terms of starts in the fourth quarter.
Speaker 7: Go ahead, Linda. Sure. Steven, this is Linda. In terms of stats, in the fourth quarter, we started 1,377 homes. Of those, 49% of them were spec stats. And in time, you want to address the same.
Go ahead Linda.
Stephen This is Linda in terms of the stats in the fiscal fourth quarter, we started 1377 hundreds.
It's 49% of them were snake stats and then Tom do you want to address the cycle time, yeah relative to the cycle time are we are not seeing any further declines due to our cycle times, we're managing that quite well and as Doug said you know the teams are being very creative in finding solutions to.
Speaker 5: Yeah, relative to cycle time, we are not seeing any further declines to our cycle times. We're managing that quite well. And as Doug said, you know, the teams are being very creative in finding solutions to offset supply chain issues. So we're holding pretty good relative to that. But it is a significant increase year over year. It's probably about on average a 30 day delay from where we were a year ago.
<unk> supply chain issues so.
We're holding pretty good relative to that but it is a significant <unk>.
The increase year over year, it's about probably about on average a 30 day delay from where we were a year ago.
Speaker 3: That all makes sense and is consistent with what we're hearing elsewhere too. Last thing for me is yesterday's name was great. You talked about, among a few things, shift to one brand. Can you give us a sense for how much impact or benefit you got from that specific move?
Yeah, that's not that that all makes sense and is consistent with what we're hearing elsewhere too last thing for me was yesterday name is great you talked about among a few things shift to one brand could you give us a sense for you know how much impact or benefit you got from that specific move.
Speaker 4: I don't think we have said anything specifically from a dollar amount perspective, I think it.
I don't think we have said anything specifically from a dollar amount perspective I think it's.
Speaker 4: because it's hard to parse between the really strong market conditions we were in versus the specific to one brand, but there definitely are a lot of efficiencies when it comes to marketing for one brand versus six, as we were doing before. So, and that's baked into the good numbers you saw. Sure. Okay. Great.
Because it's hard to parse between the really strong market conditions, we were in versus the specifics to one brand, but there definitely are a lot of efficiencies when it comes to marketing for one brand versus six unless we were doing before so and that's baked into those good numbers you saw.
Sure Okay, great well, thanks, very much guys great results.
Thank you.
Speaker 1: Our next question is from Tyler Batori with Janine. Please proceed.
Our next question is from Tyler Batori with Janney. Please proceed.
Speaker 8: Thank you, good morning. What if we start on the gross margin side of things, 25 to 26 per Q1 and same for the full year? Can you talk a little bit more about higher thinking about the potential cadence and progression of gross margin as we go through the year? And also interested, you know, your expectation for cost increases that are embedded in that guidance as well.
Thank you good morning.
Wanted to start on the on the gross margin side of things 25 to 26 for Q1 and the same for the full year could you talk a little bit more about how you're thinking about the potential cadence and progression of gross margin as we go through the year and also interested your expectation for cost increases that are embedded in that guidance is.
Well.
Speaker 4: Sure, Tyler's a Glen, I'll take that one. I think the margins are gonna be relatively consistent as you go through the quarters at that 25 to 26%. And we did, we do our plan based on current costs and current revenues, and so that's how we put our plan together, but we are assuming costs are gonna rise, and we are planning on, based on the market conditions that Tom said, offsetting those with price increases.
Sure Tyler this is Glenn I'll take that one I think the margins are going to be relatively consistent as you go through the quarters at that 25% to 26% and we did.
You know, we do our plan based on current costs and current revenues and so that's how we put our plan together, but you know we are assuming you know costs are going to rise and we are planning on you know based on the market conditions that Tom said offsetting those with price increases.
Speaker 8: Okay, great. And the prepare marks you talked about managing sales in 50% of your communities just remind us how that compares with prior quarters.
Okay, Great and then in the prepared remarks, you talked about managing sales and 50% of your communities are just remind us.
How that compares with prior quarters.
Speaker 6: This is a drug. It decreased at the end of the third quarter and then it picked back up in the fourth quarter as supply change. Supply change challenges continue.
Yeah, It's Doug it decreased at the end of the third quarter and then it picked back up in the fourth quarter as supply changes supply chain challenges continue.
