Q1 2023 Tri Pointe Homes Inc. Earnings Call
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I'd now like to turn the conference over to David Lee 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 first quarter of 2023.
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.
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 the.
A discussion of risks and uncertainties and other factors that could cause actual results to differ materially are detailed in the company's SEC filings.
Except as required by law the company undertakes no duty to update these forward looking statements.
Additionally, reconciliations of non-GAAP financial measures discussed on this call to the most comparable GAAP measures can be accessed through <unk> 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 Companys, Chief operating officer, and President and Linda Mamet, the company's Chief marketing officer with that I'll now turn the call over to Doug.
Thank you, David and Hello to everyone on today's call.
During the call we will review operating results for the first quarter.
Provide a market update and reiterate our key strategic operating drivers for 2023.
In addition, we will provide our second quarter and full year outlook.
We are extremely pleased with the start of the year as overall market conditions have vastly improved relative to those in the final quarter of 2022.
We reported outstanding results for the first quarter, where.
Where we met or exceeded all of our stated guidance.
Okay.
For the first quarter, we delivered 1065 homes, while generating $768 million in home sales revenue.
Home sales gross margin for the quarter was 23, 5% in.
And SG&A as a percentage of home sales revenue was 11, 5%.
These metrics culminated in a pre tax income of 103 million or <unk> 73.
Diluted earnings per share.
We generated positive cash flow from operations of $136 million for the first quarter, and we returned $38 million to our shareholders in the form of share repurchases.
Our balance sheet remains strong as we ended the quarter with a record low net debt to net capital ratio of 12, 6%.
Total liquidity of $1 7 billion.
While we are pleased with these first quarter financial results more notably we are encouraged by our ability to generate new home orders reduced cancellations and make significant strides in replenishing our backlog pipeline.
Our key initiatives going into the year was to increase our sales pace with a returns oriented focus.
We achieved this through product repositioning targeted pricing and incentive strategies that allowed us to adjust price on a community by community basis to meet the needs of today's buyers.
Order pace for the first quarter was 4.0 orders per community per month.
Which is firmly above our pre pandemic normal levels for a first quarter and significantly higher sequentially from what we experienced in the back half of 2022.
Overall, we generated 1619 orders for the first quarter.
265% increase sequentially from the fourth quarter 2022.
Along with a cancellation rate of 10%.
We also grew our community count by 17% compared to the first quarter of 2022.
And in the quarter with 136 active communities of which 64% were outside of California.
Despite the well publicized stress surrounding the banking system the.
The uncertainty of higher interest rates and the dialogue on a future recession. The job market appears to remain strong and there are no apparent reductions in credit quality or stress related to our perspective buyers.
We believe there are several factors contributing to a tailwind for the homebuilding industry.
First on the supply side.
The combination of significant reduction in resale inventory compared to historical levels and the continuing slowdown in new home construction starts over the past several quarters has only increased the housing deficit.
The limited retail market, which is compounded by the large number of existing homeowners not listing their homes due to low mortgage rates they've obtained.
Here's to be providing strong support for the new home market.
According to the National Association of Homebuilders currently one third of housing inventory is new construction.
Compared to historical norms of a little more than 10%.
This reduction in resale competition is likely increasing our perspective buyer pool.
And we believe this factor will continue while rates remained elevated.
As such we are focused on increasing our new home starts to meet these favorable market conditions.
Second on the demand side.
The rise in mortgage rates over the past year has had significant impact on traditional mortgage monthly mortgage payments are rate buy down incentive strategy has been a key component in mitigating that and providing affordability for our customers.
Due to the strong demand in the market, we were able to reduce incentives on new orders as the quarter progressed and we have raised based pricing in certain communities, where demand has significantly outpaced supply.
The third fundamental point relates to the demand for homes for millennials and Gen. Gen Z buyers.
<unk>, who are in or approaching their prime home buying years.
According to a recent study with 52% of millennials now owning a home the.
The majority of our nation's largest generation has transitioned from being renters to homeowners with.
With a notable 64% increase in the number of millennials buying a home in the past five years.
Consistent with these macro demographics. This cohort currently makes up 59% of Tri Pointe buyers financing with our affiliated mortgage company.
Furthermore, the next generation entering the home buying life stages Gen Z.
