Q4 2024 Landsea Homes Corp Earnings Call
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Speaker Change: Good day, everyone and welcome to the land Sea homes Corporation fourth quarter 2024 earnings call.
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Speaker Change: Good morning, and welcome to Lindsay homes fourth 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 law.
Speaker Change: <unk> cautions that forward looking statements are subject to numerous assumptions risks and uncertainties, which change over time.
Speaker Change: These risks and uncertainties include but are not limited to the risk factors described by Lindsay Hall, and its filings with the Securities and Exchange Commission.
Speaker Change: We do not undertake any obligation to update forward looking statements. Additionally, reconciliations of non-GAAP financial measures discussed on this call to the most comparable GAAP measures can be accessed through <unk> website, and then SEC filings.
Speaker Change: Hosting the call today are John how land piece, Chief Executive Officer, Mike for some president and Chief operating Officer, and Chris quarter, Chief Financial Officer.
Speaker Change: With that I'd like to turn the call over to Jonathan.
Jonathan: Good morning, Thank you for joining us today as we go over our results for the fourth quarter and full year of 2024.
Speaker Change: And provide an update on our operations.
Speaker Change: In the face of challenging headwinds for our industry fancy homes made progress on a number of fronts in 2024.
Speaker Change: Company made further strides towards becoming a large scale homebuilder in several key markets across the country.
Speaker Change: Our goal is to be a top 10 homebuilder in each of our markets and we see a path to realizing that goal over the next few years.
Speaker Change: During 2024, we generated home sales revenue of $1 5 billion of new home deliveries of 2831.
Speaker Change: Both records for our company.
Speaker Change: We expanded our presence in the state of Texas by acquiring DFW based in Paris homes, giving us a foothold in a key market with great long term fundamentals.
Speaker Change: We also fortified our operations are existing markets by opening new communities and acquiring loss our future projects with an emphasis on affordability and functionality through our high performance home series.
Speaker Change: Our growth has been fueled by a mix of organic expansion and M&A activity and we continue to see opportunities on both fronts to grow our market share.
Speaker Change: 2024 was a pivotal year for our company and we are excited about what the future holds in 2025 and beyond.
Speaker Change: In terms of the fourth quarter lancet generated strong topline growth of 22% year over year.
Speaker Change: Driven by new home delivery growth of 41%.
Speaker Change: While we are pleased with our team's execution and success delivering such a high volume of homes in the quarter.
Speaker Change: The combination of persistently high mortgage rates buyer hesitancy pinch profitability as we were compelled to increase incentives to compete and move inventory.
Speaker Change: We also made a strategic decision to reduce our standing inventory and generate additional cash.
Speaker Change: Hold on Te <unk> heading into the new year.
Speaker Change: We felt that this was the appropriate path forward both in terms of our positioning ahead of the spring selling season, our goals for our balance sheet.
Speaker Change: During the quarter, we generated $47 $8 million in cash flow from operations.
Speaker Change: Net new orders in the fourth quarter came in at 636.
Speaker Change: Presenting a 60% increase over the fourth quarter of 2023.
Speaker Change: Our high performance homes continue to sell well against the competition and provide our company with a differentiated platform related innovation energy efficiency and sustainability.
Speaker Change: We also benefited from the investments we've made in our online presence with <unk>.
Chris: Chris can utilize tools such as <unk>, we entered into 60 degree virtual home tours and <unk>.
Chris: <unk> plans to find the perfect home for their needs.
It also gives our salespeople important insight into perspective buyers. So that they can make a active pitch why lastly home is right for them.
We are firm believers that the technology can enhance the value of a new home and also plays an important role in our sales and marketing efforts.
Chris: During the fourth quarter, we executed a secondary offering on behalf of selling stockholders that achieve the dual goals diversifying our shareholder base and reducing our ownership concentration by increasing our public float.
Chris: Following this transaction our biggest shareholder landscape green reduced its stake in our company to 17% down from 54% at the beginning of the year.
Chris: We feel that the concentrated nature of our shareholder base was an overhang for our stock and believe that the quality and stability of our new shareholders will be a long term positive for our company.
