Q4 2023 Taylor Morrison Home Corporation Earnings Call
Operator: www.globalonenessproject.org The Taylor Morrison Home Corp 4Q2023 earnings conference call webcast is due to begin shortly. Thank you for your patience.
At Taylor Morrison hadn't called full key to 'twenty to 'twenty three earnings conference call and webcast again shortly thank you for your patience.
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Operator: ?? ?? ?? Ladies and gentlemen, hello and welcome to the Taylor Morrison Home Corp 4Q 2023 Earnings Conference Call and Webcast. My name is Maxine, and I'll be coordinating the call today. If you would like to ask a question, you may do so by pressing star followed by one on the telephone keypad.
Maxine: Ladies and gentlemen, Hello, and welcome to the Taylor Morrison called full Q2 thousand 23 earnings conference call and webcast. My name is Maxine and I'll be coordinating and coach at all if you would like to ask a question. You made these type of question on stock led by one just kinda. Thank you Pat.
Mackenzie Aron: I will now hand you over to Mackenzie Aron, Vice President of Investor Relations, to begin. Mackenzie, please go ahead when you are ready. Thank you and good morning, everyone. We appreciate you joining us today. Before we begin, let me remind you that this call, including the question and answer session, will include forward-looking statements. These statements are subject to the Safe Harbor Statement for Forward-Looking Information, which you can review in our earnings release on the Investor Relations portion of our website at www. TaylorMorrison.com
Mackenzie: I will now hand, JBT Mackenzie Island, Vice President of Investor Relations to begin Mckenzie. Please go ahead when you're ready.
Mckenzie: Thank you and good morning, everyone. We appreciate you joining us today before we begin let me remind you that this call, including the question and answer session will include forward looking statements. These statements are subject to the safe Harbor statement for forward looking information that you can review in our earnings release.
Mckenzie: On the Investor Relations portion of our website at Taylor Morrison Dotcom piece.
Mackenzie Aron: These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, those factors identified in the release and in our filings with the SEC, and we do not undertake any obligation to update our forward-looking statements. In addition, we will refer to certain non-GAAP financial measures on the call, which are reconciled to GAAP figures in the release. Now, I will turn the call over to our Chairman and Chief Executive Officer, Sheryl Palmer. Thank you, Mackenzie, and good morning, everyone.
Mckenzie: These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections.
Mckenzie: These risks and uncertainties include but are not limited to those factors identified in the release and in our filings with the SEC and we do not undertake any obligation to update our forward looking statements.
Mckenzie: In addition, we will refer to certain non-GAAP financial measures on the call, which are reconciled to GAAP figures in our release.
Mckenzie: Now I will turn the call over to our chairman and Chief Executive Officer, Cheryl Palmer.
Sheryl D. Palmer: Thank you Mackenzie and good morning, everyone. Joining me as Curt Van Hefty, our Chief Financial Officer, and Erik <unk>, Our Chief Corporate operations Officer, I am pleased to share the highlights of our team's strong performance in 2023 as well as an update on the market and our strategic priorities as.
Sheryl D. Palmer: Joining me are Kirk Van Hefty, our Chief Financial Officer, and Eric Dieter, our Chief of Corporate Operations. I'm pleased to share the highlights of our team's strong performance in 2023, as well as an update on the market and our strategic priorities as we head into the new year. After my remarks, Eric will review our healthy land portfolio, while Kurt will review our better than expected fourth quarter financial results and guidance metrics. Our team's strong fourth quarter execution wrapped up another tremendous year for Taylor Morrison.
Erik: We head into the new year. After my remarks, Eric will review, our healthy land portfolio, well, Kurt will review, our better than expected fourth quarter financial results and guidance metrics.
Erik: Our team's strong fourth quarter execution wrapped up another tremendous year for Taylor Morrison.
Sheryl D. Palmer: In total, we delivered 11,495 homes to generate $7.2 billion of home building revenue at a healthy adjusted home closing gross margin of 24%. Our earnings, combined with $889 million of share repurchases over the last four years, drove our book value per share to a new high of $49, which was up 15% from a year ago and 53% from two years ago. While we face significant headwinds from rising interest rates, Economic Uncertainty, and Global Unrest, our business displayed the resiliency we have strategically positioned it for following years of intentional growth, transformative M&A, integration, and a tireless commitment to streamlining and optimizing our operational ability. As I sit here today, I'm incredibly proud of the results we delivered in 2023, which exceeded our guidance, and even more excited when I look ahead to 2024 and 2025, as we expect to continue demonstrating the earning power of our balanced and disciplined operating platform.
Erik: In total we delivered 11495 homes to generate $7 2 billion of homebuilding revenue and a healthy adjusted home closings gross margin of 24% driving adjusted earnings of $7.54 per diluted share.
Erik: Our earnings combined with $889 million of share repurchases over the last four years drove our book value per share to a new high of $49, which was up 15% from a year ago and 53% from two years ago.
Erik: Well, we faced significant headwinds from rising interest rates economic uncertainty and global unrest our business displayed the resiliency, we have strategically positioned it for following years of intentional growth transformative M&A integration and a tireless commitment to stream.
Erik: Lining and optimizing our operational ability.
Speaker Change: As I sit here today I'm incredibly proud of the results, we delivered in 2023, which exceeded our guidance and even more excited when I look ahead to 2024 and 2025 as we expect to continue demonstrating the earnings power of our balanced and disciplined operating platform.
Sheryl D. Palmer: We strongly believe that our diversification across buyer groups ranging from entry level, move up, and resort lifestyle, combined with our emphasis on high quality community location, are critical differentiators that enhance our bottom line potential, growth opportunities, and risk mitigation throughout housing's inevitable ebbs and flows, as demonstrated with our results through a volatile fourth quarter. Our top priority as we move ahead is reaccelerating our growth now that we believe that we have firmly established the operational efficiency required for outsized market share gains. In 2024, we expect to deliver at least 12,000 homes, followed by approximately 10% growth in 2025 and thereafter. Our $1.8 billion land investment in 2023 is focused on supporting these growth aspirations. And with one of the strongest balance sheets in our company's history, we are well positioned to continue investing with an accretive, disciplined approach in 2024 with an initial planned land spend in the range of $2.3 to $2.5 billion. Critically, our land investment approach will remain grounded in a returns-driven framework that balances capital efficiency with the associated cost of capital as we look to drive long-term performance. To achieve these goals, we are fortunate to have the strong land development expertise that is necessary for investing in larger, more efficient, self-developed communities that are particularly well-suited to our product. Portfolio
Speaker Change: We strongly believe that our diversification across buyer groups ranging from entry level move up and resort lifestyle combined with our emphasis on high quality community locations are critical differentiators that enhance our bottom line and potential growth opportunities.
Speaker Change: And risk mitigation throughout housings inevitable ebbs and flows as demonstrated with our results through a volatile fourth quarter.
Speaker Change: Our top priority as we move ahead is re accelerating our growth now that we believe that we have firmly established the operational efficiency required for outsized market share gains in 2024, we expect to deliver at least 12000 home closings.
Speaker Change: Following by approximately 10% growth in 2025 and thereafter.
Speaker Change: Our $1 8 billion land investment in 2023 was focused on supporting these growth aspirations and with one of the strongest balance sheets in our company's history. We are well positioned to continue investing with an accretive disciplined approach in 2024 with an initial plan.
Speaker Change: Land spend in the range of $2 three to $2 $5 billion.
Speaker Change: Critically our land investment approach will remain grounded in a returns driven framework that balances capital efficiency with the associated cost of capital as we look to drive long term performance to achieve these goals. We are fortunate to have the strong land development expertise that is necessary for invest.
Speaker Change: And larger more efficient self developed communities that are particularly well suited for our product and consumer portfolio.
Sheryl D. Palmer: This strength is evident in a shift in our acquisitions away from expensive finished lots, often in restrictive master plan communities, by partnering with land sellers for larger self-developed parcels that offer greater margin and pace opportunities. For example, finished lots as a percentage of our total acquisitions have declined to just 12% over the last two years from 35% several years ago, while our underwritten monthly sales pace expectations have increased by about 30% in recent years as average community sizes have also increased by approximately 50%. While this is a modest headwind to the absolute level of communities, we believe this evolution towards larger, more efficient outlets is an important driver of our long-term return. It also limits our exposure to the limited capacity of third-party land developers and improves our long-term planning visibility. The strategic shift in our land investment decision underpins our confidence in our annual monthly sales pace target in the low three range as compared to our historical average run rate in the low to mid twos.
This strength is evident and a shift in our acquisitions away from expensive finished slot.
Speaker Change: Often in restricted master planned communities by partnering with land sellers for larger self developed parcels that offer greater margin and pace opportunity.
Speaker Change: For example finished lot as a percentage of our total acquisitions have declined to just 12% over the last two years from 35% several years ago, while our underwritten monthly sales pace expectations have increased by about 30% in recent years.
Speaker Change: Average community sizes have also increased by approximately 50%.
Speaker Change: Well this is a modest headwind to the absolute level of communities. We believe this evolution towards larger more efficient outlet is an important driver of our long term returns.
Speaker Change: It also limits our exposure to the limited capacity of third party land developers and improves our long term planning visibility.
Speaker Change: These strategic shifts in our land investment decisions underpin our confidence in our annual monthly sales pace target in the low three range as compared to our historical average run rate in the low to mid twos.
Sheryl D. Palmer: On the operational front, we are focused on continuing to fully leverage our scale and streamline our portfolio to reduce costs, support growth, and increase asset efficiency, as well as sales, marketing, and back office centralization efforts. Each of these areas of focus improves our ability to scale our business cost effectively, offset ongoing cost inflation, and deliver improved affordability and product for our home buyers. Meanwhile, our innovative digital sales tools also continue to gain traction, with outside sales conversion rates nearing 50%.
Following a sales pace of two eight per month in 2023, I am pleased that we expect to achieve this targeted low three sales pay school in 2024 based on our mix of communities and the strength of the underlying market.
Speaker Change: On the operational front, we are focused on continuing to fully leverage our scale and streamline portfolio to reduce cost support growth and increased asset efficiency.
Speaker Change: This includes ongoing refinement of our product and Floorplan library utilization of our canvas option packages and sales marketing and back office centralization effort.
Speaker Change: Each of these areas of focus improve our ability to scale, our business cost effectively offset ongoing cost inflation and deliver improved affordability and product for our homebuyers.
Speaker Change: Meanwhile, our innovative digital sales tool also continue to gain traction with outsized sales conversion rates nearing 50%.
Sheryl D. Palmer: Specific to the fourth quarter, our net sales orders increased 30% year-over-year with strong acceleration in December that defied typical seasonal slowness into year-end and partially offset the moderation we experienced earlier in the quarter alongside higher interest rates. Our balanced mix of to-be-built and spec homes, including a 40% year-over-year increase in available inventory at quarter end, meets demand among all consumer types. The healthy trends we experienced as the quarter progressed allowed us to raise base pricing in nearly 60% of communities as our teams are focused on balancing price, incentives, and pace to achieve desired sales goals and community performance. I am pleased that the Healthy Momentum continued into January and thus far in February, with sales, traffic, and reservations all trending positively as the spring selling season recently kicked off. In fact, in January alone, we saw the most online home sales in a single month with the highest monthly sales contribution since March of 2021.
