Q2 2023 Tri Pointe Homes Inc Earnings Call
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Ladies and gentlemen, greetings and welcome to the point homes second quarter 2023 Ordinance conference call at.
At this time all participants are in a listen only mode.
A brief question and answer session followed the formal presentation.
If anyone should require operator assistance during the conference. Please press star and fetal on your telephone keypad.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce you host David Lee.
Please go ahead.
Good morning, and welcome to try point homes earnings Conference call earlier. This morning, the company released its financial results for the second quarter of 2023.
Documents detailing these results, including a slide deck are available at www Dot try point 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.
Discussion of risks and uncertainties and other factors that could cause actual results to differ materially are detailed in a 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 try points web site and in their SEC filings.
Oh see in the call today, or Doug Bower, the company's Chief Executive Officer.
Keel or the company's Chief Financial Officer, Tom.
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.
Thank you David and good morning to everyone on today's call.
During the call today, we were review operating results for the second quarter.
Provided market update and discuss key strategic operating drivers.
In addition, we will provide an update on our outlook for the rest of the year.
We are extremely pleased with our results for the second quarter.
The increase buyer demand we saw on the first part of the year was even more robust through the second quarter.
Resulting in absorption pays a 4.5 homes for community per month.
That new home orders were 1912 for the quarter.
Which was a 41 per cent increase over the prior year.
And an 18% increase sequentially from the first quarter.
As a result of the strong sales success, we are raising our four year delivery guidance.
And we also expect gross margin expansion into the back half of the year.
Glen will get more detail on our forward looking guidance later in the call.
For the second quarter, we delivered 1173 homes.
Exceeded the high end of our delivery guidance.
Through a combination of strong market conditions and are moving ready spec homes strategy.
We opened 17 new communities in the corridor.
And it ended the quarter with 145 active selling communities.
Which was an 18% increase over the prior year.
Our focus has always been building communities and core market locations.
Executing a diverse and attainable product offering.
This philosophy resulted in an average order pace of 6.2 orders for community per month.
For these new comedian you openings.
The new housing market is experiencing strong momentum.
By a multiple factors.
Underlying it all is the persistent limited supply of overall housing that falls short of current demand.
An important component cause that supply demand equation.
As a scarcity of resale home supply with new homeless seeds with new listings nationwide down 27% from a year ago.
According to the National Association of Realtors.
This is due to the significant number of existing homeowners, who are not selling as a result of their current mortgage rates, which are well below current levels.
As reported by the National Association of Realtors, 85% of borrowers are financed with a mortgage rate below 5%.
This unique dynamic has reshaped the demand for new housing.
Stablish and new construction is a more reliable and consistent source of inventory relative to the resale market.
As a result, the industry at large has expanded its market share.
With newly constructed homes, representing 33 per cent of inventory.
Compared to the typical 13% average according to the National Association of Homebuilders.
The surge of market share for builders coincides with strong structural demographics.
His household formations continued to outpace new supply.
With the gym Z buyer entering the market and millennials, reaching their prime home buying years.
At the same time consumers have adjusted to the new normal mid 6207 per cent mortgage rates.
Along with our healthy sales basis quarter.
We were able to increase that pricing had over 70 per cent of our selling communities during the second quarter.
We achieved this net pricing increase to a combination of lowering incentives.
An increasing base home prices.
We took a measured approach being mindful of the affordability dynamics.
It should be noted that our second quarter buyers.
Who's the loans were funded through our affiliate mortgage company try point connect.
Benefited from the average mortgage rate of 5.8%.
Significantly below current market rates.
Our homebuyers financing would try point connect.
Representing 78% of our total backlog.
How about an average annual household income of $193000.
An average FICO score 747.
82% loan to value and 41% debt to income ratio.
Turning to a key strategic operating initiatives for the year, we have made excellent progress at the halfway point of the year.
This is largely due to our talented and hardworking teams.
Who contribute every day to the strong company culture that we are so proud of.
That is testament to the company's belief that our people are our greatest asset.
Try point has once again been named as a 2023 2024, great place to work certified company.
He designation given to companies for their outstanding workplace culture.
One of the key operating drivers for our teams. This year has been a focus on reducing costs and cycle times.
We have seen the supply chain continued to normalize resulting in less volatility around cause.
Any more reliable material delivery schedule.
Through value engineering of existing products, focusing on more efficient new product designs.
And negotiating with trade partners, we've been able to lower cost.