Chris: Looking ahead to 2025, we are excited about the prospects for our company given our unique product portfolio. The long term outlook for our markets and our positioning within those markets.
Chris: Nancy has demonstrated an ability to enter markets and quickly scale. Our local operations, we expect to have similar success in our newer markets.
Chris: Our high performance home series is an important differentiator for our company allows us to draw a distinct contrast, with our competitors competing for new homebuyers.
Chris: We feel that this is an important selling tool given the competitive nature of our markets.
Chris: While affordability remains an issue for our industry. We believe that there is a strong desire for home ownership in this country and a structural lack of housing supply.
Chris: Just serve as a tailwind for new home construction for years to come.
Chris: We also think that the recent trend of large public builders, taking market share will continue given the cost of capital advantage of scale benefits associated with production homebuilding.
Chris: As a result, we believe the long term outlook for our industry and especially lastly homes remains positive.
Chris: With that I'd like to turn the call over to Mike who will provide more detail on our operational results.
Mike: Thanks, Scott and good morning to everyone.
Mike: Lastly at homes closed 937 homes in the fourth quarter of 2024, resulting in a record year for deliveries and homebuilding revenue for our company at 2831, and $1 5 billion respectively.
Mike: Top contributors to that delivery total work, Florida, followed by Arizona and Texas.
Mike: Our Arizona team grew delivery, 38% and revenues, 40%. We also saw 118 deliveries in Colorado and between opening Austin and acquiring our DFW portfolio in April we enjoy 414 deliveries out of Texas.
Mike: We are making great strides balancing our portfolio between our core markets in California.
Mike: Arizona and Texas.
Mike: We continue to see a healthy construction environment in all of our markets as Bill times have significantly improved compared to a year ago.
Mike: Our sales pace in the quarter averaged $2 seven homes per community per month.
3% improvement over the fourth quarter of 2023.
Mike: Markets with the best absorption paces during the quarter were Colorado, followed by Arizona and Texas.
Mike: We remain committed to generating between 3% to three five sales per community per month.
Mike: Financing incentives remain a key driver of demand and most buyers are looking for ways to offset the impact of higher mortgage rates and property tax and insurance increases on their monthly payment.
Mike: While this has been a great sales tool when selling against the existing home market. It has had a detrimental effect on our margin.
Mike: Overall these incentives were about 280 bps higher than the fourth quarter than in the third quarter.
Mike: And that this margin pressure, we have been aggressively resetting the labor and material components that go into our projects.
Mike: And reducing costs where possible.
Mike: Slot cost inflation has been a driver of margin pressure and we have engaged our land partners about the cost of future lot takedown.
Mike: We have seen some previously tied up land deals hit the market again, and we are optimistic that this is the sign of underwriting discipline from our peers and a.
Mike: Reset of expectations from land sellers.
Mike: Additionally, we are in a very good position. We're currently at.
Mike: At year end, we owned or controlled 111000 lot.
Mike: This represents just over four years of supply based on our last 12 month sales.
Mike: 44% of these were owned and 56% of these were under control through some sort of option contract.
Mike: As we have said we are pushing to a more land light strategy and anticipate shifting this percentage to 25% owned.
Mike: And 75% controlled by the end of 2026.
Mike: As John mentioned, we sold a significant number of specs in the quarter to reduce our standing inventory and rebalance our community profile as we head into the spring selling season.
Mike: During the quarter, we opened four new communities and close out 11 communities, primarily in Florida as we position for growth in 2025.
Mike: In 2025, we should expect our community count to grow in the low single digits for the year.
Mike: The improvement in cycle times over the last year has diminished the need to operate with a higher level of spec inventory as we can now deliver a build to order homes in around five months.
Mike: While we continue to have move in ready homes for sale in each of our communities. We are taking a more balanced approach when it comes to spec versus build to order.
Mike: We have moderated our starts this quarter to be more in line with our desired levels and ultimately get closer to our 50 50 target.
Mike: And build to order.
Mike: This should also help our efforts to improve margins given that build to order homes typically carry better margins overall I am pleased with how we ended 2024 and how we are positioned heading into the spring selling season we.
Mike: We are excited about the new communities coming online this year and feel that our existing communities will benefit from a more balanced approach to spec inventory.
