Q2 2024 Landsea Homes Corp Earnings Call
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Speaker Change: Please stand by. Your program is about to begin. If you need audio assistance during your call today, please press star zero.
Operator: Please stand by, your program is about to begin. If you need audio assistance during your call today, please press star zero. Good day, everyone, and welcome to today's Landsea Homes Corporation second quarter 2024 earnings call.
Speaker Change: Good day everyone, and welcome to today's Landsea Homes Corporation 2nd Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. Later, you will have an opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing Star 1 on your telephone keypad.
Operator: At this time, all participants are in a listen-only mode. Later, you will have an opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing star 1 on your telephone keypad. Please note that this call may be recorded, and I will be standing by should you need any assistance. It is now my pleasure to turn today's call over to Drew Mackintosh, Investor Relations. Please go ahead.
Please note that this call may be recorded and I will be standing by should you need any assistance. It is now my pleasure to turn today's call over to Drew Mackintosh, Investor Relations. Please go ahead.
Drew Mackintosh: Good morning, and welcome to Landsea Homes' second quarter of 2024 earnings call. Before the call begins, I would like to note that this call will include forward-looking statements within the meaning of the federal securities laws. Landsea Homes cautions that forward-looking statements are subject to numerous assumptions, risks, and uncertainties, which change over time. These risks and uncertainties include, but are not limited to, the risk factors described by Landsea Homes in its filings with the Securities and Exchange Commission. We do not undertake any obligation to update this forward-looking statement.
Drew Mackintosh: Good morning, and welcome to Landsea Homes' second quarter of 2024 earnings call. Before the call begins, I would like to note that this call will include forward-looking statements within the meaning of the federal securities laws.
Landsea Homes cautions that forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. These risks and uncertainties include, but are not limited to, the risk factors described by Landsea Homes and its filings with the Securities and Exchange Commission.
Drew Mackintosh: Additionally, reconciliation of non-GAAP financial measures discussed on this call to the most comparable GAAP measure can be accessed through Landsea Homes' website and in its SEC file. Hosting the call today are John Ho, Landsea's Chief Executive Officer, Mike Forsum, President and Chief Operating Officer, and Chris Porter, Chief Financial Officer. With that, I'd like to turn the call over to John.
We do not undertake any obligation to update forward-looking statements. Additionally, reconciliation of non-GAAP financial measures discussed on this call to the most comparable GAAP measure can be accessed through Landsea Homes' website and in its SEC filings.
Speaker Change: Hosting the call today are John Ho, Landsea's Chief Executive Officer, Mike Forsum, President and Chief Operating Officer, and Chris Porter, Chief Financial Officer. With that, I'd like to turn the call over to John .
John Ho: Thanks Drew, and good morning to everyone. Landsea Homes delivered strong top-line growth in the second quarter of 2024, generating revenue of $431 million, which represented an increase of 47% over the second quarter of 2023. New home deliveries totaled 760 units, well ahead of our stated guidance, as our teams did an excellent job of accelerating build schedules and closing homes in a timely manner. This allowed us to achieve a fully adjusted home closing gross margin of 21.1%, producing adjusted net income of $13.3 million and adjusted earnings per share of $0.36.
John: Thanks Drew, and good morning to everyone.
John Ho: Landsea Homes delivered strong top-line growth in the second quarter of 2024, generating revenue of $431 million, which represented an increase of 47% over the second quarter of 2023.
Speaker Change: New home deliveries totaled 760 units, well ahead of our stated guidance, as our teams did an excellent job of accelerating build schedules and closing homes in a timely manner.
John Ho: This allowed us to achieve a fully adjusted home closing gross margin of 21.1%, producing adjusted net income of $13.3 million and adjusted earnings per share of $0.36.
John Ho: We continue to see solid demand trends during the quarter driven by positive housing fundamentals in our market, so we did experience an increase in home inventory from record low levels in some markets. We do not feel these are a competitive threat at this stage. We generated 768 net new orders for the quarter. 35% more than the second quarter of 2023, on a sales pace of three homes per community per month. Financing incentives remain an important selling tool at our communities to help ease affordability concerns and drive monthly payments down. While these incentives spurred demand in the quarter, they continued to eat away at our home sales gross margin, which came in a little below our expectations.
John Ho: We continue to see solid demand trends during the quarter driven by positive housing fundamentals in our markets.
John Ho: Financing incentives remain an important selling tool at our communities to help ease affordability concerns and drive monthly payments down.
John Ho: The strong year-over-year growth we experienced in both sales and closings this quarter was a direct result of our strategic efforts to grow our company and achieve greater economies of scale. Average community count for the quarter was up 47% year-over-year thanks to the investments we've made in our markets and the acquisitions we've done to grow our company. We are committed to growing the size and scale of our home building platform so that we realize better fixed cost leverage and receive better terms on the labor and materials that go into building our homes. Benefits of this strategy can be seen in our SG&A ratio in the second quarter, which came down 220 basis points on a year-over-year basis to 13%.
John Ho: Average community count for the quarter was up 47% year-over-year, thanks to the investments we've made in our markets and the acquisitions we've done to grow our company.
John Ho: Benefits of this strategy can be seen in our SG&A ratio in the second quarter which came down 220 basis points on a year-over-year basis to 13%.
John Ho: We are a much bigger and more diversified company than we were a year ago. We expect to reap the benefits of our larger home building platform as our volume increases. However, while volume growth is an important part of our long-term strategy, we realize that doing so in a capital-efficient and risk-averse manner is equally important. That is why we have established relationships with land bankers and other capital partners to take some of the upfront cost and risk off our balance sheet.
John Ho: We are a much bigger and more diversified company than we were a year ago. We expect to reap the benefits of our larger home building platform as our volume increases.
John Ho: That is why we have established relationships with land bankers and other capital partners to take some of the upfront cost and risk off our balance sheet.
John Ho: We want to continue to concentrate our efforts on the business of building and selling homes, not speculating on land. Sourcing lots from third parties on a just-in-time basis will allow us to do that, while also giving us some downside protection should the market conditions soften.
John Ho: Balancing out our growth objectives is our commitment to maintaining a strong financial position. We have made great progress over the last few quarters, improving our balance sheet by obtaining fixed-rate debt and strengthening our relationships with the lenders in our revolving credit facility. We are now on much more solid footing with respect to our access to capital and feel that we have entered a new phase in our company's evolution as a result of these actions.
John Ho: We ended the second quarter with a net debt-to-cap ratio of 45.4%, which we expect to continue to go down as regions generate significant cash flow through the end of the year. As we look to the back half of 2024, I am pleased with how our company is positioned. Most of the heavy lifting associated with the integration of our recent acquisitions has been completed, and we look forward to realizing the benefits of those efforts.
John Ho: We ended the second quarter with a net debt to cap ratio of 45.4% which we expect to continue to go down as regions generate significant cash flow through the end of the year.
John Ho: Most of the heavy lifting associated with integration of our recent acquisitions has been completed, and we look forward to realizing the benefits of those efforts.
