This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk07: Greetings, and welcome to TriPoint Homes' second quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, David Lee, General Counsel for TriPoint Homes. Thank you. You may begin.
spk01: Good morning and welcome to TriPoint Homes earnings conference call. Earlier this morning, the company released its financial results for the second quarter of 2022. Documents detailing these results, including a slide deck, are available at www.tripointhomes.com through the investors link and under the events and presentations tab. Before the call begins, I would like to remind everyone that certain statements made on this call, which are not historical facts, including statements concerning future financial and operating performance, are forward-looking statements that involve risks and uncertainties. The discussion of risks and uncertainties and other factors that could cause actual results to differ materially are detailed in the company's SEC filings. Except as required by law, the company undertakes no duty to update these forward-looking statements. Additionally, reconciliations of non-GAAP financial measures discussed on this call to the most comparable gap measures can be accessed through TriPoint's website and in its SEC filings. Posting the call today are Doug Bauer, the company's chief executive officer, Glenn Keeler, the company's chief financial officer, Tom Mitchell, the company's chief operating officer and president, and Linda Mamet, the company's chief marketing officer. With that, I will now turn the call over to Doug.
spk15: Good morning and thank you for joining us today as we go over our results for the second quarter of 2022, provide some color on current market conditions, and update you on our company's strategy and market positioning. TriPoint Homes delivered another quarter of strong profitability, generating earnings of $1.33 per diluted share, representing a 33% increase over the second quarter of 2021. We met or exceeded our previously stated guidance for all relevant operational metrics of the quarter, including new home deliveries of 1,485, average sales price of $677,000, home building gross margin of 27.2%, and SG&A of 9.5%. I want to thank our teams for these outstanding results, as they once again did a fantastic job of managing backlog, overcoming labor and supply issues, and delivering homes in a timely manner. We also ended the second quarter with a record backlog of nearly 3 billion, which puts us in an excellent position to continue to deliver strong top and bottom line results as we head into the back half of the year. We generated 1,356 net new orders during the quarter on a sales pace of 3.7 orders per community per month. This pace is consistent with our company's pre-pandemic order performance for a second quarter. However, we experienced a noticeable decline in order activity as the quarter progressed, with April's order pace coming in at 4.7, May at 3.6, and June at 2.8. While we typically see a seasonal slowdown in demand as we approach the summer months, It's clear the combination of higher rates and lower consumer confidence, two of the most important drivers in our industry, has resulted in a slower buying pace in most markets. With the uncertainty around the economy, we believe it may take some time for consumers and the market to find their footing again. Fortunately, TriPoint is led by seasoned home building professionals, both at the local and national level. who have successfully navigated prior housing cycles and are skilled at operating through such times. We have maintained a strong balance sheet throughout this cycle, which will allow us to make smart, rational decisions from a position of financial strength going forward. And while there is uncertainty surrounding today's new home market, we are confident that our company and our teams are well prepared for what comes next. Despite changing market conditions, our operational playbook remains similar to the one we outlined during our investor day in May. First, we are taking steps to ensure that the buyers we have in backlog feel confident about their purchases and close on their homes. We're working closely with buyers at every stage of the home buying process, particularly as it relates to their ability to secure attainable financing. We are leveraging our financial services arm, TriPoint Connect, to provide incentives such as forward rate commitments, rate buy downs, and rate locks to offset some of the impact of higher mortgage rates. While these steps should help us maintain a steady pace of activity at each of our communities, we are prepared to pull additional incentive levers to maintain that pace if necessary. We believe that our outstanding lot position in prime locations, combined with our innovative premium homes, gives us a distinct selling advantage in a challenging market. And as we highlighted at our recent investor day, we are in a fortunate land position with a good portion of our lots at a favorable cost basis relative to today's lot prices. This will give us flexibility with pricing homes as we open new communities over the next few years. In addition, we have adjusted our hurdle rates for new land deals to reflect the uncertainty we are seeing in the market. For land deals in the pipeline that have been approved but not yet closed on, we are stress testing project assumptions and reevaluating where appropriate. By focusing on converting our existing backlog maintaining a steady flow of new orders, opening new communities, and reducing future land spend, we believe TriPoint is in an excellent position to generate positive cash flow from operations while adapting to the changing landscape. In addition, we enter this period of uncertainty with a record backlog and healthy operating margins, giving us great confidence in our ability to generate profits and increase book value for the foreseeable future. With that, I'd like to turn the call over to Glenn, who will provide more detail on our results this quarter and give an update on our guidance. Glenn?
