Tri Pointe Homes, Inc.

Greetings and welcome to the TriPoint's third quarter 2024 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. I'd like to turn the conference over to your host, David Lee. Thank you. You may begin.

Good morning and welcome to TriPoint Homes earnings conference call. Earlier this morning, the company released its financial results for the third quarter of 2024. Documents detailing these results, including a slide deck, are available at .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. A 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. 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 president and chief operating officer, and Linda Mame, the company's executive vice president and chief marketing officer. With that, I will now turn the call over to Doug. Thank

you, David,

and

good morning to everyone on today's call. As we review our third quarter results, discuss our growth initiatives, and update you on the current market conditions. We'll also share our outlook for the fourth quarter in the full year, 2024. I'm pleased to report that TriPoint has once again delivered excellent financial results for the quarter. We achieved a 32% increase in deliveries to 1,619 homes, a 2% increase in the average sales price to 688,000, and 35% growth in home sales revenue to 1.1 billion. The improvements in both volume and pricing were well balanced across our markets, with each reporting segment achieving gains in deliveries and revenues. Our home sales gross margin for the quarter was 23.3%, a 100 basis point improvement compared to the same period last year, reflecting the strong demand and pricing power we experienced during the spring selling season. Selling general and administrative expenses was .8% of home sales revenue for the quarter, a 150 basis point improvement year over year, largely resulting from additional operating leverage gained through increased revenues. Collectively, the revenue growth, margin expansion, and SG&A leverage drove pre-tax earnings of 152 million for the quarter. A 52% increase over the previous year. Deluded earnings per share was $1.18, reflecting substantial year over year growth of 55%. In addition to these strong earnings, we generated 168 million of operating cash flow during the quarter, and 336 million for the nine-month -to-day period. Book value per share ended the quarter at $34.73, a 16% increase compared to the prior year, and our return on average equity was 15% for the 12-month period. Turning to orders, we achieved a monthly absorption rate of 2.8 for the quarter. Demand trends were in line with normalized seasonal patterns consistent with historical results. Our diversified geographic footprint provides stability, allowing us to capitalize on stronger markets and offset weakness in others. Housing supply has increased in Austin and Dallas, and absorptions have slowed, although we are performing well relative to the market. Colorado continues to be a challenging market with an increase in supply and a slowdown in regional job growth, serving as headwinds. Conversely, markets that demonstrated seasonally strong demand for tri-point this quarter were Orange County and the Inland Empire in California, Arizona, Washington, Houston, and the D.C. metro area. So far in October, macro events such as the continued volatility in the mortgage rates, the upcoming election, severe weather events, and renewed geopolitical uncertainties has introduced some hesitation among buyers. We continue to balance pace and price on a -by-community basis with targeted incentives such as interest rate buy-downs and design studio credits that encourage home shoppers. We feel this buyer hesitation is temporary and will only create pent-up demand as we move into 2025. As we head into 2025, cooling inflation and stronger than anticipated job market data are positive indicators, and we are optimistic about stronger conditions in the upcoming spring selling season. We anticipate mortgage rates will decrease modestly next year, with many experts forecasting average rates from the high fives to the low 6% range improving housing affordability. We believe there is pent-up demand from home buyers who have been waiting on the sidelines and moderately lower rates will be a motivating factor. Our buyer profile at TriPoint continues to be strong. In our backlog with our mortgage company, TriPoint Connect, our buyers have average FICO scores of 752, -to-income ratios of 41%, -to-value ratios of 80%, and average household income of $209,000. Over 70% are Millennials and Gen Z buyers, and 48% are first-time home buyers. Our TriPoint Connect capture rate for the third quarter remained robust at 82%, demonstrating the strength of our integrated mortgage platform. Our long-term outlook remains positive with solid housing market fundamentals supported by favorable demographics, a growing cohort of Millennials and Gen Z buyers, and a structural mismatch between housing supply and demand. Housing remains undersupplied, and some estimates state that new home needs are between 14 and 21 million new homes over the next decade, while as an industry we are only producing 1.3 million homes annually. Regarding our capital allocation strategy, for the nine months ended September 30, 2024, we've repurchased and retired 2.8 million shares for $97 million. Since the inception of our share repurchase program, we've repurchased 76 million shares at an average price of $18.35, representing a 47% discount to our current book value per share of $34.73. Furthermore, we've reduced our share count by 42% from its peak in 2016. In addition to executing this repurchase program, we've expanded our market scale, entered new markets, and driven our -to-capital ratio to an all-time low. Our balance sheet is in excellent shape, providing us with the flexibility to continue delivering strong shareholder returns while positioning the company for future growth. As we mentioned in our last earnings call, we remain focused on expanding our presence in both established and growth markets. Position ourselves for long-term strength. Our strategic initiatives are creating a more geographically diversified and resilient company, enabling us to navigate market fluctuations and capitalize on new opportunities. Before I turn the call over to Glenn, let me provide an update on our progress in three expansion markets, Utah, Orlando, and the Coastal Carolinas. Our market entry in Utah is progressing well. We've targeted core sub-markets close to employment, amenities, and strong schools. So far, we control three communities totaling 346 lots, with the first community expecting to launch sales in mid-2025. We are also negotiating contracts for another 800 plus lots, with diversified product from premium entry level through second move up. With a strong land pipeline and an experienced team, we are well positioned to capitalize on the market's potential. Our Orlando and Coastal Carolina divisions are making significant progress as we expand our team and operational presence. In the third quarter, we welcome key leadership members, and developers have responded positively to our premium product and design strategy, which we believe will answer an unmet need in these regions. We are underwriting new land opportunities and expect to sell our first homes in early 2026. These markets remain highly promising, and we're leveraging resources and expertise from our established nearby divisions in Charlotte and the DC metro area. We're very optimistic that this shared playbook will drive results in both the Orlando and Coastal Carolina divisions. In conclusion, TriPoint Homes is poised for a solid close to 2024, and well positioned to hit the ground running in 2025. We continue to leverage our strengths and seize opportunities in both established and expansion markets. Housing market fundamentals remain strong, supported by a persistent under-supply of homes driving demand. Our strategic focus on profitability, growth, and shareholder returns, coupled with a favorable industry outlook, reinforces our confidence. We remain dedicated to increasing book value per share by 10 to 15 percent annually, while delivering strong returns and creating sustained value for our shareholders. With that, I will now turn the call over to Glenn. Glenn?