Speaker 8: Okay, and the decision to do that, you know, that's not related to demands at all correct.
Okay and the decision to do that that's not related to demand at all correct.
That's correct.
Speaker 6: Okay, demand is very strong. I mean demand is very strong. It's
Okay demand is very strong I mean demand is very strong it's it's.
Speaker 6: You know, the supply chain is a huge factor. And it's mostly at the front end. It not only is the supply chain, but it's also the municipalities that we deal with across the country and this continuous testing and COVID protocols. So it's well documented.
You know, it's so the supply chain is a huge factor and it's mostly at the front end and not only is the supply chain, but it's also the the municipalities that we deal with across the country and.
This continuous testing in Covid protocols, so yeah, hey, it's well documented.
Speaker 6: We're set up for another strong record year and hopefully in 22, we had a record year in 21, but it's really just managing to the supply chain. So there's always going to be some bumps in the road, but we're very optimistic. The demand that first through February here has been very, very strong. So it should be a good year.
Yeah, you know we're set up for another strong record year in hopefully in 'twenty. Two we had a record year in 'twenty, one, but it's really just managing through the supply chain. So there's always going to be some bumps in the road, but we're very optimistic the demand. The first through February here has been very very strong.
So.
It should be a good year.
Okay, Great I'll leave it there that's all for me. Thank you.
Thank you.
Speaker 1: Our next question is from Alan Ratner with Selman and Associates. Please proceed.
Our next question is from Alan Ratner with Zelman and Associates. Please proceed.
Speaker 3: Hey guys, good morning. Congrats on the morning strong quarter in year.
Hey, guys. Good morning, congrats on the strong quarter and year.
Speaker 3: So first question Doug, I'd love to, and I'm sure this ties in a little bit to the sales limitations, but I'd love to hear just how you're thinking about raising prices in the current environment, you know, whether obviously you're still seeing very strong demand, but has the increase in rate changed the way you're thinking about pushing price? Are you perhaps being a little bit more conservative there, just given the affordability impact, or is that not really factoring into your thought process at this point? ????.
So the first question that Doug I'd love to and I'm sure. This ties in a little bit to the sales limitations, but I'd love to hear just how you're thinking about it.
Raising prices in the current environment, you know weather, obviously, you're still seeing very strong demand, but has the increase in rates changed the way you're thinking about pushing price or are you, perhaps being a little bit more conservative there just given the affordability impact or is that not really factoring into your thought process at this point.
Yeah. Good question now an and definitely factors in.
Speaker 6: to our thought process just for just some data out there last year. On average, we had 15% revenue increases versus a 13% increase in direct. So
Two our thought process just for.
Just some data out there last year on average we had 15% revenue increases versus a 13% increase in Iraq. So you know now to your question, we definitely are being very measured in our pricing increases too.
Speaker 6: You know, now to your question, we definitely are being very measured in our pricing increases to offset our costs that are being thrown at us. So we'll continue to do that. Demand supports it, but I guess the best way to say it is we're being very measured because we realize...
Offset our costs that are being thrown at us. So we'll continue to do that demand supports it but I guess the best way to say it is we're being very measured because we realize that prices have gone up quite a bit over the last 18 months and.
Speaker 6: that prices have gone up quite a bit over the last 18 months and it's not a secret that rates are going to go up to. So, you know, that's, you know, we're using strong common sense is what I call it.
It's not a secret that rates are going to go up too. So you know that's.
That's a you know we're using strong common sense are is what I call. It yeah.
Speaker 5: Yeah, and I would add, you know, we're always continually pricing our product to balance pace and price and maximize our profitability there and with such strong demand we still see pricing power and we expect that to continue through the spring selling season.
Alan I would add you know, we're always continually pricing our product our balance pace and price and maximize our profitability there and with such strong demand, we still see pricing power and we expect that to continue through the spring selling season.
Speaker 3: God, thanks for that color guys, appreciate it. You know, second question, you know, wasn't a big amount, but you did take an impairment, or maybe it was a lot of option abandonment this quarter, which was, you know, a bit larger than where it's been tracking at. So I'm just curious if you can add a little bit of color behind what drove that.
Got it thanks for that color guys I appreciate it yeah second question.
