Q4 2022 Tri Pointe Homes Inc (Delaware) Earnings Call
[music].
Ladies and gentlemen, greetings and welcome to the Tri Pointe homes fourth quarter 2022 earnings conference call.
At this time all participants are in a listen only mode.
A brief question 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 does now my pleasure to introduce you to David Leitch General Counsel.
Please go ahead.
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 2022.
Documents detailing these results, including a slide deck are available at www Dot Tri Pointe homes dotcom through the investors link and under the events and presentations tab.
Before the call begins I would like to remind everyone that certain statements made on this call, which are not historical facts, including statements concerning future financial and operating performance are forward looking statements that involve risks and uncertainties.
A discussion of risks and uncertainties and other factors that could cause actual results to differ materially are detailed in the company's SEC filings.
Sept as required by law the company undertakes no duty to update these forward looking statements.
Additionally, reconciliations of non-GAAP financial measures discussed on this call to the most comparable GAAP measures can be accessed through Tri Pointe website and in its SEC filings.
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 MA The Companys Chief Marketing Officer.
That I will now turn the call over to Doug.
Thank you David and good morning.
During the call today.
We will review operating results for the fourth quarter and full year and outline strategic operating drivers for 2023.
Let me begin by discussing our performance in the fourth quarter, where we focus on delivering our high margin homes in backlog.
As well as planning strategies to reposition our pricing and product going into 2023.
Those efforts paid off as we reported all time highs for quarterly revenue of $1 5 billion.
Pre tax income of $274 million.
Diluted earnings per share of $1 98.
The strong finish to the year resulted in record breaking full year performance on both the top and bottom lines for the second consecutive year.
For the full year home sales revenue increased 9% to 4.3 billion pretax income increased 24% to $773 million.
Diluted earnings per share increased 35% to $5.54.
Yeah.
These strong financial results led to positive cash flow generation of $444 million for the full year.
And allowed us to return 203 million to our shareholders through share repurchases.
We ended the year with $890 million in cash.
And a 14, 7% net debt to net capital ratio.
Both of which are record numbers for Tri Pointe.
I'd like to thank all of our team members for these outstanding results.
And their tireless efforts navigating the supply chain hurdles throughout the year.
All while continuing to deliver a premium product and experience to our homebuyers.
In addition to the logistical challenges our industry was also confronted with a challenging market in the back half of 2022.
Which found consumers facing a difficult home buying environment.
Significant and persistent inflation.
And the resulting seven fed rate hikes that took place in 2022.
I had a major impact on housing affordability, particularly following a post pandemic pricing boom, where high demand and low supply led to steep price increases.
Accelerated pricing along with mortgage rate increases from below 4% to above 7% in a short period of time cause consumers to pause their purchase decisions.
Well many of these macro factors are out of our control we have employed strategies to counter these external challenges.
We will continue to focus on the following strategic initiatives that will drive shareholder value in 2023 and beyond.
Our aim is to optimize our business to current market conditions, while taking advantage of our strong land pipeline to grow volume over time.
We have initiatives in place to improve absorptions realign our cost structure.
Maximize profitability and return on equity.
Net new home orders in the fourth quarter were down 69% year over year, as we prioritize delivering our high margin homes in backlog.
At the same time, we were also analyzing our pricing and product offerings at both existing and future communities to drive orders going into 2023.
We have adjusted price on a community by community basis to meet the needs of today's buyers through a combination of base price decreases lot premium adjustments and mortgage related incentives.
As a result of these efforts we have adjusted net pricing down 10% to 15% on average from the peak pricing in early 2022.
On the product front, we have taken a fresh look at our community designs and product offerings.
Including lowering square Footages and simplifying our products to provide a more attainable price point.
These strategies have already shown signs of success in the early part of this year.
For the month of January net orders or 421 on an absorption pace of $3 one per community per month.
Which was a significant increase sequentially from December .
Well, that's net orders of 141 or one point O per community per month.
To date in February we have seen similar encouraging results with absorption rates of approximately 4.0 per community per month.
Another area of focus and key to our success at driving cost savings.
Our operating teams have been hard at work obtaining lower costs at all of our projects.
With a goal of 10% to 20% reduction by year end.
While we have already started to see positive results. We acknowledge there is still sticky labor constraints.
And supply challenges so.
