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spk09: Ladies and gentlemen, greetings and welcome to the TriPoint Homes fourth quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. A brief 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 you to David Lee, General Counsel. Please go ahead.
spk01: Good morning and welcome to TriPoint Homes earnings conference call. Earlier this morning, the company released its financial results for the fourth 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 GAAP measures can be accessed through TriPoint's website and in its SEC filings. Hosting 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.
spk11: Thank you, David, and good morning. During the call today, we will review operating results for the fourth quarter and full year and outline strategic operating drivers for 2023. Let me begin by discussing our performance in the fourth quarter. where we focus on delivering our high-margin homes and backlog, as well as planning strategies to reposition our pricing and product going into 2023. Those efforts paid off as we reported all-time highs for quarterly revenue of $1.5 billion, pre-tax income of $274 million, and diluted earnings per share of $1.98. The strong finish to the year resulted in record-breaking full-year performance on both the top and bottom lines for the second consecutive year. For the full year, home sales revenue increased 9% to $4.3 billion, pre-tax income increased 24% to $773 million, and diluted earnings per share increased 35% to $5.54. These strong financial results led to positive cash flow generation of $444 million for the full year and allowed us to return $203 million to our shareholders through share repurchases. We ended the year with $890 million in cash and a 14.7% net debt to net capital ratio, both of which are record numbers for TriPoint. I'd like to thank all of our team members for these outstanding results and their tireless efforts navigating the supply chain hurdles throughout the year, all while continuing to deliver a premium product and experience to our home buyers. In addition to logistical challenges, our industry was also confronted with a challenging market in the back half of 2022, which found consumers facing a difficult home buying environment. significant and persistent inflation, and the resulting seven Fed rate hikes that took place in 2022 had a major impact on housing affordability, particularly following the post-pandemic pricing boom where high demand and low supply led to steep price increases. Accelerated pricing, along with mortgage rate increases from below 4% to above 7%, in a short period of time caused consumers to pause their purchase decisions. While many of these macro factors are out of our control, we have employed strategies to counter these external challenges. We will continue to focus on the following strategic initiatives that will drive shareholder value in 2023 and beyond. Our aim is to optimize our business to current market conditions. while taking advantage of our strong land pipeline to grow volume over time. We have initiatives in place to improve absorptions, realign our cost structure, and maximize profitability and return on equity. Net new home orders in the fourth quarter were down 69% year-over-year, as we prioritized delivering our high-margin homes and backlogs. At the same time, we were also analyzing our pricing and product offerings at both existing and future communities to drive orders going into 2023. We have adjusted price on a community-by-community basis to meet the needs of today's buyers through a combination of base price decreases, lot premium adjustments, and mortgage-related incentives. As a result of these efforts, we have adjusted net pricing down 10 to 15% on average, from the peak pricing of early 2022. On the product front, we have taken a fresh look at our community designs and product offerings, including lowering square footages and simplifying our products to provide a more attainable price point. These strategies have already shown signs of success in the early part of this year. For the month of January, net orders were 421 on an absorption pace of 3.1 per community per month, which was a significant increase sequentially from December with its net orders of 141 or 1.0 per community per month. To date, in February, we have seen similar encouraging results with absorption rates of approximately 4.0 per community per month. Another area of focus and key to our success is driving cost savings. Our operating teams have been hard at work obtaining lower costs at all of our projects with a goal of 10 to 20% reduction by year end. While we have already started to see positive results, we acknowledge there are still sticky labor constraints and supply challenges, so we will not realize the full effect of anticipated savings until late 2023 and early 2024. We continue to focus on value enhancement for consumers while we create more efficient designs that drive lower costs. An additional area of cost restructuring is in our overhead. We have revised our staffing levels in construction, selling, and G&A to ensure they support anticipated volumes, resulting in approximately $15 million in annualized savings. Cycle time reductions are an important component to the success of our business in 2023 and will lead to improved inventory turns and the ability to increase our delivery volume. While our cycle times have increased compared to pre-pandemic levels, our goal is to reduce cycle times four to six weeks on average by year end. We will achieve our goal by continuing to work with trade partners and creating efficiencies in the construction process through more line and phase building in select markets, which enables us to produce a consistent level of spec starts. In addition, we have simplified our schedule templates, expanded our trade partner base, and as a result, we are experiencing some early success. Specs represented 60 to 65% of our total starts in 2022. We ended the year with approximately 11 in process or completed specs, per community, which we feel is a good level to