Mike: Our high performance Foams series continue to stand out from the competition, both in terms of quality and value, which we feel is a key advantage as buyers become more discerning.
Mike: The markets, we build and remain economically vibrant and continue to benefit from job growth and in migration from other parts of the country.
Mike: Given these positive I remain optimistic about the long term outlook for our company.
Mike: With that I would like to turn the call over to Chris who will provide more detail on financial performance and give some forward looking guidance for the coming quarter, Chris. Thanks.
Chris: Thanks, Mike Good morning, everyone as Mike and John mentioned, we experienced record topline deliveries and revenue for the quarter and for the year.
Chris: Pretax income for the quarter was $6 $5 million, bringing us to $26 $7 million for the full year.
Chris: Net income for the fourth quarter was $3 million or <unk> <unk> per diluted share and adjusted net income was $9 1 million or <unk> 25 per share.
Chris: In the quarter, we recorded $7 9 million of purchase price accounting, which equated to <unk> 16 per share we expect to continue to see the impacts of purchase price accounting for the next couple of years with approximately 21% to $22 million amortized through 2025.
Chris: Gross margins were 12, 5% in the quarter and 14, 7% for the full year slightly below our guidance as incentives continue to rise as the quarter progressed discounts and incentives for the quarter were just over 8% about 300 basis points higher than the fourth quarter of 2023, and 280 basis points higher sequentially.
Chris: From the third quarter of 2024.
Chris: We continue to see competitive pressures on interest rate offerings, but have seen that abate. Some after the end of the year.
Chris: The 10 year Treasury has settled in around four 5% range and we are seeing the market offered lower mortgage incentives than they were in the fourth quarter.
Chris: Our adjusted gross margin was 18, 4% in the fourth quarter and remain just over 20% for the year.
Chris: We expect incentive levels to remain elevated through 2025 with the actual costs fluctuating with the overall mortgage rate environment.
Chris: After the first of the year, we have consistent consistently seen rate buy downs and the $4, 99% to 525% range for quick move in homes as we kick off the spring selling season.
Chris: As Mike mentioned, we are also seeing a slight shift back to more built to orders were fewer incentives will need to be offered.
Chris: However, as we look into the first quarter, we would anticipate incentive levels to be in the 7% to 8% range.
Chris: Also saw good performance this year from Lansing elements, which provides mortgages insurance entitled services for our buyers as it generated $2 $2 million of profitability for the year.
Chris: I'm also very pleased with our SG&A leverage for the quarter as we continued to focus on expense reductions and leveraging our high volume <unk>.
Chris: SG&A as a percentage of home building revenue in the quarter came in at 12, 5%, a 40 basis point improvement from the same time last year.
Chris: For the full year, we saw a 150 basis point improvement from 2023, and an overall rate of 13, 5% of home sales revenue.
Chris: Separating out just our G&A expense this ratio as a percentage of home sales revenue improved from eight 7% in 2023 to six 9% in 2024.
Chris: On a total dollar basis, our G&A was up only $700000 on a year over year basis and that included adding the <unk> acquisition and about $8 5 million of one time expenses through the year, including capital markets fees acquisition fees and severance costs.
Chris: You will recall that during the second quarter, we took efforts to gain efficiencies in the operations through both head count reduction as well as streamlining our reporting structure and eliminated 30 positions. We are seeing those efforts pay off.
Chris: Tax expense in the fourth quarter was $3 3 million, bringing our total for the year to $8 1 million for an effective tax rate of 35%.
Chris: This year fewer homes qualified for the new more rigorous 45 L tax credits.
Chris: The rules for 45 L tax credits continue to tighten we expect to have fewer of our homes qualify in 2025 as the cost to achieve is much larger than the overall tax credit for.
Chris: For 2025, we expect our tax rate to be between 25 and 26%.
Chris: Now turning to our balance sheet, we ended the fourth quarter with $241 8 million in liquidity $57 $2 million in cash and cash equivalents and $184 5 million in availability under our revolver during the quarter, we generated $47 $8 million in cash flow from operations, which helped to reduce our leverage ratios.