So we will not realize the full effect of anticipated savings until late 2023 in early 2024.
We continue to focus on value enhancement for our consumers, while we create more efficient designs that drive lower costs.
An additional area of cost restructuring is in our overhead.
We have revised their staffing levels and construction selling and G&A to ensure they support anticipated volumes, resulting in an approximately $15 million in annualized savings.
Cycle time reductions are an important component to the success of our business in 2023 and.
It will lead to improve inventory turns and the ability to increase our delivery volume.
While our cycle times have increased compared to pre pandemic levels. Our goal is to reduce cycle times four to six weeks on average by year end.
We will achieve our goal by continuing to work with trade partners.
Creating efficiencies in the construction process through more align and phase building in select markets, which enables us to produce a consistent level of spec starts.
In addition, we have simplified our scheduled templates expanded our trade partner base and as a result, we are experiencing some early success.
<unk> represented 60% to 65% of our total starts in 2022.
We ended the year with approximately 11 in process or completed specs per community, which we feel is a good level to meet the demand for quick move in ready homes, we are seeing in today's market.
Finally, we continue to emphasize the importance of return metrics throughout our organization.
We ended the year in a strong cash position and intend to use that capital to fund community count growth, which will lead to more scale in each of our markets and drive better leverage and returns.
By year end 2023, we anticipate having 175 active communities.
Which is a 29% increase over 2022.
In addition, we anticipate being active in our share repurchase program.
Since the inception of our first share repurchase program in 2016.
We have repurchased 66.7 million shares represent a total spend of $1 1 billion.
Slide 24 of the earnings deck shows that since the end of 2015, our book value per share has grown at a compounded annual growth rate of 15%.
Through a combination of earnings growth and share repurchases.
To that end today, we announced that our board has approved a new $250 million share repurchase authorization.
Before I turn the call over to Glenn for more detailed review of the numbers I would like to know that we are encouraged by the early sales success. This year, but recognize that short term results could be impacted by further interest rate increases continued reductions in the labor market and the possibility of a recession.
With our intentional focus on driving increased orders cost reductions and improved returns. We are confident we have the strategies in place to overcome these potential short term challenges.
Long term, we remain extremely positive on the outlook for housing due to the lack of supply and favorable buyer demographics Tri Pointe is well positioned to grow and capitalize on this long term outlook.
With that I'll turn the call over to Glenn Glenn.
Thanks, Doug and good morning, I'm going to highlight some of our results and key financial metrics for the fourth quarter, and then finish my remarks, with our expectations and outlook for the first quarter of 2023 and full year at times I'll be referring to certain information from our slide deck, which is posted on our website.
Six of the earnings call deck provides some of the financial and operational highlights from our fourth quarter we.
We reported outstanding results on all key financial metrics this quarter that either met or exceeded our stated guidance.
We delivered 2016 homes at an average selling price of 746000 resulted in home sales revenue of approximately $1 5 billion.
Our homebuilding gross margin percentage for the quarter was 25% and SG&A expense as a percentage of home sales revenue came in at seven 6%.
This resulted in diluted earnings per share of $1 98.
Which was a 49% increase compared to the same period a year ago.
We recorded 444 net new home orders in the fourth quarter on an absorption pace of 1.1 per community per month as Doug mentioned, we have seen significant improvement in the early part of 2023 and response to our pricing and product strategies.
For the month of January we recorded 421, net new home orders on an absorption rate of $3 one per community per month.
So far in February absorption rates had been approximately 4.0 homes per community per month.
Cancellations as a percentage of gross orders remained elevated in the fourth quarter at 42%, but as a result of improved orders and backlog buyer stability. So far in 2023 cancellations have returned to more normal levels between 10 and 15%.
Turning to communities, we opened 12, new communities during the quarter and closed out of nine to end the quarter with 136 active selling communities.
We are excited about our new community pipeline this year and expect to open between 70 and 80 new communities in 2023.
Resulting in approximately 175 active selling communities by year end.
This projected 29% year over year increase in communities sets the foundation for volume growth into 2024, assuming a healthy demand environment.
Looking at the balance sheet and cash flow, we ended the quarter with approximately $1 6 billion of liquidity consisting of $890 million of cash on hand, and 691 million available under our unsecured revolving credit facility.
Our debt to capital ratio was 32.7% net debt to net capital ratio was 14, 7%.