meet the demand for quick move-in, ready homes we are seeing in today's market. Finally, we continue to emphasize the importance of return metrics throughout our organization. We ended the year in a strong cash position and intend to use that capital to fund community account growth, which will lead to more scale in each of our markets and drive better leverage and returns. By year end 2023, we anticipate having 175 active communities, which is a 29% increase over 2022. In addition, we anticipate being active in our share repurchase program. Since the inception of our first share repurchase program in 2016, we have repurchased 66.7 million shares, representing a total spend of $1.1 billion. Slide 24 of the earnings deck shows that since the end of 2015, our book value per share has grown at a compounded annual growth rate of 15% through a combination of earnings growth and share repurchases. To that end, today we announce that our Board has approved a new $250 million share repurchase authorization. Before I turn the call over to Glenn for a more detailed review of the numbers, I would like to note that we are encouraged by the early sales success this year, but recognize that short-term results could be impacted by further interest rate increases, continued reductions in the labor market, and the possibility of a recession. With our intentional focus on driving increased orders, cost reductions, and improved returns, we are confident we have the strategies in place to overcome these potential short-term challenges. Long-term, we remain extremely positive on the outlook for housing due to the lack of supply and favorable buyer demographics. TriPoint is well-positioned to grow and capitalize on this long-term outlook. With that, I'll turn the call over to Glenn.
spk04: Glenn? Thanks, Doug, and good morning. I'm going to highlight some of our results and key financial metrics for the fourth quarter and then finish my remarks with our expectations and outlook for the first quarter of 2023 and full year. At times, I will be referring to certain information from our slide deck, which is posted on our website. Slide 6 of the earnings call deck provides some of the financial and operational highlights from our fourth quarter. We reported outstanding results on all key financial metrics this quarter that either met or exceeded our stated guidance. We delivered 2,016 homes at an average selling price of $746,000, resulting in home sales revenue of approximately $1.5 billion. Our home building gross margin percentage for the quarter was 25%, and SG&A expense as a percentage of home sales revenue came in at 7.6%. This resulted in diluted earnings per share of $1.98, which was a 49% increase compared to the same period a year ago. We recorded 444 net new home orders in the fourth quarter on an absorption pace of 1.1 per community per month. As Doug mentioned, we have seen significant improvement in the early part of 2023, in response to our pricing and product strategies. For the month of January, we recorded 421 net new home orders on an absorption rate of 3.1 per community per month. And so far in February, absorption rates have been approximately 4.0 homes per community per month. Cancellations as a percentage of gross orders remained elevated in the fourth quarter at 42%, but as a result of improved orders and backlog buyer stability so far in 2023, cancellations have returned to more normal levels between 10 and 15%. Turning to communities, we opened 12 new communities during the quarter and closed out of nine to end the quarter with 136 active selling communities. We are excited about our new community pipeline this year and expect to open between 70 and 80 new communities in 2023, resulting in approximately 175 active selling communities by year end. This projected 29% year-over-year increase in communities sets the foundation for volume growth into 2024, assuming a healthy demand environment. Looking at the balance sheet and cash flow, we ended the quarter with approximately $1.6 billion of liquidity consisting of $890 million of cash on hand and $691 million available under our unsecured revolving credit facility. Our debt to capital ratio was 32.7% and net debt to net capital ratio was 14.7%. For the full year, we generated $444 million of positive cash flow from operations while investing $930 million in land and land development. For 2023, we expect to generate positive cash flow from operations while continuing to stay active in buying and developing land to support our growth plans. For 2023, we forecast to invest between $600 and $700 million in land and land development. As of December 31, 2022, we had a pipeline of approximately 34,000 lots 44% of which were controlled. During the fourth quarter, we continued our disciplined approach of re-underwriting land deals under contract to current market pricing to ensure they continue to meet our acquisition metrics. We have had some success in leveraging our local relationships with land sellers to negotiate new terms, including extending closing dates and, in some cases, discounting land values. We also made the decision to cancel land contracts that did not meet our underwriting guidelines. For the fourth quarter, we incurred approximately 4.2 million of lot option and pre-acquisition write-offs, bringing the total to 8.7 million for the full year. We did not record any project impairments during 2022. Now I'd like to summarize our outlook for the first quarter. We anticipate delivering between 750 and 850 homes at an average sales price of between $720,000 and $730,000. We expect home building gross margin percentage to be in the range of 23% to 24% for the first quarter and anticipate SG&A expense as a percentage of home sales revenue to be in the range of 14% to 14.5%. Lastly, we estimate our effective tax rate for the first quarter to be in the range of 26% to 27%. For the full year, we are providing a range of deliveries between 4,000 and 5,000 homes at an average sales price between $670,000 and $690,000. With that, I will turn the call back over to Doug for some closing remarks.