Speaker Change: Specific to the fourth quarter, our net sales orders increased 30% year over year with strong acceleration in December that the five typical seasonal slowness into yearend and partially offset the moderation we experienced earlier in the quarter alongside higher interest rates.
Speaker Change: Our balanced mix of to be built in spec homes, including a 40% year over year increase in available inventory at quarter end.
Speaker Change: Meets demand among all consumer types.
Speaker Change: The healthy trends, we experienced as the quarter progressed allowed us to raise based pricing in nearly 60% of communities as our teams are focused on balancing price incentives and pace to achieve desired sales goals and community performance.
Speaker Change: I am pleased that the healthy momentum continued into January and thus far in February with sales traffic and reservations all trending positively as the spring selling season recently kicked off.
Speaker Change: In fact in January alone, we saw the most online home reservations in a single month with the highest monthly sales contribution since March of 2021.
Sheryl D. Palmer: These numbers continue to prove that consumers are eager to engage with us in new and different ways that are tailored to their needs and provide pricing transparency, convenience, and flexibility in their home shopping journey. When I look at our online sales success and the breadth of our sales strength, it is clear that demand for new construction remains solid, with a limited supply of inventory across all price ranges and Favorable Employment and Demographic Trends Continuing to Drive Activity. By consumer group, our fourth quarter net sales orders were comprised of our move up category at 42%. Our entry-level segment at 34% and resource lifestyle at 24%. Sales across each of these groups were up strongly from a year ago, with our entry-level segment recovering most strongly on a year-over-year basis.
Speaker Change: These numbers continue to prove that consumers are eager to engage with us in new and different ways that tailored to their needs and provide pricing transparency convenience and flexibility in their home shopping journey.
Speaker Change: When I look at our online sales success and the breadth of our sales strength. It is clear that demand for new construction remains solid with limited supply of inventory across all price points and favorable employment and demographic trends continuing to drive activity.
Speaker Change: By consumer group, our fourth quarter net sales orders were comprised of our move up category at 42%.
Speaker Change: Our entry level segment at 34% and resorts lifestyle at 24%.
Speaker Change: Sales across each of these groups were up strongly from a year ago with our entry level segment recovering most strongly on a year over year basis.
Sheryl D. Palmer: However, on a sequential basis, our resort lifestyle performed exceptionally well and backed typical seasonal slowing as the only segment with quarter-over-quarter sales, displaying the strength that we expect of those consumers amid interest rate volatility. Among buyers financed by Taylor Morrison Home Funding, credit metrics in the fourth quarter remain excellent with an average credit score of 751, average down payment of 24%, and average household income of nearly $180,000.
Speaker Change: However, on a sequential basis, our resort lifestyle business performed exceptionally well in fact typical seasonal slowing as the only segment with quarter over quarter sales growth displaying the strength that we expect of those consumers amid interest rate volatility.
Speaker Change: One of the key factors driving our success is the financial strength of our targeted consumer set.
Speaker Change: Among buyers financed by Taylor Morrison home funding credit metrics in the fourth quarter remained excellent with an average credit score of 751 average down payment of 24% and average household income of nearly 180000. These stats are especially impressive considering that 53% of these buyers.
Sheryl D. Palmer: These stats are especially impressive considering that 53% of these buyers were millennials and another 4% were Gen Z. On the other end of the buyer spectrum, a vast majority of our resort lifestyle consumers utilize all cash for their home. As a result, our use of mortgage incentives is heavily weighted to our entry-level communities, where first-time buyers are most sensitive to affordability constraints.
Speaker Change: For millennials and another 4% were Gen Z.
Speaker Change: On the other end of the buyer spectrum, a vast majority of our resort lifestyle consumers utilize all cash for their home purchase.
Speaker Change: As a result, our use of mortgage incentives is heavily weighted to our entry level communities were first time buyers are most sensitive to affordability constraints.
Sheryl D. Palmer: In fact, of the 28% of our fourth-quarter closings that took advantage of a mortgage-forward commitment or similar interest rate structure, an oversized 50% were first-time buyers. In addition to these consumer benefits, the diversification of our platform extends to production advantages, given our ability to capture both high margins to be built, along with highly efficient spec construction. Our second move up and resort lifestyle communities operate largely as to be built businesses to generate high-margin design center and lot premium revenue that exceeded $100,000 per home in the fourth quarter and helped generate superior gross margin, several hundred basis points higher than our entry-level business. Meanwhile, our entry-level and first-movement buyers are served primarily with spec homologs, providing important production here to each consumer group's needs and preferences.
Speaker Change: In fact of the 28% of our fourth quarter closings that took advantage I mean mortgage forward commitment or similar interest rate structure and outsized 50% were first time buyers.
Speaker Change: In addition to these consumer benefit the diversification of our platform extends to protection advantages given our ability to capture both high margin to be built cells, along with highly efficient spec construction.
Speaker Change: Our second move up and resort lifestyle communities operate largely has to be built businesses, which generate high margin design center and lot premium revenue that exceeded $100000 per home in the fourth quarter and helped generate superior gross margins several hundred basis points higher.
Speaker Change: Then our entry level business.
Speaker Change: Meanwhile, our entry level and first move up buyers are served primarily with spec home offerings, providing important protection efficiency geared to each consumer groups need and preferences.
Sheryl D. Palmer: In the fourth quarter, approximately 56% of our sales were, Similar to the prior three quarters, but down slightly from the low 60% range in 2022. To wrap up, the diversification of our business and longstanding emphasis on quality locations and core summer provide important strategic advantages that we believe position us exceptionally well going forward. With a concentrated focus on outsized growth in the years ahead, we have never been better equipped operationally to take advantage of the opportunities across our price points and geographies to serve our customers and create value for all of our customers. Thanks, Sheryl, and good morning. To help provide greater clarity into our lot position, we have adjusted our methodology for calculating owned and controlled lots. Specific to owner lots, we have excluded lots that have begun vertical construction.
Speaker Change: In the fourth quarter, approximately 56% of our sales were prospect homes similar to the prior three quarters, but down slightly from the low 60% range in 2022.
Speaker Change: To wrap up the diversification of our business and longstanding emphasis on quality locations in core Submarkets provide important strategic advantages that we believe position us exceptionally well going forward with a concentrated focus on outsized growth in the years ahead, we have no.
Speaker Change: Never been better equipped operationally to take advantage of the opportunities across our price points and geographies to serve our customers and create value for all of our stakeholders.
Speaker Change: With that let me now turn the call to Eric to review our land portfolio.
Eric: Thanks, Cheryl and good morning to help provide greater clarity into our lot position, we have adjusted our methodology for calculating owned and controlled blocks.
Eric: Specific to own lots, we've excluded lots would be gone vertical construction.
Eric Dieter: Those lots are defined separately as homes in inventory, which was 7,867 homes at quarter end. With regard to control lots, we have expanded our definition to include those lots under contract with an earnest money deposit that have not yet been fully formally approved by our investment partners to offer a more complete look at our pipeline. We believe that these changes better reflect the intended use of such metrics to evaluate our balance sheet and the capital efficiency of our land portfolio and improve comparability to some of our peers. For example, using this new methodology, our owned and control lot inventory was approximately 72,000 home building lots in the fourth quarter, down from 75,000 lots at the end of both 2022 and 2021. Based on trailing 12-month closings, this represented 6.3 years of total supply, up from 5.9 years in the fourth quarter of 2022 and 5.5 years in the fourth quarter of 2021.
Eric: Those lots are defined separately as homes in inventory, which was 7867 homes at quarter end.
Eric: With regard to control box, we've expanded our definition to include those lots under contract with an earnest money deposit that have not yet been fully formally approved by our investment committee to offer a more complete look at our pipeline.
Eric: We believe that these changes better reflect the intended use of such metrics to evaluate our balance sheet and the capital efficiency of our land portfolio and improve comparability to some of our peers.
Eric: Using this new methodology, our owned and controlled lot inventory was approximately 72000 homebuilding lots in the fourth quarter down from 75000 lots at the end of both 2022 and 2021.
Eric: Based on trailing 12 month closings, which represented six three years with total supply up from five nine years in the fourth quarter of 2022 and five five years in the fourth quarter of 2021.
Eric Dieter: Our supply of owned lots equaled three years as compared to 2.9 years in the fourth quarter of 2022 and 2.8 years in the fourth quarter of 2021. Lots controlled via various structures and vehicles represented 53% of our total supply. This was up from an in-kind 51% a year ago and 49% two years ago, as we have successfully increased our asset-lighter investment approach to enhance long-term expected returns and risk mitigation. The specific vehicles and structures that are employed to achieve this off-balance sheet control of pipeline land include the targeted use of joint ventures with homebuilders, Seller Notes and Finance, option takedowns, and land banking arrangements.
Eric: Our supply of owned lots equaled three years as compared to $2 nine years in the fourth quarter of 2022, and 2.8 years in the fourth quarter of 2021.
Eric: Lots controlled via various structures and vehicles represented 53% of our total support.
Eric: This was up from an in kind of 51% a year ago and 49% two years ago. As we have successfully increased our asset lighter investment approach to enhance long term expected returns and risk mitigation.
Eric: The specific vehicles and structures that are employed to achieve this off balance sheet control of pipeline wins include the targeted use of joint ventures with homebuilders.
Eric: Our notes on financing option takedowns and land banking arrangements.
Eric Dieter: While each of these offers varied risk, return, and cost tradeoffs, we seek to match each deal with the optimal tool. As Sheryl previously alluded to, over time, we have pivoted from a greater reliance upon finished lots being delivered through master plan development to a heavy balance of raw, self-developed acquisitions. As an illustrative example of the margin impact associated with this pivot, I would share that the expected margin differential among finished lot deals underwritten in 2023 as compared with raw land deals was approximately 300 basis points. While finished lot deals have a role in our portfolio, we have found that self-developed communities provide greater optionality with regard to employing finance, improved control over lot deliveries, and the noted margin enhancements. In the fourth quarter, we invested $313 For the full year, we invested a total of approximately $1.8 billion, with a nearly equal split between acquisitions and development at 51% and 49%, respectively.
Eric: While each of these offer varied risk return and cost tradeoffs, we seek to match each deal with the optimal tool.
Eric: As Cheryl previously alluded to overtime, we have pivoted from a greater reliance upon finished lots being delivered through masterplan developers to a heavy balance of raw self developed acquisitions.
Eric: As an illustrative example of the margin impact associated with this pivot I would share that the expected margin differential amongst finished lot deals underwritten in 2023 as compared with Huawei on deals was approximately 300 basis points.
Eric: Ill finished lot deals have a role in our portfolio. We have found that self develop communities provide greater optionality with regard to employing financing tools improved control over a lot deliveries and the noted margin enhancements of the business.
Eric: In the fourth quarter, we invested $313 million in homebuilding land acquisition and $224 million in development of existing assets for a total of $537 million.
Eric: For the full year, we invested a total of approximately $1 $8 billion with a nearly equal split between acquisitions and development at 51% and 49% respectively.