Chris: Our goal we have been discussing since our acquisition of <unk> earlier in 2024. Additionally.
Chris: Additionally, this year, our 11% $250 million private notes become pre payable with a 733% premium.
Chris: Current high yield notes are trading around par or 878%. So we will look to refinance the private when it opens and reduce our interest cost close to 200 basis points on a go forward basis.
Chris: With interest costs, representing about 4% of our gross margin. This savings should begin to show up starting later this year. Additionally, this will extend our maturity profile with any new notes maturing in 2030 for later.
Chris: At the end of the year, we maintained 51, 8% debt to total capital and improved our net debt to total capital another 150 basis points sequentially from the third quarter to 47, 7%.
Chris: Now looking forward to the first quarter, we anticipate our new home deliveries to be between 607 hundred and an average sales price between 475000 $500000 with GAAP gross margins of 13% to 14% and adjusted gross margins between 18% and 19%.
Chris: <unk>.
Chris: For the full year, we anticipate new home deliveries to be in the range of 3000 to 3400 units, which at the midpoint represents a 13% growth over 2024, we expect the asps of these deliveries to be in the range of 500000 to 525000.
Chris: Additionally, we expect GAAP sales gross margin for the full year to be similar to 2024 at around 15% and adjusted gross margins to be around 20%.
Chris: This guidance assumes incentive stay elevated for the year and is based on our best estimate as of today with current market conditions as inflation.
Chris: It's continued to change overall results could change accordingly.
Chris: That concludes our prepared remarks, and now we'd like to open up the call for questions.
Chris: At this time, if you would like to ask a question. Please press star one now on your telephone keypad.
Chris: Draw yourself from the queue you May press Star two again that is star one to ask a question.
Matthew Bouley: We will take our first question from Matthew Bouley of Barclays.
Speaker Change: Good morning, you have Elizabeth lingered on for Matt today. Thank you guys for taking the questions.
Speaker Change: I just wanted to start off asking about incentives and you mentioned that you're expecting them to come down to seven or 8% in the first quarter, which would be down a little bit from Q is that a reflection of the mix you're mixing more towards the build to order homes from this back or is that based on what youre seeing in the market.
Speaker Change: Right now in terms of trends and demand.
John: Elizabeth This is John I'll take that first and then.
Chris: Chris give some specifics.
Speaker Change: It's both a combination of what we're seeing that's happening the actual markets in the first couple of months of the year.
Speaker Change: We're seeing that incentives trend down both in terms of the.
Speaker Change: Total incentives and also the cost of those mortgage rate buy downs.
Speaker Change: In addition, you are right as we shift our.
Speaker Change: Portfolio, and our offering and our communities for our offering both this back quick move in homes as well as build to order the builder orders have a higher margin with them.
Speaker Change: And we're not offering the same kind of.
Speaker Change: Typical mortgage incentives with that offering so it's a combination of both.
Speaker Change: Okay. That's.
Speaker Change: Thats helpful.
Speaker Change: Sorry.
Speaker Change: No. That's okay I would just say just adding to that is that.
Speaker Change: We've actually seen.
Speaker Change: Offerings like I said between $4 99 to 509 5 million a quarter now.
Speaker Change: With the tenure.
Speaker Change: Settling out of kind of four and a half was up.
Speaker Change: Spike in the beginning of January but since then it's really kind of settled out and so the cost is more stable as well as we're buying at 499 to five in a quarter now.
Speaker Change: Okay got it that's helpful color.
Speaker Change: And then just kind of staying on the margin topic, a little bit could you speak more about what youre expecting in terms of like land I know that you said that that inflation and kind of a pressure.
Speaker Change: And just any anything around underlying building costs and if you have anything.
Speaker Change: Any quantification you can give us around tariffs that would be really helpful.
Mike: Sure, but this is Mike.
Mike: I'll field that question.
Mike: Let me just sort of tackled the macro around the tariffs.
Mike: Immigration those questions that have been coming to us pretty routinely.
Mike: Recently, so as of right now, we're not seeing really any.
Mike: In fact, that's.
Mike: The result of tariffs for the most part.
Mike: Our our contractors vendors suppliers.