spk06: Thanks, Doug, and good morning. I'm going to highlight some of our results and key financial metrics for the second quarter and then finish my remarks with our expectations and outlook for the third quarter of 2022. At times, I will be referring to certain information from our slide deck, which is posted on our website. Slide six of the earnings call deck provides some of the financial and operational highlights from our second quarter. We sold 1,356 homes during the quarter at a sales pace of 3.7 orders per community per month. Order activity in the West region was healthy with a sales pace of 4.3 orders per community per month. While all markets felt some impact due to the softening demand trends, Las Vegas, Phoenix, and the Southern California markets of San Diego, Inland Empire, and Los Angeles showed the most resilience. The Central region reported a sales pace of 2.1 orders per community per month. While the lower sales pace in that region was largely tied to slowing demand during the quarter, lot development delays also played a role, particularly in Austin and Dallas. The east region had a sales pace of 4.1 orders per community per month driven by the Charlotte market, where our new community openings during the quarter were met with strong demand. As demand flowed during the quarter, we also saw a rise in our cancellation rate to 15.6% of gross orders. Total cancellations were 6.3% of our opening backlog for the quarter. Because the majority of these cancellations are financing-related, we are proactively working with our buyers to find the right financing options for them. On the financial side, we reported outstanding results on all key metrics this quarter that either met or exceeded our stated guidance. We delivered 1,485 homes at an average selling price of $677,000, which resulted in home sales revenue of approximately $1 billion. Our home billing gross margin percentage for the quarter was 27.2%, a 260 basis point improvement year over year. The strength of our margins is the result of the strong demand and pricing power we experienced last year and early in 2022. Finally, SG&A expense as a percentage of home sales revenue came in at 9.5%, which was a 10 basis point improvement year over year. Turning to communities, we opened 19 new communities during the quarter and closed out of 12 to end the quarter with 123 active selling communities, We had a strong new community pipeline, as highlighted during our recent investor day, and we anticipate generating double-digit community account growth over the next few years. Looking at the balance sheet, at quarter end, we had approximately $3.5 billion of real estate inventory. Our total outstanding debt was $1.3 billion, resulting in a debt-to-capital ratio of 35%, and a net debt-to-net capital ratio of 30.1%. We ended the quarter with approximately $938 million of liquidity, consisting of $270 million of cash on hand, and $668 million available under our unsecured revolving credit facility. During the quarter, we executed a modification of our credit agreement that extended the maturity date of both the revolving credit facility and our term loan facility to June of 2027. We also added an additional $100 million of borrowing capacity to our revolving credit facility from a maximum of $650 million to $750 million. Now I'd like to summarize our outlook for the third quarter. For the third quarter, we anticipate delivering between 1,300 and 1,500 homes at an average sales price between $700,000 and $715,000. We expect home building gross margin percentage to be in the range of 26% to 27% for the third quarter and anticipate SG&A expense as a percentage of home sales revenue to be in the range of 10% to 11%. Lastly, we estimate our effective tax rate for the third quarter to be in the range of 25% to 26%. Due to the quickly changing market conditions and the significant uncertainty related to the broader economy, we are no longer giving full year guidance at this time. We will continue to update you on our progress for the year at our next quarterly call. With that, I will now turn the call back over to Doug for some closing remarks.
spk15: Well, thanks, Glenn. I'm very pleased with how our company executed in the second quarter and how we are positioned going forward. While our industry is entering a period of uncertainty, TriPoint does so with the advantage of a solid land position, a record backlog of nearly $3 billion, an attractive margin profile, and a strong balance sheet and liquidity. Higher mortgage rates and lower consumer competence may put a damper on our sales efforts in the short term, but we believe the long-term outlook for our industry remains favorable given the undersupplied nature of our markets, disciplined mortgage underwriting standards, and the favorable demographics that support the need for new housing. We remain confident that TriPoint, along with the other public home builders, have an inherent cost advantage over the smaller industry players and should emerge from this slowdown with increased market share. As a result, we remain very optimistic about the long-term outlook for our company. Finally, I want to thank all our team members for their contributions delivering another fantastic quarter. Too often on these calls, we focus on what comes next rather than appreciating what we've accomplished. The profitability we achieved in the second quarter and the backlog we built is no small feat, and I'm really proud of where we stand today. Thank you all for your hard work and unwavering commitment to TriPoint. That concludes our prepared remarks, and now we'd like to open the call for questions. Thank you.