spk11: Thanks, Glenn. With the doubling of interest rates since their lows in 2022, along with double digit home price increases across the country, it is no secret that the U.S. housing market has been under tremendous pressure. As we head into 2023, our company and our industry peers are tackling these market challenges with aggressive price discovery and mortgage incentives. It is early, but it is clear there is still very good underlying demand for new homes, which should continue to be supported by the lack of resale home supply. Our company is positioned with a very strong balance sheet and record margins going into the year. The industry is poised for continued growth, especially considering the significant housing deficit often reported by many industry and economic sources. As the millennials continue to form new households, and baby boomers downsize, TriPoint looks to capitalize on these long-term demographic factors. Again, we cannot do any of this without the perseverance and commitment of all of our team members. With that, I will turn the call back to the operator for questions.
spk12: Thank you. Thank you.
spk09: Ladies and gentlemen, at this time, we will be conducting a question and answer session. If you would like to ask a question, please 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 keys. Ladies and gentlemen, we will wait for a moment while we poll for questions. Our first question comes from the line of Stephen Kim from Everco ISI. Please go ahead.
spk07: Yeah, thanks very much, guys. Appreciate all the color. Interesting times here. Obviously, there's a lot of attention being paid to your comments about January and February so far. So I just had a couple of questions on that, if you don't mind. I guess the first is related to that, that was you had previously said, I think you were willing to tolerate, you know, an absorption rate as low as one and a half to two or something like that. Um, so I'm curious, is that still your view if demand were to weaken in the near term? And then, uh, given that you ran so much stronger than that in January and February, can you talk about how your incentive activity, uh, maybe, uh, you know, changed or was adjusted or moderated, or I would assume in the quarter, uh, so far?
spk11: Yes, Steven, it's Doug. Going into the year end and then looking into the crystal ball into 2023, we planned on seeing absorption paces around two. But as we pointed out, we spent a considerable amount of time looking at price on a community basis. We looked at product. We made adjustments so that when we opened in 2023, and actually some of the divisions even by the end of December, we would have some momentum going into the year. You know, we mentioned in our comments, net-net, on average, we brought pricing down 10 to 15 percent. So, the combination of price discovery, mortgage incentives has, you know, given us the tools to get absorption. The other thing I noticed the consumer, you know, went through seven rate hikes last year. That was a lot of shock and awe to the consumer. You know, I don't believe the Fed is done. They've moderated, so to speak. But you can't put the consumer on the sidelines forever. There's a need for housing. There's an undersupply of resale housing. So we definitely saw the consumer reengaged. but it's too early to really tell, you know, do we have a no landing, soft landing, hard landing? You know, it's anybody's guess, but we've got strong margins going into the year, and so does the rest of the industry. Strong liquidity, so we're very excited to see how this year plays out, but it's way too early to make the call. As far as incentives, I'll turn it over to Linda to talk about that.
spk08: Good morning, Stephen. So just to give you some sequential perspective on incentives, in the third quarter, our incentives were at 5%, and then that increased in the fourth quarter with rates increasing. So incentives on orders were 6.2%. And quarter to date this year, incentives have been relatively consistent at 6.1% with the addition of the base price increases that Doug referenced.
spk11: Decreases.
spk07: when you mean by the addition of the base price decreases he was he was mentioning I think 10 to 15 percent is that what you were talking about yes that's correct okay so when we think about all in you know net price you know sort of inclusive of any discounts or any other sort of incentives that you are offering If we think about what you experienced, let's say, in 3Q versus what you experienced in 4Q on your orders, how much of a deterioration in net all-in things you're giving to the customer would you say that you saw? How much of a deterioration in, let's say, basis points, including price?