Wasn't a big amount, but you did take an impairment or maybe it was lot option abandonments this quarter, which was that you know.
Larger than than where it's been tracking at so I'm. Just curious if you can add a little bit of color behind what are what drove that this quarter.
Speaker 4: Sure, Alan, this is Gwen. Good question. It was mainly due to one project that was located in the Bay Area that was kind of a COVID casualty based on where it was located, kind of inner city location. And so we were just having slow sales there. And so we lowered price just to kind of move through the project. So it was kind of a one off unique project from that perspective. And that was the bulk of it.
Sure. Alan This is Glenn good question. It was mainly due to one project that was located in the Bay area that are with kind of a COVID-19 casualty based on.
Where it was located kind of inner city location and so we were just having slow sales there and so we lowered price just to kind of move through the project. So it was kind of a one off unique project from that perspective.
And that was the bulk of it.
Great Thanks for that and totally appreciate it.
Thanks, Sean.
Speaker 1: Our next question is from Mike Dull with RBC Capital Markets. Please
Our next question is from Mike Dahl with RBC capital markets. Please proceed.
Speaker 9: Hey guys, this is Ryan Frank on from Mike. Just wanted to touch on kind of the question on a pace risk price again. I mean, you guys are selling it five times, or five houses a month, which is kind of well beyond normal at this point. It is very strong. So I guess just wondering why you wouldn't be pushing price more and why gross margins are actually like, to quench the looking like they're gonna be down. Could you just help us parse that out please?
Hey, guys. This is Ryan Frank on for Mike.
Just wanted to touch on kind of the question around pace versus price again, I mean, you guys are selling at five times or five thousands a month, which is kind of well beyond normal at this point is very strong. So I guess, just wondering why you wouldn't be pushing price more than and why gross margins are actually like sequentially looking like they're going to be down.
Can you just help us parse that out please.
Speaker 6: Well, I'll take a stab at that. I mean, mortgage rates have gone up about 75 bits since the fourth quarter. So with a rising rate environment, and we've got a full year to still execute on, I think it's prudent and smart business management to be more measured in your approach to pricing pace along with the supply chain environment.
Well, yeah, I'll take a stab at that I mean mortgage rates have gone up about 75 bps since the fourth quarter, so with a rising rate environment and we've got a full year to still execute on I think it's prudent and smart business management to be more.
Measured in your approach to pricing pace.
Along with the supply chain environment.
Speaker 4: And the margins in the first quarter, if that was your question, I mean, those relate to homes we sold back in the first and second quarter of last year where you saw high lumber prices. And so that's kind of reflected in that overall margin. And then for the full year, we are in a tough...
And in the margins in the first quarter. If that was your question I mean, those relate to homes. We sold you know back in the first and second quarter of last year, where you saw high lumber prices and so that's kind of reflected in that that overall margin and then for the full year. You know we are in a tough.
Speaker 4: rising cost environment and we think we could offset those with costs or with price and if price exceeds cost you'll see, you know, us being at the higher end of that margin range. But that's kind of, you know, why margins are 25 to 26 on the first quarter.
The rising cost environment, and we think we can offset those with with Cos are with price and if price exceeds costs youll see us being at the higher end of that margin range.
But that's kind of why margins are 25 to 26 in the first quarter.
Speaker 9: Got it. And then would there be any, I guess, mixed shift impact throughout the year? Are you expecting that to kind of play a larger role as we go forward on the Gross Martins side?
Got it and then would there be any I guess mix shift impact throughout the year are you expecting.
That kind of play a larger role as we go forward on the gross margin side.
Speaker 4: Now, I think from a mixed perspective, it'll be relatively consistent throughout the quarters. So I think margins will be relatively consistent between the quarters. Based on what we sit to then.
No I think from a mix perspective, it'll be relatively consistent throughout the quarters. So I think margins will be relatively consistent between the quarters based on where we sit today.
Speaker 9: Okay, and then the last one, quick one for me is, I guess you guys historically don't sell this type of pace. So what are you thinking about pace kind of going forward or the rest of your presumably it's gonna come down, but I guess the magnitude of that and do you think you're kind of a structurally faster turning company at this point?
Okay, and then last one quick one for me is.