John Ho: We have a solid backlog in place that will help us achieve our delivery goals for the year and bring our leverage ratio down from where it is today. We also have a product profile in our high-performance homes that continues to resonate with our buyers. As a result, I remain confident that Landsea is on track to achieve its long-term goals. Now, I'd like to turn the call over to Mike, who will provide more color on our operational performance this quarter.
John Ho: As a result, I remain confident that Landsea is on track to achieve its long-term goals.
John Ho: Now I'd like to turn the call over to Mike who will provide more color on our operational performance this quarter.
Mike Forsum: Thanks, John, and good morning to everyone. Landsea posted year-over-year delivery growth of 41% in the second quarter, as we benefited from faster cycle times and a higher community count relative to last year's second quarter. In terms of regional contributions, Florida led the way, followed by Arizona and California. Construction conditions have improved significantly since the beginning of the year, and we're seeing much better labor and trade availability to keep our operations running smoothly.
Mike Forsum: This dynamic has also resulted in lower stick and brick cost inflation and, in some instances, a decline in cost, as is the case with lumber. We believe lower lumber costs will be a margin tailwind for our company in the coming quarters, though much of it may be offset by higher land costs. Order activity was solid during the quarter, with weekly traffic fluctuation being dictated by movements and mortgage rates. We made the strategic decision to stay competitive in the marketplace and maintain sales momentum in an effort to stay on track to achieve our delivery goals and cash generation targets for the year. We are committed to de-levering the company's balance sheet from current levels as we will be in a position to redeploy capital into higher-return projects by year end.
Mike: We are committed to de-levering the company's balance sheet from current levels as we will be in a position to redeploy capital into higher return projects by year end.
Chris Porter: Our operations in California, Colorado, Arizona, and Florida all achieved sales paces in excess of 3.0 homes per community per month for the quarter, while our operations in Texas achieved 1.5 per month. We see the pace in Texas improving in the third and fourth quarters as we have the normal ramping up activities with transitioning and acquisition to our platform behind us. As has been widely reported, we have seen an increase in home inventory in Texas and Florida, and this has marginally impacted demand in these markets.
Chris Porter: We believe this is a natural occurrence following several quarters of scarce inventory and home price appreciation and does not change the long-term outlook for these markets, which should continue to benefit from outsized job growth and in-migration. Additionally, most of these homes are significantly older, and we would not consider them competition for our homes. Most buyers are looking for new, modern, and up-to-date homes, and our high-performance homes continue to stand out as a superior value in our market.
Chris Porter: Additionally, new home buyers can take advantage of mortgage incentives that existing home sellers cannot offer. It is also important to note that while home inventory levels have trended higher recently, they still remain well below historical norms. Overall, I feel good about the current state of our industry and Landsea's positioning. The lock-in effect of lower mortgage rates for existing homeowners remains in place, while the need for affordable new housing persists, creating an ideal opportunity for new homebuilders to take market share.
Speaker Change: Additionally, new homebuyers can take advantage of our mortgage incentives that existing home sellers cannot offer. It is also important to note that while home inventory levels have trended higher recently, they still remain well below historical norms.
Chris Porter: Our access to capital as a public company gives us distinct competitive advantages over many of our smaller private builders in our markets, while our quality design and unique product offerings allow us to differentiate ourselves from many of the larger competitors. In short, I believe the home building industry and Landsea Homes continue to have a bright future ahead. With that, I'd like to turn the call over to Chris, who will provide more detail on our financial results this quarter and give an update on our forward-looking guidance.
Speaker Change: Our access to capital as a public company gives us distinct competitive advantages over many of our smaller private builders in our markets, while our quality design and unique product offerings allow us to differentiate ourselves from many of the larger competitors.
Speaker Change: In short, I believe the home building industry and Landsea Homes continue to have a bright future ahead. With that, I'd like to turn the call over to Chris, who will provide more detail on our financial results this quarter and give an update on our forward-looking guidance.
Chris Porter: Thank you, Mike. Landsea Homes reported net income of $2.9 million, or $0.08 per share, for the second quarter compared to $4.9 million, or $0.12 per share, in the second quarter of 2023. We reported a 9% increase in fully adjusted net income of $13.3 million, or $0.36 per share, compared to $13 million, or $0.33 per share, in the same period last year. Additionally, during the quarter, we had several transactions that created one-time items that impacted our net income and will not recur, including $2.6 million in transaction costs associated with our Antares acquisition, $5.2 million in deferred financing costs write-offs associated with the recast of our revolving credit facility with stronger credit banks, and $1.4 million in restructuring costs associated with our reduction force initiative.
Chris: Thank you, Mike. Landsea Homes reported net income of $2.9 million, or $0.08 per share, for the second quarter, compared to $4.9 million, or $0.12 per share, in the second quarter of 2023.
Chris: We reported a 9% increase in fully adjusted net income of $13.3 million, or $0.36 per share, compared to $13 million, or $0.33 per share, in the same period last year.
Speaker Change: Additionally, during the quarter we had several transactions that created one-time items that impacted our net income and will not recur, including a 2.6 million dollar in transaction costs associated with our Antares acquisition.
Chris Porter: We also booked $8.6 million in purchase price accounting in the quarter. As Mike mentioned, we had 760 deliveries, which was 41% higher than the second quarter of 2023, and our $550,000 average selling price was 2% over last year, both exceeding the high end of our guidance and producing a 43% increase in home sales revenue to $418.2 million. Total revenue increased 47% over 2023 to $431.1 million. Our gross margin of 14.9% came in just below the low end of our guidance, as our purchase price accounting was larger than expected at $8.6 million, or an impact of 2.1% on our gross margin. We booked $52.2 million in total step-up on the Antares acquisition, reflecting the fair value of the balance sheet assets we acquired.
Speaker Change: Both exceeding the high end of our guidance and produced a 43% increase in home sales revenue to $418.2 million. Total revenue increased 47% over 2023 to $431.1 million.
Chris Porter: We expect roughly $4 million of the Antares purchase price accounting to burn off in the third quarter and fourth quarter each, and approximately $12.5 million in 2025 and the remainder through 2026 and 2027. We also have $21 million in purchase price accounting remaining on our Florida acquisition and expect roughly $7 million to burn off for the balance of 2024. Our purchase price accounting estimates are highly dependent on the specific homes we are able to close during those periods.
Chris Porter: Incentives and discounts for the quarter continued to be elevated and were roughly 6% of revenue, reflecting the volatility of interest rates in the quarter. However, we did begin to see an improvement in this cost starting in July as the 10-year Treasury dropped below 4.5%.
Speaker Change: Incentives and discounts for the quarter continue to be elevated and were roughly six percent of revenue reflecting the volatility of interest rates in the quarter. We did begin to see an improvement in this cost starting in July as the 10-year Treasury dropped below four and a half percent.