spk14: Well, relative to 3Q to 4Q, hey, Steven, this is Tom. You know, it was not super significant, but I would say it would be a couple hundred basis points differential.
spk07: Perfect. That's very helpful. The second question related to what's been going on recently is, you know, one, I think the rates have been extremely volatile. um you know it came down a whole bunch right in january and then they just in the last couple of weeks bounced up and so forth just i know it's super early but these have been pretty big moves you know um and so i'm curious whether there's uh it's your view that the rebound that we saw in january and so far in february was uh how much of that you think was directly tied to rates and i guess if you could color your comments with sort of you know maybe how you've seen this recent bounce up in rates you know, affect any of the trends that you just sort of talked about?
spk11: Yeah, it's a good question. You know, we've got a saying here, you've got to be nimble. You've got to be very nimble in today's market. As you pointed out, Stephen, I think last week rates went up, what, 40, 70 bids. So we continue to see positive demand trends, and we really overcome those rate concerns with buy downs, rate buy downs, and locks. So it's anybody's guess, as I mentioned earlier. It's way too early to really forecast any sort of straight line direction of this market. But, you know, as I mentioned earlier, starting this business when mortgage rates are 15%, ultimately the consumer and the builders adjust. to pricing and payment. And there's definitely a need, a great need for housing. And in this particular cycle, the home builders have very strong balance sheets and go into the market with very strong margins compared to what I saw 20, 30 years ago. So it's going to be an interesting time. You've got to be quick on your feet and adjust to what the market can give you.
spk14: Yeah, Stephen, the only thing I would add to that is, you know, we are certainly very pleased, and it definitely points out the high level of demand that is out in the marketplace today, and the response to our products, the core location, design, and innovation specifically is very encouraging.
spk12: Yeah, wonderful. Thanks so much, guys. Appreciate it. Thank you.
spk09: Thank you. Our next question comes from the line of Mike Dahl from RBC Capital Markets. Please go ahead.
spk02: Morning. Thanks, Doug and team, for taking the questions and the callers so far. Just to follow up on Steve's question and just for clarity, so, Linda, I think when you're saying the 6.1% quarter date incentives plus the price decreases, just to be 100% clear, that You know, that 6.1 is part of the net 10 to 15% that we should be thinking about in terms of cumulative reductions, right?
spk08: Yes, Mike, that's correct. Cumulative.
spk02: Okay. And then the question related to this is, so if you look at your first quarter guidance, your margins are down kind of 350 to 450 basis points from your peak 3Q margin. Yeah, obviously you guys have kind of a longer dated backlog than some others, and you're talking about some of these cost saves as you go through the year. You know, any color you can give us on thinking about that 10 to 15 percent reduction in price relative to your peak margin, you know, how to think about the cadence of margins over the course of the year. Do we go lower and kind of 2Q, 3Q before those cost saves? bow in or just order of magnitude on that would be helpful.
spk04: Hey, Mike, it's Glenn. It's a good question. And like Doug mentioned, it's early and there's a lot of moving pieces. So we're not given specific guidance for Q2 and Q3. But directionally, there will be a little bit of pressure on margins based on some of the incentives and price changes we've seen. But it's early to see and we'll see how the rest of the spring selling season goes. That'll really dictate kind of the level of margin going forward.
spk02: Okay, fair enough. And then my second question, just on the spec strategy, obviously kind of a lot of builders have reached similar conclusions about bringing a certain level of specs to market in the current environment. Doug, you talked about being nimble on your feet. How does what you've seen over the past few months or a year or a couple of years, how does that affect your longer-term strategy of how you see the business in terms of or different buyer segmentation? Is this more you kind of meeting the market where it is today, but you still have a different longer-term strategy, or do you think that strategy has evolved in a more permanent way on how you view this?
spk11: That's a good question, Mike. You know, as we've mentioned, our company has positioned more of a product offering at what I would call the entry-level premium first move-up That buyer profile definitely would like to have a home in the near term, 60 to 120 days. We can still offer our premium brand experience, but, you know, you're going to continue to see specs as a percentage of our starts, about 65% going forward. They may push on that a little bit in the short end right now in 23. That's called being nimble. because the consumer definitely would like to lock in the rate and find something sooner than later. But going forward, I'd say it's generally going to be around 65% plus a little bit.