Thanks, Doug, and good morning. I'd like to highlight some of our results for the third quarter and then finish my remarks with our expectations and outlook for the fourth quarter and full year for 2024. The third quarter produced strong financial results for the company. We delivered 1,619 homes, which was above the high end of our guidance due to our ability to sell and close spec homes during the quarter. Gross margins were 23.3 percent for the quarter, right at the midpoint of our guidance. Based on our backlog and mix of specs that could deliver in the quarter, we expect margins to remain consistent at approximately 23.3 percent for the fourth quarter. SG&A expense as a percent of home sales revenue came in better than our guide at 10.8 percent, due largely to the additional leverage gained through the increase in deliveries and resulting revenue in the quarter. Finally, diluted EPS was $1.18, a 55 percent increase compared to 76 cents a year ago. Net new home orders in the third quarter were 1,252 on an absorption pace of 2.8 homes per community per month. Incentives on orders for the third quarter were 5.5 percent, and approximately 65 percent of our orders during the quarter were on spec homes. Our cancellation rate on gross orders during the quarter remained low at 10 percent, and we ended the quarter with approximately 2,300 homes and backlog, representing 1.7 billion of future revenues. Turning to communities, we opened nine new communities in the quarter and closed 14, ending with 148 active selling communities. Based on our estimated mix of opening and closing communities in the fourth quarter, we expect to end the year in the range of 135 to 140 active selling communities. We continue to be active in the land market during the third quarter, investing 192 million in land and land development. We ended the quarter with approximately 33,000 total lots, with 51 percent owned and 49 percent controlled. Our land teams have done a great job in building a strong land pipeline utilizing our core market strategy, focusing on A locations, close to job centers, and access to great schools and other amenities. Based on what we currently own and control, we expect to grow communities to a range of 150 to 160 active selling communities by the end of 2025, and to a range of 170 to 180 active selling communities by the end of 2026. Looking at the balance sheet and capital spend, we ended the quarter with approximately 1.4 billion of liquidity, consisting of 676 million of cash and 698 million available under our unsecured revolving credit. Our home building debt to capital ratio was 22.1 percent, and our home building net debt to net capital ratio was 7 percent to end the quarter. During the third quarter, we repurchased 273,000 shares for an aggregate dollar spend of 9.9 million, leaving us with 153 million dollars available under our current authorization. We continue to view share repurchases as a valuable part of our capital allocation strategy, and we are targeting to repurchase approximately 50 million in stock during the fourth quarter. Now I'd like to summarize our outlook for the fourth quarter and full year for 2024. For the fourth quarter, we anticipate delivering between 1,600 and 1,800 homes at an average sales price between 700 and 710,000. We expect home building gross margin percentage to be in the range of 23 to 23.5 percent, and we anticipate our SG&A expense ratio to be in the range of 10.5 to 10.9 percent. Lastly, we estimate our effective tax rate for the fourth quarter to be approximately 26 percent. For the full year, we anticipate delivering between 6,300 and 6,500 homes with an average sales price of approximately 680,000. We expect our full year home building gross margin to be approximately 23.3 percent, and we anticipate our SG&A expense ratio to be approximately 10.9 percent. Lastly, we estimate our effective tax rate for the full year to be approximately 25.5 percent. With that, I will now turn the call back over to Doug for some closing remarks.