Chris Porter: We ended the quarter with 84 average-selling communities, up 47% from the second quarter of last year. During the quarter, we opened seven communities, closed six communities, and added 20 firm art and terrace acquisitions for a total ending community count of 85. Backlog ended the quarter with 694 homes for a total value of $391.1 million, or an average selling price of $564,000. Our SG&A expense was 13% of home sales revenue this quarter, including $2.6 million in acquisition-related costs.
Speaker Change: We ended the quarter with 84 average-selling communities, up 47% from the second quarter of last year. During the quarter, we opened 7 communities, closed 6 communities, and added 20 firm art and terrace acquisition for a total ending community count of 85.
Speaker Change: Our SG&A expense was 13% of home sales revenue this quarter, including our $2.6 million in acquisition-related costs. This is a 220 basis point improvement from the second quarter of 2023.
Chris Porter: This is a 220 basis point improvement from the second quarter of 2023. During the quarter, we made efforts to gain efficiencies in the operations through both head count reduction, as well as streamlining our reporting structure. We eliminated 30 positions for an annual run rate savings of approximately $5 million.
Speaker Change: During the quarter, we took efforts to gain efficiencies in the operations through both headcount reduction as well as streamlining our reporting structure. We eliminated 30 positions for an annual run rate savings of approximately $5 million.
Chris Porter: We believe we are on the path to be more aligned with our peers and operate in the range of 11% to 12% next year. Our tax rate in the quarter was 29.8%, but we do expect a full year tax rate between 22% and 24%. Turning to our balance sheet, we ended the quarter with $330 million in liquidity, $106 million in cash and cash equivalents, and $224 million in availability under our revolving credit facility.
Speaker Change: Our tax rate in the quarter was 29.8%, but we do expect a full year tax rate between 22% and 24%.
Chris Porter: During the quarter, we completed the recast of our revolver, led by Bank of America, U.S. Bank, and Truist, that broadened and strengthened our bank group and extended the term into 2027. Our capacity is $455 million with an accordion feature to increase up to $850 million should we need the capacity. Additionally, we updated our pricing to a grid price. We now have no debt maturities until 2027.
Speaker Change: Additionally, we updated our pricing to a grid pricing.
Operator: Our leverage ratios increased as expected with the acquisition of Interis, ending the quarter at 52.8% debt to total capital and 45.4% net debt to total capital. Our focus remains on generating cash flow from the acquisition and reducing leverage back to within our stated policies of 45% total debt to capital. Now looking forward to the second half of the year, we anticipate our new home deliveries to be between $625,000 and $700,000 in the third quarter and between $1,000,000 and $1,100,000 in the fourth quarter.
Speaker Change: Our leverage ratios increased as expected with the acquisition of Interis, ending the quarter at 52.8% debt to total capital and 45.4% net debt to total capital.
Speaker Change: Our focus remains on generating cash flow from the acquisition and reducing leverage back to within our stated policies of 45% total debt to capital.
Operator: Average selling prices should be between $495,000 and $510,000 for both quarters, with a relatively consistent mix of our division's performance. Adjusted gross margins should be in the range of 20% to 21% in the third quarter and in the fourth quarter between 23% and 24%. Our gap gross margins are expected to remain relatively consistent in the third quarter and improve to between 18% and 19% in the fourth quarter. These sales and gross margins reflect our best estimate as of today with the current market conditions. As inflation, incentives, and interest rates continue to change, overall results could change accordingly. With that, that concludes our prepared remarks, and now we'd like to open up the call for questions.
Speaker Change: Adjusted gross margins should be in the range of 20% to 21% in the third quarter and in the fourth quarter between 23% and 24%.
Speaker Change: With that, that concludes our prepared remarks, and now we'd like to open up the call for questions.
Operator: Certainly, at this time, if you would like to ask a question, please press star 1 on your telephone keypad. You may withdraw your question at any time by pressing star 2. Again, that is star and 1 for your question. We'll pause for a moment to allow any questions to queue. We will take our first question from Matthew Bullitt with Barclays. Please go ahead.
Speaker Change: Certainly at this time, if you would like to ask a question, please press star 1 on your telephone keypad. You may withdraw your question at any time by pressing star 2. Again, that is star and 1 for your questions. We'll pause a moment to allow any questions to queue.
Speaker Change: We will take our first question from Matthew Bullitt with Barclays. Please go ahead.
Matthew Bullitt: Morning everyone. Thank you for taking the questions.
John Ho: I'm just kind of looking at the pieces of the guidance over the next couple of quarters. Looks like you're guiding to something like 1,700-plus closings over the next two quarters. I think there are around 700 homes in the backlog. So I guess they're probably looking to build and sell a fair bit of spec homes over the next couple of quarters. And that sounded like you're expecting Texas to pick up. So just kind of curious how you're thinking about starts and spec production, given a pretty dynamic market here, and sort of how you build to that delivery guide.
Matthew Bullitt: Looks like you're guiding to something like 1,700 plus closings over the next two quarters.
Speaker Change: I think there's around 700 homes in backlog, so I guess presumably looking to build and sell a fair bit of spec homes over the next couple of quarters.
Speaker Change: sounded like you're expecting Texas to pick up so just kind of curious how you're thinking about starts and spec production given a pretty dynamic market here and sort of how you build to that delivery guide. Thank you.
John Ho: Hey Matt, this is John Ho. I'll start it off, and then I'll hand it over to Mike to talk about some of the specifics around the build and sales. For us, as we've said, we've invested in these markets that we think have long-term, really strong prospects. I think the second quarter really demonstrated that, with both Florida and Texas coming online and the number of new communities that we have open now, that's really driving significant orders for us with actively selling communities that we have now, and then being able to deliver that in the second half of the year. So we feel pretty confident that there is really strong demand out there. The use of the incentives has been very effective, as you can see.
Speaker Change: Hey Matt, this is John Ho. I'll start it off and then I'll hand it over to Mike to talk about some of the specifics around the build and sales. You know for us, as we've
Speaker Change: Long-term really strong prospects. I think in the second quarter really demonstrated that
Mike: and Texas coming online and the number of new communities that we have open now, that's really driving significant orders for us with actively selling communities that we have now and then being able to deliver that in the second half of the year.
Mike Forsum: We will continue to see that, I think, in the second half of the year. Mike. Yeah, sure. Hey, Matt. Great question.
Mike Forsum: Something we're thinking about a lot here, but we have prepared ourselves operationally by the fact that we do have a very strong group of individuals running our teams out there with their goals and objectives around achieving this number that we set forth here in this guidance. That being said, we're a little bit into the third quarter already, and we're really happy with the performance around our sales rate. Our backlog is actually larger than what you were hearing right now because that's the second quarter ending backlog.
Speaker Change: operationally by the fact that we do have a very strong group of individuals running our teams out there with their goals and objectives around achieving this number that we set forth here in this guidance.
Mike Forsum: So, currently, as of right now, we're over 75% of the way in terms of closings we have against the backlog that we have currently against the plan that we're trying to achieve. So, to be in July and be roughly 75, 80% of the way there, going into what we call sort of the fall bump that we normally get, we're excited. And we're particularly excited because we really haven't had the contribution out of our DFW team through the Antares acquisition that closed a little bit later than we had anticipated.