spk14: Yeah, Mike, it's Tom. You know, as we've looked at our business, and you know this very well, you know, the West is predominantly done in a phase building technique, which we get a lot of efficiency out of. and therefore requires a pretty strong level of spec. And we've done that throughout our career. We are trying to expand that to other markets in a line-building philosophy, which we think will create similar efficiencies. So that spec count that Doug mentioned does appear to be something that we're going to continue to push on going forward. Yeah, that line-building part seems potentially incremental.
spk12: So thank you for that, guys. Thank you.
spk09: Our next question comes from the line of Truman Patterson from Wolf Research. Please go ahead.
spk13: Actually, it's Paul Schwilze. Good morning, guys. Hey, Paul. I guess looking at your absorptions in 1Q and that improvement, any color you can add there across geographies or any particular consumer segment that may be seeing some relative demand improvements?
spk11: As far as trends in the first month and a half of this year, I think all the markets are performing okay. You've got to be in an A sub-market. I mean, there's B minus C sub-markets in many of our marketplaces that are not performing as well. Overall, though, I would say demand trends have been a little bit stronger when you look at the 15 divisions in the Inland Empire here in California and in Charlotte.
spk13: Okay. All right. And going a little bit higher level here, you've talked about expanding your geographic footprint, broadening your consumer exposure. Have you seen the privates get more rational with, you know, pricing maybe allowing for some expansion in this inflection?
spk11: You know, to be honest with you, Paul, we haven't paid a lot of attention to the privates. I think the public home building cohort has been something that we continue to watch and have been more aggressive in what I would call the price discovery and mortgage incentives. Oh, M&A. Oh, I'm sorry. Yeah, we haven't seen any M&A activity come across our desk yet on the private side.
spk13: Okay. And then just one final one. How are you, you know, addressing the rate lock conversation with the move up and active adult buyers coming into your offices? How do you get them to basically double their mortgage rates or or all move-up buys either divorce or job transfer driven right now?
spk08: Yes, Paul, this is Linda. I would say that there's less sensitivity to mortgage rates in active adult because they typically come with large down payments and a higher percentage of cash buyers. And then for move-up buyers, We're finding a lot of our move-up buyers are interested in programs like temporary rate buy-downs, like a 3-2-1 rate buy-down, so that they're getting a very attractive first-year rate, maybe 3.99%, with the idea that they could refinance again in the future, but get a lower rate initially.
spk11: Okay, appreciate it. Thank you. Thanks, Paul.
spk09: Thank you. Our next question comes from the line of Alan Ratner from Zellman and Associates. Please go ahead.
spk06: Hey, guys. Good morning. Thanks for all the details so far. First, you know, I'd love to drill in a little bit more on the comment you made regarding, you know, kind of the price positioning and product offering, the analysis you guys have done there. And I guess tie that into the community count guidance a little bit, you know, the guidance while – Still, you know, very strong growth for the year. I think it's about 10% lower than you had guided for previously as far as where you expect to end 23. I'm curious, you know, are there, you know, is there anything going on behind the scenes there, maybe kind of retooling some of the product on new communities and, you know, resulting in some delays and openings or am I reading too much into that?
spk04: No, Alan, good question. And you hit it actually, you know, some of that community count difference from what we guided in the last call is just looking at product repositioning, you know, looking at community setups and making sure we're opening at the best possible position to have success. And so that has pushed a few community openings out. Overall, we still have a strong community account pipeline. And like you said, there's still strong growth there. There'll just be a little bit more communities in 24 from 23 from our previous guidance. And from an overall mixed perspective, I think that's the first part of your question. As we've discussed in the past, you know, there is more entry-level first move up focus in that mix, which is why our overall ASP is going down. You know, more communities in Charlotte, you know, Dallas, areas like that that are a little bit more attainable price points is part of that mix.
spk06: Got it. That's helpful. Second, you know, just thinking about the spec versus build-to-order mix of your business, you know, you guys do have a design studio platform for build-to-order. I know historically, I think the margins on those sales have been stronger than spec. So can you just talk a little bit about where kind of the current margin differential looks like on spec versus BTO and where you see that going forward?