For the full year, we generated 444 million of positive cash flow from operations, while investing $930 million in land and land development.
For 2023, we expect to generate positive cash flow from operations, while continuing to stay active in buying and developing land to support our growth plans.
For 2023, we forecast to invest between 600 and $700 million in land and land development.
As of December 31, 2022, we had a pipeline of approximately 34000 lots, 44% of which were controlled.
During the fourth quarter, we continued our disciplined approach of re underwriting land deals under contract to current market pricing to ensure they continue to meet our acquisition metrics.
We have had some success in leveraging our local relationships with land sellers to negotiate new terms, including extending closing dates and in some cases discounting land values.
We also made the decision to cancel land contracts that did not meet our underwriting guidelines.
For the fourth quarter, we incurred approximately $4 2 million of lot option and pre acquisition write offs, bringing the total to $8 7 million for the full year, we did not record any project impairments during 2022.
Now I'd like to summarize our outlook for the first quarter.
We anticipate delivering between 750 and 850 homes at an average sales price of between 720000 730000, we expect homebuilding gross margin percentage to be in the range of 23% to 24% for the first quarter and anticipate SG&A expense as a percentage of home sales revenue to be in the range of 14% to 14.
5%.
Lastly, we estimate our effective tax rate for the first quarter to be in the range of 26% to 27%.
For the full year, we are providing a range of deliveries between 4005 thousand homes.
At an average sales price between 670000 690000.
With that I will turn the call back over to Doug for some closing remarks.
Thanks Glenn.
With a doubling of interest rates since their lows in 2022, along with double digit home price increases across the country. It is no secret that the O U S housing market has been under tremendous pressure.
As we head into 2023, our company and our industry peers are tackling these market challenges with aggressive price discovery and mortgage incentives.
It is early but it is clear there are still very good underlying demand for new homes, which should continue to be supported by the lack of resale home supply.
Our company is positioned with a very strong balance sheet and record margins going into the year.
The industry is poised for continued growth, especially considering the significant housing deficit.
Often reported by many industry and economic sources.
As the millennials continue to form new households, and baby Boomers downsize Tri Pointe looks to capitalize on these long term demographic factors.
Again.
We cannot do any of this without the perseverance and commitment of all of our team members.
With that I will turn the call back to the operator for questions. Thank you.
Thank you.
Ladies and gentlemen at this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
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Ladies and gentlemen, we will wait for a moment, while we poll for questions.
Our first question comes from the line of Stephen Kim from Evercore ISI. Please go ahead.
Yeah. Thanks, very much guys. Appreciate all the color are interesting times here, obviously, there's a lot of attention being paid to your comments about you know January and February so far so I just had a couple of questions on on that yeah. If you don't mind I guess, the first is related to that.
That was you had previously said I think you were willing to tolerate you know an absorption rate as low as one and a half to two or something like that so I'm curious is that still your view if demand were to weaken in the near term and then given that you ran so much stronger than that in January and February can you talk about how your incentive activity.
Maybe you've changed or was adjusted or or moderated or I would assume in the quarter. So far.
Yes, Steven it's Doug.
Going into the year end.
And then looking in.
Looking into the Crystal ball into 2023.
Planned on seeing absorption paces of round two.
But as we pointed out we spent a considerable amount of time.
Looking at price on our community he can buy community basis, we looked at product.
We made adjustments so that when we open in 2023.
And actually some of the divisions, even by the end of December .
Would have some momentum going into the year.
You know we mentioned in our result in our comments net net on average we brought pricing down 10% to 15%.
So the combination of price discovery mortgage incentives has.
Given us the tools to get absorption now the other thing I'd note is the consumer.
Went through seven rate hikes last year.
That was a lot of shock and onto the consumer.
I don't believe the fed is done.
Moderated so to speak.
But you can't put the consumer on the sidelines forever. There is a need for housing there is an under supply of resale.
Housing so we definitely saw that consumer reengage, but it's too early to really tell you you know do we have no landing soft landing hard landing.
It's anybody's guess, but we've got.
Strong margins going into the year and so does the rest of the industry strong liquidity. So we're very excited.
To see how this year plays out but.
It's way too early to make the call as far as incentives I'll turn it over to Linda to talk about that.
Good morning, Steven Hey, just to give you some sequential.
Fair enough.
The third quarter I haven't seen that sort of 5% and then that increase.