Eric Dieter: This was up from $1.6 billion in 2022 when acquisition spend represented 40% of the total and development accounted for 60%. Today, with an eye towards monetizing our well-vintage existing portfolio by driving community openings to support our growth, we now expect to further increase our land investment in 2024 to approximately $2.3 to $2.5 billion. Approximately 40% of this expected spend is allocated to development.
Eric: This was up from $1 $6 billion in 2022 when acquisition spend represented 40% of the total and development accounted for 60%.
Eric: Today with an eye towards monetizing our wells into your existing portfolio by driving community openings to support our growth plans. We now expect to further increase our land investment in 2024 to approximately two three to $2 $5 billion.
Eric: Approximately 40% of this expected spend is allocated to development.
Eric Dieter: Supported by this investment, we expect our community count to be relatively stable at each quarter and end of the year between 320 and 325 outlets before growing meaningfully in 2025. On the lot acquisition front, we have significant flexibility in our investment decisions as we are already either fully subscribed or well on track to support our strong anticipated growth trajectory over the next three years. With that, I will turn the call over to Eric. Thanks, Eric. And good morning, everyone.
Eric: Supported by this investment we expect our community count to be relatively stable at each quarter and ended the year between $320 and 325 outlets before growing meaningfully in 2025 and beyond.
A lot acquisition front, we have significant flexibility in our investment decisions because we are already either fully subscribed are well on track to support our strong anticipated growth trajectory over the next three years with that I will turn the call to Kurt.
Kurt: Thanks, Eric and good morning, everyone.
Kirk Van Hefty: In the fourth quarter, our adjusted net income was $223 million, or $2.05 per diluted share, while our reported net income was $173 million, or $1.58 per diluted share, inclusive of legal settlements and other extraordinary charges. Our closings came in ahead of our previous guide due primarily to stronger backlog conversion that benefited from further improvement in construction cycle times and more spec homes sold and closed during the quarter. Our recycling times improved by another 4 weeks sequentially and 10 weeks year-over-year, aided by normalization in the supply chain and our team's focus on operational efficiency. We are pleased with the overall predictability that has returned across nearly all production stages and are targeting another four to five weeks of cycle time improvement in 2024.
Kurt: In the fourth quarter, our adjusted net income was $223 million.
Kurt: Or $2 <unk> per diluted share.
Kurt: While our reported net income was $173 million or $1 58 per diluted share inclusive of legal settlements and other extraordinary charges.
Kurt: During the quarter, we delivered 3190 home closings had an average closing price of $607000, which produced total homebuilding revenue of $1 $9 billion.
Kurt: Our closings came in ahead of our previous guidance due primarily to stronger backlog conversion benefited from further improvement in construction cycle times and more spec homes sold and closed during the quarter.
Kurt: Our recycle times improved by another four weeks sequentially and 10 weeks year over year aided by normalization in the supply chain and our team's focus on operational efficiency.
Kurt: We are pleased with the overall predictability that has returned across nearly all production stages and are targeting another four to five weeks of cycle time improvement in 2024.
Kirk Van Hefty: In addition to driving these cycle time savings, our teams have ramped up our start volume over the past several quarters given the solid demand backdrop to ensure we have adequate inventory available. In the fourth quarter, we started just over 2,900 homes, or 3 per community per month, up from about 1,500 homes or 1.6 per community per month a year ago. Including these starts, we had 7,867 homes under production at quarter end. Of these homes, 41%, or 3,225, were spec homes, of which only 413 were finished, with a skew towards our entry-level communities where first-time buyers prefer quick move-in homes.
Kurt: In addition to driving these cycle times savings our teams have ramped up our start volume over the past several quarters given the solid demand backdrop to ensure we have adequate inventory available.
Kurt: In the fourth quarter, we started just over 2900 homes or three per community per month up from about 1500 homes are one six per community per month, a year ago.
Including these starts we had 7867 homes under production at quarter end.
Kurt: All of these homes, 41% or 3225 were spec homes of which only 413 were finished with a skew towards our entry level communities were first time buyers prefer quick move in homes.
Kirk Van Hefty: It's worth noting that our total spec inventory was up approximately 40% year-over-year as we have intentionally increased our inventory levels to meet buyer demand in the upcoming spring selling season. Based on the volume of homes under production, we expect to deliver approximately 2,700 homes in the first quarter and at least 12,000 homes for the full year. We expect the average closing price of these deliveries to be approximately $600,000 for the first quarter and for the year. This shift also aligns with our pivot to more self-developed communities, as discussed by both Sheryl and Eric. Our fourth quarter home closings gross margin was 24.1%, up from 23.5% a year ago. This quarter's margins exceeded our previous guide due primarily to less-than-expected house cost pressure and greater overhead leverage from higher closing volumes. It's worth highlighting that our gross margin in the fourth quarter of 2022 included a $25 million inventory impairment, which resulted in an adjusted gross margin of 24.5%.
Kurt: Worth, noting that our total spec inventory was up approximately 40% year over year as we have intentionally increased our inventory levels to meet buyer demand in the upcoming spring selling season.
Kurt: Based on the volume of homes under production, we expect to deliver approximately 2700 homes in the first quarter and at least 12000 homes for the full year.
Kurt: We expect the average closing price of these deliveries to be approximately $600000 for the first quarter and for the year.
Compared to 2023, the reduction in our average pricing partly reflects the shift towards more affordable product, particularly in our Texas and Florida markets to meet consumer needs.
Kurt: This shift also aligns with our pivot to more self develop communities that.
Kurt: It has been discussed by both Cheryl and Eric.
Kurt: Our fourth quarter home closings gross margin was 24, 1% up from 23, 5% a year ago.
Kurt: This quarter's margins exceeded our previous guidance due primarily to less than expected house cost pressure and greater overhead leverage from higher closing volume.
It's worth highlighting that our gross margin in the fourth quarter of 2022 included a $25 million inventory.
Kurt: Impairment, which resulted in an adjusted gross margin of 24, 5%.
Kirk Van Hefty: We are pleased with the relative stability in our gross margin trends, despite an increased use of targeted mortgage incentives over the past year, with resiliency driven primarily by reduced lumber costs and the strength of our to-be-built margins. As we look ahead, we expect incentive costs to moderate in 2024, while construction and lot costs trend higher. Our net sales orders in the quarter increased 30% year-over-year to 2,361 homes.
Kurt: We are pleased with the relative stability in our gross margin trends. Despite an increased use of targeted mortgage incentives.
Kurt: Over the past year with the resiliency, driven primarily by reduced lumber costs and the strength of our to be built margins.
Kurt: As we look ahead, we expect incentive cost to moderate in 2024, while construction and loss cost trend higher.
Kurt: As a result, we expect our home closings gross margin to be relatively stable in the range of 23 to 23, 5% in the first quarter and for the full year.
Kurt: Our net sales orders in the quarter increased 30% year over year to 2361 homes.
Kirk Van Hefty: This was driven by a 29% increase in our monthly absorption pace to 2.4 per community and a 1% increase in ending community count to 327 outlets. As Sheryl noted, our sales improved over the course of the quarter with a strong pickup in December that has carried into the new year across all consumer groups. Our net sales order price in the fourth quarter was $629,000, up 9% year over year. However, cancellation rates remained low at 11.6% of gross orders.
Kurt: This was driven by a 29% increase in our monthly absorption pace to two four per community and a 1% increase in ending community count to 327 outlets.
Kurt: As Cheryl noted our sales improved over the course of the quarter with a strong pickup in December that was carried into the new year across all consumer groups.
Kurt: Our net sales order price in the fourth quarter was $629000 up 9% year over year.
Kurt: Cancellation rates remained low at 11, 6% of gross orders. This was down from 24, 4% a year ago are.
Kirk Van Hefty: This was down from 24.4% a year ago. Our below-average cancellation rates continue to reflect the strength of our diversified buyers. Proactive approach to securing meaningful upfront deposits from our customers and diligent prequalification of all buyers prior to signing sales contracts. In the fourth quarter, customers in backlog had average deposits of $62,000, or 9% per home. SG&A as a percentage of home closings revenue was 9.7 percent, up from the record low of 7.3 percent in the year-ago period. The reduced leverage was primarily due to lower home closings revenue, higher performance-based compensation expense, and external broker commissions.
Kurt: Our below average cancellation rates continued to reflect the strength of our diversified buyers proactive approach to securing meaningful upfront deposits from our customers.
Kurt: And diligent prequalification of all buyers prior to signing sales contracts.
Kurt: In the fourth quarter customers in backlog had average deposits of $62000 or 9% per home.
Kurt: SG&A as a percentage of home closings revenue was nine 7% up from a record low of seven 3% in the year ago period.
Kurt: The reduced leverage was primarily due to lower home closings revenue higher performance based compensation expense and external broker commissions.
Kurt: Going forward, we will maintain a disciplined cost structure and our forecasting SG&A ratio in the high 9% range in 2024, which would be consistent with nine 8% in 2023.
Kirk Van Hefty: Going forward, we will maintain a disciplined cost structure and are forecasting a SG&A ratio in the high 9% range in 2024, which would be consistent with 9.8% in 2023. Our financial services team achieved a capture rate of 86%, which is up from 78% a year ago. This strong result drove financial services revenue to $43 million with a gross margin of 45.9% for the quarter.
Kurt: Our financial services team achieved a capture rate of 86%, which was up from 78% a year ago.
Kurt: This strong result drove financial services' revenue to $43 million with a gross margin of 45, 9% for the quarter by.
Kurt: By using finance as a sales tool our talented financial service team has supported our success through well executed personalize incentive programs that has allowed us to navigate the challenging interest rate environment cost effectively.
Kurt: While providing compelling value to our customers.
Kirk Van Hefty: By using finance as a sales tool, our talented financial service team has supported our success through well-executed, Personalized Incentive Programs that have allowed us to navigate the challenging interest rate environment cost effectively. Turning now to our strong capital position, we generated $827 million of cash flow from operations in 2023 and ended the year with significant liquidity of approximately $1.8 billion. This included $799 million of unrestricted cash and $1.1 billion of available capacity on our revolving credit facilities, which remain undrawn outside normal course letters of credit, down from 18.8% in the prior quarter and 24% a year ago.
Kurt: Turning now to our strong capital position, we generated $827 million of cash flow from operations in 2023 and ended the year with significant liquidity of approximately $1 $8 billion.
Kurt: This included $799 million of unrestricted cash and $1 1 billion of available capacity on our revolving credit facilities, which remained undrawn outside normal course letters of credit.
Kurt: Our homebuilding net debt to capitalization ratio was 16, 8% down from 18, 8% in the prior quarter and 24% a year ago.
Kurt: Equipped with this balance sheet and strong expected cash generation, we will maintain our disciplined and opportunistic capital allocation framework as we evaluate our main priorities of investing for future growth.
Kurt: Maintaining strong liquidity and balance sheet health and returning excess capital to shareholders through share repurchases.
Kurt: Since 2020, we have repaid approximately $1 8 billion of senior debt as we have successfully executed our post acquisition debt reduction strategy.