The cohort of 68 million people and only 5% smaller than the millennial population.
Gen Z represents 9% of our current backlog.
While these dynamics bode well for continuing demand our focus on cost savings remains a priority.
And our operating teams have made solid strides in obtaining lower cost throughout the supply chain.
Our goal of a 10% to 20% reduction by year end continues to drive our efforts.
We have seen positive results for the first quarter with costs down 8% to 10% on average.
We acknowledge there is still sticky labor constraints, but we remain committed to pursuing reductions where possible.
Cycle time reductions are another key initiative of our 2023 business plan.
As we continue to prioritize returns through higher asset turns and increased delivery volume.
At the beginning of the year, we set forth a goal to reduce cycle times by four weeks on average by year end.
And we are making strides towards meeting this goal.
Our team is focused on expanding trade resources, improving material procurement process and introducing line or phase building in additional markets.
Spec homes currently represents 60% to 65% of our total starts thus far in 2023.
Through the first quarter, our cycle times have been reduced on average by more than two weeks.
We are pleased with the improvements we are seeing thus far in 2023 and believe further improvements are within reach as the year progresses.
As for our market commentary, we're pleased to report that we are witnessing well diversified demand across all buyer segments and geographic markets.
We continue to focus on affordability with 80% of our average community count coming from the premium entry level or first move up buyer segments.
For the quarter, 50% of our orders came from the entry level segment, 33% were from the first move up 7% with a second move up with the remaining 10% coming from luxury or active adult.
The first quarter of 2023 has been defined as a market in transition.
The back half of 2022 was depressed by rapidly increasing interest rates scenario that necessitated a market correction.
And builders have reacted quickly with price reductions.
Product repositioning.
And financing incentives to stimulate demand.
Beginning in early January the consumer re engaged and generally new housing demand in early 2023 has been very strong.
Supply and demand dynamics remain a tailwind for our industry.
Now I'd like to turn the call over to Glenn to further discuss the results for the quarter and provide some insight on our outlook for 2023 Glenn.
Thanks, Doug and good morning, I'm going to highlight some of our results and key financial metrics for the first quarter and then finish my remarks, with our expectations and outlook for the second quarter and full year at times I will be referring to certain information from our slide deck, which is posted on our website slide.
Slide six of the earnings call deck provides some of the financial and operational highlights from our first quarter.
We delivered 1065 homes at an average selling price of 722000, resulting in home sales revenue of approximately $768 million.
Deliveries came in above the high end of our guidance range as we were able to take advantage of the strong demand environment and utilize our spec strategy to sell and deliver move in ready homes during the quarter.
Our homebuilding gross margin percentage for the quarter was 23, 5%, which was at the midpoint of our guidance range.
Finally, SG&A expense as a percentage of home sales revenue came in at 11, 5%, which was an improvement compared to our guidance as a result of the increase in deliveries, which gave us better leverage over our fixed cost during the quarter.
We recorded 1619 net new home orders in the first quarter on an absorption pace of four per community per month.
Demand increased as the quarter progressed January absorption pace was $3. One February came in at four and March increased to $4 eight so far in April we are experiencing continued strong demand and last week. We recorded a 192 net orders, which was our highest weekly order number for the year and the best single week for order since <unk>.
March of 2021.
In terms of market color as Doug mentioned demand was broad based across our geographic footprint in the west. The overall absorption pace was $4 one with all of our California markets performing well along with strong results in both Washington, and Nevada, Arizona started slower but saw improvement as the quarter progressed.
In the Central region overall absorption pace was 3.0 with each market with each Texas market showing positive momentum.
Colorado is a market that is still finding its footing, while we have seen an increase in demand recently.
Finally in the east absorption pace was $5 seven led by significant demand in Charlotte, but also a strong result in Raleigh in the DC Metro area.
Turning to communities, we continue to focus on our community count growth and are on target to open between 70 and 80, new communities for the full year of 2023 of which we have opened 18 in the first quarter.
This will result in strong community count growth for the full year of 2023.
We're in a solid land position with approximately 32000 lots owned or controlled which provide the foundation for volume growth.
For the next several years, while we continue to actively pursue new acquisition opportunities to fuel future growth.
Looking at the balance sheet and cash flow, we ended the quarter with approximately $1 7 billion of liquidity consisting of 966 million of cash on hand, and $691 million available under our unsecured revolving credit facility.