spk07: Thank you. Ladies and gentlemen, at this time we will be conducting a question and answer session. If you'd like to ask a question, you may press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of Truman Patterson with Wolf Research. Please proceed with your question.
spk12: Hey, good morning, guys. Thanks for taking my questions. First, on your cancellation rate, it moved up about nine points year over year. I'm just trying to understand the cadence of that can rate as we move through the quarter. And any chance, can you all give any color on the vintage of those cancellations? Were these from buyers that have been in the backlog for six to nine months with a large amount of equity embedded or you know, buyers that were signing contracts more recently.
spk11: Hi, Truman. This is Linda. We did see an increase in the cancellation rate as we proceeded through the quarter in terms of the timing of those cancellations. It was split 48% towards sales that had occurred during that quarter and 52% on sales that had been prior to the second quarter.
spk12: Okay. Okay. That's super helpful. And, you know, clearly we've heard of incentives starting to move higher, you know, either through price reduction, rate locks, rate buy downs, option incentives, et cetera. But just trying to understand what incentives you all are deploying to get sales, protect the backlog. And I'm hoping you all might be able to help quantify that impact to your third or maybe even fourth quarter. gross margin because I know you all occasionally will have some regional shifts and everything in there.
spk11: Yes, to begin with, we have found that the financing incentives have been helpful both for homebuyers and backlog as well as new sales. we are starting to see incentives return to a more normalized level of what we would have had pre-pandemic in something around the 4% range for financing promotions. But they're not always being used by every home buyer.
spk06: And for the margins, Truman, this is Glenn. You're not going to see much of an impact at all. It's a third quarter guidance, obviously. You saw our guidance there, and it's pretty much in line with where we're running. It might have some slight impact to the fourth quarter, but overall, I don't think it's going to have a material impact.
spk12: Okay. And on those financial incentives, are they primarily closing costs, rate locks, buy downs, et cetera?
spk08: Yes. Okay. Okay. Thank you. Thanks, Chairman. Our next question comes from the line of Alan Ratner with Zellman & Associates.
spk07: Please proceed with your question.
spk00: Hey, guys. Good morning. Thanks for taking the questions here. Doug, I think you kind of talked through a little bit your strategy on the pricing side. Obviously, you've got a big backlog of homes that you want to protect and make sure those buyers get to the finish line. And cutting price or significantly increasing incentives in existing communities probably creates more risk there. On the other hand, you are opening up a lot of new communities with attractive homes. you know, vintage land bases. So it sounds like maybe you're kind of going back and maybe coming out with a lower price, perhaps, than you would have thought a few months ago. Correct me if I'm wrong on that, first off. But second off, I'm just curious, you know, what are you seeing on the elasticity of demand when you're coming forward with either increased incentives or a new community opening at a perhaps more attractive price? Are you seeing markets where um, it is resulting in a, you know, an uptick in traffic and, and conversion, or are there markets where perhaps, you know, you've on the margin kind of done things and hasn't really moved the needle because maybe we're in the summer and it's a seasonally slower time of year.
spk15: Yeah. I'll take a couple of those. Uh, just the last question, you know, it's pretty spotty across the markets. I mean, we saw kind of the middle of June moderation and demand. And then, um, you know, increased cancellation rates, slower absorption, and, you know, we attack the backlog and forward-looking sales, as Linda talked about. But, you know, right now we've kind of gone from order takers to financial therapists as home builders, and it's just kind of back to normal. I mean, you're really, you know, blocking and tackling. But right now, for sure, I think the buyer is – you know, is a little bit in shock and awe. I mean, negative news definitely has changed the psychology of the buyer. And so we all know that, and that's not anything new. We knew that was coming, and it's here. And then it'll settle out over the next, you know, maybe several quarters. As far as new communities, yeah, definitely, as we talked about at our Investor Day in May, we've got a fantastic land basis. So, you know, we put a pause on land. We don't need to be buying land. And frankly, every builder that has a good land book, their inventory, land inventory is obviously going to elongate because absorptions are going to slow down. But we are definitely going into the market with new communities at a more aggressive price positioning. relative to where we underwrote it. And we still have very healthy margins, as we talked about at our May Investor Day.