I guess you guys historically don't sell this type of pace. So what what are you thinking about paint kind of going forward for the rest of the year, presumably it's going to come down, but I guess the magnitude of that and do you think you're kind of a structurally faster turning company at this point.
Speaker 4: I think compared to pre-pandemic levels, we're a structurally higher-turning company because we have a much more a greater presence in the entry level and first move up markets. But relative to this year, how we've looked at the year, yes, higher absorptions in the spring selling season in front half of the year with slower absorptions in the back half of the year, kind of normal seasonality that we saw last year, but still at an overall elevated pace due to the strong demand. Cond quotas, too, has bridge integrity.
I think compared to pre pandemic levels, where a structurally higher turning company because we have a much more a greater presence in the entry level and first move up markets.
But you know relative to this year, how we've looked at the year, yes, higher absorptions in the spring selling season in front half of the year with with slower absorptions in the back half of the year kind of normal seasonality that we saw last year, but still at an overall elevated pace due to the strong demand.
Got it very helpful. I'll pass it on thank you.
Yeah.
Our next question is from <unk>.
Speaker 1: Carl Reinhart with BTIG, please proceed.
Karl Reinhardt with B T. I T. Please proceed thanks.
Speaker 2: Thanks, everybody. You've been doing eight. And you've guys have been doing a lot of new community openings of planning for more. As you're opening those stores, how are absorptions tracking there? Are you doing what we've seen in the past? Meaning you try to set those prices low in early phases so you can raise them through and your absorption rates tend to be very good when there's a new community opening. So can you just talk a little bit about what that picture looks like relative to your legacy stores?
Hey, everybody.
It didn't do an eight and you guys have been doing a lot of new community openings and planning for more as you're as you're opening those stores, how our absorptions tracking there are you doing what we've seen in the past, meaning you tried to set those prices low in early phases. So you can raise them through and your absorption rates tend to be very good when there's a new community openings. So can you.
Just talk a little bit about what that picture looks like relative to your legacy stores.
Speaker 5: Sure Carl, this is Tom. As you know, we do like to get off to a strong start when we open new communities, but I like to think that there's such a high pen-up demand and anticipation for those new communities. It's not just due to lower pricing. We price to market on our openings, and I think because of our great locations and...
Sure. Carl This is Tom as you know, we do like to get off to a strong start when we opened new communities, but I like to think that there's such a high pent up demand and anticipation for those new communities. It's not just due to lower pricing, we price to market on our openings and I think because of our great locations.
Speaker 5: our focus on design and innovation and our new product types being so well received by the consumer that we get off to a great start so that continues uh... we expected to continue we're really excited about the new openings that we have coming up as you mentioned this is a big growth year for us so we think we're moving into uh... a new volumes that going forward because of our exciting new communities coming
And.
Our focus on design and innovation and our new product types being so well received by the consumer that we get off to a great start. So that continues we expect it to continue we're really excited about the new openings that we have coming up and as you mentioned this is a big growth year for us. So we think we're moving into a new.
Volume set going forward because of our exciting new communities coming.
Speaker 2: Thanks Tom. And then sort of along similar veins, is you're looking at the supply chain continuing to be difficult this fourth quarter and into first quarter. Where in the process are you actually releasing homes for sale? Obviously a lot of your peers are doing it at frame. How early are you putting homes into the market?
Okay. Thanks, Tom and then sort of along similar veins is as you're looking at.
The supply chain continuing to be difficult.
This fourth quarter and into first quarter.
We're in the process of you actually releasing homes for sale, obviously a lot of your peers are doing it at frame. How early are you putting are you putting homes into the market.
Hi, Kyle this is Linda.
Speaker 7: Hey, Cal, this is Linda. You know, we're continuing to balance between 2B built homes and spec homes. So in the fourth quarter, a 52% of our orders were 2B built homes. And that's slightly down from the prior quarter as we were able to get more specced out into the ground.
You know we are continuing to balance between to be built homes and speak Hans so in the fourth quarter of 32% about or it is where to be built homes and that's slightly down from the prior quarter as we were able to get more speak fats into the ground.
Okay. Thanks, Linda Thanks, everybody.
Thanks, Tim.
Speaker 1: Our next question is from Jay McKibble with lead bush securities. Please proceed.
Our next question is from Jay Mccanless with Wedbush Securities. Please proceed.