Speaker Change: So, currently, as of right now, we're over 75%.
Speaker Change: of the way in terms of closings we have against the backlog that we have currently against the plan that we're trying to achieve. So to be in July and be roughly 75-80% of the way there, going into what we call sort of the fall,
Mike Forsum: It was in April, and we were pretty well through the spring selling season at that point, so we missed some of that opportunity, but now being fully online, pretty much 100% integrated, having all those communities available to us, and what we've been seeing out of Dallas in the last couple of weeks, we're feeling really good about our prospects of meeting or beating our goals here for the end of the year.
Speaker Change: That closed a little bit later than we had anticipated. It was in April. We were pretty well through the spring selling season at that point. So, we missed some of that opportunity. But now, being fully online.
Matthew Bullitt: Perfect. Super helpful staff there.
Speaker Change: Pretty much 100% integrated. Having all those communities available to us and what we've been seeing out of Dallas in the last couple weeks, we're feeling really good about our prospects of meeting or meeting our goals here for the end of the year.
John Ho: Secondly, maybe sticking with the guide, just kind of noticeable to look at the adjusted gross margin guide. I think the Q3 to Q4 jump of about 300 basis points, so I'm thinking, you know, X purchase accounting, adjusted gross margin. You know, what are the pieces to that bridge? I mean, it sounded like maybe incentives have been ticking lower here, you know, into Q3. But between incentives and lower lumber costs, kind of what gets, you know, a lot better in the margin in the fourth quarter relative to the third quarter? Thank you.
Speaker Change: Perfect, super helpful there. Secondly, maybe sticking with the guide, just kind of kind of noticeable to look at the adjusted gross margin guide, I think the
Mike Forsum: Hey Matt, this is John. I'll take a stab at that, and then other members of my team can add on. It's a combination of, you know, incentives but really the contribution from different parts of our business. We're seeing some of the communities that have been hit with some higher costs. We're really pushing that through the business, as you can see. That's why, you know, we really delivered on the high end or exceeded our deliveries in the second quarter.
Speaker Change: It's a combination of, you know, incentives, but really the contribution from different parts of our business.
Speaker Change: We're seeing some of the communities that have been hit with some higher costs. We're really pushing that through the business, so you can see that's why, you know, we really deliver on the high end or exceeded our deliveries in the second quarter.
John Ho: We're gonna have new communities opening up. Some of those communities do have some lower expenses. The costs associated with them, and they'll be coming through the second half of this year. We'll also see some significant contribution from the open selling communities in Texas as well. So it's really a combination of the geographic mix that's coming through our business as well as some of those lower, lower costs.
Speaker Change: We're going to have new communities opening up. Some of those communities do have some lower expenses.
Speaker Change: cost associated with them and they'll be coming through the second half of this year. We'll also see some significant contribution from the opening average you know they'll be selling communities in Texas as well so it's really a combination of
Mike Forsum: Sure. Matt, it's Mike again.
Speaker Change: lower costs.
Speaker Change: Sure. Matt, it's Mike again. I might add also that as we pivot out of Glover, Northern California, business and increase our areas of contribution throughout the country,
Mike Forsum: I might add also that as we pivot out of Global Northern California business and increase our areas of contribution throughout the country, the distortion that comes from the BMR, below market rate units, that we're pushing through in the first half of the year against the average sales price that these BMR units are a part of, that's going to be going away. So, I think we'll also see that getting better as we go through it.
Speaker Change: The distortion that comes from the BMR, below market rate units, that we're pushing through in the first half of the year against the
Speaker Change: average sales price that these BMR units are a part of.
Speaker Change: That's going to be going away. So, I think we'll also see.
Speaker Change: just sort of organically that getting better as we go through it. We're also very excited about some of the new open communities that we have now. They are performing very well, taking less incentives.
Mike Forsum: We're also very excited about some of the new open communities that we have now. They are performing very well. It's taking less incentives. Rates are going down. We're actually still raising prices in some of our locations, particularly in Northern Orlando and, in some cases, even in Arizona, and places where we can thoughtfully and precisely raise prices to offset or even better beat some of the incentives that we have embedded into the numbers you're seeing right now. So, we're feeling pretty good again that we're going to see that come through, and teams are working really hard to make that happen.
Speaker Change: Rates are going down. We're actually still raising prices
Speaker Change: thoughtfully and precisely raised prices to offset, we're even better beat some of the incentives that we have embedded into the numbers you're seeing right now. So we're feeling pretty good again that we're gonna see that come through and team's working really hard to make that happen.
Matthew Bullitt: Awesome. Thanks for the color. Good luck, guys.
Carl Reichardt: Thank you. We'll take our next question from Carl Reichardt with BTIG. Please go ahead.
Speaker Change: Thank you. We'll take our next question from...
Carl Reichardt: Thanks. Hey guys, hope you're doing well. Just in this particular quarter, I think you beat your delivery guide on a unit basis. Was it 22% at the midpoint? That's a ton. What were the drivers of that outperformance? I'm going to guess that you weren't really sure about Antares and what you'd get out of it, and you got a lot more out of it than you thought, but can you sort of fill me in on why the beat was so significant?
Carl Reichardt: Carl Reichardt with BTIG. Please go ahead. Thanks. Hey, guys. Hope you're doing well. Just on this particular quarter, I think you beat your delivery guide on a unit basis. Was it 22% at the midpoint? That's a ton.
Carl Reichardt: What were the drivers of that outperformance? I'm going to guess that you weren't really sure on Antares and what you'd get out of it, and you got a lot more out of it than you thought, but can you sort of fill me in on why the beat was so significant?
Mike Forsum: Well, it's Mike. I got the finger point landed on me, Carl.
Mike Forsum: So, we have really, really been working hard with our sales proposition out in our local markets against the inventory that we have and really working with our mortgage affiliate and targeting the houses that needed to get moved. We are strong believers that this is a business of momentum. We really wanted to push as much inventory that we had available to us to close within the quarter because we wanted to get also in front of what we can see possibly coming down the pike as our competitors, larger competitors, also have some inventory that they're going to be pushing here in the next couple months.
Carl Reichardt: We have really, really been working hard with our
Speaker Change: We are strong believers that this is a business of momentum. We really wanted to push as much inventory that we had available to us to close within the quarter.
Speaker Change: Because we wanted to get also in front of what we can see possibly coming down the pike is.
Speaker Change: Our competitors, larger competitors, also have some inventory that they're going to be pushing here in the next couple months. And so it was really a targeted effort by the team over the last three or four months, essentially, and with some increased contributions that we got from Texas, but really Arizona stepped up.
Mike Forsum: And so it was really a targeted effort by the team over the last three to four months essentially, and with some increased contributions that we got from Texas, but really, Arizona has stepped up incredibly. Jeff and his team in Florida are really doing great. Megan, our sales leader there, is tremendous. They've really identified the sweet spots of where we need to be, and with pricing incentives, and we have houses we can deliver. And so that's really what came through.