An average of 9% since the fourth quarter of 2022.
The average size of a detached home sold this year is 2000, and 610 square feet, a 5% reduction from 2022.
Our team has done an excellent job of expanding trade resources, and improving bill processes to reduce cycle times.
These efforts have resulted in a reduction in cycle times with our average start to completion time frame now running between six to seven months.
Another strategic priority is the strength of our balance sheet.
We ended the quarter with a record low net debt to net capital ratio of 12.1%.
This is a testament to our discipline financial management, and our ability to generate strong cash flow.
This creates significant financial flexibility to execute our strategic plans <unk>.
Invest in land to grow community account.
Delever the balance sheet and returned cash to our shareholders through stock repurchases.
Looking ahead, our strategic focus remains on growing scale within our current markets.
And market diversification by entering new markets through organic expansion.
M&A opportunities.
We believe the runaway for growth as long term and are strong operating teams, coupled with our balance sheet and liquidity offer flexibility to pull the right levers to increase your older value.
Now I'd like to turn the call over to Glenn to further discuss the results of the corridor and provide some insight.
On our outlook for the rest of 2023 Glenn.
Thanks, Doug and good morning, I'm going to highlight some of our results in key financial metrics for the second quarter, and then finish my remarks with our expectations an outlet for the third quarter and full year.
At times that'll be referring to certain information from our slide deck, which is supposed to be on our website.
Six of the earnings called Dec provide some of the financial and operational highlights from our second quarter, we delivered 1173 homes.
Selling price of 698000, resulting in home sales revenue of approximately 819 million.
Deliveries came in above the high end of our guidance range by 17 per cent as we were able to take advantage of the strong demand environment and deliver moving ready spec homes during the quarter.
Gross margin percentage for the quarter was 20.4% and includes project write downs of 11.5 million or 140 basis points.
Justin gross margin, which excludes interest impairments and deposit write offs was 24.9 per cent for the second quarter.
Have you had mentioned we have experienced some pricing power in the first half of the year as a result, we expect to see gross margins in the third quarter in the range of 21 per cent to 22 per cent and expanded further in the fourth quarter to arrange a 22 per cent to 23 per cent.
For the second quarter SG&A expensive the percentage of home sales revenue was 11.9 per cent, which wasn't improvement compared to our guidance as a result of the better leverage over our fixed costs from the increase in revenue.
Finally, net income for the second quarter was $61 million or 60 cents per diluted share.
We don't we generated 1912 net new home orders in the second quarter, which was a 41 per cent increase compared to the prior year and an 18% increase sequentially from the first quarter or absorption pace with 4.5 homes per community per month, a 22% increase compared to the prior year.
In terms of market color demand was broad based across our geographic footprint in the west. The overall absorption pace was 5.0 with all of our markets performing well above normal seasonal levels.
And the Central region overall absorption pace was 3.9 with our Texas markets of Dallas, Houston, and Austin, all showing strong demand.
And the east absorption paces 4.3 led by outsize demand in Charlotte as well as strong momentum in the D C Metro markets.
So far in July we have seen continued strong seasonal demand with absorption is run in 3.5 to four homes per community per month.
An update on our community count, we up and 17, new communities during the second quarter and ended the quarter with 145 active selling communities, which wasn't 18% increase year over year.
We can just continue to focus on our new community growth and are still on target to open between 70 and 80, new communities for the full year of 2023.
We were in a solid land position with approximately 33000, lot's owner control, which provide the foundation for volume and community count growth for the next several years. In addition, with our strong liquidity position, 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 illiquidity consisted of 982 million of cash on hand, and 695 million available under our unsecured revolving credit facility.
Capital ratio was 32.3 per cent in our net debt to net capital ratio was 12.1 per cent.
For the second quarter, we generated $62 million a positive cash flow from operations, while investing in approximately 250 million of land and land development.
We repurchased 1.1 million shares during the quarter at an average price per share of $28.43 for a total aggregate dollar spent a 32 million.
Now I would like to summarize or outlet for the third quarter and full year.
For the third quarter, we anticipate delivery in between 1011 hundred homes at an average sales price between 690 700000.
We expect homebuilding gross margin percentage to be in the range of 21 per cent to 22 per cent and anticipate SG&A expense as a percentage of home sells revenue to be in the range of 12% to 13 per cent lastly.
Lastly, we estimate are effective tax rate for the third quarter to be in the range of 26% to 27%.