The increase in the fourth quarter with rates, increasing selling finished on or does it change your stance.
And according to date this year and it seems to be relatively consistent at six 1% with the addition of the base price increase.
Right.
Decreases okay.
Yeah [laughter].
Gotcha.
And.
And what do you mean by the addition of the base price decreases. He was he was mentioning I think 10% to 15% is that what you were talking about.
Yeah, that's great.
Okay. So when we think about all in you know net price are you sort of inclusive of any discounts or any other sort of incentives that you are offering them. If we think about what you experienced let's say in three Q.
Versus what you experienced in four Q on your orders how much of a deterioration in net all in you know things you're giving to the customer would you say that you have you you saw how much of a deterioration in let's say basis points, including price.
Well relative to three Q4, Q Hey, Steven This is Tom you know it was not super significant but I would say it would be a couple of hundred basis points differential.
Perfect. That's very helpful. The second question related to what's been going on recently is a you know.
One I think the rates have been extremely volatile.
But you know it came down a whole bunch right in January and then they just in the last couple of weeks bounced up and so forth.
Just I know it's super early but these are been pretty big moves you know and so I'm curious whether there's a it's your view that the rebound that we saw in January and so far in February was how much of that you think was directly tied to rates and I guess, if you could color your comments with sort of you know maybe how you've seen.
This recent bounce up in rates you know affect any of the trends that you just sort of talked about.
Yes, it's a good question.
We've got a.
St Here, you've got to be nimble.
You've got to be very nimble in today's market as you pointed out Stephen I think last week rates went up what 40 70 bps.
We continue to see positive demand trends and we really overcome.
Those rate concerns with buy downs rate buy downs and locks.
It's it's anybody's guess as I mentioned earlier, it's way too early to really forecast any sort of a straight.
Straight line.
Direction of this market.
But as I mentioned earlier started in this business when mortgage rates or 15%.
Ultimately, the consumer and the builders adjust to pricing and payment.
And there is definitely a need a great need for housing and in this particular cycle. The homebuilders have very strong balance sheets and go into the to the market with very strong margin as compared to what I saw.
30 years ago. So.
It's.
It's going to be an interesting time, you got to be quick on your feet and adjust to what the market can give you.
Yeah, Stephen the only thing I would add to that as you know we are certainly very pleased and it definitely points out the high level of demand that is out in the marketplace today and the response to our products. The core location design and innovation specifically is very encouraging.
Wonderful. Thanks, so much guys I appreciate it.
Thank you.
Yeah.
Thank you Nick.
Question comes from the line of Mike Dahl from RBC capital markets. Please go ahead.
Good morning, Thanks Lucky team for it.
The questions and the color so far just a follow up.
Steve's question and just for clarity so Linda I think when you're saying the six 1% quarter to date incentives plus the price decreases just to be 100% clear.
You know that 6.1 as part of the net 10% to 15% that we should be thinking about in terms of cumulative reductions right.
Yes, Mike that's correct cumulative.
Okay.
And then the question related to that so if you look at your first quarter guidance. Your margins are down kind of 350 to 450 basis points from your peak <unk> margin.
Yeah, and obviously you guys have kind of a longer dated backlog than some others, but and you're talking about some of these cost saves that you go through the year. You know any color you can give us on thinking about that 10% to 15% reduction in price relative to your peak margin how to think about the cadence of <unk>.
Margins over the course of the year or do we go lower and kind of two Q3 Q before those cost saves so in or just order of magnitude on that would be helpful.
Hey, Mike It's Glen that's a good question and like Doug mentioned it it's early and there's a lot of moving pieces. So we're not giving specific guidance for Q2 and Q3, but directionally.
There will be a little bit of pressure on margins based on some of the incentives and price changes we've seen but it's early to see and we'll see how the rest of the spring selling season goes I don't really dictate.
Kind of a level of margin going forward.
Okay Fair enough and then my second question just on the that strategy, obviously kind of a lot of builders that reached similar conclusions about bringing a certain level. So that's the market in the current environment, Doug you talked about being number one on your feet. How does this how does what you've seen.
In the past.
A few months or a year a couple of years, how does that affect your longer term strategy and how you see the business in terms of.
That mix or a different buyer segmentation is this more your kind of beating the market where it is today, but you still have.