spk16: Hey, Alan. This is Tom. The only thing I would tag onto that is that we still do see strong demand. I mean, buyers are interested in our products and our new offerings. I think their concern is with the relative stability of the real estate market. And they are just... concerned with price discovery and wanting to make sure they're making a smart purchase decision at the right time. So it seems like timing is more on the forefront of their minds.
spk00: Yeah, that makes a lot of sense. And obviously, it kind of creates a tough decision for you guys, how aggressive you do get, because it sounds like there is that shock period there where perhaps just cutting price or discounting might not even move the needle a whole lot in the near term.
spk15: You hit the nail on the head. You need to be patient. And, you know, many of us will pull back on our starts and let this shock therapy kind of get through the market. And there's still plenty of demand, though. I mean, you still look at, you know, the demand profile of our buyers across all our communities is still there. It's just elongated. And they're just going to kind of not wait and see most.
spk00: Makes sense. You mentioned the land book, and I'll give you a kudos for at least, I think, last quarter, you even signaled perhaps slowing things a little bit, and your land book gives you that flexibility. When you look at your optioned lots, presumably those are lots that are somewhere in the development process, and there's going to be a takedown schedule stretched out over the next several years. What percentage of those 18,000 or so optioned lots are you know, when you look at them are kind of due for takedown over the next 12 months. And how are you thinking about that? Have you started, you know, looking for extensions there or renegotiating at all? And is it possible we start to see you walk away from some of those deals if the market stays at these levels?
spk16: Yeah, Alan, you're right on relative to strategy there. The first course of action is trying to match our construction and start pace with our business and absorption flow. That is going to require some extension relative to takedowns and we're working with the sellers to be able to do that. We're hopeful that there's not going to be a significant walk away from options, but we are 100% committed to buying land that correctly underwrites and buying it at the right price. uh we're gonna have to stay tuned on that but so far um you know we're not an outlier in that equation every builder is in the same situation land sellers are coming to the table now as they're getting educated on things and so uh we're confident we're going to have success in getting those extensions i appreciate the color guys thanks a lot yep
spk07: Our next question comes from the line of Carl Reichardt with BTIG. Please proceed with your question.
spk14: Thanks. Morning, everybody. Just back to Alan's question on traffic. So what did, on a gross orders basis, what did traffic conversion rates do during the quarter? If traffic dropped a ton and that was a driver to lower gross orders, is your conversion rate still normal or even better?
spk11: Hello, this is Linda. It is taking longer for buyers to go through the home shopping process, so that is impacting conversion rates as well as lower traffic. We did increase our advertising and we have seen that that is driving higher traffic levels to our website and month to date in July we're seeing higher registered traffic rates than what we were seeing at the end of June.
spk14: Okay, that's perfect. Thank you for that, Lynn. I appreciate that. Okay. And then just, you talked about differences in geographic performance, but in terms of relative price points, are you seeing much difference between stuff designed straight for the first-time buyer versus more move-up product versus the segment of active adult that you have in terms of net order performance?
spk16: No, it seems to be fairly universal. across the different product segments, Carl. However, we are seeing, obviously, on the entry-level buyer, the qualification and financing being more of an issue.
spk11: Just to give you the breakdown of our order pace by segment, in the second quarter, entry level was at 4.5 per month pace, move up at 3.4, luxury at 2.8. and active adult at 3.8.
spk08: Again, very consistent with past performance. Okay.
spk14: Thanks very much. I appreciate it all.
spk08: Thanks, Carl.
spk07: Our next question comes from the line of Jay McCandless with Wedbush. Please proceed with your question.
spk04: Hey, good morning. Thanks for taking my questions. I guess the first one, The magnitude of the increase in the cancellation rate, I guess, what are you seeing so far in July on that front? And you talked about the pain being equally distributed across your different buyer groups. Has that continued in July?
spk11: The cancellation rate that we are seeing so far month to date in July is similar to what we experienced in June. And again, similar across biosegments in geographies.
spk04: And then I know you've pulled the full year guidance, but maybe Glenn, could you talk about what you're expecting for community count in the third quarter? And is there still an expectation that we'll see year-over-year growth into 23? Yeah, definitely you'll see year-over-year growth into 23.