Mike: I've already short forward committed to their material purchases that are coming into our house before many of these tariffs were going.
Mike: Going into place also.
Mike: Result of the.
Mike: Distribution or the disruption to the <unk>.
Mike: <unk> chain that came out of Covid many of our suppliers now have multiple channels in which to access materials as opposed to before where they were a single sourcing many materials from one single location, maybe one single foreign location. So for the most part we have not seen really any big impact as a result of tariffs.
Mike: From that standpoint also we've already had our spring selling season starts underway those started last year and we're kind of moving into.
Mike: It would be the second level of starts coming here late spring early summer.
Mike: We may see some impact of that but.
Mike: Right now, we're not seeing a lot of pressure and the same with labor, we're seeing labor outstanding labor conditions on all of our communities and all of our regions.
We haven't had any real any issues coming from our trades and concerns around that so.
Mike: From our standpoint.
Mike: We still see a sort of a clear path as it relates back to those big macros.
Mike: Side of that.
Mike: As John had mentioned and I think I talked to as well as we are consistently looking at every way to squeeze out.
Mike: Just out of our homes without sacrificing any of the elements around our high performance value proposition.
Mike: And so we're in constant communication with our trades.
Mike: We're looking for different ways in which to do it. We're also getting more micro pricing around our actual houses getting really focused around premiums lot premiums.
Mike: Premiums these things that you can incrementally.
Mike: And enhance your margins as well as.
Mike: Other ways in which speed is also very helpful. So we're really thrilled about our teams and how they are now cycling through their production housing that they've got going through in this five month period of time.
Mike: Frankly, beating beating the cycle time by one month has real.
Mike: Real value to our costs and our margins and so.
Mike: So we're looking under every rock through every crevice everywhere, we can to find different ways in which to enhance our margins going through this cycle, which is I think we have an amazing team and outstanding homebuilders at our local locations and they are doing a great job on that.
Mike: Thank you very much I'll pass it on.
Speaker Change: We will take our next question from Carl Reichardt of BT IAG.
Carl Reichardt: Hi, guys. Thanks for taking my questions I appreciate it I hope you're well.
Speaker Change: I wanted to just I may have missed this I'm sorry, if I did but can you talk a little bit about that.
Speaker Change: The delivery performance this quarter relative to guide I think grew about 10% light or so was that all a function of sales related issues or did you have some kick in the first quarter, which also looks a lot higher than we expected.
Speaker Change: Yes, Karl I'll take that one this is Chris.
Speaker Change: Yes, a lot of it was just really backend loaded and so some of that did kick into early January.
Speaker Change: And said that that was primarily what the difference was along the way.
We push we had a record quarter on closings and so they were.
Speaker Change: Match into the last last minute.
Speaker Change: At the year end and we did have some of that shifted over into the first quarter.
Speaker Change: Okay. Thanks, guys and then you guys talked about some sort of goals in your for per selling three to three and a half per month per store.
Speaker Change: I got to go back I think the 21 in the model to find a time when you did that and obviously that was an awfully good year for everyone. So what is the pathway to get from where you are now on a sales per store basis to that number is it a function of a smaller.
Speaker Change: Act or more focused on turns and then how have you tracked relative to that goal set so far in 2025.
Mike: Carl This is Mike.
Speaker Change: So again that number is a number that we set forth it's somewhat aspirational to some degree, but we believe that that is a natural rhythm of any community.
Speaker Change: On a single family detached community on average we will have some that are a little bit higher some that could be a little bit lower but generally we feel like.
Speaker Change: Even flow of community should be roughly around three.
Speaker Change: Three net sales per month per community and that's where we go and that's where we drive our pricing towards against the competition Thats, where we look at it when we're talking about construction and we're setting our starts that's generally what we do is just again to have sort of a goal out there going forward.
Speaker Change: Slightly shy of that on average for the community because some are a little bit longer some are a little bit.
Speaker Change: And that goal. There's also the component of attached product, which doesn't necessarily always relates specifically to that because when youre. Starting a building you may have eight units at one time and then you are kind of absorbing in the building as you're going along so.
Speaker Change: Ken I just wanted to see.