For the full year, we are increasing our delivery guidance to a range of 5000 to 5300 homes at an average sales price between 690 and 700000.
We expect homebuilding gross margin percentage to be in the range of 21.5 per cent to 22.5 per cent and anticipate SG&A expense as a percentage of home sells revenue to be in the range of 10.5% to 11.5%.
Finally, we estimate or effective tax rate for the full year to be in the range of 26 per cent to 27% with that I will turn the call back over to Doug for some closing remarks.
In closing I'd like to reiterate how pleased we are with our results in the first half of the year.
And the underlying strength of the new homebuilding industry.
We are optimistic about the strong fundamentals both in terms of the supply demand imbalance, which promises to continue into the foreseeable future and.
And the positive demographics, bringing new home buyers into the market.
We feel confident that our strategic focus on driving increase orders and deliveries.
Cost management and improve return should enable us to navigate any uncertainties in the U S economy.
While capitalizing on our opportunities to grow both both organically and through potential M&A opportunities.
Well this long term outlook, we're confident I try point is well positioned to continue to enhance shareholder value.
Would that I liked to turn it over to the operator for any questions. Thank you.
Thank you ladies.
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One moment, please while we pulled for questions.
Our first question comes from the line of Alan right, now, but zellman and that's L. Cheats. Please go ahead.
Hey, guys. Good morning, Thanks for time and all the detail so far.
So great job on the delivery is coming in well ahead of your expectations. It sounds like you know demand for for quick moving homes is is pretty robust right now and I'm curious if you could just give a little bit of details surrounding kind of a mix of your business between spec and bill to order.
Things like margin differentials and just generally speaking what your strategy is there going forward I mean demand was as strong as it was this quarter for quick moving homes are you accelerating you know your pace. It's a speck starts and you know do you anticipate your share of specs rising here over the next few quarters.
Yeah. It's.
Mm. Good question you know, we're always looking to optimize start based on demand levels and as you noted and as we noted demand still.
Stay strong seasonally stronger then just maybe some seasons, but we do target 65 per cent specs 35 per cent to rebuild so that's that.
It's been our strategy as you go into the advanced deliveries over our <unk> our guidance for the second quarter a lotta those homes were started obviously in the back half of 22, and so we went into the year with a fair amount of homes.
Sure nearing completion and specs of that with a strong demand we ended up closing more homes as you noted.
Got it and a little <unk>.
Sorry, Alan.
A little more color part of your question. This is Tom.
Typically we see about a 200 basis point differential in margin on the to be bill versus back I would note. However that most of our spec starts seem to get <unk>.
Purchase in the middle of the process. So we are still very successful and achieving revenues from you know personalization homes through our design studio business.
Alright, thank thanks for that that color their time.
Second question begging mentioned S still looking for new market expansion opportunities and I know that's been you know sometimes a message that you've been conveying for awhile now and in the past you've been maybe a little frustrated with the lack of opportunities at least on the M&A front just.
Just curious with everything going on right now with with bank credit and you know potentially tightening with obviously.
You know equity valuations moving higher on the public sphere or are you more optimistic about the prospects of potential M&A opportunities over the next you know a handful of quarters and you have been or is it the pipelines to looking pretty dry.
You know a good question, we're still seeing some strategic opportunities for growth at the same time I would say that our primary focus is is looking at organic and a couple of markets that we're currently in the process of establishing so more to come on that.
Obviously, the organic model is something we know very well so I would try point started so we're we're pursuing I would say that's a and that's called M&A B as I look at the credit markets and and talking to the bank or I think there's a.
It's gonna take a little bit longer for for more opportunities to kind of flesh out of your system. There is definitely capital constraints.
As you know all the banks are the big money Center banks and others are under a lot of pressure raising capital and so they're very you know the the credit markets are very tight for the less capitalized builders and land developers. That's another area that we're looking at two so but there's it's a little bit.
Have a longer process as you go through and see where the opportunities could could land I I, frankly think it'll be towards the end of the year going into next year as as the credit markets continue to two probably slow continue to slow down their their credit opportunities for for the small medium sized build.
<unk> land developers.
I appreciate the thoughts and thanks a lot.
Thank you.
Our next question comes from the line of Stephen King, but <unk> I S. I. Please go ahead.
Steven you line you're out there you could sleep I apologize I was muted sorry about that [laughter] strong corner, but this you you did have a somewhat lower a S. P. Then I think we were.