Our debt to capital ratio was 32, 5% and our net debt to net capital ratio was 12, 6% both record lows for Tri Pointe.
For the first quarter, we generated $136 million of positive cash flow from operations, while investing 260 million in land and land development, we repurchased one 6 million shares during the quarter at an average price per share of $23 87 for.
For a total aggregate dollar spend of $38 million.
Now I'd like to summarize our outlook for the second quarter, we anticipate delivering between 901000 homes at an average sales price between $720 million and 730000.
We expect homebuilding gross margin percentage to be in the range of 22% to 23% for the second quarter and anticipate SG&A expense as a percentage of home sales revenue to be in the range of 12% to 13% Lastly, we estimate our effective tax rate for the second quarter to be in the range of 26% to 27%.
For the full year, we are updating our guidance to a range of deliveries between 40 505000 homes at an average sales price between 690700 level.
With that I will turn the call back over to Doug for some closing remarks.
Thank you Glenn.
Our strategic focus on driving increase orders cost reductions and returns will enable us to capitalize on market opportunities that exists.
With this strategic focus in mind, we remain optimistic about the industry strong long term fundamentals and we are confident that tri Pointe is well positioned to grow and succeed.
I'd also like to thank all of our team members for their excellent work and building our passionate culture.
It is because of you that Tri Pointe homes has been recognized as one of the 2023 Fortune 100 best companies to work for.
We consider ourselves to be in the life changing business for our customers and equally for our team members, who make it all happen put.
Put in our values and mission into action and delivering outstanding experience.
With that I'll turn the call back to the operator for any questions. Thank you.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys.
At any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Stephen Kim with Evercore ISI. Please go ahead.
Yes, thanks, very much guys congratulations on the good results.
I wanted to talk to you a little bit about your your average price.
Can you give us a little insight into kind of how the average price.
Your orders you know has trended over the past few months.
I know that that's not a number we typically talk about but.
I'm wondering whether or not you've seen theyre trending down or up.
In the last few months.
Hey, Stephen it's Glenn.
Well like we said on the call we have lower we've been able to lower incentives and raise based pricing on <unk>.
Some communities and so from that perspective the ASP.
It has gone up but overall throughout the course of this year as we've discussed in the past youre going to see our Asps go down as there is a higher mix of more tangibly price product coming from our newer.
Growth divisions, like Charlotte, Raleigh, and Dallas Fort worth so thats kind of a directory direction of price.
Yes makes sense.
And then when you talk about your.
Your land in your preparation for communities.
We even look out a year or more we noticed that your land holdings declined both in terms of owned and option units and so curious as to whether or not you think the trajectory of that.
Is going to be sort of up flat or down in absolute units here over the next few.
Quarters, and whether there might be a divergence maybe what your your owns might be flat or down but your options beyond just just trying to get a sense for how things are going to trend.
Good question Youre going to start to see that trajectory go back up and Youll see it more in the options to start before you take it down but we are.
And more active in the land market as of right now as we've seen more stabilization in pricing and so youll start to see that option number go back up.
Okay.
The owned.
What should we think about that.
Well <unk> it's.
It's just a timing issue between when you take it down and when you deliver overall.
Overall, though I think we're still targeting.
Over the next couple of years or more 50, 50 mix of option to known if Thats what youre asking.
Okay, that's fine.
Sure.
Thanks.
And your leverage is incredibly low right now relative to what I think you've sort of talked about in the past can.
Can you talk a little bit about your.
Sure.
What your plans are there how we should expect you to make investments maybe what the deal pipeline looks like both in terms of M&A as well as.
Maybe some other investments and how patient you think you'd be keeping your leverage that low should.
Should we for example would be surprised if you're patient and we see a leverage.
This team's rate on net debt to cap by the end of the year.
Yes, so part of it as we're looking out to next year and we have our 2024 bonds coming due and so we're putting ourselves in a position to pay those down.
But that will continue to be opportunistic on that depending on how the debt market looks and what our capital needs are as we get through this year and next year.
Our capital needs still remain the same we are looking to invest we're looking to grow.
So we're active in the land market were.
We don't have any M&A eminent now, but we're looking right.
There's markets that we are still interested in it as a long term, we're still looking to grow and we're in a good balance sheet position to allow us to do that.