Speaker Change: Incredibly, Jeff and his team in Florida are really doing great. Megan, our sales leader there, is tremendous. They've really, you know, have identified the sweet spots of where we need to be, pricing incentives, and we have houses we can deliver. And so that's really what came through.
Carl Reichardt: Okay, thank you for that, Mike. And then to talk a little bit about, well, I guess really two things.
Speaker Change: Okay, thank you for that Mike. And then to talk a little bit about, well, I guess really two things. One, if you could help a little bit with
Mike Forsum: One, if you could help a little bit with the store count over the course of the rest of the year and maybe into 2025 in terms of net new openings, that would be helpful. And then, just as a side note, you talked a little bit about July. I am curious, it sounds like the elasticity to changes in rates is still really impacting traffic and turnover. I'm curious how July has been in that regard, and whether or not the objections you hear from consumers are still really mathematical, meaning I can't afford it, or I don't want to pay this price or whatever, versus being psychological, I'm afraid to buy, I'm worried about my job, the election, whatever. So, two very different questions, but if you guys could address those, thanks.
Speaker Change: It sounds like the elasticity...
Speaker Change: to changes in rates is still really impacting traffic and turnover. I'm curious how July has been in that regard and whether or not the objections you hear from consumers are still really mathematical, meaning I can't afford it or I don't want to pay this price or whatever, versus
Speaker Change: being psychological, I'm afraid to buy, I'm worried about my job, the election, whatever. So, two very different questions, but if you guys could address those, thanks.
Chris Porter: Yeah, Carl, let me start with a community count. I think you saw the impact of the DFW area this quarter, and if you look at, you know, versus year end, we were at 7.7% organic growth and then added on the Orlando, or sorry, DFW segment as well. You know, we had said that we would be in that ten to fifteen percent organic growth range and then add on DFW. I think we'll still be in that range, which would put us in that kind of fourth-quarter average right around the ninety-ish community. And then, although we're not giving guidance at this stage of the game about 2025, I would definitely
Speaker Change: Yeah, Carl, let me start with the, with the community count. I think you saw the impact from.
Carl Reichardt: the DFW area this quarter and if you look at
Carl Reichardt: You know, versus year-end, we were at 7.7% organic growth and then added on the Orlando, or sorry, the DFW segment as well.
Speaker Change: You know, we had said that we would be in that 10 to 15% organic growth and then add on DFW. I think we'll still be in that range, which would put us in that, you know, kind of fourth quarter average right around the 90 ish communities.
Carl Reichardt: And then, although we're not giving, you know, guidance at this stage of the game on 2025, I would definitely see, you know, our historical pattern continuing. So, in that, you know, low double digits, high single digit, organic growth throughout 24 as an average.
Mike Forsum: So, to follow up on that, Carl, the other part of your question was, I think the psychology, the vibe that's out there and the narrative that's coming off of our sales floors, as it relates to rates and where rates are today, I believe, and what we're seeing is that essentially that the market in which we're, markets in which we're competing against, and the competitors that are there that we're competing against, for the most part, everybody has some buy-down program to the point that it's now become, ubiquitous, and it's just the same. And what we're really appreciating through that is that we can really now go back to differentiating ourselves by way of the products that we're building, our value proposition through our HVH strategy, and just being a separator again, where they can see the overall value proposition beyond the rates, because for the most part, everybody is down in that, you know, kind of teaser rate in that 499, and it kind of comes up, and everybody seems to be in that sweet spot of about five, five and a half, three-year fix.
Speaker Change: I believe, and what we're seeing is that essentially, that the markets in which we're competing against, and the competitors that are there that we're competing against,
Speaker Change: For the most part everybody has some buy-down program to the point that it's now become ubiquitous and it's just
Speaker Change: And what we're really appreciating through that is that we can really now go back to differentiating ourselves by way of the products that we're building.
Speaker Change: and just being a separator again where they can see the overall value proposition beyond.
Carl Reichardt: The rates, because for the most part, everybody is down in that, you know, kind of teaser rate in that four nine nine, and it kind of comes up.
Mike Forsum: This is a big generalization, but that kind of gets you to where you need to get to, and that's moving. Moving homes. The homes that are moving, again, are the ones that people can clearly see that there's a superior value to them against whoever else we're being judged by. So we like that because we're really proud of what we're building, how we're building them, and the value that we're creating. So that seems to be working.
Speaker Change: This is a big generalization, but that's.
Speaker Change: kind of gets you to where you need to get to.
Speaker Change: and that's moving homes. The homes that are moving, again, are the ones that people can clearly see that there's a superior value to them against.
Speaker Change: and whoever else we're being judged by. So we like that because we're really proud of what we're building, how we're building them and the value that we're creating. So that seems to be working. There seems to be a bit of a capitulation in terms of just...
Mike Forsum: There seems to be a bit of a capitulation in terms of just, We're waiting things out. We're anxious. I think we've gotten along now; there are enough life changes in the demand profile that we have out there that people do need to move. Their houses are getting bigger, they're maybe shrinking, whatever it is, that is coming back into the market. The purpose of which they're coming to look at homes, and so it does kind of go up and down a little bit, but it seems like it does.
Speaker Change: We're waiting things out. We're nervous.
Speaker Change: I think we've gotten along now. There's enough life change into the demand profile that we have out there that people do need to move. Their houses are getting bigger. They're maybe shrinking. Whatever it is, that is coming back into the
Speaker Change: The purpose of which they're coming to look at homes, and so it does kind of go up and down a little bit, but it seems like
Mike Forsum: You know, we can modulate that with our buy-downs as we're going through as long as we're kind of hitting that number. It still is about a monthly payment. And I just don't see, like, a lot of real concern or fear. We're gonna wait some, we're gonna wait for it to go lower. We're gonna wait and see what happens to the election.
Speaker Change: , , , , , , , , , , , , , ,
Speaker Change: We can modulate that with our buy downs as we're going through, as long as we're kind of hitting that number. It still is about a monthly payment.
Mike Forsum: We're gonna be, it's just, do you have a house that is a house? It can be delivered in the next 60 days that you're providing me with a long-term fixed mortgage rate. That's gonna make me hit the payment. And is that house superior to the other houses that I'm looking at? And if you can win that proposition, you're gonna move houses, and we're doing that.
Speaker Change: And I just don't see like a lot of real concern or fear or...
Speaker Change: We're going to wait for it to go lower. We're going to wait and see what happens to the election. It's just, do you have a house?
Speaker Change: That is a house that can be delivered in the next 60 days that you're providing me with a...
Speaker Change: Michael Forsum, Drew Mackintosh, John Ho
Carl Reichardt: Very comprehensive, thanks so much guys; I really appreciate it.
Speaker Change: Very comprehensive. Thanks so much, guys. Really appreciate it.
Alex Rygiel: Thank you. We'll take our next question from Alex Rygiel with B. Riley. Please go ahead.