Expecting and I think then you guided on closings and I was curious you know if you could just talk.
Talk about sort of what drove that I assume that with a mix of things had happened to close maybe more specs or something and did that way on the gross margin and if it is you know the spec impact you mentioned I think recently the island that you know that you typically get a 200 basis point lower margin on specs, but then Tom you were saying some things that made it seem like maybe right now.
It's a little better than that so I just wanted to get some clarity on the differential on spec versus B T O right now.
Hey, Steven it's Glenn I'll take the first part of your question the the lower ISP in the quarter versus our guard was due to mix. There was a heavier weight aimed towards central and east deliveries just just by pulling them more sex from those divisions and they'd carry a lower Aspie then our our.
The you know the company average and so that that's all that was and then it also did weigh a little bit on the margin like you said and that was just mix related like Doug mentioned some of those houses were started in the back half of the year, which carried a higher cost of what we're currently experiencing now. So there was just a little bit of that in the mix.
What would you quantify that ask do you think Glen.
I don't I don't it.
It it it it was life. So it's not a big difference I mean, if you take out the impairments were only 20 basis points below the low end of the mortgage so.
That's all it was was it.
And then David on the on the differential on the Spectre build the order you know the the 200 bibs is historical and I think that is typically when we're seeing you know those sales much closer to completion or fully completed units and right now with.
With increased demand, we are seeing and having that ability that maybe narrow that gap a little bit our revenue through our design studio is actually up by about 170 bits from where we were last year at this time. So it's positive our teams are doing a great job getting people in.
Through the studio and giving them that opportunity the first analyzer helps.
Yeah, that's very encouraging and and and good to hear so with respect to the overall pricing environment. You I think said that net pricing rose and 70% of your communities could you give us a sense for how that May Ah Ah differ.
Her across the maybe the product types. If if there is any differential worth worth calling out.
And then Ah regarding your starts could you just give us a sense for what kind of starts pace, we could expect in three Q.
So.
Steven This is Glenn I'll take the first part I I don't think there was much of a difference between product segments. If that was your question between entry level and moves.
And so we were able to increase pricing across the board, obviously being mindful of affordability, especially on the entry level. So we took a measured approach, but with the demands we were able to have good success raising prices.
And then the second question what was your second question again.
Let's start saying, we started roughly 2000 houses in the second quarter you know approximately.
And for US for starts we we look at it on the community by community basis, and if it's based on demand and that local market and so we don't have a specific target, but obviously, we have the ability to start 1500 to 202000 albums as we've seen as do so it'll just depend on demand and it.
Yeah. It seems like normal seasonality relative to starts would be appropriate for you to be thinking about.
Okay, great and not imply somewhat lighter starts in three Q, then too cute right.
Yeah cause we target and look at seasonality relative two orders and absorption that's probably correct.
Yeah, Okay, great. Thank you very much guys.
Thank you.
Our next question comes from the line of Coleman Patterson.
Research. Please go ahead.
Hey, good morning, guys. Thanks for taking my questions.
So first you know you won't have a healthy land bank and it. It doesn't appear you all pulled back you know as aggressively and some peers on land development and and kind of 20 twenty-two Glen you mentioned I believe 70 to 80 new community open.
Earnings I'm, hoping you can help us think through potential yearend kind of active community count you know any metro's regions of outsize gross and you know the the potential to carry that into 2024.
Sure trim and that's a good question. So right now we're forecasting between 155 at 165 active communities by the end of the year that will obviously depend on demand and orders.
That we we go through for the rest of this year and the community openings. This year were waited a little bit more towards the central and east as we're continuing to diversify and we're adding a lot of communities in Texas and the Carolinas in areas like that and that's why you're seeing the direction of AFP that we've we've talked about.
On previous calls go down.
You know into next year and it's it's not because of pricing. That's just because of a mix of those more affordable priced markets that were area.
Gotcha Gotcha, and then just following up on on Steve's question, hopefully asked a little bit differently, but with you all raising pricing and three quarters of communities.
Any idea on kinda, where apples to apples pricing trended through the quarter and were there any regions or kind of metro's, where you actually needed to give you know some incremental price adjustments to to stimulate demand and then just a housekeeping question today.
Here you won't say July absorptions, we're training in the three and a half to four range.
That's correct three and a half four range in July so far.
And then for the the quarter just this quarter on average so a big average across all communities. It was about $16000 per home or about 2% was the price increase.