Speaker 10: Hey, good morning, congrats on a great quarter. So on the SGNA percentage, looks a little higher than what we're expecting for the first quarter. Could you just talk about, you know, is that some cost being built in for all the community growth this year or just less leverage on the top line? Yeah.
Hey, good morning, Congrats on a great quarter. So on the SG&A percentage looks a little higher than what we were expecting for the first quarter.
Could you just talk about is that some cost being built in for all the community growth this year or just less leverage on on the topline.
Speaker 4: Yeah, this is Glenn, Jay. Good question. And it's a bit above, right? So our guidance was 900 to 1100 deliveries for the first quarter. So there's some top line. There's a thick demand of GNA that is impacted by the top line in the first quarter. But we are expecting higher sales and marketing costs related to the 90 to 100 new communities. We're opening the shares about the part of it as well.
Yeah. This is Glenn J, good question and it's a bit above right. So you know where our guidance was 900 1100 deliveries for the first quarter. So there's some topline you know theres a theres a fixed amount of G&A that is impacted by that the topline in the first quarter, but we are expecting higher sales and marketing costs related to the <unk>.
90 to 100, new communities. We're opening this year, so that's part of it as well.
Okay, Alright, thank you for that.
Speaker 10: All right, thank you for that. And then, looks like you guys had less, but I think 30 finished specs at the end of fourth quarter. I mean, what's the longer-term target for that? And I think, Linda, you said you guys had some success at putting in more specs from the ground, but where do you envision that going as we move to the year?
And then it looks like you guys had less than I think 30 finished specs at the end of fourth quarter, I mean, where what's the longer term target for that and I think Linda you said you guys had some success at it putting in more specs on the ground, but where where do you where do you envision that going as we move through the year.
Speaker 6: Well, I think it typically we like to see about three to four specs for community.
Well I'll take it it typically we like to see about three to four specs per community.
Speaker 6: across the country, but I think it's actually 27, not 30, but maybe off by a couple, I think 12 of those aren't Houston or something like that? Yeah, so it's...
Across the country, but I.
I think it's actually 27, not 30, but maybe off by a couple I think 12 of those are in Houston or something like that yeah. So it's a laugh and Jay because it's not a lot of inventory right and that's that's part of the issue. There's no. There's no inventory both on our new and resale side and despite rising rates here in the short term.
Speaker 6: I'm laughing, Jay, because it's not a lot of inventory, right? And that's part of the issue. There's no inventory, both on the new and resale side. And despite rising rates here in the short term, the consumer is still looking for housing and is in strong demand. So ultimately, we like to see that three to four number, but it's going to take some time to get there.
The consumer is still looking for housing and N is in strong demand. So ultimately we like to see that three to four number but.
But it's going to take a sometime to get there but.
Speaker 5: Well, we may not be able to get there given the strong demand. Exactly. Because as we start specs, they get snapped up and purchased before we can get too far along in the construction process. Right. So currently we have eight homes per community unsolved under construction, but those are selling quickly.
But we may not be able to get there given the strong demand as we start specs are they get snapped up and purchased before we can get too far along in the construction process right. So currently we have 800 community unsold under construction, but those are selling quickly.
Thanks for that.
Speaker 10: And then I know, I think Doug, you talked about the prepared comments about the municipal issues starting to flare up again. Now that Omacron seems to be receding, have those started to improve and is it, I think he said it was on the front end, but I mean, is it across the board, you know, with finals and also with permit. So is it just strictly getting permits pulled and getting moving on the house?
And then I know I think Doug you talked about in the prepared comments about the munis municipal issues starting to flare up again.
Now the omicron seems to be receding have have those started to improve and is it.
He said it was on the front end, but I mean is it.
Across the board.
Finals, and and also with permits or is it just strictly getting permits pulled and getting getting moving on the homes.
Speaker 11: Yeah, it's, we see most of the delays in the front end when you say, Tom, I mean, it's between the midest-pality delays.
Yeah. It's it's we see most of the delays in the front end are when you say, Tom I mean, it's between the minutes pallet delays.
Speaker 6: And on the crown is, you know, and the mass mandates are, you know, just recently coming off, so it's too early to say how the cities and counties and will adopt most, most municipalities of virtual J. So it's still gonna be a real labor intensive process to move through the permitting process. But once you get past the front end of the construction process, we've had pretty good success staying on task.