Okay, great. Thanks, very much guys.
Thanks Steven.
The next question comes from Truman Patterson with Wolfe Research.
Please go ahead.
Hey, good morning, guys. Thanks for taking my my questions.
My first one on spec.
Versus build to order gross margins some of your.
Peers have suggested that.
The spread between the two is kind of returning to.
Historical levels with build to order being a bit higher than spec them I'm, just hoping you could give some color on what youre seeing in the market today.
Yes, Tim this is Tom.
Would tend to agree with our peer set that we are beginning to see normalization in that build to order versus spec gross margin. Historically, it's been around 200 bps for us we're not quite there yet, but we do expect it to continue to normalize.
Okay, perfect and then.
Haven't heard a lot of discussion on the new FHFA fee structures.
Could you all just kind of give your general thoughts and how it might.
<unk> to your business going forward.
This is Linda we haven't really seen any big impact from that I mean, obviously at the moment, we are still providing financing in sanchez to customers that can help smooth transitions and changes like that.
Okay perfect.
Alright, thank you.
One thing Truman relative to FHA, it's only about 10% of our backlog portfolio right now.
Gotcha, Okay, Okay perfect alright, Thank you all.
The next question comes from Alan Ratner with Zelman and Associates. Please go ahead.
Hey, guys good morning, nice quarter and thanks for all the detail so far.
First on the gross margin guidance.
Items implies a bit of a sequential dip lower and I'm just trying to figure out is that more of a timing issue in terms of kind of the mix of deliveries and maybe more of those coming from homes that were sold late last year. When when pricing was still under pressure or is that more a function of maybe that that spec versus build to order.
SKU or any other type of mix impact from perhaps more closings coming from newer markets that probably have stronger absorptions, but maybe a little bit lower lower gross margin.
Good question, Alan and then it is a little bit of mix. There is a couple of things going on there there is.
First quarter had some higher margins in it from some communities that were older that we're closing out and so thats part of the mix and you are right Q2 is still reflective of some deliveries that were homes that were started in the May June timeframe that had peak lumber in them and so there is a little bit of mix related to that.
In Q2.
So Glenn I know youre, not giving guidance for the full year, but I mean directionally speaking as you look forward you know there's a lot of moving pieces. You mentioned your price is probably going to drift lower due to mix you do have some cost savings.
It sounds like you are starting to pull back on incentives would you expect <unk> to be the low watermark of the year from a gross margin perspective or are they are still too. Many unknowns at this point to Directionally guide.
I think there is we want to get through the rest of the spring selling season and see how that goes we're continuing to based on the demand look at price and pace and balancing that so we'll update you after next quarter with what we're seeing with margins.
Okay understood.
If I could squeeze in one more maybe for Doug or Tom just on the cost side, you and others have.
Pulled back very sharply on starts in the back half of last year.
Not terribly surprising to see that resulted in some some cost savings. It seems like the industry is beginning to ramp up their start pace.
Given given the strong demand we've seen in the spring.
Yes, I think I still hurt.
Or an expectation that you could see further cost relief here for the remainder of the year. So I'm just curious if you've kind of had conversations with your trades in the last few weeks.
As far as what they are seeing or expecting from a cost perspective.
And whether this ramp and starts whether they are equipped to handle it because I would imagine to coming into this year, they probably had a pretty cautious outlook and maybe adjusted head count or get other things in anticipation of a lower start pace.
Yes, Alan this is Doug good question.
We noted.
We've had an overall goal of 10% to 20%.
We achieved about 8% to 10% on average.
And we're going to continue to pursue that.
We see the greatest impact on cost improvement.
Through some of the product repositioning and value engineering.
And we are.
As we bring in new product.
We were opening quite a few new communities. This year that have gone through that process and continue to do so we have.
Really strong sub contractor involvement.
In the bidding and purchasing process.
Still have a goal of getting to that.
20% number, but it's going to depend on.
The year on how builders continue to start in the market ramps up.
Understood Alright, I appreciate it thanks a lot.
Thanks Alan.
The next question comes from Carl Reichardt with <unk>.
Please go ahead.
Good morning, guys.
Good morning.
You I think you said, 60% to 65%.