Longer term strategy or do you think that strategy is.
Has evolved in a more permanent way.
It is.
That's a good question Mike.
As we've mentioned our company has positioned more of our product offering at what I would call the entry level premium first move up.
Buyer profile definitely.
We'd like to have a home and in the near term 60 to 120 days, but we can still offer.
Our premium brand experience, but you know youre going to continue to see.
Specs as a percentage of our starch about 65% going forward.
May push on that a little bit in the short in right now in 'twenty, three that's called being nimble because the consumer definitely would like to lock in a rate and find something sooner than later, but going forward I'd say, it's generally going to be around 65% plus a little bit.
Yeah, Mike It's Tom So as we as we've looked at our business and you know this very well you know the way.
West is a predominantly done in a phase building a technique, which we get a lot of efficiency out of and therefore requires a pretty strong level of spec and we've done that throughout our career. We are trying to expand that to other markets in a line building philosophy, which we think will create.
Similar efficiencies so that spec count that that Doug mentioned does appear to be something that we're going to continue to push on going forward.
Oh, Yeah that line building parts potentially incremental so thank you for that guys.
Yeah.
Thank you.
Our next question comes from the line of Truman Patterson from Wolfe Research. Please go ahead.
Actually it's a postville Citi. Good morning, guys I guess.
Looking at your absorptions and <unk> and that improvement any color you can add there you know across the geos across geographies or you know any particular consumer segment that you may be seeing some relative demand improvements.
But as far as.
Trends in the first 12 with 18 first month and a half of this year.
I think all the markets are.
[noise] performing okay.
You've got to be in in a sub market I mean, there is a b minus C submarkets.
In many of our marketplaces that are not performing as well overall, though I would say demand trends have been.
A little bit stronger when you look at the 15 divisions.
The inland Empire here in California and in Charlotte.
Okay.
Alright.
And going a little bit higher level here, you know you you've talked about expanding your geographic footprint broadening your cause.
Or exposure have you seen the privates get more rational with pricing.
Pricing, maybe allowing for some some expansion in this this inflection.
To be honest with you Paul I haven't.
We haven't paid a lot of attention to the privates I think the public homebuilding cohort has been somebody some something that we continue to watch it and it had been more aggressive in what I would call the price discovery and mortgage incentives.
Okay all right.
Oh, M&A, Oh I'm sorry.
Yeah, we haven't seen any M&A activity come across our desks, yet on the private side.
Okay, and then just one final one how how are you.
Addressing the rate lock conversation with the move up and active adult buyers coming in.
Your office, how do you get them to basically double their mortgage rates are or I'll move up buyers, you know either divorce or job transfer driven right now.
Yes, Paul this is one that I wouldn't say that there's less you said.
But each of mortgage Reits in Austin.
Because they typically come with large down payments and a half.
It's a cash buyer.
And then for move up buyers, we're finding a lot of that move up buyers are interested in programs like temporary rate buy down like a three to one rate buy down so that they're getting a very attractive space, you're right, maybe 399% with the idea that they could refinance again and the teacher and they get a lot.
They initially.
Okay I appreciate it thank you.
Thanks, Paul.
Yeah.
Thank you.
Our next question comes from the line of Alan Ratner from Zelman and Associates. Please go ahead.
Hey, guys. Good morning, Thanks for all the detail so far.
First of all you know I'd love to drill in a little bit more on the comment you made regarding kind of the price positioning and product offering. The analysis you guys have done there and I guess part I didn't see the community count guidance, a little bit you know the guidance wise.
Still you know very strong growth for the year I think it's about 10% lower than you had guided for previously as far as where you expect to end twenty-three I'm curious are there you know is there anything going on behind the scenes there maybe kind of retooling some of their product on new communities and and you have resulting in some delays in openings or am I reading too much into that.
No Alan good question.
And you hit it actually you know some of that community count difference from what we guided in the last call is just looking at product repositioning.
You know looking at community setups, and making sure we're opening at the best possible position to have success and so that has pushed a few community openings out.
Overall, we still have a strong community count pipeline and like you said there is still strong growth there they'll just be a little bit more communities in 'twenty four from 23 from our previous guidance and from an overall mix perspective, I think that's the first part of your question.
As we've discussed in the past you know there is more entry level first move up focus and that mix, which is why our overall ESP is going down more communities in Charlotte.