And that was pretty broad based across the whole geographic area. There are still a few submarkets that are softer where we may be increasing incentives or doing things to move you know standing inventory, but that's gotten smaller and smaller and I think overall the price empowers pretty broad based.
Perfect. Thank you own good luck in the coming quarters.
Extra lettuce extra.
Thank you.
Our next question comes from the line of <unk> right caught with B B I T. Please go ahead.
Thanks morning, guys Uhm I'd share repurchases and he bought back 32 million. This court has been a big part of the story for a number of years now reducing the float but now his business has begun to improve and you're looking to add dirt supply diversify markets, maybe look at new markets. How do you share repurchases fit in to the capital allocation plans in the next two or three years.
It's it's still part of our playbook, and it's still something we value and with it.
Sure.
<unk> availability under authorization. So we're going to continue to be opportunistic will share repurchases, but like you said Carl we're also investing in our growth.
We have our 24 bonds coming due next year that we're putting ourselves in a position to pay off dependent on the market and capital needs, but share repurchases are still part of the playbook for sure.
Okay, I'm, just gonna ask about that slot. So thank you for that and then in the in the release for Tom and <unk> and.
And you can easily talk you talked about operational efficiencies being sort of a a large focus here and I'm trying to take that from a phrase to sort of specifics, but are there particular is related to inventory turns margins are that you talk about his targets based on the kind of operational efficiency improvement you're looking at I'm, just trying to take a <unk>.
Big picture concept and tried to drive it into number somehow so so maybe <unk> what time, you can kind of expand on do you mean by that thanks guys.
Yeah, Great question, Carl I mean, when it comes to inventory turns you know our goal is definitely to be at 1.0 or better.
So when we look at operational efficiencies across our platform.
You know one of the things that we focused in on this year is a.
Reduction in our plan library and be more efficient with product and reuse of product.
<unk>, providing a premium brand experience still providing personalization, but when you are able to use that product and there's just no secrets. You know you become much more efficient not only in cost but also in cycle time. So that's just kind of a tip of a number of things that we've been working on over the last.
You're a coupla years, Tom do you want to add anything to that.
Yeah, I mean, along with those inventory turns Carl obviously, there's just a greater focus on improving our ally overall, you know from the outset of our deal underwriting we're looking to structure deals differently to to enable that and the teams are really focused on that to maximize our.
Or a law going forward.
Okay I appreciate it thanks a lot.
Thank you.
Next question comes from the line of Jill All this now that Deutsche Bank. Please go ahead.
Hi, guys. Good morning, how are Ya.
Yeah good morning.
Yeah, just a quick one for me on the on the closings guidance, just maybe thinking about the sources of upside and downside to the midpoint of that just give them. The timing of starts in the second quarter I'd imagine at this point what you start from here is not gonna factor into the fiscal year. So is it more about the avail.
Ability of of building materials is it about the demand for your your second inventory.
Just kind of talk through the upside and downside to the mid point.
Yeah. Good question this Doug ever.
Everything that is gonna close for this year based on a guide as it started everything we're starting now is is gonna close in the first quarter next year. So.
So we we feel pretty comfortable cross our 15 divisions.
Providing that guidance and hopefully we'll have some upside to it.
Got it just thinking about two dynamics had beyond this year, it's been a little bit since your Investor day right. Now you talked about these things, but you could maybe just give us an update on medium term a S. P mix headwinds that you expect from a geographic shifts and and buyers segment shifts and then you know as your site.
Go through her as you've now probably cycled through your your longterm land in California understand the margin is gonna be a function of the market from here, but assuming maybe a stable market can you just talk about how the land that you own today is gonna run through the P&L, how that will impact margin and maybe what a good benchmark for that return on inventory might be related to the pirate.
Question.
Sure Joe This Glen there's there's a lot in there but on the S. P question.
You know where like we've talked about in the past if there is a mixed impact due to our diversification.
You know kind of central and eastern So next year you could expect you know in a S. P and the 630 range you know, which compares to our guidance. This year for the full year of of 690 to 700, and that's where we sit today, obviously, if the pricing changes you know that could impact that but that's kind of what the rest of the day.
And that kind of.
I think you know 620 to 630 as a as a good benchmark for the next few years based on where we sit today and or can you just <unk>.
When you set up a a R. O Y you know return metrics that depends on the the division.
Division in the market, but we we tried to target between a 12% to 15% return on what we call investment, which is kind of your inventory plus your joint venture investments and I think that tends to lead to really strong returns for the total business and so that's what we talked about the individual divisional level, but that's on that <unk>.