That starts this quarter I think I got that right I'm, just sort of thinking about whether or not the spec start strategy is a reflection of relatively recent market conditions that might be transitory or over time is your expectation that two thirds of your business will be back and one third build to order how do you think about that strategically.
<unk> as you gradually move out of California move to the rest of the country change your product mix up.
Okay.
Hi, Carl This is Tom Yes, I think you're hitting on something that is more of.
A directional influence where we do anticipate in.
In the future continuing to drive to that spec start model, specifically as we diversified geographically into Texas and the Carolinas.
And then of course, you know given our phase building in California, that's largely spec start driven as well.
But all I would add.
Carl I would add this is Doug.
Tom hit it spot on.
Important thing that we're very returns focused and so as you implement more line and phase building in some of these markets outside of California, which you are very familiar with you can definitely improve your cycle times annual returns so.
Going forward as Tom said and will continue to be about.
Probably 65% of our business now we still do.
Pending on the stage of those homes still can maximize our option revenue and achieve option margin.
So we can we can utilize that even with our entry level premium products.
Okay. Thank you do you won't have an inventory turn were asset turn goal relative to where you are right now.
Yes, definitely Carl and that's something we've been focused on and it's been historically, a little bit impacted by some of the longer term land that we inherited through the merger, which has been great for us and obviously provided strong margins, but as we've worked through a lot of that our focus now is to turn inventory over one time a year.
We got close to that over the last couple of years, but continue to be a focus of us of ours.
Okay, and if I can squeeze one more in.
Not quite 14000 lots under option contract what percentage of those do you intend to self develop.
Yes, Karl currently self development as the majority of our business I would say 70% of that is probably self developed.
Okay, Great I appreciate it guys. Thanks, so much.
So.
The next question comes from Mike Dahl with RBC capital markets. Please go ahead.
Good morning, Thanks for taking my questions.
Quick question on the closings cadence in the guide.
You'd be pretty handily in the quarter.
With respect starts are up your pace comments are pretty strong the full year guide on closings.
Changed on units. So can you just help us understand some of the puts and takes in that conservatism or is there something we should be thinking about it.
So as you kind of work through what was maybe a little a little elevated level of specs you see slower backlog conversion in the back half of the year.
Just help us understand that a little more.
Yes. Good question, Mike I think what happened in the first quarter relative to our guide was we did enter the first quarter with an elevated level of of specs and move in ready homes and so with the strong demand we were able to sell and close those homes in the quarter and then for Q2 with that guide between 901000.
Some of that has just impacted by the fact that it was slower in the third and fourth quarter and so we were coming into the quarter with a lower backlog.
For the second quarter.
And we have a little bit less of the move in ready homes than we did entering in the first quarter. Although we still have a healthy spec mix going into the second quarter. So that's the cadence and then the back half of the year, we're going into kind of a normal seasonality.
Cadence, where you have seen in the past where the majority of our deliveries will be in the fourth quarter due to the strong spring selling season.
Got it okay. Thanks, Mike.
Okay.
Sorry, Mike I was just going to add as you see demand beginning to normalize and we've got a much clearer picture. Our starts are going to normalize as well so yeah on a comparative basis back in Q4, we are only starting about 400 homes and we've more than doubled that in.
Q1 to starting over 1000, so I think youll begin to see that that normalized now.
And Thats more of a part of the point, Tom being that that would be more of a 2024 impact to closings.
Correct, Yes, Thats correct Mike.
Mike. This is Doug I think part of your question was also on the guide on the closings for the year, we bumped the lower end of the range because of the demand.
But it's going to be pretty tight to go much above the.
The upper end of the range because of the timing of new community openings.
Which we have quite a few between second third and fourth quarter and so that will feed right into 2024 as you mentioned.
Got it Okay makes sense and then on the land comments.
A lot of your peers kind.
Is it still kind of signaled that there is a little bit of a standstill in the land market and everyone's also kind of silicon evaluating their own land books. It sounds like youre already potentially getting more active in so I'm curious just what youre seeing whether its geographically.
Or otherwise.
Whats what's allowed you to have.
Some success getting back in the market today is it just hey, youre able to underwrite.
Today is higher pace of more deals pencil or have you seen.
Are you seeing sellers come off price in a little more narrowing.
A bid ask maybe just.
A little more color on what Youre seeing there.
Yes, that's a good question.