Dallas areas like that that are a little bit more attainable price points as part of that mix.
Got it that's helpful.
Second you know just thinking about the spec versus build to order mix of your business you guys do have a design studio platform for built to order I know historically I think the margins on those sales have been stronger than spec. So can you just talk a little bit about where kind of the current margin differential looks like you're on spec versus P. T.
And where do you see that going forward.
Yeah. Alan This is Tom good good questions for sure our design studio business has been really phenomenal and it's it is a big differentiator for US. The one thing I would just caution is that you know.
Even when we are performing our spec strategy, we still are able to get customers into our design studio. So they can personalize their homes. It's obviously dependent at what point in time. They are they purchased the home, but we are very successful on average you know our percentage of.
<unk> was very strong last year still about similar to where we've been in prior years 10, 9%, it's about $77000 per house, our studio business generated over $400 million in revenue. So it's a it's been very positive relative to that.
You're absolutely correct typically you know margins have been a couple of hundred points basis points better on a build to order just because of the ability for people to thoroughly customize their home.
But right now given the incentive environment that we're seeing we're not seeing that great of a differential between the the spec margins and build to order more.
That's helpful. If I can just squeezing one last one on that point just curious if the improvement on absorptions you've seen quarter to date.
Would you say that's been pretty consistent across the built to order or stack or have you seen kind of more of an acceleration on those quick move in homes given.
You're kind of more of the immediacy factor.
Thanks, Alan So we did have a higher level than what is in the fourth quarter as you would expect.
In the third quarter, we are seeing an improvement in kidney belt, what is as well and about a bit about what is quoted today at T V belt.
First quarter.
Got it. Thank you Linda Thank you everybody I appreciate all the color.
Thanks.
[laughter].
Thank you our next.
Our next question comes from the line of Jay Mccanless from Wedbush Securities. Please go ahead.
Hey, Thanks, good morning, everyone.
Linda if you could stay on that topic for a second because that was going to be my question. Just how many of the sales right now are homes that got canceled during fourth quarter that had been discounted and you're reselling them versus new.
New to me and I don't know a better way to phrase it but someone coming in looking at a new respect that you guys have started and buying that house and I don't know if you have the breakout of this but just kind of a sense of how much is.
Of this demand in the first eight weeks of the year is actual real new demand versus you guys, putting a heavy discount on our spec and getting it sold.
I would say, it's really more new demand, whether it's a cancel time, where a Honda we have started.
We would be looking to make them price competitive in either case, and we're typically finding that more cancellations have been closer to the closing and there is demand for quick move in Han so quickly absorbed.
Okay, that's good to hear.
And then I guess, maybe if you guys could update us on where your mix of communities is between first time active adult and move up now and where you think that mix will be by the time, we get to January 24.
Yeah, Jay in the fourth quarter.
Orders were 46% entry.
49% move up and you know, it's a small recipe in luxury and active adult I think that's a pretty good metric of where we're going.
Based on the new community count and where those community counts are.
Okay.
And then the only other question I had.
Congrats on getting the net debt down below 15%.
Knowing that you have a maturity coming up in 'twenty four I guess, how much lower could that net debt ratio go and where what's the business case I guess, we're taking it even lower than it is now.
Yeah. So we do have those 24 is coming up and we're going to put ourselves in a position.
To be opportunistic in paying those off we'll obviously watch the bond market and we'll always be opportunistic there and balance capital needs and growth plans.
We could see leverage continuing to go lower.
Since we're generating so much cash right now.
Okay, great. Thanks for taking my questions.
Thanks Jerry.
Thank you.
Our next question comes from the line of Carl right today from BP I T. Please go ahead. Thanks.
Good morning, everybody I wanted to talk about that 10% to 15% peak to now sort of all in pricing number.
On the very highest end what markets are you seeing that in and then on the lowest end same thing and then obviously your Arizona, Colorado, Nevada orders. During Q4 were fairly weak are you seeing some elasticity now in those particularly soft markets with the with the pricing that you're putting in place.
Well just to clarify it could cost.
Our comments were.
<unk> had net pricing on average down 10% to 15. So there are some markets that are above that.
In some markets below that I would say the market's above that.
<unk> had been more tailored towards Austin.
Houston.
I would say Phoenix.
Some of the markets below that D C Metro.
San Diego.
Across the board.