Tori level, what was the other yeah, Joe I'll pipe in on the the other question I think was related to as we have stabilize market. What do we expect margins to look like in that environment. You know as we've always said, we've historically and currently underwrite our new land Act.
Position efforts to an 18 to 22 per cent gross margin and we feel that's appropriate going forward and and we're performing in that range right now and feel really good about it.
Alright, thanks for all the color.
Thank you.
My next question comes from the line of my Dog, but RBC capital markets. Please go ahead.
<unk>, thanks for taking my questions.
Glen first question is maybe a clarification on on margins when I kind of plug in your three Q for to guide it.
I'd get closer to the the high end of that 21, and a half to 22 and a half but I'm also backing out impairments here today are you getting a guy that's inclusive impairments or or exclusivity seven minutes.
It was a gap guide so inclusive of the impairment.
Okay got it so S X impairments, it should actually be a bit better than that that that.
That makes sense.
Mm, Okay, and then the second question <unk> highlighted a couple of things on Kosten square footage so nine per cent reduction in costs five per cent.
Reduction in square footage a couple of questions on this so is the 9% reduction in cost like for like or is that a <unk> a combination of the reduce square footage and then maybe like mid spelled digit.
<unk> Cos, that's the first part and the second part is when you think about that square footage.
How much of that is just the geographic mix that you've already discussed versus with a an existing communities are markets, you're you're really tailoring the the the square footage bit more on a like for like basis.
Yeah. My this is Tom good good questions and it is a very convoluted and hard to to pull apart I'd say, the 9% is inclusive of that square footage reduction as well and a good portion of that square footage reduction is coming from the geographic mix relative to.
To our emphasis of moving into a stronger position in Texas in the Carolinas, but we are cognizant of trying to maintain a attainable price points in all markets. So as we're underwriting new deals we are looking at ways to get there in smaller footage is this one of those key drivers.
Okay. Thanks, a lot.
Thank you.
Our next question comes from the line off Tyler Bodie with Oppenheimer and company. Please go ahead.
Hi, Good morning. Thank you a couple of questions for me on cycle times, you're coming into the year. The goal was four weeks of a production I believe where are you in terms of progress. There did you see improvement in queue to think there's more improvement coming in the back half of the year.
Yes, Hi, this is Doug that's 627 that we indicated does include a four week improvement.
That's the end of the last year and we continue to look for further improvements and our starches second half of the year.
You know, we're we're pushing for another couple of weeks anywhere from two to four weeks, depending on the product the division and so forth. So there's there's always room for improvement in cycle time, especially does it go into the second half of the year.
Okay I'm in in terms of the labor side of things a number of other builders trying to ramp up their starts I mean any change in terms of labor availability and I'm also interested in you know there are some markets, where you're a little bit larger you have a little bit larger marketshare, there's some markets, where you're you know a little bit smaller.
<unk>.
In those markets, where you have a little bit smaller presence, there's no labor situation more more difficult for you isn't isn't more challenging to maintain and develop some relationships with the with the trade partners.
But whenever you you start up a division where for example, Raleigh, where where are scale, it's still growing you're gonna have a few more challenges to attract and retain the right trade partners, but labour has always been tight before the pandemic or labor.
Forces aging Ah well before the pandemic started and but we're still able to scale up with our trade partners, especially in in our 15 divisions. We've got tremendous growth that we're experiencing in the Texas in the Carolinas, Mark, especially the Charlotte market so as.
You do scale up as you said you do get more trade partners and become more efficient on both costs and cycle times.
Okay. That's all for me I'll be with her thank you.
Thanks.
[noise]. Thank you [noise].
Our next question comes from the line of J Mccandless with that Bush counties. Please go ahead.
Hey, good one and everyone Glen did you get four Q gross margin guns, and you're prepared comments.
I did I said 22 to 23 per cent gross margins in the fourth quarter.
Okay.
And that's that's gap, that's including impairments right.
That's correct.
Okay.
And the second question I had can you guys talk about what percentage of the backlog at the end of two Q <unk>.
Had some mortgage buydowns or or anything.
Anything we gotta do what kept the gross margin negative enhancement or inducement to get that sale made and how does that compare to where where that percentage was at the end of Saint physical 22.