Speaker Change: [inaudible]
Speaker Change: Thank you. We'll take our next question from Alex Rygiel with B. Riley. Please go ahead.
Mike Forsum: Thanks, Anne. Good morning, gentlemen. One of your business priorities is to drive higher returns with improvements in cycle time and a focus on additional cost reductions. Where does your cycle time stand today and where might it go? And on the cost reduction side, can you provide us with a few of the larger opportunities that you see developing over the next six months?
Alex Rigo: Thanks, and good morning, gentlemen.
Alex Rigo: One of your business priorities is to drive higher returns with improvements in cycle time and a focus on additional cost reductions. Where does your cycle time stand today and where might it go? And on the cost reduction side, can you provide us with a few of the larger opportunities that you see developing over the next six months?
Mike Forsum: Alex, it's Mike. Thanks for the question. We're really proud of what we've been able to accomplish year-over-year in terms of reducing our cycle time. A year ago, we were roughly around nine months on average, and keep in mind that we build a variety of homes, attached and detached, so it's a pretty big spectrum. But today, currently, we're averaging around 135 days or seven months, and in some cases, in Arizona and Florida, we're going from the start of foundation to final inspection in four and a half months.
Speaker Change: [inaudible]
Mike: Alex, it's Mike.
Alex Rigo: Thanks for the question. We're really proud of what we've been able to accomplish year over year in terms of reductions of our cycle time.
Speaker Change: A year ago, we were roughly around nine months on average, and keep in mind that we build a variety of homes, attacks, and detox.
Mike: It's a pretty big spectrum.
Speaker Change: But today, currently, we're averaging around 135 days or seven months, and in some cases in Arizona and Florida, we're going from start a foundation to
Mike Forsum: So, it's almost a 50%, well, close to it, increase in cycle times, which is allowing us to do almost two inventory turns per year per house. So, for us, that is a really exciting thing for us in terms of where we want to go in terms of execution and production, which draws down on the interest from holding those lots and keeping that whip because we're going quicker. It's also allowing us to have more velocity, more volume in the communities and get our starts going, which then allows us to get better prices because we're going to the trades, and we're able to commit a certain amount of starts per month, per week, actually, and getting, again, better pricing, better performance, and better activity in our communities. So from that standpoint, I think it's all organic and interconnected.
Speaker Change: final inspection in four and a half months. So it's almost a 50%.
Speaker Change: Well, close to it, increase in cycle times, which is allowing us to do almost two inventory turns per year per house. So, for us, that is a really exciting thing for us in terms of where we want to go in terms of execution and production.
Speaker Change: capacity, you know obviously that
Speaker Change: Draws down on the interest from holding those lots and keeping that whip because we're going quicker.
Speaker Change: It's also allowing us to have...
Speaker Change: More velocity, more volume in the communities and get our starts going, which then.
Speaker Change: Allows us to get better pricing because we're going to the trades and we're able to commit
Speaker Change: a certain amount of starts per month.
Speaker Change: [inaudible]
Mike Forsum: Again, as I said earlier, we really believe this is a business that demands velocity and also scale is super important. And so we're also driving collectively now, as we've gotten bigger and brought Ontarios online, and with the size of our business and the growth of our business, we're able to, on our national purchasing, exact more concessions and rebates that are becoming very, very helpful. In fact, we are right now around $2,500 a home in terms of rebates that are coming through. That goes right to the bottom line.
Speaker Change: a business that demands velocity.
Speaker Change: and also scale is super important.
Speaker Change: And so we're also driving collectively now as we've gotten bigger.
Speaker Change: and bringing Ontario's online and the size of our business and the growth of our business.
Speaker Change: We're able to, on our national purchasing, exact more...
Speaker Change: concessions and rebates that are becoming very, very helpful. In fact, we are right now around $2,500.
Speaker Change: Michael Forsum, Drew Mackintosh, John Ho
John Ho: And we're very excited about that as well. So there are a lot of things that are in motion here for us. And again, as we've always said, we are on this journey of growth and scale, and all those attributes that come with it and the benefits that come with it, we're starting to kind of see coming into our business as we go forward.
Speaker Change: We are on this journey of growth and scale, and that all those attributes that come with it, and the benefits come with it, we're starting to kind of see be coming into our business as we go forward.
John Ho: Alex, this is John. The one item I would add to what Mike said is that, with that scale, we're also always looking to improve our efficiency in terms of our fixed costs and our SG&A. Chris talked about this in his previous remarks, and we've consolidated our operations in California with the relocation of our headquarters to Dallas, a lot of our corporate operations here as well. We did a reduction in force that will result in about $5 million in annual savings for the company. So all those things are going to help us to drive higher returns as we continue to grow and scale in maturity as a business.
Speaker Change: Then Alex, this is John. The one item I would add to what Mike said is with that scale, we're also always looking.
Speaker Change: to improve our efficiency over our fixed costs and our SG&A. Chris talked about this in his previous remarks.
Speaker Change: We consolidated our operations in California with the relocation of our headquarters to Dallas, consolidating a lot of our corporate operations here as well.
Speaker Change: We've did a reduction force that will result in about five million dollars in annual savings as well to the company. So all those things are going to help us to drive higher returns as we continue to grow and scale and maturity as a business.
Mike Forsum: Very helpful. And then, can you talk a little bit more about the increase in inventory in certain communities, particularly in Texas? And, you know, a part of me wants to think that that actually might be a positive, given that you could have inventory available as we go into a more improved rate cycle later in the year, with the expectation that that's a catalyst for demand. But maybe you can comment on sort of that inventory position.
Speaker Change: Very helpful. And then, can you talk a little bit more about the increase in inventory in certain communities, particularly in Texas? And, you know, a part of me wants to think that that actually might be a positive.
Speaker Change: Given that you could have inventory available as we go into a
Speaker Change: more improved rate cycle later in the year with the expectation that that's a catalyst of demand. But maybe you can talk comments on sort of that inventory position.
Mike Forsum: Sure. Mike, again, I'll take a stab at this first.
Speaker Change: Sure, Mike again. I'll take a stab at this first and anybody can follow up if they want to but
Mike Forsum: And anybody can follow up if they want to, but You know, Alex, what sort of goes on is that as much as we are driving towards even flow production, there are certain ways that go through the business in terms of when you start selling and then bringing communities online and where they are in terms of the yearly cycle. So, what we are seeing right now is a bit of a bulge of some whip coming through on starts that we started in the first and second quarter, getting ready for the third quarter, and definitely getting ready for the fourth quarter.
Speaker Change: You know Alex what goes on is as much as we are
Speaker Change: driving towards even flow production, there are certain ways that go through the business in terms of when you start sell and then bringing communities online and where they are in terms of the yearly cycle. So.
Speaker Change: What we are seeing right now is a bit of a bulge of some whip coming through on starts that we started in the first and second quarter.