Speaker Change: <unk> emphasized that test that is sort of a.
Speaker Change: Guiding light as opposed to a direct number that we need to hit because we want to be able again half. The team is focused on the goals that are out there in that $3 eight.
Speaker Change: We are doing all things that are within our toolbox to be able to achieve that goal, including again. The incentives are Chris has talked about our cycle times.
Speaker Change: Our footprints are shrinking a little bit to make them more affordable.
Speaker Change: But at the end of the day Karl what were really just doing at this point is just making sure of that.
Speaker Change: We are continuing a vibrant sales pace at every single one of our communities to get through this part of the cycle to reduce our stock level inventory to cycle through the land that we have right now to generate cash and to <unk>.
Speaker Change: Take that cash.
And redeploy it back into new land positions that will take us out in 2000, $700000 29, and that's really the goal.
Speaker Change: For us for me.
Speaker Change: Having done this a long time.
Speaker Change: We do not look at Santa margins, we believe in cash generation. This is a business that.
Speaker Change: You have to be generating cash we have to keep moving through and so we are really focused on the sales side of this and doing what we need to do to continue to move through our inventory and the land and those things I just talked about so.
Speaker Change: For us.
Speaker Change: I guess, we just we're not going to.
Speaker Change: We don't want to be the last one to move unless we want to be first movers were going to stay focused we're going to be forward, leading in our markets and continuing in that three point out sales pace is really the goal to continue to do that sort of thing.
Speaker Change: Yes.
Speaker Change: Ill just add on to what Microsoft if you'd look at that for.
Speaker Change: For the year.
Speaker Change: Arizona.
Speaker Change: California, and Colorado all had over three.
Speaker Change: Their average selling pay.
Speaker Change: Florida and Texas.
Speaker Change: Texas, just coming online in an Austin.
Speaker Change: And just working through the Antero acquisition for a full year. So we've got the <unk>.
Speaker Change: Stronger ones already over that three.
Mike: That Mike was talking about and so we've got to work off.
Speaker Change: Florida, and Texas to get there as well.
Mike: Okay I appreciate that guys. Thanks, so much.
Speaker Change: We'll take our next question from Jay Mccanless of Wedbush.
Jay Mccanless: Hey, good morning, everyone.
Jay Mccanless: First question I had the fiscal 'twenty five.
Jay Mccanless: Closing price guidance was better than we were expecting.
Jay Mccanless: Is there some pricing power in there or is that all just going to be mix you think.
Jay Mccanless: Yes, I think Jay it's Chris.
Jay Mccanless: It's a little bit of both so we've been able to look at pricing.
Jay Mccanless: On the top line, but also you've got.
Jay Mccanless: Some of the better pricing on the mortgage incentives, which is a contra revenue side of things.
Jay Mccanless: Automatically goes into Asps as well, so it's kind of a double double edge sword there.
Jay Mccanless: Great.
Speaker Change: And then Mike the land that you are seeing come back to market could you maybe give us a little more color on that I mean are these deals that were maybe tied up for only a few weeks or few months or is there some longer dated stuff that youre seeing come back to market and I guess, what are you seeing with the pricing from the land sellers that they're trying to get at <unk>.
Jay Mccanless: Sure.
Jay Mccanless: Yes, Jay I think it's a mixed bag and it's everywhere.
Jay Mccanless: In Florida, Texas, Colorado, Arizona, not necessarily California, but mostly within.
Jay Mccanless: Large land sellers, who are selling multi parcels out into the market bringing in builders.
Jay Mccanless: And I think what's going on is if there is a real strong discipline going through the market right now and not to be in a position whereby you can't have clear product segmentation and those kinds of offerings and so what we're seeing is.
Jay Mccanless: Not a run to the.
Jay Mccanless: The full acquisition of those parcels.
Speaker Change: Members are settling out excuse me im battling a cold here when that number settle out.
Speaker Change: The builders are identified we're seeing less over parcels and many of these masterplan communities that did not make the first sale.
Speaker Change: I'll come back to the market and our Recalibrated price and I think that that's really good. It's keeping thing is very clear and distinct and making sure that each builder is going to be able to get a very.