spk06: Some of the timing may shift out of the fourth quarter into the first quarter, depending on how demand looks in the fourth quarter. You may make the decision to open in the spring selling season versus a fourth quarter, depending on what demand looks like there. So there may be some timing shift, but overall total community count that we have planned to open is opening. You may just see a one-quarter shift on timing.
spk04: So still looking good there. Okay. And then, The deliveries closings were better than we expected this quarter. I guess any update on cycle time and maybe issues with vertical construction versus horizontal? Are you seeing any improvements on either one of those fronts?
spk16: Not any significant improvements. We are beginning to see more trade availability on the front end of the process. We've still got a lot of tension on the back end with the finished trades. Our cycle time is remaining fairly consistent with where we have been performing.
spk04: Okay, great. Thanks for taking my question. Thanks, Jay.
spk07: Our next question comes from the line of Stephen Kim with Evercore ISI. Please proceed with your question.
spk13: Great. Thanks a lot, guys. I wanted to see if I could get a couple of housekeeping items first. If you could give us a sense for what your finished homes and construction in progress numbers were. I guess you call it homes completed and under construction, what that was in dollars. And then in units, I was curious if you could give us what your starts were in the quarter and your ending quarter under construction finished spec counts were.
spk06: So we had 42 completed unsold units at the end of the quarter, if that was your ask. And then we had 1,402 unsold in process units, so spec starts, at the end of June. Were those your two?
spk13: Those are two. And then how many actual starts you did in the quarter, we could probably back into it, but if you had that handy. And then also the dollar amount of your homes completed and under construction, you know, that was $1.49 billion less, for example.
spk11: Yes, Stephen, this is Linda. We made 2,147 starts in the second quarter. Sixty-four percent of those were spec starts. And just to give you perspective on orders, we sold 59% spec orders in the quarter.
spk13: And I'll have to follow up with you on the dollar amount, Stephen. All right. Yeah. Appreciate that. So switching gears to your cancellations, you said that your related to sales in the same quarter. and that your CAN rate did not increase in July, and it seemed that your CAN rate, while it was up overall, sequentially, it's kind of at a normal rate. So I guess I just was curious as to how we should be thinking about cancellations going forward, assuming we don't see another big move up in the mortgage rate. I would think that most of those CANs that occurred... from recently sold homes, that probably would dissipate, right? Because that was due to the shock of this big move that we saw in rates in kind of June. And whether you agree with me that the hand rate that you're at right now is, you know, kind of like a normal kind of condition. So I'm curious if you're sort of opine on that.
spk11: Certainly, we did see cancellation rates increase. We were at 21% cancellation rate in June, and as you said, Stephen, consumers were certainly impacted by seeing rates peak in the middle of June, but we are also now seeing some concerns from consumers about the general economy, so I think going forward, we would expect to see a more normalized cancellation rate of somewhere around 20% of gross orders, and for us, we include all types of cancellations, including home site transfers within a number like that.
spk15: Yeah, and I think, Stephen, that, you know, the remaining part of this year is going to be very choppy, hence the reason we didn't give full year guidance. I mean, you know, we have no idea where the Fed is going to land 100%. Neither do you. None of us do. But we do know that the, you know, this all started just, you know, mid-June, which we saw coming, and there's an elongated sales cycle, and the psychology of the consumer is dented. And to Linda's point, first you get hit with, you know, interest rate therapy, and then you, you know, the concerns are the continuous negative headlines about recession, potential jobs, and so forth. So, you know, that's going to cause the consumer, you know, but we have all the right tools and mechanisms in place to continue to draw them across the finish line. It's just going to take longer.
spk13: Great. I appreciate that. I should have clarified that the can rate I was referring to was a can rate, but that's fine. Last one for me is regarding rental, you know, rental homes, single-family rentals. You know, I know that you all don't have a, you know, specific plan, separate carve-out, you know, to target that kind of business like some of the peers do. But I was curious, it seems that the stigma against single-family rentals in communities has rapidly, significantly and is rapidly dissipating. And so I'm curious if there's any consideration on your part to relax restrictions on sales to investor buyers who would want to rent homes out. My understanding is that in the past, You, like most builders, have sort of tried to really keep those buyers out of your communities, and I'm curious as to whether there's any thought to changing that perspective or changing that approach.