spk14: Yeah, Alan, this is Tom. Good questions for sure. Our design studio business has been really phenomenal and it is a big differentiator for us. The one thing I would just caution is that You know, even when we are performing our spec strategies, we still are able to get customers into our design studio so they can personalize their homes. It's obviously dependent at what point in time they purchase the home, but we are very successful. On average, you know, our percentage of revenue was very strong last year, still about similar to where we've been in prior years, 10.9%. It's about $77,000 per house. Our studio business generated over 400 million in revenue. So it's been very positive relative to that. You're absolutely correct. Typically, you know, margins have been a couple hundred points, basis points better on a build to order just because of the ability for people to thoroughly customize their home. But right now, given the incentive environment that we're seeing, we're not seeing that great of a differential between the spec margins and build-to-order margins.
spk06: That's helpful, Tom. If I can just squeeze in one last one on that point. Just curious if the improvement on absorptions you've seen quarter to date, would you say that's been pretty consistent across both build-to-order or spec, or have you seen kind of more of an acceleration on those quick-movement homes given kind of more of the immediacy factor?
spk08: Thanks, Alan. So, we did have a higher level of spec orders in the fourth quarter, as you would expect, but in the third quarter, we are seeing an improvement in to-be-built orders as well, and about a third of our orders quarter-to-date are to-be-built.
spk06: First quarter.
spk08: Got it.
spk06: Thank you, Linda. Thank you, everybody.
spk05: Appreciate all the color. Thanks.
spk09: Thank you. Our next question comes from the line of Jay McCandless from Redbush Securities.
spk12: Please go ahead. Hey, thanks. Good morning, everyone.
spk03: Linda, if you could stay on that topic for a second because that was going to be my question. How many of the sales right now are homes that got canceled during fourth quarter that have been discounted and you're reselling them? versus new demand. I don't know a better way to phrase it, but someone coming in looking at a newer spec that you guys have started and buying that house. And I don't know if you have the breakout of this, but just kind of a sense of how much of this demand in the first eight weeks of the year is actual real new demand versus you guys putting a heavy discount on a spec and getting it sold.
spk08: I would say it's really more new demand. Whether it's a canceled home or a home that we have started as a spec home, we would be looking to make them price competitive in either case. And we're typically finding that more cancellations happen closer to the closing, and there is demand for quick move-in homes. So those are quickly absorbed.
spk03: That's good to hear. And then I guess maybe if you guys could update us on where your mix of communities is between first-time active adult and move up now and where you think that mix will be by the time we get to January 24th.
spk05: Yeah, Jay.
spk04: In the fourth quarter, orders were 46% entry, 49% move up, you know, with the small rest being luxury and active adult. I think that's a pretty good metric of where we're going based on the new community count and where those community counts are.
spk03: And then the only other question I had, congrats on getting the net debt down below 15%. Knowing that you have a maturity coming up in 24, I guess, how much lower could that net debt ratio go and what's the business case, I guess, for taking it even lower than it is now?
spk04: Yeah, so we do have those 24s coming up and we're going to put ourselves in a position to be opportunistic in paying those off. We'll obviously watch the bond market and we'll always be opportunistic there and balance capital needs and growth plans, but we could see leverage continuing to go lower since we're generating so much cash right now.
spk03: Okay, great. Thanks for taking my question.
spk12: Thanks, Jared.
spk09: Thank you. Our next question comes from the line of Carl Reitschedeck from BTIG. Please go ahead.
spk10: Thanks. Morning, everybody. I wanted to talk about that 10% to 15% peak to now sort of all-in pricing number. On the very highest end, what markets are you seeing that in? And then on the lowest end, same thing. And then obviously Arizona, Colorado, Nevada orders during Q4 were fairly weak. Are you seeing some elasticity now in those particularly soft markets with the pricing that you're putting in place?
spk11: Well, just to clarify, Carlos, Doug, our comments were adjusted net pricing on average down 10 to 15. So there's some markets that are above that and some markets below that. I would say the markets above that are, uh, have been more tailored towards Austin, uh, Houston. Um, I would say Phoenix, uh, some of the markets below that, uh, DC Metro, uh, San Diego, um, Carolinas. So, you know, that's why I said on average, it's 10 to 15. It's, it's, uh, across the board.