I'm the crown as you know are in the mass mandates or you know just recently coming off so it's too early to say, how the cities and counties and will will will adopt most most municipalities are virtual Jay So it's still going to be a real labor intensive process that to move through the permitting process.
Yes.
But once you get past the front end of the construction process, we've had pretty good success staying on task.
That's good to hear thanks for taking my questions.
Yes.
Speaker 1: Our next question is from Alex Barron with Housing Research Center. Please proceed.
Our next question is from Alex Barron with housing Research Center. Please proceed.
Speaker 9: Yeah, thank you guys and great job on the year.
Yes. Thank you.
Guys and great job on the year.
Speaker 9: I wanted to see if you could help me reconcile the guidance in terms of the deliveries for the first quarter versus the full year.
I wanted to see if you could help me reconcile the guidance in terms of the deliveries for the first quarter versus the full year.
Speaker 9: 900 to 1100 seems pretty low. So, you know, what's contributing to that?
900, 1100 seems really low so you know what's contributing to that.
Speaker 9: You know, is there any aspect that's weather-related or you know?
You know.
Are there any aspect that's weather related or you know.
Speaker 9: I mean, you guys didn't hit that level anywhere last year, so I'm just trying to understand that and then how are you ramping up to the 65 to 6800 is that a function of assuming the sales pace? You know is very strong in the spring selling season or you know can you just kind of help us out there?
I mean, you guys didn't hit that level anywhere last yourself, just trying to understand that and then.
How are you ramping up to the 65 to 6800 is that a function of assuming the sales pace you know.
Very strong in the spring selling season or you know can you just kind of help us out there.
Speaker 4: Good questions, Alex. This is Glenn. The 900 to 1100 for the first quarter is just a function of timing. So, you know, we had strong absorptions in the fourth quarter, but a lot of those were either unstarted or, as Linda said, just early in the starts. And so those don't deliver until later. And so it's really just timing.
Good questions. Alex This is Glenn the 900 1100 for the first quarter is just a function of timing. So you know we had strong absorptions in the fourth quarter, but a lot of those were either on started or when the fed just early in the starts and so those don't deliver until later.
And so it's really just timing.
Speaker 4: And for the full year, you know, we start with a healthy backlog, about 50% of our guidance in backlog to start the year. And we're off to a strong, you know, sales pace. And then beginning of the year, like Doug said, we're hoping to get all of our starts on the ground by May to hit those deliveries. And so we feel comfortable. We'll be able to get up to that 65 to 6,800 for the full year.
And for the full year, you know, we start with a healthy backlog about 50% of our guidance in backlog to start the year and we're off to a strong sales pace in the beginning of the year like Doug said, we're hoping to get all of our starts in the ground by May to hit those deliveries and so we feel comfortable we're able will be able to get up to that 65 to 6800 for the full year.
Speaker 9: Okay, and you know, when it comes to, I guess thinking about the impact of mortgage rates, obviously nobody seems to have seen any negative impact yet, but maybe it's too soon, but if the Fed raises as many times as people think, do you guys build that into your assumptions about what's gonna happen to the demand and sales pace as the year progresses?
Okay, and you know when it comes to.
I guess thinking about the impact of mortgage rates, obviously, nobody seems to have seen any negative impact yet, but maybe it's it's too soon but if the fed raises as many times as people think.
Do you guys build that into your assumptions about what's going to happen to the demand and sales pace as the year progresses.
Speaker 6: Yeah, I mean, we do a backlog test. We test our backlog. We've got a very healthy backlog. Stress tests them up to 100 bits.
Yeah, I mean, we do a backlog test we test our backlog.
We got a very healthy backlog stress test them up to 100 Bips.
Speaker 6: As I mentioned earlier, mortgage rates have already increased 75 basis points. I agree with what you're saying, Alex. I do think though, I think the mortgage rates have already baked in, at least the March announcement. That's my own feeling in actually our mortgage company's feeling too. So we'll continue to monitor our backlog, offer long-term rate locks as well, going into the year.