Kirk Van Hefty: Maintaining strong liquidity and balance sheet health and returning excess capital to shareholders through share repurchases. Since 2020, we have repaid approximately $1.8 billion of senior debt as we have successfully executed our post-acquisition debt reduction strategy. In total, these repayments have reduced our annual interest expense by about $105 million and driven a significant reduction in our debt-to-capitalization ratio.
Kurt: In total these repayments have reduced our annual interest expense by about $105 million and driven a significant reduction in our debt to capitalization ratios.
Kurt: Our next senior note maturity is not until 2027, leaving us with financial flexibility in the years ahead.
Kurt: Over the same four year period, we have deployed approximately $889 million into share repurchases, reducing our diluted share count by about $33 million or just over 30% of beginning shares driving higher earnings per share and returns for our shareholders in total since our repurchase.
Kirk Van Hefty: Our next senior note maturity is not until 2027, leaving us with financial flexibility in the years ahead. Over the same four-year period, we have deployed approximately $889 million in share repurchases, reducing our diluted share count by about 33 million, or just over 30% of beginning shares, driving higher earnings per share in returns for our shareholders. In total, since our repurchase program began in 2015, we have repurchased over $1.4 billion, or approximately 50% of our beginning shares. At quarter end, our remaining share repurchase authorization was $494 million.
Kurt: Program began in 2015, we have repurchased over $1 4 billion or approximately 50% of beginning shares.
Kurt: At quarter end, our remaining share repurchase authorization was $494 million.
Kurt: We are committed to continuing to return excess capital to shareholders in the years ahead and expect to repurchase approximately $300 million.
Kurt: Of our common stock this year now I will turn the call back over to Cheryl. Thank you card to wrap up we are extremely proud of our team's 2023 performance and look forward to delivering an even stronger 2024.
Sheryl D. Palmer: In addition to our financial results I am equally proud of another important milestone. We recently earned with our ninth year as America's most trusted homebuilder. This concept of earning and maintaining brand trust here after year, especially during 2023, a year, where consumers grew even more wary and SKU.
Sheryl D. Palmer: We are committed to continuing to return excess capital to shareholders in the years ahead and expect to repurchase approximately $300 million of our common stock this year. Now, I will turn the call back over to Sheryl. Thank you, Kurt.
Sheryl D. Palmer: To wrap up, we are extremely proud of our team's 2023. In addition to our financial results, I'm equally proud of another important milestone we recently earned with our ninth year as America's Most Trusted Home Builder. This concept of earning and maintaining brand trust year after year, especially during 2023, a year when consumers grew even more weary and skeptical of brands, is not lost on us. To our tremendous team members across the country, we remain focused on the long game and continue to raise the bar in delivering an unmatched customer experience. Thank you to all of our team members for helping us to achieve this amazing accomplishment.
Sheryl D. Palmer: <unk> brand is not lost on us.
Sheryl D. Palmer: There are tremendous team members across the country, we remain focus on the long game and continue to raise the bar and delivering an unmatched customer experience.
Sheryl D. Palmer: Thank you to all of our team members for helping us to achieve this amazing accomplishment.
Sheryl D. Palmer: Our strategic plan since becoming a public company over 10 years ago has been focused on building scale diversification and operating efficiency to deliver superior performance for our shareholders.
Sheryl D. Palmer: You've heard today the next leg of our strategic journey is focused on accretive growth.
Sheryl D. Palmer: Believe that the strength of our core land portfolio financial health of our targeted consumers and experienced teams will allow us to navigate the uncertainties that arise while our healthy inventory levels, improving cycle time, and compelling sales and finance tool will allow us to meet our customers' needs.
Operator: Our strategic plan, since becoming a public company over 10 years ago, has been focused on building scale, diversification, and operating efficiency to deliver superior performance for our shareholders. As you've heard today, the next leg of our strategic journey is focused on accretive growth. We believe that the strength of our core land portfolio, the financial health of our targeted consumers, and experienced teams will allow us to navigate the uncertainties that arise while our healthy inventory level, Improving Cycle, and Compelling Sales and Finance will allow us to meet our customers. With that, let's open the call to your Operator. Please provide our, Thank you. If you would like to ask a question, you may do so by pressing star followed by one on your telephone keypad now.
While we are early in the year, we have had a promising start and we look forward to updating you again on our progress in April with that let's open the call to your questions. Operator, please provide our participants with instructions.
Speaker Change: Thanks team if you would like to ask a question you may do staple question Star followed by one on just kind of think he pack now if you do change your mind. Please press star.
Speaker Change: One to ask a question. Please ensure that your line is administered locally.
Speaker Change: Our first question today comes from Truman Patterson from Wolfe Research. Please go ahead Truman your line is now open.
Truman Patterson: Hey, good morning, everyone and thanks for taking my questions.
Truman Patterson: Firstly on the gross margin guidance.
Truman Patterson: Morning.
Truman Patterson: First on your gross margin guidance in.
Speaker Change: <unk> 23 23, 5%.
Speaker Change: Could you help us understand what's embedded in that guidance because it basically implies for the rest of the year. The remaining three quarters of kind of flat sequentially and I'm thinking there's clearly some higher land costs, maybe stick and brick as we move through the year. So the potential offsets would be either some modest pricing.
Truman Patterson: If you do change your mind, please press star followed by two. When preparing to ask your question, please ensure that your line is unmuted locally. Our first question today comes from Truman Patterson from Wolfe Research. Please go ahead, Truman; your line is now open. Hey, good morning, everyone.
Speaker Change: And your assumptions.
Speaker Change: Going forward or.
Some incremental internal streamlining initiatives that could help offset I'm, just hoping you could walk us through that please.
Speaker Change: Yes, good morning, Chairman.
Truman Patterson: And thanks for taking my questions. First on the gross margin guidance. Hey, good morning.
I'll take a stab at that.
Speaker Change: Just to kind of talk a little bit about the margins as we said in our guide or in the prepared comments.
Truman Patterson: First, on your gross margin guidance for 1Q23, 23.5%, could you help us understand what's embedded in that guidance? Because it basically implies for the rest of the year, the remaining three quarters of kind of flat sequentially. And I'm thinking, you know, there's clearly some higher land costs, maybe stick and brick as we move through the year. So the potential offsets would be either, you know, some modest pricing embedded in your assumption going forward or, you know, some incremental internal streamlining initiatives that could help off-site. I'm just hoping you could walk us through that.
Speaker Change: We are assuming a slight kind of modest pullback in incentives over the course of the year, which are being offset to a certain extent with some increases in house cost of land costs, but I think the one thing you need to keep in mind is today, we're structurally different company.
Speaker Change: We've done a lot of operational improvements.
Speaker Change: In addition to the scale that we've achieved as a company as a result of all the M&A work and so some of those operational efficiencies whether it's.
Speaker Change: Floor plan rationalization value engineering.
Speaker Change: Focusing on kind of what we would call even flow production are going to kind of help us kind of work our way through that to provide that stability.
Our margins over the course of the year.
Yeah.
Truman Patterson: Okay, okay. So if I'm hearing you correctly, maybe there's a little bit more juice to squeeze, so to speak, from some of the internal initiatives that you all have implemented. And then, you know, Cheryl, you've all been one of the more inquisitive builders over the past decade. And I think we've seen, fixing M&A deals so far in 2024, just in the industry overall, right? How are you thinking about M&A today as it relates to, you know, either larger transformative deals, tuck-in acquisitions, or are you all, you know, kind of comfortable with your footprint land bang?
Speaker Change: Okay. Okay. So if I'm hearing you correctly, maybe there's a little little bit more.
Speaker Change: Juice to squeeze so to speak from some of the internal.
Speaker Change: The initiatives that you all have implemented.
Speaker Change: And then <unk>.
Speaker Change: Cheryl.
Speaker Change: You all had been one of the more acquisitive builders over the past decade.
Speaker Change: And I think we've seen six in an M&A deal so far in 2024, just in the industry overall rate and.
Speaker Change: How are you thinking about M&A today.
Sheryl D. Palmer: As it relates to you know either larger transformative deals tuck in acquisitions.
Sheryl D. Palmer: Or are you will you know kind of comfortable with your footprint land bank streamline strategy that youre not necessarily entertaining deals in the current environment.
Sheryl D. Palmer: Streamlined Strategy that you're not necessarily entertaining deals from the current environment. Yeah, I appreciate the question, Truman. You know, I think you said it correctly, over the years, we've certainly been known as one of the more inquisitive. And as you know, initially, that was to make sure that we had the right width on our map and then, you know, kind of follow that up with making sure we had the right scale in each of our markets.
Speaker Change: Yeah I appreciate the question Truman.
Speaker Change: I think you said it correctly over the years, we've certainly been known as one of the more inquisitive.
Speaker Change: And as you know initially that was to make sure that we have the right width on our map and then kind of follow that up with making sure. We have the scale in each of our markets. So when we look at the map today, we feel really good about it given our historic kind of activity. We certainly have the opportunity to take a look at all the deals that come to the market.
Sheryl D. Palmer: And when we look at the map today, we feel really good about it. Given our historic kind of activity, we certainly have the opportunity to take a look at all the deals that come to the market. We're quite focused on the organic kind of growth that we laid out in our prepared remarks. We have the opportunity to look at deals that are, you know, coming into the marketplace. And honestly, it would have to really provide some strategic benefit to the organization from a geographic or scale perspective, it would have to from a product perspective, and it may also be creative. Obviously, it has to work financially.
Speaker Change: We're quite focused on the organic kind of growth that we laid out in our prepared remarks, we have the opportunity to look at deals that are you know.
Speaker Change: And coming into the marketplace and honestly it would have to really provide.
Speaker Change: Some strategic benefit to the organization from a geographic or scale perspective, it would have to from a product perspective may also be accretive obviously it has to work financially.
Sheryl D. Palmer: So I'm not going to say that we would never do a deal. But today, we're really focused on achieving our growth organically. And if the right opportunity comes along, we will take a look at it. Okay, okay. Perfect. And if I could just squeeze one more in, your 24 ASP guide to about 600,000. That's about 12% lower than your backlog of, I think about $680,000. Could you just elaborate a little bit on what's going on there? You know, even with a shift to maybe some more affordable products, spec, etc., it seems a pretty meaningful shift, if you will. Yeah, you're exactly right.
Speaker Change: So I'm not going to say that we would never do a deal but today, we're really focused on achieving our growth organically and if the right opportunity comes along we will take a look at it.
Speaker Change: Okay. Okay.
Speaker Change: Perfect and if I could just squeeze one more in.
Speaker Change: Your 24 ESP guide of about 600000.
Speaker Change: That's about 12% lower.
Speaker Change: Then your backlog of I think about 680000.
Speaker Change: Could you just elaborate a little bit on what's going on there it seems even with the shift in maybe some more affordable products back et cetera.
Speaker Change: It seems pretty a pretty meaningful shift if you will.
Speaker Change: Yes, youre exactly right and as we've been talking about really what the last two M&A and honestly the shirt.