Speaker Change: getting ready for the third quarter, getting definitely ready for the fourth quarter. And with that, what is happening in the market today is that a good portion, if not 70% roughly,
Mike Forsum: And with that, what is happening in the market today is that a good portion, if not seventy percent, roughly of our closings are those of which the sales took place about forty five to sixty days prior. That is generally the dynamic of the business today, which is kind of the opposite of what it was years ago, decades ago, where you basically started a house that you sold and sort of built in that order.
Speaker Change: years ago, decades ago, where you
Speaker Change: You basically started a house that you sold and sort of built into that order Effectively what is happening today is that the new home
Mike Forsum: Effectively, what is happening today is that the new home build industry is really replacing the resale inventory that's out there, and that buyer is a buyer that needs to move into a house between 60 days and 45 days. So you have to have that kind of buildup of inventory to have it ready to be in a position to transact and close in that period of time. So you're just kind of seeing that little bulge coming through.
Speaker Change: Michael Forsum, Drew Mackintosh, John Ho
Speaker Change: So you have to have that kind of buildup of inventory to have it ready to be in a position to be able to transact and close in that period of time. So that's, you're just kind of seeing that little bulge coming through.
John Ho: Very helpful. And then lastly, as it relates to sort of your M&A strategy, at least in the near term, understanding in-terrence is a big acquisition. Is it safe to assume that sort of M&A and, kind of, between now and year-end is probably off the table as you integrate, but next year is a sort of a new year with a white slate of M&A opportunities? Alex, this is...
Speaker Change: Very helpful. And then lastly, as it relates to sort of your M&A strategy, at least in the near term, understanding interest is big acquisition. Is it safe to assume that sort of M&A and kind of
Speaker Change: between now and year-end is probably off the table as you integrate, but next year is a sort of a new year with a white slate of MNA opportunities.
John Ho: Alex, this is John. We are a company that is growth-oriented. So we are opportunistic, but we're also very disciplined about it. As we've proven, below our book value, we'll allocate capital towards shared distributions as well. We've also demonstrated that we can really grow the company; 45% growth year over year in terms of our deliveries is, I think, a demonstration of that. We're happy in all the markets that we're in, but there are certainly other areas in Texas that we'd like to expand to, as well as Florida. So we'll be quite opportunistic in that nature and very selective.
Speaker Change: Alex, this is John. We are a company that is growth oriented so we are opportunistic but we're also very disciplined about it as we've proven
Alex Rigo: in the past five, six years.
Speaker Change: Seek out these opportunities that we think are good opportunities for us to be in. Dallas is somewhere we wanted to be in, and that's why Interris was so instrumental in establishing this position for us.
Speaker Change: We are very focused, as we said, on generating cash flow, reducing our debt. At the same time, if our stock continues to remain...
Speaker Change: below book value while it could cut capital towards shared distributions showed distributions as well.
Speaker Change: We've also demonstrated that we can really...
Speaker Change: grew the company. 45% growth year-over-year in terms of our deliveries I think is a demonstration of that.
Speaker Change: We're happy within all the markets that we're in, but there are certainly other areas in Texas that we'd like to expand to, as well as Florida. So we'll be quite opportunistic in that nature and very selective.
Jay Canless: Thank you. We'll take our next question from Jay Canless with Wetbush. Please go ahead.
Speaker Change: Thank you.
Speaker Change: Thank you. We'll take our next question from Jay Canlis with Wedbush. Please go ahead.
Mike Forsum: Hey, good morning, everyone. So with all the acquisitions this year, maybe could you level set us on what you think your product mix looks like right now between first time and move up?
Jay Canlis: Hey, good morning everyone. So with all the acquisitions this year, maybe could you level set us on what you think your product mix looks like right now between first time and move up?
Mike Forsum: Currently, we're roughly around 45 to 47% first-time homebuyer. We want to move that up into the 60s, high 60s. And then the tailing 30% would be half-half between first-time homebuyers.
Mike: Sure, James, Mike.
Mike: Currently we're roughly around 45 to 47 percent first-time homebuyer.
Speaker Change: We want to move that up into the 60s, high 60s, and then the tailing 30% would be half-half between first time move up and then we'd like to have usually in any of our markets.
Mike Forsum: And then we'd like to have, usually, in any of our markets, a more of a luxury position. We think it's really good for brand building. It helps us to be thoughtful and future-thinking around new products that are coming through, and that can permeate back into our businesses and our attainable price products.
Speaker Change: more of a luxury position, we think it's really good for brand building, it helps us to be thoughtful and, and future thinking around new products are coming through and that can permeate back into our businesses in our attainable pricing products. So,
Mike Forsum: So... We are moving in that direction, particularly with Dallas coming online, increasing our activities in Arizona and in the Orlando market, Orlando team. So you're going to start to see that percentage increase over time. Organically, it's not going to really take an acquisition to do it. So that's the movement. So roughly right now, I would say, I think we're just looking at right here that about 47.3% of our current buyers are first-time homebuyers, and then the rest is kind of mixed through.
Speaker Change: We are moving in that direction, particularly with Dallas coming online, increasing our activities in Arizona and in the Orlando market, the Orlando team.
Speaker Change: So you're going to start to see that percentage increasing over time. Organically, it's not going to really take an acquisition to do it.
Speaker Change: So that that's the movement. So roughly right now I would say I think I'm just looking at right here is about 47.3% of our current buyers are first-time home buyers and then the rest is kind of mixed through.
Jay Canless: All right, that's great, Mike. And then following up on that, I guess. You talked about land costs potentially coming up and offsetting.
Speaker Change: That's great, Mike. And then following up on that, I guess.
Speaker Change: You talked about land costs potentially coming up and offsetting.
Speaker Change: The savings on lumber, I guess, what are you seeing from land cost inflation right now? And then also, what can you buy from a lot perspective, or move up in luxury lots more available, or what are you seeing in the land market at this point?
Speaker Change: Yeah, so, unfortunately,
Speaker Change: With our ability and I guess our industry's ability to continue to drive volume through incentives and mortgage buy downs
Speaker Change: You know, everybody's keeping a pretty healthy pace in the communities of which they're building in.
Speaker Change: Land sellers see that they don't they don't think there's a problem. They don't really see
Speaker Change: Thank you.
Speaker Change: or understand what it's taking, I think, from us and our competitors to continue to.
Speaker Change: You know, sell homes and get them done. So there's been a stickiness to being able to recalibrate land pricing against the backdrop of higher costs that were associated with some sticks and bricks, but mostly around incentives and buy downs.
Mike Forsum: So, what that is forcing a lot of us to do is to go further into the development profile, in other words, where you're finding better value in land that is entitled and maybe partially developed where you're going to be doing your own development. And so that's where you're trying to kind of make those offsets. That, though, is a longer timeline, and you have to be thoughtful, and you've got to be able to work those things out in a timely way.
Speaker Change: So what that is forcing a lot of us to do is to go further into the
Speaker Change: development profile, in other words, where you're finding
Speaker Change: better value is land that you know is entitled that may be partially you know developed or you're gonna be doing your own development.
Speaker Change: And so that's where you're trying to kind of make those offsets. That, though, is a longer timeline, and you have to be thoughtful, and you've got to be able to work those in a timely way.