And it's really it's really market specific.
Now that we're feeling pricing has.
<unk> in.
In certain of our markets in most of our markets actually.
Stabilize we feel more confident I mean underwriting land deals land residuals are all function.
Of house revenue as you know.
And we have an excellent.
<unk> pipeline for growth in 'twenty four 'twenty five so we're really looking for land deals.
That would be new communities may be late 'twenty five but for sure 2006, So we're being very selective.
We've got our normal underwriting standards.
But we will continue to be very disciplined.
As we use a mix of margins and return metrics.
To look at new land deals.
Okay. Thanks, Doug.
Yes.
The next question comes from Tyler Batori with Oppenheimer.
Please go ahead.
Thank you and good morning, just wanted to put a finer point on the on the price incentive commentary can you talk a little bit mortgage.
Numbers around your incentive activity on orders in Q1, how that compared with Q4, and then talk about how much more you can reduce incentives the rest of the spring here.
Thanks Tyler.
As we mentioned we have been able to reduce in sometime during the first quarter.
And we'll just have to see how that goes and what happens with interest rates from here, because we want to remain nimble and ensure that we're providing.
Kind of a monthly payments for al and Brian .
Okay, Great and then in terms of the buyer segment commentary I mean, you mentioned demand pretty broad based strength there across entry level move up I wanted to focus on the move up piece, a little bit more mature so far year to date in the April with rates a little bit more stable.
You're starting to see a little bit more improvement or more interest in more traffic in and some of those communities.
Yes, certainly and first move up was very strong as we talked about so yes, we're seeing very good interest from both entry level and move up and our new community openings are reflective of that we're seeing strong demand in openings for move up communities as well as entry level.
Okay.
And then last one for me is from a market perspective, I mean, California still a big part of the mix Youre a lot of noise headlines out there just talk a little bit more what youre seeing on the ground sales pace traffic et cetera on the last month and a half or so out there.
Yes, Tyler good question I think California is very misunderstood in our results have been strong in California across all product segments and geographic regions. So we're really encouraged by the depth of demand in California I think.
We've proven up.
There are buyers and plenty when we're offering five 6% interest rates and the incentives have worked well our product repositioning has hit head on and then just remember we have a focus on design and innovation.
Core market locations that I think has been very well received so we expect California to continue to be strong going forward. This year.
Okay, Great. That's all for me. Thank you.
The next question comes from Jay Mccanless with Wedbush.
Please go ahead.
Hey, good morning, everyone.
So tri Pointe and several of your peers have talked about increasing starts.
Into the spring, but I haven't heard anybody talk yet about labor availability, especially on the front end is that labor to drive those starts is that coming from the private builders do you think you're taking meaningful share you and the other publics were taking meaningful share from the privates right now to drive those starts.
Good question Jay This is Tom.
Certainly labor has been impacted pre pandemic levels.
For sure and it continues to be a stress point.
For all builders, but I think.
Publix in particular are gaining more and more market share and driving more and more of that labor to their jobs. So.
It's improved from 10 times, but it was a challenge pre pandemic and we expect that to continue.
But again, we are looking to position ourselves as a builder of choice for the trades and I think we're being very successful in that.
Jay This is Jay.
On a macro you actually hit on.
A key point and I don't think its been felt this early but.
With the.
Banking crisis, some of the small regional banks.
The smaller builders, which I think you are alluding to.
<unk>.
I think it's going to be the second half of this year going into 2024, where you're going to continue to see the larger or the public builders that have.
Plenty of capital to continue to increase market share.
During this.
Effectively a credit crunch for especially the small.
Regional small private builders, I'm, not saying, they're larger private but.
Builders that are doing under 500 closings a year.
So my second question, Doug I was going to ask what if you'd seen the ability to start taking down some finished lot projects or maybe a little looser terms around land deals coming your way.
So if you could just.
Yes.
Maybe give an expanded answer there, especially as it relates to like opportunistic.
Project buys or something like that.
Yeah, I think it's early.
Yes.
Even if you're a small regional builder you are having success selling homes right.
So you are generating cash flow, but but I think the opportunity will be felt more in the second half of this year, where even some of the smaller regional land developers in the central region and in the East region, we'll probably find some.
Issues in obtaining capital and so our land teams are in the market.