Sheryl D. Palmer: And as we've been talking about, really, with the last two M&As, and honestly, the shift, the, you know, subtle pivot you've seen in our consumer groups, we are going to make them more and more affordable. So what you have in your backlog today, Truman, tends to be your resort lifestyle esplanade, which tends to be at a much higher ASP. But what will fill that in, in the subsequent quarters, is the spec production we have, and our spec, as we said, tend to be that first time buyer, as well as that first time move up. So you hate to point to the mix, but in all honesty, that's exactly what it is.
Subtle pivot you've seen.
Speaker Change: And our consumer groups, and we are going to more and more affordable. So what you have in your backlog today Truman tends to be your resort lifestyle, Esplanade, which tend to be at a much higher ASP.
Speaker Change: Well, we'll fill that in in the subsequent quarters. If the spec production we have in our specs as we said tend to be that first time buyer.
Speaker Change: As well as that first time move up so you hate to point to mix, but in all honesty, that's exactly what it is.
Speaker Change: Okay perfect well, thank you and good luck in 2004.
Sheryl D. Palmer: Okay, perfect. Well, thank you, and good luck in 20... Thank you. Thank you. The next question comes from Carl Reichardt from BTIG. Please go ahead, your line is now open.
Speaker Change: Thank you.
Speaker Change: Thank you. The next question comes from Carl Reichardt from <unk>. Please go ahead. Your line is now open.
Carl E. Reichardt: Thanks, Good morning, everybody. Thanks for all the detail today appreciate it.
Carl E. Reichardt: Sheryl you talked in the prepared remarks about market share gains.
Carl E. Reichardt: Morning, everybody. Thanks for all the detail today. Appreciate it. Sheryl, you talked in your prepared remarks about market share gains. And, as granted, if we don't believe the overall market grows at 10%, and you do, then you're gaining share. But the blunt question is, from whom are you going to take the share? Is it a function of the private builders?
Carl E. Reichardt: Ranted, if we don't believe the overall market grows at 10% and you. Do then you are gaining share but still a blunt question is from whom are you going to take the share is it a function of the private builders is it a mix shift towards move up product that other publics aren't building or is it market related can you just sort of expand on directionally, what youre going to.
Carl E. Reichardt: The share from.
Speaker Change: Yes, I think it's all of the above Carl certainly what we're seeing is Ah.
Sheryl D. Palmer: Is it a mixed shift towards moving up products that other publics aren't building? Or is it market related? Can you just sort of expand on directionally who you're going to take the share? Yeah, I think it's all of the above, Carl. Certainly, what we're seeing is a different level of efficiency in our communities and much higher rates. So we may see some market growth, but obviously, we're having, and we're also anticipating grabbing a share. And one of the things, Carl, that I would say is really working in our favor today is the strength of the diversity of our portfolio. So when you look at our ability to offer both spec homes that are relatively equal, with a relatively equal balance, when you look at us serving, you know, a third, a third, and a third, that first-time buyer, that first and second move up, and that resort lifestyle, it really gives us an advantage in each of the markets. As you see some of the volatility that we see, we've seen certainly over the last year, I don't think we have experienced the same level of volatility.
Speaker Change: A different level of efficiency in our communities and much higher paces. So we may see some market growth, but obviously, we're having we're also anticipating grabbing share and.
Speaker Change: One of the things Karl that I would say are really working in our favor today is the strength of the diversity of our portfolio. So when you look at our ability to offer both to be built spec homes at a relatively equal with a relatively equal balance when you look at our serving a third a third.
Speaker Change: Third that first time buyer that first and second move up and that resort lifestyle. It really gives us an advantage in each of the markets as you see some of the volatility that we see we've seen certainly over the last year I don't think we have experienced the same level of volatility if I think about the fourth.
Quarter.
Speaker Change: Everyone we saw.
Speaker Change: A lot of movement in interest rates as you know October was Okay November was pretty rough December was our best December in the company's history, and I really credit the diversity of the portfolio that allows us to do that.
Speaker Change: Okay. Thank you Sheryl.
Speaker Change: And then you also talked about a pivot and how youre thinking about land and the off balance sheet side and if I operated under the assumption that in a JV as you kind of touched a structure there not that many seller financing deals that default for more off balance sheet is the land banking business.
Sheryl D. Palmer: If I think about the fourth quarter, you know, everyone, we saw a lot of movement in interest rates. As you know, October was okay, November was pretty rough, and December was our best December in the company's history. And I really credit the diversity of the portfolio that allows us to do that. Thank you, Sheryl.
Speaker Change: Can you talk a little bit about the availability of land bank capital your plans to focus more on that if they exist and then what youre seeing in terms of the cost of that capital right now.
Speaker Change: And take that sure Hi, Karl it's Eric.
Eric: Yes, I would say that we have all of those arrows in the quiver.
Eric: And we do employ all of them the joint ventures are great and when we've got alignment with it.
Carl E. Reichardt: And then you also talked about a pivot in how you're thinking about land and the off-balance sheet side. And if I operate under the assumption that JVs are kind of tough to structure, they're not that many seller financing deals, the default for more off-balance sheet deals is the land bank. Can you talk a little bit about the availability of land bank capital, your plans to focus more on that, if they exist, and then what you're seeing in terms of the cost of that capital right now? Thanks. Want to take that? Sure. Hi Carl, it's Eric.
Eric: Our building partner in.
Eric: And being able to develop that off balance sheet pull lots and just in time to the homebuilding business, it's great and we do have eight of those across the markets.
Eric: And so they are meaningful as you think about percent control.
Eric: When it comes to the seller financing Thats always the first ask of the divisions that we look to the seller for financing because that typically is the least expensive and.
Eric: And we do a fair amount of that to your point on land banking I would say land banking is always available I would say the cost of.
Eric: The comparison of costs relative to where we did our relatively large slug.
Eric: The vehicle that we negotiated as up from there.
Eric Dieter: Yeah, I would say that we have all of those arrows in the quiver, and we do employ all of them. The joint ventures are great, and when we've got alignment with a building partner and being able to develop that off balance sheet, pull the lots in just in time for the home building business, it's great, and we do have eight of those across the markets, so they are meaningful as you think about percent control. When it comes to seller financing, that's always the first question the divisions ask: have we looked to the seller for financing because that typically is the least expensive, and we do a fair amount of that.
Eric: We expect that to moderate down, especially as kind of a perceived risks and the interest rate environment.
Eric: Kind of.
Eric: Normalized plateaus.
Eric: When it comes to a place that we find attractive again and so the discussions are always being held.
Eric: Haven't negotiated any real recent ones.
Eric: I would say discussions are ongoing and we look forward Carlos for it to come in line with kind of our weighted average cost of capital.
Eric: Where it starts becoming attractive for us and Eric If you were to look back to 18 months ago. When we did our first big deal on that land banking rates are doing today I mean, I think there is instantly.
Eric Dieter: To your point on land banking, I would say land banking is always available. I would say the cost of, you know, the comparison of costs relative to where we did our relatively large slug of the vehicle that we negotiated is up from there. You know we expect that to moderate down, especially as the perceived risk in the interest rate environment kind of normalizes, plateaus, and kind of comes to a place that we find attractive again, and so the discussions are always being held. We haven't negotiated any real recent ones, but I would say discussions are ongoing, and what we look for, Carl, is for it to come in line with our weighted average cost of capital. That's really where it starts becoming attractive for us.
Eric: 300 basis points to be to be pointing to your question Karl I would say, it's $3 to 350 basis points relative as a compare to kind of where we originally negotiated our deal.
Speaker Change: Okay I appreciate that thank you for the detail Eric Thanks Cheryl.
Speaker Change: Thank you.
Speaker Change: Thank you. The next question comes from Matthew Bouley from Barclays. Please go ahead Matthew.
Speaker Change: Good morning, you have Elizabeth weighing in on for Matt today.
Matthew Bouley: And I just wanted to kick it off by saying.
Matthew Bouley: You noted that you were raising prices in nearly 60% of communities.
Matthew Bouley: Where are you seeing those price increases and if this trend kind of continues throughout the year is that something that's contemplated into the high end of your guide or with this fund itself to upside on the type of margins.
Matthew Bouley: Okay.
Speaker Change: Yes, hi, there.
Speaker Change: Yes, we did have some pricing power in Q4 as you mentioned, we did we were able to raise our pricing by about on average are in about 60% of our communities.
Speaker Change: And that is embedded into our guide, but any additional pricing power would continue to be upside.
Eric Dieter: And Eric, if you were to look back to 18 months ago when we did our first big deal and what land banking rates are doing today, I mean, I think there's easily a 300 basis point difference. Yeah, to be pointed to your question Carl, I would say it's three to 350 basis points, relative as I compare to kind of where we originally negotiated our deal. I appreciate that. Thank you for the detail, Eric.
Speaker Change: And then depending on what interest rates do.
Speaker Change: Et cetera that all plays into what the margin.
Speaker Change: Could have an impact on the margins.
Speaker Change: I'd say the good news if you agree Kurt is.
Speaker Change: Elizabeth is.
Speaker Change: Even though we saw that pricing opportunity and 60%. It was modest and I think that's a much healthier place than what we would hope to see as we move through 'twenty. Four is continued modest pricing opportunity as well as some continued reduction.
Carl E. Reichardt: Thank you. Thank you. The next question comes from Matthew Bouley from Barclays. Please go ahead, Matthew.
Speaker Change: The discount now it's early in the year. So we're gonna have to play that out obviously, we've seen the volatility that hit the market certainly yesterday, we saw it a couple of weeks ago with the single <unk>.
Matthew Bouley: Good morning. You have Elizabeth laying it on for Matt today. And I just wanted to kick it off by saying, You noted that you were raising prices in nearly 60% of communities. Where are you seeing those price increases? And if this trend kind of continues throughout the year, is that something that's contemplated since the high end of your guide, or would this lend itself to upside on the side of margins? Yeah, hi there.
Speaker Change: We're just left in interest rates that we've seen in a year.
Speaker Change: But all in all we're in a much better place than we were a year ago. So we expect to continue to see some opportunity all other things being equal as we move into the air.
Speaker Change: Okay.
Speaker Change: Okay. Thank you that's helpful and I guess kind of continuing on that how is how are you balancing that with your use of incentives I guess, obviously, when there's a pricing opportunity you're going to take it but does that mean that youre typically.
Sheryl D. Palmer: What Yeah, we did have some pricing power in Q4, as you mentioned. We were able to raise our prices by about on average, or in about 60% of our communities. And, you know, and that is embedded into our guide, but any additional pricing power would continue to be upside. Again, and then depending on what interest rates do, etc., that all plays into what the margin could have an impact on the margin. And I'd say the good news, if you agree with Kurt, is... Elizabeth is, you know, even though we saw that pricing opportunity at 60%, it was modest. And I think that's a much healthier place.
Speaker Change: Dialing back on your incentives more or are you kind of keeping that pretty stable.
Speaker Change: Yeah I think.
Speaker Change: We've been very fortunate and we've gotten pretty good at this navigating this environment for it seems like nearly two years and I think our tools have gotten better and our appreciation of being able to personalize I think Kurt spoke to this in his prepared remarks being able to personalize each incentive to the specific.
Speaker Change: Buyers needs. We certainly are in the market that we can't kind of pain, and a community or any market with a single brush. So it allows us to serve the customer and the best way for them and at the same time protect the margin wherever however, and wherever we can.