Mike Forsum: So they synchronize in a way that it is consistent with what we want to do with our deliveries. If you are late in getting a community open because you didn't develop it in a timely way, you may find yourself gapping, and that then forces you to go into the retail spot market for finished lots and master plan communities. And that's really expensive. There's a big difference between a finished lot out there today and then an entitled but raw piece of land.
Speaker Change: So they synchronize in a way that it is consistent with what we want to do with our deliveries.
Speaker Change: If you are late in getting a community open because you didn't develop it in a timely way,
Speaker Change: You may find yourself gapping and that then forces you to go into the retail spot market for finished lots and master plan communities.
Speaker Change: and that's really expensive. There's a big delta between a finished lot out there today and then an entitled but raw piece of land. And so you're trying to do the best that you possibly can to be in a position whereby you can
Mike Forsum: And so you're trying to do the best that you possibly can to be in a position whereby you can not find yourself in a hole, and you have to be forced to go out there and fill it with finished lots.
Speaker Change: Not find yourself in a hole and you have to be forced to go out there and fill it with finished lots
John Ho: And then, John, I think you talked in the prepared comments about wanting to be more land light. It looks like option lacks for 57% of the total this quarter, which was up, if I'm reading the numbers right, a little bit over last year, I guess. Where do you want to go with this longer term, and how does that play into getting your leverage down?
Mike Forsum: I think it's a combination of, you know, we've been growing pretty rapidly and we've always stated that really need land and own land and are willing to have it on a balance sheet if we can get on it and build a house and deliver it in the next 12 and 18 months. Being more asset light allows us to drive higher returns, which we know will drive share prices down too. So they're connected, and it is a strategy that we think is right, particularly in the markets that we're in.
Speaker Change: Yeah.
Speaker Change: I think it's a combination of, you know, we've been growing pretty rapidly and we've always stated that we really need land and own land and have it, willing to have it on a balance sheet if we can get on it and build a house and deliver it into the next 12 and 18 months.
Speaker Change: Beyond that, we really want to control land.
Speaker Change: and as we continue to grow particularly in the geographies like Texas and Florida and also in California as well too, we're going to want to use land bankers, we're going to want to structure them as options because that allows us to
Speaker Change: [inaudible]
Speaker Change: will be highly successful for us.
Speaker Change: And then the last one I had, on the last call, you guys talked about being able to raise prices in the majority of your communities. Could you talk about how that trended in the second quarter and then also what type of price increases have you been able to implement in July?
Jay Canlis: Yeah, so we continue to be anywhere between three to seven percent, Jay.
Jay Canlis: depending upon the releases that are going out.
Jay Canlis: We're not getting sort of this exponential jump in pricing that we've seen before coming out of the
Mike Forsum: the pandemic. So it's a steady price increase around specific homes that we're trying to drive. We're also using price increases in ways in which we're getting better prices, or we're able to get price increases around dirt starts versus inventory that's out there. So we're kind of using that to move people more towards the inventory. If they want to do a dirt start, if they want to have the home more built towards their customization, we're able to get in the higher price range of around 7% to 10% in that regard.
Speaker Change: price increase around
Jay Canlis: of specific homes that we're trying to drive.
Mike Forsum: We're also using price increases in ways in which we're getting better pricing or we're able to get price increases around dirt starts.
Mike Forsum: versus inventory that's out there. So we're kind of using that to move people more towards the inventory. If they want to do a dirt start, if they want to have the home more built towards
Speaker Change: their customization, we're able to get in the higher pricing range around seven to ten percent in that regard. So.
Speaker Change: You know, it's again targeted. It's dynamic. It's very focused. We're also
Mike Forsum: So it's, again, targeted. It's dynamic. It's very focused. We're also doing price increases around lot premiums, view premiums, other ways of gathering overall price increases, not just at the absolute price that we're marketing at.
Mike Forsum: doing price increases around lot premiums, view premiums, other ways of gathering overall price increases, not just at the absolute pricing that we're we're marketing at.
Jay Canless: That sounds great. Thanks for taking my question.
Speaker Change: That sounds great. Thanks for taking my questions.
Alex Rygiel: Thank you.
Speaker Change: Thank you. We'll take our next question from Alex Varen with Housing Research Center. Please go ahead.
Speaker Change: Yes, thanks gentlemen. I joined a little bit late, so I apologize if maybe you already answered this, but can you provide updated thoughts on share buybacks, you know, given the price of the stock versus the book value? That's my first question.
John Ho: Yeah, this is John Ho. As I mentioned, we're
John Ho: Yeah, this is John Ho. As I mentioned, we're
Speaker Change: We've been growing a company and we've been very successful in doing that. Our leverage is a little bit higher than our state policies and usually when we make an acquisition like this within 12 months we're looking to reduce that.
Speaker Change: At the same time, in the second half of the year, our guidance does point to significant cash flow generation. If the stock is below the book value, which it is, we'll look to opportunities to use our share buyback program to buy back stock.
Speaker Change: and then lastly we'll continue to focus on you know you opening new communities in the markets that we're in as well so we can continue to grow our economies to scale in our home building platform.
John Ho: Okay, thanks. And the other question, I guess, understand the sequence you guys are expecting between the third and fourth quarter for deliveries, and the fourth quarter number seems a bit high compared to previous history.
Speaker Change: Are you expecting to get a ton of orders that can close quickly, you know, in the next few months, or what would drive that sequential jump in the fourth quarter to that extent?
John Ho: Yeah, it's really how our business has grown. I think Mike mentioned this earlier, and it is the organic growth that we've experienced, but also all these new communities that we've opened. You know, our average selling community increased over 40% year over year. So we have a lot more storefronts now. And with that, the momentum that we're driving through the business in terms of increased orders, and the use of incentives, we do see strong order growth absorption in the second half of the year. That's gonna allow us to deliver
Speaker Change: It's really how our business has grown. I think Mike mentioned this earlier, is that, so we closed on Nterra's acquisition April 1st.
Speaker Change: We got our first quarter being in this market. We see a lot more contribution from that business as well as Florida as well too, coming into the second half of this year. So it's really about our business.
John Ho: and the organic growth that we've experienced, but also all these new communities that we've opened. You know, our average selling communities increased over 40 percent year over year, so we have a lot more storefronts now.
John Ho: And with that, in the momentum that we're driving through the business in terms of increased orders, the use of incentives, we do see a strong order growth absorption in the second half of the year. That's gonna allow us to deliver.
John Ho: on those deliveries.
Speaker Change: Okay. All right. Thank you very much.
John Ho: And there are no further questions at this time. I'll turn the call back over to Manifat for closing remarks.
Speaker Change: Thank you all for joining us on our second quarter earnings call. We look forward to speaking with you all next quarter.
Operator: Thank you, and this does conclude today's program. Thank you for your participation. You may disconnect at any time.
Speaker Change: Thank you and this does conclude today's program. Thank you for your participation. You may disconnect at any time.