Being very disciplined but looking for.
And hopefully being opportunistic I'm sure all our our brethren, who are doing the same thing.
Alright, and then the other question I had just ex lumber can you talk about what youre seeing from cost trends concrete drywall et cetera.
Yes, Jay this is Tom.
As you know lumber has been a key driver to our cost reductions, but we are seeing.
Reductions on other areas of our cost as well Doug alluded to it in our.
The prepared remarks that.
Through value engineering on both existing and new products, we have been able to simplify and see some significant reductions there are.
Our national team is working really well on those larger scale relationships and we're seeing some reductions from some of our big suppliers.
And thats being displayed in our product offerings. Currently so we feel pretty good about our costs and we're looking forward to continuing our efforts there and hopefully we will see.
Some continuation of those savings.
Okay sounds great. Thanks, guys.
Thanks Jade.
The next question comes from Alex Barron with the housing Research Center.
Please go ahead.
Yes, thanks, guys and good job on the numbers.
And I was in southern California, a few weeks ago, when I heard about.
Program. The state launched I think it was called Kao every carrier.
Or something like that.
We're evolving buyer right.
Percent.
Of the home payment I was wondering to what extent you guys were able to participate and take advantage of that program.
Yes, Thanks, Alex we did take advantage of that program, but the funds did run out very quickly. So clearly there is housing demand there when people can get additional assistance for the down payment.
Or was it like significant are good run out to where it really didn't amount.
Yes in total magnitude of our orders in the first quarter. It was insignificant because there was a very short window for us to be able to take advantage of that before the funds were depleted.
Got it okay.
Alright, and then.
I guess towards the end of last year, there was talk among builders about.
Reducing starts and understandably so but there was also the expectation that for those builders who would start.
Spec they would be able to.
Capture some cost savings from subs looking for work.
I'm, just curious to what extent that's been achievable or.
We're not.
Well.
Alex This is Doug I mean, as we saw that the.
The engine.
Housing engine slow down through the end of last year going into the first quarter of this year as we mentioned, we have achieved roughly 8% to 10% and cost savings.
From a combination of existing programs.
Communities and new communities stars.
Okay.
But it sounds like Thats I guess, the extent of it. So those things are we accelerating them I suppose.
Alright.
Yeah.
As we mentioned in our prepared remarks, our goal as.
As we said at the beginning of year and it still is today to get up to towards 20% and in certain markets. We may achieve that but you're right I mean as the market improves.
Cost and pricing as we see we will firm up.
But we are seeing the most success.
In cost improvement when we reposition.
Product and bring out new products for the trades to bid on.
And there is plenty of trades that are.
Looking for work and bidding on and be very aggressive in there.
So that's where we're seeing the most success.
Cost improvement compared to what we had.
I'd underwritten a year ago.
Got it if I can ask.
One other one.
Let's say.
Hypothetically if the fed does one more high grade and they're done.
And then something leaves them to start lowering interest rates, whether it be Raphael and <unk>.
<unk> has done or whether it's a crisis or whatever.
I guess the question is if rates were to go back down significantly.
You feel like the industry has.
Capacity to handle a ramp up in.
And starts or do you feel like.
<unk>.
We're just going to go back to the supply chain bottlenecks and all that stuff.
My personal opinion is I think the industry does have especially the public school.
And there'll be very measured as we are increasing our starts as Tom mentioned.
And I think it'll be more of a normal.
Market condition I don't.
My own personal forecast as I don't think rates are going to change much.
Unless there is a some sort of other banking or other crisis out there I think the fed inflation is very sticky and my own personal opinion as theyre going to.
Probably see another rate increase a modest one and then probably stay flat.
But hey, it's anybody's guess.
The most anticipated recession I've ever seen in my life right.
No.
Correct.
Okay, just wanted to get a sense of you know there.
It was if you will.
Felt there was an opportunity to ramp up starts and deliveries.
As well as your all's kind of strategy in the market it looks like community count dropped a little bit to about six communities is that.
Yes, absolutely trim and good questions and Youre right on with your assessment, a large portion of that order decline was due to lower community counts and then just selling out and being at the tag end of some communities as well, we've got new product offerings that are coming into the market this quarter.
Yes, Steven this is Tom.
I believe they were down about 18, or so a little less than 18 per community.
Steven.