spk10: Right. Thanks for that clarity, Doug. I appreciate it. And then on the 10% to 20% cost reductions, can you expand on that a little, Tom or Doug? Is that in part a function of just mixed to smaller product and mixed to markets where it might be cheaper? Is that a per foot type of number? And can you expand just on how you intend to get there beyond, you know, we know lumber's down. And I'm just curious, you know, what specific elements of TriPoint are driving that number lower just tactically? Thanks.
spk14: Yeah, Carl, good question. And without a doubt, the teams have been doing a phenomenal job and working really hard. So a lot of that is just assessing our product, doing value enhancement, value engineering, and making sure we are producing the most cost-effective product possible. So we have been making a lot of changes to our product offerings, simplifying as well as lowering square footages In general we typically talk about those cost reductions on a per foot basis. And as you know the biggest component of that is you know the structural components of the home. So that's where we've been focused on. We're seeing results. So we've already begun to generate I'd say close to that 10 percent number in terms of reduction so far and lumber does play a big part of our costs, obviously, and we've had favorable tailwinds in lumber. So we anticipate we're going to continue to work, but a lot of it is done through that repositioning of our products. And we've got great product offerings, so we're not sacrificing the quality or the design of our homes.
spk12: I appreciate it, Tom. Thanks, everyone. Thank you.
spk09: Our next question comes from the line of Alex Baron from Housing Research Center. Please go ahead.
spk15: Yeah, thanks for letting me take these questions. And congrats on a strong performance at your end. I wanted to ask about the three markets that seem to have the lowest orders, Colorado, Arizona, Las Vegas. Just kind of curious about what drove those numbers. Was it just outright panic in the market you know high cancellations because of high interest rates or was it just you guys weren't really you know interested in i don't know dropping prices or matching what other people were doing that cost maybe you know you guys could be at a slight disadvantage for a second there well yeah alex it's doug as we mentioned we placed a higher priority on
spk11: getting our backlog through and closed at the end of the year. And so the absorption pace was very slow, and the market was going through a lot of interest rate adjustments. So that was the primary driver in the fourth quarter. As we repositioned both pricing, product, mortgage incentives going into this year, we've seen the consumer reengage. and we're able to provide the right product, the right price, and the right payment.
spk04: And Alex, let me add to that. It feels consistent with the rest of the market in those markets as well from looking at our competitors in Colorado and Arizona.
spk05: We've seen similar results with our peer set.
spk12: Got it.
spk15: Yeah, because it's pretty obvious that some builders had really low results than others. but I'm guessing the ones who didn't probably sacrificed their margins quite a bit to get those numbers. So I'm just kind of curious about your philosophy now around that. So I guess what that means is that starting this year, you guys adjusted the pricing or the incentives, and now you've seen the rebound in activity. Has it been stronger, would you say, than the other markets? you know, where that didn't happen? Or has it just been a strong rebound across the board?
spk11: Well, as we mentioned, it's been good demand in A sub-markets. It's important to provide the right product and be positioned in the right sub-markets. Sales are still not easy. We're working for every order that we write. But again, it's all all based on focusing in on pace over price as we go into this year. And the repositioning that we put in place going into 23 so far has generated good results. But, you know, it's way too early to judge the entire year. And we've still got the spring selling season, which I'm sure will be very competitive.
spk14: And, Alex, just to be clear, we have – employed that strategy of repositioning in all 15 of our operating divisions. So it's a universal strategy. And as Doug said, we're seeing good, strong results across all markets right now.
spk15: Got it. And I also wanted to ask about the announcement of the share buyback. I believe you guys didn't do any share buyback in fourth quarter. So I'm curious if this new authorization is meant to be more opportunistic or just more like steady Eddie, you know, some programmatic amounts per quarter. How are you guys thinking about that?
spk04: I think we're going to continue to be opportunistic, but, but we do, like we said in our prepared remarks plan to be active this year in our share repurchases.
spk12: Got it. Okay. Well, best of luck guys. Thank you. Thanks Alex.
spk09: Thank you. Ladies and gentlemen, we have reached the end of the question and answer session, and I would like to turn the conference over to Doug Bauer, CEO, for closing comments.
spk11: Well, thank you for joining us today. We look forward to sharing our Q1 results with you in April. Thank you, and have a great week.
spk09: Thank you. The conference of TriPoint Home has now concluded. Thank you for your participation. You may now disconnect your lines.
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