spk16: We still strongly believe in having an end user be our buyer. However, as single-family rentals is an asset class that we do think is more accepted throughout the industry and the communities, There's an opportunity for us through land sales to carve out more significant pieces of land to allocate to that asset class and work with single-family rental or build-for-rent community operators.
spk08: That's interesting. Great. Appreciate that, guys.
spk07: Our next question comes from the line of Mike Dahl with RBC Capital Markets. Please proceed with your questions.
spk05: Hi, good morning. Thanks for taking my questions. You know, maybe first one, just, you know, understand the lack of visibility and quickly changing environment here. When, you know, we think about your comments on some of the shifts that happened as June progressed and the cancellation comments you've made, you know, June ended up at a 2.8 pace for the month. presumably it was kind of tracking a little lower by the end. How should we be thinking about what you're experiencing in July to date? And I know this is the second part of the question. I know it's really difficult to forecast given the market conditions, but given the shifts you've seen, what do you think is a reasonable pace to be able to target looking out the next couple of quarters as you balance kind of what you're willing to do on incentives versus how you're managing starts and things like that, and community openings, things like that.
spk06: Hey, Mike. It's Glenn. I'll take the first part of that. So, so far in July, it's early, but absorption has been closer to around two per community per month, and so it has ticked down a little bit compared to June. Now, you have normal seasonality built into that, and we're just you know, kind of starting to target incentives in certain communities, so we'll see how the consumer responds to that. But like Ted said, there's a lot of uncertainty out there, so it's really hard to kind of give a forecast right now of what we can expect for absorption back after the year.
spk15: Yeah, but we would like to expect two and a half to three during the next two quarters, Mike, but it's going to be very choppy.
spk05: Got it, yeah, and the cost of getting there is probably changing, so that, I guess, would dictate where you wind up there, as you balance that. Okay, and then I guess a clarification on the incentives comment. I think, Linda, your comments were incentives on financing returning to the more normal 4% range. Did I hear that correctly, that that's just financing, and A, can you give us where that has been running, and then could we broaden that out and give a point of view on total incentives, where that range you think is returning to versus where it's been?
spk11: Yes, Mike, the 4% would be total incentives, but we're definitely seeing customers wanting to use those incentives towards financing. So we would provide those dollars as closing costs, and then those are typically being used towards interest rate buy-downs, rate locks, extended long-term locks is how they're typically wanting to use that level of incentive.
spk06: And incentives have been running between 1% and 1.5% recently, Mike, just as the market's been so strong. So just to give you some context.
spk16: Yeah, that really is current and forward-looking because, as Glenn said, our incentives for 2Q was running at about 1.3%, and that compared to a year ago of about 2.5%. And that's on deliveries in the second quarter.
spk05: And the 4% is more on what you're seeing on orders today, right?
spk11: Yes, we're using financing promotions, but as I mentioned, that's not necessarily every sale at that level. Right, right, right.
spk08: Okay, thank you so much.
spk07: Our next question comes from the line of Deepa Raghavan with Wells Fargo Securities. Please proceed with your question.
spk09: Good morning, everyone. Thanks for taking my question. Doug, I know you addressed this a little bit already, but I was a little surprised at your fiscal year. It looked like you had full visibility into the rest of 2022, two quarters worth of backlogs. It's in there. You know your construction times, your costs should have been locked in as well, just given your backlogs. I understand the buyer rate locks could be the wild card, but I'm curious, what are the specific key metrics you're most concerned about that led to this Q4 guide withdrawal? I mean, most of the comments you gave so far were on order space, outlooks, what the Fed would do, but then you already have backlogs worth of two quarters, and it looked like you could have provided Q4 guides. So just curious if you're able to talk through that.
spk06: Hey, Deepa. It's Glen. I'll take that one. So, we actually don't have backlogs specifically for a quarter. You know, some of the backlog that you see is actually homes that will be completed in 23 and delivered in 23. So, we need to sell roughly 600 to 700 homes to hit the midpoint of our previous four-year guidance. And so, you know, when you take that into consideration and kind of the quickly changing market conditions, we thought it was prudent to pull the full year guidance like we did. So that's kind of how that works.
spk16: It's a combination of order uncertainty as well as some construction cycle time uncertainty out there.