Speaker Change: <unk> value proposition when they're doing these parcel acquisitions, so that's where we're seeing awful lot of.
Speaker Change: It's.
Speaker Change: Timelines are short term long term.
Speaker Change: All out there.
Speaker Change: As you know also this.
Speaker Change: This industry is turning to land bankers and land bankers are also part of this conversation and part of the mix in terms of the evaluation. So many.
Speaker Change: In many ways, we do have a new partner that is helping us to look at opportunities along the way and to the extent that there are also hesitating.
Speaker Change: We're also finding that.
Speaker Change: There isn't that sort of strong momentum going into communities sort of lightly if we can't be able to have a financing partner that's willing to help us to save land light. There is also some walkaways that are going on as well, we're seeing that from our competition too.
Speaker Change: Okay got it.
Mike: Very helpful. Thanks, Mike.
Speaker Change: And then just wanted to ask it sounded like you guys close out a bunch of Florida communities.
Mike: Maybe talk about what youre seeing from demand there.
Mike: Another is that athene, maybe playing through the guidance for the first quarter that you guys are trying to move through some of the communities are just given there seems to be a significant amount of new and existing home inventory.
Mike: Especially in the middle of Florida at this point.
Mike: Great well.
Mike: Overall, there is still strong strong demand throughout the country at least in the mosque, which we're at there's a strong will to a home.
Mike: Homebuyer homeowner it's still there it's just the challenge around affordability qualifications as you would expect in the entry level homebuyer. So for us that's the.
Mike: Constant conversation within our company in terms of how to be able to bridge that between the desire of our buyer profile and the ability to deliver them a house in which they can acquire so we're always focused in on that.
Mike: As it goes back to.
Mike: Florida, particularly in what is going on in that market.
Mike: I would say, it's the same we still have great traffic at our communities, we're having great conversations with the buyer prospects. We are doing a good job in converting them either online or through our online our on site sales presence.
Mike: But as Chris has identified many timeshare Jay.
Mike: It's really about the incentives in which we can deliver to them to be able to get that price point down or that monthly mortgage rate down and then I think a little bit of a now we're also being challenged around insurance premiums that are coming on property taxes are going higher because it's sort of the two year cycle in which the county assessors are out now looking at.
Mike: At values, and so youre seeing a little bit of a pop there. So just.
Mike: Really it's just a lot of pressure around affordability, but if we can find the.
Mike: Great tool.
Mike: And do it in an affordable way.
Mike: That we can get that mortgage down to where they need to be.
Mike: We have still a lot of demand out in the markets in which we're operating.
Mike: Got it and just.
Speaker Change: Thought about this from what you said on insurance have you guys been able to quantify how much on a percentage basis peoples homeowners insurance is coming up in Florida, or even some of your California communities yet.
Speaker Change: Yes, it's a great question and we're looking for data to come flowing in but thats sort of in there.
Speaker Change: The new thing now that seems to be okay. Its head up and we're trying to get our arms around that but I don't have anything specific for you.
Speaker Change: Understood. Okay. Thanks, guys I appreciate it.
Speaker Change: And once again to ask a question. Please press star one now on your telephone keypad, we will move next to Alex Barron housing Research Center.
Speaker Change: Yes. Thank you good morning.
Speaker Change: I was hoping you guys could share.
Speaker Change: Some statistics around your starts this quarter versus.
Speaker Change: A year ago and also your spec levels this quarter versus a year ago.
Speaker Change: Sure I think that as Mike said this is cross border.
Speaker Change: Mike said.
Speaker Change: Starts are really pacing with our order.
Speaker Change: And really what we're trying to do as well is we had a push at the end of the year to two.
To get some of the standing inventory sold.
Speaker Change: And then also drive more of our build to order platform. So we've really.
Speaker Change: Paced our starts specifically this quarter.
Speaker Change: And if you remember this time last year really the industry was all about going full stack and so you've seen that start to you.
Speaker Change: So just changed slightly if you look at our backlog about roughly 40% of that is closing out longer.
Speaker Change: Then what we would consider a quick move in home and so we're seeing some movement towards towards that objective overall.
Speaker Change: Okay.