As I mentioned earlier mortgage rates have already increased 75 basis points I agree with what you're saying Alex I do think though I think the mortgage rates are have already baked in at least the March announcement, that's my own feeling and actually are our mortgage company see only two so you know what.
Continue to.
Monitor our backlog a offer a long term rate locks as well going into the year.
Speaker 6: But the demand is still very strong, despite recent increases in rates.
But you know the demand is still a very strong despite a recent increases in rates.
Alex This is Tom I suppose.
Speaker 5: Just real quick, absolutely, to answer your question, we do factor in the current rising rate environment into our business plan and guidance. So we have been a little bit more conservative in our assumptions, taking that into account.
Just real quick absolutely to answer your question, we do factor in.
The current rising rate environment into our business plan and guidance. So we have been a little bit more conservative in our assumptions taking that into account.
Speaker 9: And the long-term rate lock, you know, what kind of impact does that have and is it on your margins or is it on your financial services line? Like where would that be reflected in, you know, how much does that cost typically?
And in the long term rate locks you know what what kind of impact does that have an is it on your margins or is it on your financial services line like where would that be reflected and you know how much does that cost typically.
Speaker 4: It does get reflected in revenue because it's an incentive we would give to the party so it would impact margin and Linda What's the usual cost?
Yeah. It did does get reflected in revenue because it's an incentive we would give to the party. So it would impact margin and Linda.
What's the usual cost or something like that.
Speaker 7: you know, in the current high demand market, we're finding that we're generally not needing to use a lot of incentives to encourage customers to rate lock. It could be between $1,000 and $2,000 that we might contribute to that at this current time. Got it.
And you know in the current high demand market, we're finding that we generally not needing to use a lot of incentives to encourage customers to rate lock it could be between one and $2000 that we might contribute to that at this current time.
Got it okay, Thanks, and best of luck.
Thanks.
Okay.
Speaker 1: And our final question is from Deepa Ravhavan with Wells Fargo Securities. Please proceed.
And our final question is from Deepa Raghavan with Wells Fargo Securities. Please proceed.
Speaker 12: Hi, good morning, everyone. Thanks for taking my question. Start with community count. Bro, pretty strong, 35, 40 percent growth that you're sitting, you know?
Hi, Good morning, everyone. Thanks for taking my question.
I'll start with community count are both pretty strong 35, 40%. So that's you know exiting them you know it's talked about it last quarter too, obviously, you're setting yourself up for a better 2023 and it looks like given your land spend are you continuing to invest in more community.
Speaker 12: talked about it last quarter too, obviously you're setting yourself up for a better 2023 and looks like given your land spend, you know, you're continuing to invest in more communities as well. How should we think about 2023 community count growth, just given, is 2022 your strongest investment in that? And also any color, if these newer communities you're bringing online this year have more
As well how should we think about 2023 community count growth just given is 2022 your strongest investment in that.
And also any color. If these newer communities are bringing online this year have more lots.
Speaker 12: then traditionally and therefore your growth potential is perhaps much stronger in 2023.
Then traditionally and therefore your quote potential is perhaps much stronger at 2023.
Speaker 4: Deepa, yeah, good questions. This is Glenn. You know, we will see community count growth into 23. We haven't given the specific ending community count number, but in Doug's remarks.
Deepa yeah. Good questions. This is Glenn.
You know, we will see community count growth into 'twenty, three we haven't given the specific ending community count number, but and in Doug's remarks, He mentioned, where we're opening between 180 and 200 new communities over the next 24 months. So similar number of communities open in 'twenty. Three is 22. So you will see a rise in that ending community count number in 'twenty.
Speaker 4: He mentioned we're opening between 180 and 200 new communities over the next 24 months. So similar number of communities open in 23 as 22. So you will see a rise in that ending community count number in 23, pretty significantly. And that will lead to higher deliveries assuming it's continued strong market conditions.
Three pretty significantly.
And that will lead to higher deliveries, assuming you know continued strong market conditions and.
Speaker 4: And on the size of communities, overall, there hasn't been a shift, I would say, in larger communities, although, I would say that in Texas, for example, where we're really focused on growing that area, we have invested in some larger land positions in Dallas, Austin, and Houston, and so you will see larger community positions in those markets.