Sheryl D. Palmer: And what we would hope to see as we move through 24 is continued modest pricing opportunities, as well as some continued reduction discounts. Now, it's early in the year, so we're going to have to play that out. Obviously, we've seen the volatility that's hit the market. Certainly yesterday, we saw it a couple weeks ago with the single largest lift in interest rates that we've seen in a year.
Speaker Change: It's interesting as Incent as interest rates started kind of pulling back and we saw.
Speaker Change: Laughs over the last few weeks, we saw rates drop as low as kind of the mid sixes I started to see in some markets kind of us going back I mean as being the industry to some of the old habits and doing.
Sheryl D. Palmer: But all in all, we're in a much better place than we were a year ago, so we expect to continue to see some opportunities, all other things being equal, as we move into the year. Okay, thank you. That's helpful.
Doing incentives off of.
Speaker Change: And there are a lot premiums or discounting house, where in fact, we've stayed very very focus on using finance as the best sales sold to give our consumers. The best monthly rate that allows us to pull back incentives.
Sheryl D. Palmer: And I guess, kind of continuing on that, how are you balancing that with your use of incentives? I guess, you know, obviously, when there's a pricing opportunity, you're going to take it. But does that mean that you're typically kind of dialing back on your incentives more? Or are you kind of keeping that pretty stable? Yeah, I think we've been very fortunate.
Speaker Change: One house at a time.
Speaker Change: <unk>.
Speaker Change: We are early in the air we have seen some volatility once again I think the good news is if I look at what those forward commitments were costing.
Speaker Change: Many months ago versus where we are today, it's significantly better even with the blip that we've seen this week I still would expect over time, maybe not as quick as the market would assume seeing you know fed cuts in March or May I think over time, we certainly expect additional stabilization, which will continue.
Sheryl D. Palmer: And, you know, we've gotten pretty good at navigating this environment for what seems like nearly two years. And I think our tools have gotten better. And our appreciation of being able to personalize, I think Kurt spoke to this in his prepared remarks, personalizing each incentive to the specific buyer's needs. We certainly are in a market where we can't kind of paint any community or any market with a single brush.
Speaker Change: Bring incentives down.
Speaker Change: Thank you very much.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Thank you. The next question comes from Mike Dahl from RBC. Please go ahead, Mike Your line is now open.
Sheryl D. Palmer: So it allows us to serve the customer in the best way for them and, at the same time, protect the margin wherever, however, and wherever we can. You know, it's interesting as interest rates started kind of pulling back, and we saw, you know, last, For the last few weeks, we saw rates drop as low as kind of the mid-sixes. I started to see in some markets kind of us going back, I mean, we're the industry, to some of the old habits and, you know, doing incentives off of options or lot premiums or, you know, discounting houses where, in fact, we've stayed very, very focused on using finance as the best sales tool to give our consumers the best monthly rate. That allows us to pull back incentives one house at a time. We are early in the year.
Speaker Change: Hi, This is actually Chris kalata on for Mike.
Just touching on the community count growth.
Comments for.
Chris Kalata: 2025, I think you guys said youre expecting meaningful growth there could you just help us.
Chris Kalata: Better quantify what that what meaningful means there and then in terms of the trajectory just given the flat.
Speaker Change: Community Count outlook for this year should we expect that meaningfully stepping up as soon as <unk> 25 or is that more of a back half weighted comment there.
Speaker Change: We really aren't at this point and I give guidance specific items, obviously for 25, but what I would tell you is that we do expect to see community count we talked about 10% closing growth each year.
Speaker Change: Year thereafter, I think you're going to see.
Speaker Change: Something kind of very similar light on the community count without getting too specific and as we look at the land that's kind of in our pipeline today I think you'll see that starting in early 'twenty five and building through the year.
Sheryl D. Palmer: We have seen some volatility. Once again, I think the good news is that if I look at what those forward commitments were costing, you know, many months ago versus where we are today, it's significantly better. Even with the blip that we've seen this week, I still would expect, over time, maybe not as quick as the market had assumed seeing, you know, Fed cuts in March or May. But I think over time, we certainly expect additional stabilization, which will continue to bring incentives down. Thank you very much.
Speaker Change: Okay.
Speaker Change: Understood I appreciate that and then just on the.
Speaker Change: The share buyback expectation that you guys said 300 million for this year is that included in the.
Speaker Change: Diluted share Count guide for both next quarter and the year and I was just having trouble reconciling that.
Speaker Change: To get the gains that went away in 109 million shares outstanding just said that in the guide and then I guess, if it is or if it isn't just a timing expectation around deployment there.
Speaker Change: Yeah, Hi, Chris that's.
Matthew Bouley: The next question comes from Mike Dahl from RBC. Please go ahead, Mike, your line is now open. It's actually Chris Claude on for Mike.
Chris Kalata: That share repurchase guide is not included in the share counts that were in our release.
Speaker Change: Because they haven't necessarily happened yet so those.
Chris Kalata: Those are not contemplated in that.
Speaker Change: Yeah.
Speaker Change: I appreciate your help.
Speaker Change: Thank you. The next question comes from Jay Mccanless from Wedbush. Please go ahead J. Your line is now open.
Mike Dahl: Just touching on the community count growth. Comments for 2025. I think you guys said you're expecting meaningful growth there. Can you just help us?
Jay Mccanless: Hey, good morning, everyone. So on the 40% of communities, where you are not raising prices is it holding prices stable or having to cut pretty aggressively maybe talk about what youre doing with that 40% of the count.
Sheryl D. Palmer: Um, better quantify what that meaningful kind of means there. And then, in terms of the trajectory, just given the flat community kind of outlook for this year, should we expect that meaningfully stepping up as soon as 1Q25, or is that more of a back half weighted comment there? We really aren't at this point going to give guidance, specific guidance, obviously, for 25. But what I would tell you is that we do expect to see a community count. You know, we talked about 10 percent closing growth each year thereafter. I would think you're going to see something in a very similar light on the community count without us getting too specific. And as we look at the land that's kind of in our pipeline today, I think you'll see that starting in early 25 and building through the year.
Speaker Change: And I don't think there'd be one trend I'd point to Jay I think to actually kind of reverted to a more normal environment, where you might have closeouts, where you do have some added discount.
Jay Mccanless: You might have new openings, where you are coming in strong and then wanting to build kind of equity for the customers over time.
Jay Mccanless: I'd say, probably has a role I'd say probably <unk>.
Jay Mccanless: Held Serge.
Jay Mccanless: Without taking a deep dive into every one of those 40 community, 40% I would say that would be the average bet I would say you probably have some added incentives and certainly you might have a few communities where you are in close out.
Jay Mccanless: Counted the house, but I would say the average would probably be hold sir.
Jay Mccanless: And then maybe could you talk about what's happening with co broker and outside broker commissions. What are you seeing there are you expecting that to be a headwind for 2000 and force numbers.
Sheryl D. Palmer: I appreciate that and then just on the share buyback expectation, the U.S. at $300 million for this year, is that included in the diluted share count guide for both next quarter and the year end? I'm just having trouble reconciling the numbers because tickets are getting to 108 and 109 million shares outstanding. Just put that in the guide, and then I guess if it is or if it isn't, just the timing and expectation around deployment there. Yeah, hi Chris.
Jay Mccanless: Yes.
Jay Mccanless: You saw that as a headwind actually in the back half of 'twenty three as I'm sure you know in 2002, we reduced commissions, we reduced the base rate. We then put it on where we were seeing high Bose, we excluded that from co broke commissions.
Jay Mccanless: When the market kind of normalized I think the market went back to that kind of average 3%.
Jay Mccanless: If I were to share some good news.
Jay Mccanless: As I look at our reservations and moving into 2024.
Kirk Van Hefty: That share repurchase guide is not included in the share counts that were in our release because they haven't necessarily happened yet. So those are not contemplated in the pre-show. Thank you. The next question comes from Jay McCanless from Wedbush. Please go ahead, Jay, your line is now open. Hey, good morning, everyone.
Jay Mccanless: For the first six weeks of this year, we've seen some really nice movement on.
Jay Mccanless: On co broke trending down from the peak I would say generally over the last couple of years co broke and our reservation and.
Jay Mccanless: When our reservations have been pretty consistent with the overall business and we've known the opportunity is really to build trust with that consumer before they ever.
Jay Mccanless: So on the 40% of communities where you're not raising prices, is it holding prices stable or having to cut pretty aggressively? Maybe talk about what you're doing with that 40% of the population. And I don't think there'd be one trend I'd point to, Jay. I think it's actually kind of reverted to a more normal environment where you might have closeouts where you do have some added discounts. You might have new openings where you're coming in strong and then wanting to build, you know, kind of equity for the customers over time. I'd say, probably, as a rule, I'd say probably held serve without taking a deep dive into every one of those 40 percent.
Jay Mccanless:
Jay Mccanless: Got a a broker or their house on the market and we have finally started to see that we will hope it sustainable.
Jay Mccanless: But all in all when I look at the book of business outside of the reservations My guess as opposed to remain relatively consistent to the back half of 'twenty three.
Jay Mccanless: Okay.
Jay Mccanless: Yeah.
Speaker Change: Okay, great. Thank you for that and then the last question I had.
Speaker Change: I think again these numbers confused my head how many homes are closings what percentage of closings had some type of discount during fourth quarter.
Speaker Change: And maybe talk about what the level of that discounting was and what have you seen thus far into the spring.
Speaker Change: Yeah. So I would say every house has some sort of discount it's either a closing cost assistance.
Sheryl D. Palmer: I would say that would be the average, but I would say you probably have some added incentives. And certainly, you might have a few communities where you're a closeout, where you've discounted the house. But I would say the average would probably be hold serve.
Speaker Change: It's you know it might be financed tolls and might be some promotion in the design center and I'd say Thats just normal course of business, specifically, if you're thinking about kind of our forward commitments and the specific tools that we are.
Jay Mccanless: And then maybe could you talk about what's happening with the co-broker and the outside broker? What are you seeing there, and are you expecting that to be successful? Uh, getting a broker or putting their house on the market, and we've finally started to see that, and we'll hope it's sustainable. But all in all, when I look at the book of business outside of the reservations, my guess is it will remain relatively consistent in the back half of 20. Great, thank you for that.
Speaker Change: <unk> merz are enjoying in kind of rate buy downs. After 'twenty two 'twenty three about 20% of our closings he utilized some sort of forward commitment.
Speaker Change: Our balance like I said, what are you some sort of assistance and closing cost maybe it was a specific.
Speaker Change: Finance incentives, but kind of these tranches of forward commitments that that was 20% for the year and a little bit higher in the fourth quarter. When we saw the spike in rates, but as we talked about in our prepared remarks said generally leans heavily toward our first time buyers or are they really need more of that assistance to <unk>.
Sheryl D. Palmer: And then the last question I had, because I think I'm getting these numbers confused in my head, but how many homes or closings, what percentage of closings had some type of discount during the fourth quarter? And maybe talk about what the level of that discounting was and what you have seen thus far. Yeah, so I would say every house has some sort of discount. It's either closing cost assistance or something like that.