Julie J. This is Linda so yes, certainly we're still finding that financing and payments are very helpful. For our customers currently in a backlog I've kept them instead of financing retract linked to Max <unk>, alright lots of about half of that backlog is right locks there at an average rate is $6.
125.
And the average planes paid on that is approximately three point.
So that's and significantly down this I'm glad it wasn't Q1 is certainly down I'm kind of in the 2022, because we really finding that our customers are much more comfortable with today and you know no interest rate if they can get Ah right in the mid sixties, they seem very happy with that even if market right. Sarah you know around statements.
Right and and just thank you for that Linda I mean, any any idea of where where that percentage was at the actual percentage Q1and at the end of the year, where I'm going with this is just trying to find out as as you have less people right locked is there a potential gross marching benefit to the company, especially.
You look ahead to 24.
Yes, there is Allen changes done what isn't this taken quota, where approximately 4.3% and homebuilding revenue and in the last year.
<unk> seems to fully commitments were expensive so at the end of the year. It was more like a 615 and Sanchez.
Okay. Okay, great. Thank you appreciate you taking my questions.
Thanks, Sir.
Thank you.
Our next question comes from the line of Alex spot in housing Research Centre. Please go ahead.
[noise] good morning, everybody in great job on the quarter I wanted to ask about How's your pricing comes down as you indicated.
What should we expect in terms of.
The volume is it going to grow because your self paced is gonna be higher than it's been at this point or is it more based on community can't girls to make up for that dropping the E. S. P.
Okay. Alex This is glenda question.
Oh go ahead go ahead go ahead I'll.
Okay, Yeah, Alex It is a good question and it is a combination but largely it is made up in volume and community count growth is is how we're making up that revenue with hopefully plus you know obviously with our expansion into markets like the Carolinas and and go in deeper into Texas.
That should make up for that S. P theory.
Decrease.
Doug where you're gonna come with as well.
Yeah, I I would I would add onto that is you know our goal is to increase scale and are 15 divisions. The Atlanta opportunities in the capital required to grow scale in the Texas Carolina markets is much more efficient as you you understand so you know our our <unk>.
Our goal is to to get into and maintain a top.
Five to 10 market share position and would that scale will get more efficiencies throughout the organization and absorption race because of our more attainable pricing points will be you know in the end up in the low to mid trees, we always target one sale per month per community, but.
Overall, the mid trees is a good company goal.
Okay, Yeah cause in your presentation that thing you guys just increase the absorption rate of 4.3. So are you, saying that's gonna go from 4.3, the three so the three's.
No I I'll on what what I'm, indicating is from a planning exercise we typically plan in the mid Three's.
As we plan going forward and some of these more attainable price points.
Okay, and now I like to go ahead and another thing to think about their Alex is just normal seasonality wasting a lot more normal seasonality. This year. So you do see that high paced and it's spring season.
Okay. Okay. So this year to date, that's not for the rest of it that's correct.
<unk> and.
You shift towards B.
Lower priced homes and stuff is there gonna be also a shift toward.
What's more spec homes or is it still gonna be a mix like you guys have always done.
We've we've traditionally been Ah well as you know in California respect builder, but our our traditional mix is 65 35, maybe.
Maybe down to 60 to 65, so that's always been our goal and it still allows our customers to personalize their homes as we go through different cut off.
Got it and in terms of the incentives window. Thank you said the average rate is 6.1, if I heard you correctly. So.
Are you finding that people don't need it right in the five soon necessarily purchases are you finding you <unk> broke down the right lesson a few months ago.
That's right, Alex absolutely customers that just becoming more accustomed to.
Market interest rate.
And they're using less about closing costs <unk> towards financing they they might be using half of it towards financing and half of it towards options because that person like I shouldn't is still very important to them.
So just to clarify Alex.
Alex Real quick you said I just.
Just clarify did you say incentives at 6.1%.
No or did you say mortgage right yeah, that's right yeah, the mortgage rate yeah, okay. Okay, yeah yeah.
Yeah incentives out first and Q2 was 4.3 per cent is Linda mentioned.
Got it okay, well I'm glad to hear things are getting progressively better alright. Thanks, so much.
X L S.
Thank you.
Is that enough for the questions I would not have the confidence so much without power for closing comments.
Well, thanks to everybody for joining us on today's call. We're very pleased with the quarter and looking forward to a very strong finish.
So we look forward to chatting with everyone in October .
Great weekend. Thank you.
The confidence of try find homes has now concluded. Thank you for your participation you may now disconnect your lines.
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