Alright, thanks for that clarity I appreciate it and then on the 10% to 20% cost reductions can you expand on that a little bit Tom or Doug.
Is that in part a function of just mixed to smaller product and mixed to markets, where it might be cheaper is that a per foot type of number and and can you expand just on how you intend to get there beyond you know we know lumber is down and I'm just curious what specific elements of Tri Pointe are driving that number lower just tactically. Thanks.
Yeah, Carl good a good question and without a doubt the teams have been doing a phenomenal job in and working really hard. So a lot of that is just assessing our product doing value enhancement value engineering, and making sure. We are producing the most cost effective product possible. So we have been made.
A lot of changes to our product offerings, simplifying as well as lowering square Footages in general we typically talk about are those cost reductions on a per foot basis.
And as you know the biggest component of that as you know the.
Structural components of the home so that's where we've been focused on where we are.
Seeing results so we've already begun to.
Generate I'd say close to that 10% number in terms of reduction so far in lumber does play a big part of.
Our costs, obviously, and we've had favorable <unk> and lumber. So we anticipate we're going to continue to work.
But a lot of it is done through the repositioning of our products.
We've got we've got great product offering so we're not sacrificing the quality or the design of our homes.
I appreciate that and thanks, everyone.
Yeah.
Thank you.
Our next question comes from the line of Alex Barron from housing Research Center. Please go ahead.
Yeah. Thanks for letting me take these questions and.
So now on the strong performance at year end.
I wanted to ask about the three markets that seem to have the lowest orders you know, Colorado, Arizona Las Vegas, just kind of curious about you know what drove those numbers was it just like.
Panic in the market you know high cancellations because of high interest rates or was it just you guys weren't really.
Interested in I don't know dropping prices are matching what other people were doing that caused maybe you know you got to be at a slight disadvantage for a second there.
Well.
Yeah, Alex it's Doug.
As we mentioned.
We place a higher priority on.
Getting our backlog through close at the end of the year.
And so the absorption pace.
And it was very slow and the market was going through a lot of interest rate adjustments.
So that was the primary driver in the fourth quarter as we reposition both pricing product mortgage incentives going into this year, we've seen the consumer reengage.
And we're able to provide the right product the right price and the right payment.
And Alex let me add to that it feels consistent with the rest of the market in those markets as well from looking at our competitors in Colorado and Arizona We've.
We've seen similar results with with our peer set.
Got it.
Yeah, it's pretty obvious that some you know some builders had really low results than others.
Did not but I am guessing the ones, who didn't probably sacrifice their margins quite a bit to get those numbers.
Just kind of curious about your philosophy now around that.
So I'm I'm I guess, what that means is that is starting to skew you guys that just that the the pricing or the incentives and now you've seen the rebound in activity. It has it been stronger would you say.
Then the other markets, you know where that didnt happen or has it just been the strong rebound across the board.
But as we mentioned it's Ben.
Good demand and a sub markets. It is important to provide the right product and be positioned in the right Submarkets sales are still not easy.
We're working for every every order that we write.
But again, it's all based on focusing in on.
Pace over price as we go into this year and the repositioning that we put in place going into 'twenty three so far has generated.
Good results, but.
It's way too early to <unk>.
Judge the entire year, and we still got the spring selling season, which I'm sure will be very competitive.
And Alex just to be clear, we have employed that strategy of repositioning and.
In all 15 of our operating divisions. So it's a universal strategy and as Doug said, we're seeing good strong results across all markets right now.
Got it and I also wanted to ask about the announcement of the share buyback I believe you said you didn't do any.
Share buyback in the fourth quarter. So I'm curious if this new authorization is meant to be more opportunistic or just more like steady Eddie you know some programmatic amounts per quarter. How are you guys thinking about that.
I think we're going to continue to be opportunistic, but but we do like we said in our prepared remarks plan to be active this year in our share repurchases.
Got it okay, well best of luck guys. Thank you.
Thanks, Alex.
Thank you ladies and gentlemen, we have reached the end of the question and answer session.
And I would like to turn the conference over to Doug Bauer CEO for closing comments.
So thank you for joining us today, we look forward to sharing our Q1 results with you in April .
And then I have a great week.
Thank you the conference of Tri Pointe homes has now concluded. Thank you for your participation you may now disconnect your lines.
Hum.
Okay.
Yeah.
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