Speaker Change: <unk> to.
Speaker Change: To qualify and get the monthly mortgage that they can enjoy.
Speaker Change: Got it got it got it.
Speaker Change: Okay, great. Thank you that's all I had.
Speaker Change: Thank you.
Speaker Change: Thank you. The next question comes from Mike Rehaut from Jpmorgan. Please go ahead, Mike Your line is now open.
Sheryl D. Palmer: It's, you know, it might be finance tools, or it might be some promotion in the design center. And I'd say that's just the normal course of business. Specifically, if you're thinking about kind of our forward commitments and the specific tools that we've got for our customers in kind of rate buy-downs for 2023, about 20% of our closings utilized some sort of forward commitment; the balance, like I said, would have used some sort of assistance in closing costs, maybe it was a specific finance incentive, but kind of these tranches of forward commitments, that was 20% for the year and a But as we talked about in our prepared remarks, that generally leans heavily toward our first-time buyers, where they really need more of that assistance to qualify and get the monthly mortgage that they can enjoy.
Michael Jason Rehaut: Hi, guys. Good morning, Doug Ward on for Mike So.
Doug Ward: So you mentioned earlier that you know you guys. So you have healthy momentum that continued into January and February as well with the January having the most online reservation since 2021.
Speaker Change: Obviously that kind of gives some foresight into a strong spring selling season, but I was wondering if you could give a little bit more color on your expectations relative to kind of spring selling season kind of historical norm and whether the size you see now make you feel like it could be stronger than usual of you're on pace for something thats sort of in line.
Speaker Change: Yes, as I said, we really have had a nice start to the year December being a company record January continuing strong right out the gate and I think we've seen that traction continued through February.
Speaker Change: It was interesting to me a couple of weeks ago, and we saw that real spike in rates that we came out of that with probably the strongest weekend. We had seen in a long long time you know.
Speaker Change: Car, just look forward, but I would say all indicators that we've seen and as you mentioned when we look at traffic when I look at web traffic when I look at the number of reservations I think January might only be beat by February when I look at the number of reservations in the first two weeks of demand.
Sheryl D. Palmer: Got it. Got it. Got it.
Jay Mccanless: Okay. Great. Thank you. That's all I have.
Michael Jason Rehaut: The next question comes from Mike Rehaut from J.P. Morgan. Please go ahead, Mike. Your line is now open.
Michael Jason Rehaut: Hi guys. Good morning. Doug Wardlaw from Mike.
Speaker Change: All indicators are really strong.
Speaker Change: And I think what's happened is we've moved to a place where the volatility in interest rates that the builders have the totals in their tool box to really be able to help the consumer.
Sheryl D. Palmer: So you mentioned earlier that you guys feel you have healthy momentum that continues in January and February as well, with January having the most online reservations since 2021. Obviously, that kind of gives some foresight into a strong spring selling season. But I was wondering if you could give a little bit more color on your expectations relative to kind of spring selling seasons, kind of historical norm, and whether the signs you see now make you feel like it could be stronger than usual if you're on pace for something that's sort of in line. Yeah, you know, as I said, we really have had a nice start to the year, December being a company record, January continuing strong right out the gate And I think we've seen that traction continue through February.
Speaker Change: They are not a lot of inventory in the resale market theres not a lot of inventory in the new home market and I think you know I don't want to say the fear of missing out I think that might be as you know.
Speaker Change: I'm not trying to suggest for going back to 21 days, but I think we're in a healthy stabilized market and the consumer has met us more than halfway in understanding that interest rates in the fives and sixes are really from a long term perspective, a very good thing and their app.
Speaker Change: And so for us.
Speaker Change: The other thing the last thing that I mentioned is when I look at kind of the number of renters that we have in the U S. Today.
Sheryl D. Palmer: You know, it was interesting to me a couple weeks ago when we saw that real spike in rates that we came out of that with probably the strongest weekend we had seen in a long, long time. Hard to look forward, but I would say all indicators. That we've seen, and as you mentioned, when we look at traffic, when I look at web traffic, when I look at the number of reservations, I think January might only be beaten by February when I look at the number of reservations in the first two weeks of the month. All the indicators are really strong.
Speaker Change: And I look at every 50 bps of reduction in interest rate and what that does to open up the opportunity for renters to enjoy homeownership I think they're sitting on the sidelines so lots of.
Speaker Change: Lots of I think sprinkles of good news that we're seeing and everything that we see today would lead us to believe it can be a really nice healthy spring selling season.
Speaker Change: Great and then if you guys can just touch on there any substantial differences in markets between the use of <unk>.
Sheryl D. Palmer: And I think what's happened is we've moved to a place where the volatility and interest rates are such that the builders have the tools in their toolbox to really be able to help the consumer. There's not a lot of inventory in the resale market. There's not a lot of inventory in the new home market. And I think, you know, I don't want to say the fear of missing out.
Speaker Change: Any type of incentive throughout the.
Speaker Change: Past quarter.
Speaker Change: Yeah, it's an interesting.
Speaker Change: That's an interesting point there really is.
Speaker Change: Generally I would say that you know as I've said, a couple of times that our incentives are mostly used.
Speaker Change: Consistently used with our first time buyers, but when I look at markets like.
Sheryl D. Palmer: I think that might be a, you know, I'm not trying to suggest we're going back to, you know, 21 days, but I think we're in a healthy, stabilized market, and the consumer has met us more than halfway in understanding that interest rates in the fives and sixes are really, from a long-term perspective, a very good thing. And they're out in full force.
Speaker Change: Like Seattle, I would say that that's a market that very rarely use is kind of forward commitments.
Speaker Change: I would say the same for Sacramento.
Speaker Change: I would say generally when I look at the rest of our business with the first timer I would say there is an equal spread.
Speaker Change: Using kind of those finance tools to help folks to the front door and then obviously when I look at our resort lifestyle business, which is.
Sheryl D. Palmer: I think the other thing, the last thing that I mentioned is when I look at the number of renters that we have in the U.S. today and, you know, I look at every 50 bps of reduction in interest rates and what that does to open up the opportunity for renters to enjoy homeownership. I think they're sitting on the sidelines.
Speaker Change: Certainly moving across the U S, but predominantly today in Florida.
Speaker Change: We still see a very high penetration of cash and so we're not using nearly the same incentives for that consumer that we would be paying for our first time in our first time move up.
Speaker Change: Got it thank you guys.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Thank you. The next question comes from Ken Zenner from Seaport Research Partners. Please go ahead Ken.
Sheryl D. Palmer: So lots of little sprinkles of good news that we're seeing and everything that we see today would lead us to believe it's going to be a really nice, healthy spring selling season. Great. And then, you guys can just touch on, you know, if there were any, you know, substantial differences in markets between the use of any type of incentive throughout the past quarter. Yeah, it's an interesting point there really is. Generally, I would say that, you know, as I've said a couple times, our incentives are mostly used. I would say the same for Sacramento.
Kenneth Zener: Good morning, everybody.
Kenneth Zener: Good morning, Mark.
Kenneth Zener: Oh.
Kenneth Zener: Okay, sorry, just checking.
Kenneth Zener: I appreciate the.
Speaker Change: Okay.
Speaker Change: I would use around inventory lockouts et cetera et cetera.
Speaker Change: Very informative can you talk to.
Speaker Change: You talked about low threes I believe for orders.
Speaker Change: As a general pattern, but can you talk to your start process.
Speaker Change: Guides. This you mentioned even flow so I'm trying to see how that.
Speaker Change: Dr <unk>.
Speaker Change: <unk> supports the orders or does it actually defined the orders.
Speaker Change: And then if you try to targeting that low trees.
Speaker Change: Our weighted are you to that.
Speaker Change: Apropos of margins.
Speaker Change: Yeah.
Speaker Change: Ken we might have lost you.
Speaker Change: Hello can you hear me now.
Speaker Change: Yes, Sir.
Sheryl D. Palmer: I would say generally, when I look at the rest of our business with the first timer, I would say there's an equal spread of using kind of those finance tools to help folks get to the front door. And then, obviously, when I look at our resort lifestyle business, which is, you know, certainly moving across the US, but predominantly today in Florida, we still see a very high penetration of cash. And so we're not using nearly the same incentives for that consumer that we would be using for our first time and our first time moving.
Speaker Change: You can hear me.
Speaker Change: Yeah, well you were going in and out Ken during your question can you try it one more time.
Speaker Change: Okay, sorry about that sure.
Kenneth Zener: Just asking you mentioned starts.
Speaker Change: In order to add in orders you mentioned into the low threes can you talk about how those play together since you mentioned even flow, which suggest your starts might actually.
Kenneth Zener: Determined kind of what your order paces and how do you where kao committed are you to meeting that level.
Kenneth Zener: Low threes would you give up margin et cetera. Thank you that's it.
Speaker Change: Yeah, Hey, Ken.
Kenneth Zener: We've been consistently saying that we're going to mark match, our starts to kind of sales with maybe some flexes here in there relative to timing of year.
Sheryl D. Palmer: Thank you. Thank you. The next question comes from Ken Zener from Seaport Research Partners. Please go ahead, Ken.
Kenneth Zener: Like we did this past year, we flexed our starts up in Q2.
Kenneth Zener: Morning. Morning. Out. Oh, good. Sorry, just checking.
Kenneth Zener: Q3 to get.
Speaker Change: Houses in the ground for the spring selling season of this year, but generally speaking when I mentioned, even flow earlier, we're looking really for kind of cadence predictable cadence.
Kenneth Zener: Appreciate the... Closures around inventory, lockouts, et cetera, et cetera. I think it's very informative. Can you talk about, you know, you talked about low freeze, I believe for orders as a general pattern, but can you talk about your start process? You know, what guides this?
Speaker Change: And that's one of the goals that we have we find that that's easier it's more efficient for us.
Kenneth Zener: Doesn't put as much stress.
Kenneth Zener: You mentioned even flow, so I'm trying to see how that, start, supports the orders, or does it actually define the orders?
Kenneth Zener: Our trades are our internal teams et cetera, and so we'll do our best to kind of to keep that as even as possible, but the general guide as always we'll match starts in theory to sales.
Kenneth Zener: And then if you're trying to target that low crease, how are you, when are you at that appropriate margin? Right. Ken, we might have lost you. Oh, can you hear me now? Yeah, you were going in and out, Ken, during your question. Can you try it one more time?
Kenneth Zener: Yes.
Speaker Change: Thank you very much.
Speaker Change: Thank you. Our next question comes from Alan Ratner with Zelman and Associates. Please go ahead Allen Your line is now open.
Kenneth Zener: Okay.
Alan Ratner: Hey, guys. Good morning, Thanks for all the great detail as always very helpful.
Kenneth Zener: Okay, sorry about that. Sure. I was just asking, you mentioned starts and orders you mentioned in the low threes. Can you talk about how those play together?
Alan Ratner: Good morning, first line of quitting with hoping.
Alan Ratner: First of all on a question I think the commentary around the land strategy was really interesting. So I was hoping that you know.
Sheryl D. Palmer: Since you mentioned even flow, which suggests your starts might actually, And, you know, that's one of the goals that we have. We find that that's easier, it's more efficient for us. It doesn't put as much stress on our trades, our internal teams, etc.