And on the size of communities overall, there hasn't been a shift I would say and in larger communities. Although I would say that in Texas. For example, where we're really focused on growing that area. We have invested in some larger land positions in Dallas, Austin, and Houston, and so you will see larger community positions in those markets.
Speaker 12: Okay, and as you're investing, are you thinking about Florida market actively here?
Okay and as you're investing are you thinking about Florida markets are actively here.
Say that again sorry.
Speaker 12: As you know, as you are investing, are you considering, you know, getting into Florida more actively here?
As you know as you are investing any considering you know getting into Florida more accurately.
Yeah.
Speaker 6: We're not actively in Florida. I think it's your question. You know, we can be in the...
We're not actively in Florida I think is your question, we yeah, yeah yeah.
Speaker 12: You're newer as you're investing in land or you're looking to enter that market.
Your new.
As you're investing in land or are you looking to enter that market.
Speaker 12: You know, we, we can see the data. That's the one road market that's pretty, yeah. So I go ahead.
That's the one.
That's pretty yeah, sorry go ahead.
Speaker 6: You know, from an M&A standpoint, both organically and in M&A, we continue to look at the southeast. We've had tremendous growth planned in the land, as already owned and controlled for the Carolinas.
Yeah, you know from an M&A standpoint, both organically and in M&A. We continue to look at the South East We've had trend we've got tremendous growth planned in already and the land is already owned and control for the Carolinas are we're going to.
Speaker 6: We're going to look at expanding along the coastal part of the carolinas.
Look at expanding along the coastal part of the Carolinas are and you know the rest of the South East is definitely on our radar screen as we look at our strategic plan of getting up to $6 billion in revenues by 2028. So that's definitely on our radar, but we're currently not building there.
Speaker 6: And, you know, the rest of the Southeast is definitely on our radar screen as we look at our strategic plan of getting up to 6 billion in revenues by 2028. So that's definitely on the radar, but we're currently not building
Speaker 12: Okay, got it. My last one, any sensitivity analysis you can provide on, you know, interest rate moves, every 50 bits, move perhaps, you know, might not impact your backlog by certain percentage, any sensitivity's there.
Okay got it my last one.
Any sensitive sensitivity analysis, you can provide on you know interest rate moves ever 50 bps move, perhaps you know might or might not impact your backlog fell 7%, there's any any sensitivities there.
Speaker 5: Yeah, Deepa, as Doug mentioned, we do run a sensitivity on a regular basis relative to our backlog. And our analysis shows that a 50-bit adjustment really has no impact. We have a high quality of backlog and our buyer profile is very strong. So that...
Yeah, Deepa as Doug mentioned, we do run a sensitivity on a regular basis relative to our backlog and our analysis shows that they are you know 50 bps.
Adjustments really has no impact we have a high quality of backlog in our buyer profile is very strong so that component and amount of price moves.
Speaker 5: and amount of price movement would not be a factor. As it moves to a 1% increase in interest rates, we have a high single digit to low double digit impact on our backlog. And that's as we look at a debt to income ratio.
Movement would not be a factor as it moves to a 1% increase in interest rates, we have a high single digit to low double digit impact on our backlog and that's as we look at a debt to income ratio.
Speaker 5: So we feel really good about our backlog relative to a rising rate environment.
So we feel really good about our our backlog relative to a rising rate environment.
Speaker 12: All right, this is helpful. Thanks very much for the color and good luck. Very strong outlooks. Thank you. Thanks, Deepa. Thank you. We have reached the end of our...
Alright. This is helpful. Thanks, very much for the color and good luck nice strong outlooks. Thank you.
Thank you.
We have reached the end of our question and answer session.
Speaker 1: I would like to turn the conference back over to Doug Bauer for closing comments.
I would like to turn the conference back over to Doug Bauer for closing comments.
Speaker 6: Well, thank you everybody for joining us today. We're very proud of our results in 2021 and look to capitalize that in 2022. I hope all of you have a great week and we look forward to chatting with you in April . Thank you.
Well. Thank you everybody for joining us today, we're very proud of our results in 2021, and and look to capitalize that in 2022.
I hope all of you have a great weekend and we look forward to chatting with you in April Thank you.
Speaker 1: Thank you. This does conclude today's conference. You may disconnect your lines at this time and thank you for your participation.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
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Speaker 13: The So.
Yeah.
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