spk08: We just think it's prudent to not guide to that full year right now.
spk09: Okay, got it, got it. I know you mentioned, you know, July is trending, maybe could be trending slightly better because you increased your advertising spend, the traffic's at least increased. But any other puts and takes or any other levers that you're pulling at this point in time that's pointing to a better July absorption rate than June's? What are some of the actions you're taking that you hadn't taken in the last quarter that could help think of how Q3 is progressing? Thanks.
spk15: Thank you for this, Doug. The market started moderating, you know, mid-June. So that was just a little over a month ago. So it's very fluid right now. I wouldn't take any puts or takes out of anything in the short term. You know, the Fed is on a mission to put out the inflation fire that's going to have an impact on interest rates, potentially the economy. We all know that. So there's really... Again, the consumer is taking longer. There's still good demand showing up at our communities, but they're just taking longer, and that sales process will continue that way because of the uncertainty in the economy, hence the reason why we didn't provide the rest of the year's guidance. So I don't see anything to take away from in July versus June versus August. It's going to be choppy. Very normal. We've been there before. This management team's been doing this for over 30 years, so this is a very normal reaction that the consumer's having, but there's nothing in the immediate term that I can tell you that is a great put or take.
spk09: Fair enough. Thanks very much. Good luck. Mm-hmm.
spk07: Our next question comes from the line of Alex Riegel with B Reilly. Please proceed with your question.
spk08: Thank you and good morning gentlemen. Few questions here. The land spend in the quarter.
spk02: What was your land spend in the quarter and thoughts on what it could look like in 2022 versus 2021?
spk06: I actually don't have that in front of me. I could follow up with you, Alex.
spk08: But overall, our land spend in 22 versus 21 is pretty consistent. And then starts in the quarter were $2,100, while orders in the quarter were $1,356. Historically, what is the ratio of starts to orders you'd like to target? That's a good question, Alex.
spk16: I don't know that we have looked at it as a ratio to that degree, but I'd say what we experienced in this last quarter is very consistent.
spk15: We look more at our starts related to our pace. So you're going to see naturally builders like ourselves pulling back on starts because your pace is slowing down.
spk06: And historically, Alex, what we've targeted is to start enough homes to have, you know, three to five specs per community.
spk08: And so that's how you kind of overall plan your stuff. Very helpful. Thank you very much.
spk07: Our next question comes from the line of Alex Barron with Housing Research Center. Please proceed with your question.
spk03: Yes, thank you. Yeah, I wanted to follow up on that to see, you know, if you guys...
spk16: uh could talk about your your thoughts and approach to you know new starts uh especially specs and also to share buybacks given what's going on yeah alex this is tom relative to the the start philosophy you know as glenn said we want to match our you know construction page to our absorption pace that's the core of the business uh earlier i think he alluded to having 1,400 unsold units in process. So obviously we want to make sure that our order flow is going to be matching the completion schedule on those homes. So we are currently restricting starts. We think it's the right thing to do to try to get those two objectives in alignment. And I think you'll see most builders hopefully pulling back on starts relative to that.
spk06: And relative to the share buyback, Alex, as you saw, we bought more shares during the second quarter. I think we're going to take a more conservative outlook for the rest of the year on the share buyback with the uncertainty in the market and then watch it and see. We still have availability under our authorization, but we'll probably take a little bit more of a conservative approach for the rest of the year.
spk03: Got it. And another question, I don't know if you guys have implemented any type of price reductions, but if so, are those being applied to people in backlog as well, or how are you guys handling that?
spk15: No, we're using incentive tools, as Linda pointed out, in backlog to lock people people in place and keep them in the queue to close. So we haven't used any base price reductions. But I think somebody else mentioned earlier, on some of our newer communities, because we've got some very healthy margin profile, we are coming in at a more aggressive value proposition to combat where interest rates have come. And we're seeing that kind of play out with most builders in the market. I mean, we all want to make sure our backlog is protected, and I don't think wholesale price reductions are very healthy for backlog.
spk08: Yeah, I tend to agree with you. Okay, great. Thank you. There are no further questions in the queue. I'd like to hand the call back over to Doug Bauer for closing remarks.
spk15: Well, thank you for joining us today, and we look forward to chatting with you next quarter. Have a good weekend. Thank you.
spk07: Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.
Disclaimer