Alan Ratner: I don't understand a few of those points.
Alan Ratner: First with the self developed deal tailwind on the margin side.
Alan Ratner: Looking at your 24 guidance down a little bit year on year.
Alan Ratner: How should we think about that tailwind flowing through is that going to be more prevalent in 'twenty five and beyond these deals get to the finish line or should we think about that more as an offset to some of the other headwinds that you might have I E. More land banking slash optioning higher land costs overall, I'm, just trying to figure out the moving pieces on that on that.
Kenneth Zener: And so we will do our best to kind of keep that as even as possible, but the general guide will always match starts in theory to sales. Thank you very much.
Alan Ratner: Thank you. Our next question comes from Alan Ratner from Zellman & Associates. Please go ahead, Alan, your line is now open. Hey, guys, good morning. Thanks for all the great detail. It's always very helpful. Good morning.
Alan Ratner: First.
Alan Ratner: Yes.
Alan Ratner: And it's Eric maybe a couple of things, yes, it really the specific commentary in the prepared remarks was around the 2023 underwriting and so kind.
Eric: Kind of that debt.
Speaker Change: <unk> as you suggested is going to take some time to come through the system.
Alan Ratner: I was hoping to, morning, first line of questioning, you know, I think the commentary around the land strategy was really interesting. So I was hoping to, you know, better understand a few of those points. You know, first with the self-developed deal, tailwind on the margin side. Looking at your 24 guidance down a little bit year on year, how should we think about that tailwind flowing through?
Alan Ratner: Obviously, it takes time to bring those to market. So.
Alan Ratner: Youll see that over not just through this this year, but.
Alan Ratner: Overtime.
Alan Ratner: And then with regard to just kind of room for land banking as somebody asked previously we do view that as an important <unk>.
Alan Ratner: Option for us.
Alan Ratner: Especially as we think about maximizing return.
Alan Ratner: The the kind of the prior tranches that we did average of averages I had a deal level that kind of cost us about 175 basis points for a trade of about 600 basis points of return if you blend that across the overall company portfolio. Its obviously pretty.
Alan Ratner: Is that gonna be more prevalent in 25 and beyond if these deals get to the finish line? Or should we think about that more as an offset to some of the other headwinds that you might have, you know, i.e., more land banking slash optioning, higher land costs overall?
Alan Ratner: Not de Minimis, but it's much smaller you might be thinking 2030 basis points to the overall portfolio. So hopefully that helps with regard to timing and cost and use of tools.
Alan Ratner: That's helpful. Eric Thank you.
Alan Ratner: Second on cash conversion you guys have had really impressive cash conversion of these last two years roughly a 100% of net income.
Alan Ratner: Just trying to figure out the moving pieces on that part first, shrunken the land position a little bit, right-sized it to some extent, inventory turnovers improved, and working capital has shrunk. As we think about this pivot towards more self-developed deals, should we temper that trajectory a little bit? Is there going to be a little bit of a flip in the opposite direction as these deals kind of work their way through the development process? Yeah, that's a good question, Alan.
Alan Ratner: Converting to free cash.
Alan Ratner: And a lot of that I think is kind of as you maybe shrunk.
Alan Ratner: Strong land position, a little bit right size it to some extent.
Alan Ratner: Inventory turnover has improved working capital has shrunk.
Alan Ratner: As we think about this pivot towards more self developed deal should we temper that trajectory a little bit like is there going to be a little bit of a blip in the opposite direction.
Alan Ratner: As these deal kind of work their way through the development process.
Speaker Change: Yes, that's good question Allen.
Kurt Van Hefty: I don't know if it's necessarily tempering because when we kind of look at everything we're looking at, you know, we did have a good year of cash generation in 2023. Even with some of the land spend targets that we have in play for 2024, we still believe we'll be in a really good cash position as we work our way through the course of the year from a cash flow generation standpoint. So, without kind of getting into too futuristic kind of, I guess, directional signs, we still feel really good about our, I guess, cash generation, even with land spend that we've, I guess, earmarked in our prepared comments. Okay, thank you for that, Kurt. And if I could squeeze in one last one on related.
Speaker Change: I don't know if it's necessarily temporary because when we kind of look at everything we're looking at we did have a good year of cash generation through an <unk>.
Allen: 2023, even with some of the land spend targets that we have in play for 2024, we still believe we'll be in a real good cash position as we work our way over the course of the year from a cash flow generation standpoint. So.
Speaker Change: Without getting into too futuristic kind of I guess a directional.
Speaker Change: Signs.
Speaker Change: Still feel really good about our guests our cash generation, even with planned spend.
Speaker Change: That we've earmarked in our prepared comments.
Speaker Change: Okay.
Speaker Change: Okay. Thank you for that Kurt and if I could squeeze in one last one unrelated can you just give an update on on Yardley and kind of the timing of single family rental.
Kurt Van Hefty: Can you just give an update on Yardly and kind of the timing of single-family rental recognition of sale? I think I vaguely remember you mentioning 24, you kind of had a bunch of deals in the pipeline to potentially close, but I know there's been some volatility in the SFR market, the VFR market, so any update you can give there would be helpful. Yeah, Alan, I appreciate the question. It may be just a kind of framework, obviously a pretty volatile rate and cap rate environment last year, maybe the last 18 months.
Speaker Change: Recognition of sale I think I vaguely remember you mentioned in 'twenty four you kind of had a bunch of deals in the pipeline to potentially close but I know theres been some volatility in the asset market. The VFR market. So any update you can give there would be helpful.
Speaker Change: Yes.
Speaker Change: Appreciate the question and maybe just kind of frame, obviously, a pretty volatile.
Speaker Change: Right and cap rate environment last year, maybe last 18 months, so really have exhibit.
Sheryl D. Palmer: So really have exhibit, you know, operated with a fair amount of prudence, making sure we're only bringing the cream of the crop to the business. The right way to think about the scale of that business today is we've got about two dozen projects working in about eight different markets for active leasing today. And we'll have the option to think about disposition of probably a couple of those this year, depending on what the market tells us. And then, of those kind of dozen deals, 13 are within the venture that we've previously talked about. So that really gives us a lot of capital efficiency. And then we've got a number of others that are kind of working through horizontal and vertical development. So really, you know, constantly looking for deals, but they've got to be the cream of the crop as we think about kind of that volatility in the right environment that we have seen.
Speaker Change: <unk> operated with a fair amount of Prudence, making sure we're only bringing the cream of the crop to the business the right way to think about the scale of that business today.
Speaker Change: As we've got about two dozen projects working in about eight different markets for our actively leasing today and we will have optionality to think about disposition of probably a couple of those this year, depending on what the market tells us.
Speaker Change: And then of those kind of those.
Speaker Change: Those couple of dozen deals 13 or within the venture that we've previously talked about so that really gives us a lot of capital efficiency.
Speaker Change: And then we've got a number of others that are kind of working through horizontal and vertical development. So.
Speaker Change: Really.
Speaker Change: Constantly looking for deals, but they've got to be the cream of the crop as we think about kind of that volatility in the rate environment that we've that we've seen so really from.
Sheryl D. Palmer: So really, from a timing standpoint, again, a couple this year, perhaps options, and then maybe double that the following year, and then you're really going to see perspective ramp up. Thank you. Thank you. Our final question today comes from Alex Barron from the Housing Research Centre. Please go ahead, Alex. Yeah, thanks for squeezing in. You know, great results in the quarter.
Speaker Change: From a timing standpoint again, a couple this year, perhaps options and then maybe double that the following year and then you're really going to see perspective ramp up.
Speaker Change: Perfect. Thank you so much guys I appreciate it.
Speaker Change: You bet. Thank you.
Speaker Change: Thank you. Our final question today comes from Alex <unk> from housing Research Center. Please go ahead Alex.
Alex: Yes, Thanks for squeezing me in.
Alex: Great results in the quarter and I'm, sorry, if I missed this did you guys discuss what the legal settlement charge was about.
Alex Barron: And I'm sorry if I missed this, but did you guys discuss what the legal settlement charge was about? Okay, I'll take a look. My other question was on the share buyback, the $300 million number. Is that meant to be, you know, $75 million a quarter, or is that meant to be whenever you guys feel it's opportunistic? And is there any potential upside to that number if the stock were to persist at a lower value? Yeah, Alex, I don't know if we necessarily have it prescribed kind of on a quarterly basis, but it's a goal that we've set out there as a target for 2024. So as we look at it, you know, we typically do what we call an opportunistic approach.
Speaker Change: Yes, Alex.
Alex: Good question I think.
Alex: In our 8-K, we did disclose that back in December but it was from an asset that we got through the <unk> acquisition.
Speaker Change: It was limit its from.
Alex: It's limited to the state of Florida community called Solar Vita.
Alex: And.
Alex: It was settled and it's kind of behind us for now.
Alex: That's essentially what it was if there is a lot of detail in the 8-K that we filed forward.
Alex: Back in December so feel free to kind of take a look at that and if you have additional questions. Let us know.
Speaker Change: Okay I'll take a look thanks.
Speaker Change: My other question was on the share buyback with $300 million number.
Alex: That meant to be.
Alex: $75 million a quarter or is that meant to be whenever you guys feel it's opportunistic.
Alex: And is there any potential upside to that.
Alex: That number if the stock were to persist at a lower value.
Speaker Change: Yeah, Alex I don't know, if we necessarily have a prescribed.
Speaker Change: Kind of on a quarterly basis, but it's a goal that we have set out there.
Speaker Change: The target for 2024.
Speaker Change: So as we look at it we typically do what we call it opportunistic approach.
Alex Barron: And when we set out to buy our shares, we'll just kind of play it by ear, see how the year goes, and kind of buy shares as necessary as we go through the year. And we'll continue to operate under a 10-B-5-1. And so I probably have a little more consistency than you've seen historically to make sure that, you know, that gets out there, but no specific quarterly targets.
Speaker Change: And when we set out to buy our shares and so we will just kind of play it by ear see how the year goes in and kind of buy shares as necessary as we go through the year and we will continue to operate under.
Alex: Under our <unk> pipeline and so it's probably a little more consistency than you've seen historically to make sure that that gets out there, but no specific quarterly targets.
Kirk Van Hefty: All right, well, thanks, and best of luck for the year. Thank you. Thank you. Thank you. That does conclude our Q&A session for today, so I'll hand back over to Sheryl for any closing remarks. Thank you for the opportunity to share our 2023 results. We really look forward to being able to get into more detail with you on our Q1 on the April call, and I wish you all the very best. Have a great day. Thank you. Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.
Speaker Change: Got it alright, well, thanks, and best of luck for the year. Thank you.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Thank you that does conclude our Q&A session for today, So I'll hand back over to Shannon for any closing remarks.
Shannon: Thank you for the opportunity to share our 2023 result.
Shannon: We really look forward to being able to get into more detail with you on our Q1 on the April call and I wish you all the very best have a great day.
Shannon: Yeah.
Shannon: Thank you ladies and gentlemen. This concludes today's call. Thank you for joining you may now disconnect your lines.
Shannon: [music].
Shannon: Okay.