Speaker Change: I guess, the Directionally, but I was hoping you guys could have any numbers if possible.
Speaker Change: Sure. This is Mike Alex I'll, just sort of backdrop up what Chris was talking about is if you were a year ago looking at our strategy around spec starts versus build to order. We were generally releasing if you were to say a construction start of 10, plus we would've probably gone off with a 10% to 20 build to order.
Speaker Change: And then the 90% to 80% or 98 loss would have been on spec. We are now moving towards a 50 50. Neither words, we would like to see roughly around 50, 50% of that 10% 10 lots being done Delta order before we released to go into effect. So we're moving towards a more traditional balanced approach.
Speaker Change: Between taking spec inventory against the build to order. So that we don't find ourselves in the end, where we have inventory thats moved its way through its production cycle and then we're finishing up at the end of the month or the end of the quarter with.
More near term finished cap.
Speaker Change: Inventory that we're going to have to more heavily discount to probably or incentivize to move along so with the cycle times, reducing that I talked about earlier, we are kind of within that window now where the buyer is looking at that timeframe is within their range in terms of understanding about where rates may.
Speaker Change: They are may not be but they are feeling around that is we have a higher level of comfort about where rates may or may not be in which we have to buy them down but it's also exciting for them because now theyre getting to do a little bit more customization personalization those things on our design Center. If you were looking a year ago. We had very few people are going through our design center.
Speaker Change: We actually had spiked out those houses today youre seeing a real heightened activity going through design center, where people are choosing the flooring choosing coverings doing those kinds of things too.
Speaker Change: Spoke their houses and that's very helpful. Again in terms of adding extra revenue and extra profit into the business. So we like that.
Speaker Change: Right, yes that makes sense.
Speaker Change: Now in terms of the change in.
Speaker Change: Margins that were actually achieved versus expectations, a quarter or two ago, what what changed because it doesn't seem like the mortgage rates changed a lot was it just that the competitors.
Speaker Change: We're offering very low interest rates and you guys had some sort of match to stay competitive or what.
Speaker Change: What kind of changed in your mind versus a quarter or two ago that causes margins to go down.
Speaker Change: For yourselves, but it seems for the whole industry.
John: Yeah, Hey, Alex this is John.
Alex: Yes, Youre right.
John: Going into the end of the year.
John: And so finished spec inventory was definitely elevated.
John: Cross the markets, particularly in markets like Florida and Texas.
John: We got into the end of the year.
John: With mortgage rates, increasing obviously with a lot of volatility in the market getting home buyers off the fence to commit to purchasing home required more incentives and Chris shared on the call.
John:
John: His remarks was in <unk>.
John: <unk> increased about 290 basis points sequentially from quarter to quarter.
John: That had the biggest impact on margins.
John: A lot of that unsold inventory has cleared.
John: And everyone's.
John: <unk> spec inventories out.
Yes.
John: Decrease.
John: What from fourth quarter going into first quarter.
John: We're also seeing a lot including ourselves right our shift to be building more of these built to order so that's going to help.
John: The competitive pressures to have to provide those kind of incentives.
John: Yes.
John: Across the board and a lot of these markets, particularly in Florida, Texas.
John: Zone.
John: Less incentives.
John: And in some cases, even some.
John: This increases given that there is less inventory.
Speaker Change: Okay that makes sense, if I could ask one last one on the purchase accounting adjustments of that likely to abate in 2025.
John: So we will have probably.
Speaker Change: Kind of in that mid $20 million range still.
Speaker Change: We will amortize through out 2025, it's primarily related to the Texas acquisition.
Speaker Change: So as we continue to take down lots and sell homes there.
Speaker Change: Any of the inventory that we purchased <unk>.
Speaker Change: Last April we will have some sort of purchase price accounting on it but we would anticipate kind of that.
Speaker Change: $23 million being amortized throughout the year.
Speaker Change: Okay. Thank you so much gentlemen have a great day.
Speaker Change: And it appears that we have no further questions at this time.
Speaker Change: Okay. Thank you everyone for joining our call and we look forward to speaking to you again first quarter 2025 earnings call.
Speaker Change: This does conclude today's conference you may now disconnect your lines and everyone have a great day.
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