Thanks, Glenn. As we wrap up, I want to take a moment to thank the TriPoint team for your continued hard work and commitment to our mission and values. Your efforts are essential to our success, and we're instrumental in delivering another quarter of strong results for the company. We remain excited about the long-term outlook for our industry and have the right strategy coupled with a solid plan and strong team to move forward to make the most of the opportunities in front of us. With that, we'll open it up to questions.

Operator? Great, thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull over questions. Our first question is from Stephen Kim from Evercore ISI. Please go ahead.

Thanks very much, guys. Appreciate all the color. I wanted to ask about your community count and, you know, with that sort of implied volume expectation. So, previously, I think you said, Glenn, that you expect to end the year with 135 to 140 communities. I think you had previously been guiding something closer to about 155. So a shortfall there of, you know, 15 to 20 communities, correct me if I'm wrong. And it's not like, you know, three queue sales were particularly strong. So I'm wondering why the community count guide is going lower. And then also, because you had made comments about next year, year end, I think you were sort of talking 10%. That kind of implied 170 for next year. So I'm wondering with the, you know, 135 to 140 at the end of this year, does that also provide downside risk to 170 next year or are there reasons why that would not be

the case? Hey, Stephen, it's Glenn. Good question. Our previous guide was that 140 to 150. So a couple things going on there. We did close out of a handful of communities earlier than expected. So that played a role in it. But we also made the strategic decision to move some community count openings into the spring selling season into Q1 next year. And so that's what's causing the difference for 2024. And for 2025, we gave guidance on the call that we expect to end 25 at about 150 to 160 active selling communities. And then in 2026, 170 to 180 communities. So that's the guidance we gave on the call.

Gotcha. I missed that. I appreciate that. So it is coming down for next year. I guess my question is, if you're just sort of deferring into the spring, why would that necessarily reduce your outlook for next year? Why would it cascade like that if it's sort of just like a kind of a pushing out? I guess that would be my first question.

Hey, Stephen, it's Doug. How are you doing? Good. Yeah, you know, we take a very measured approach to our business, focusing in on growing PTE pre-tax earnings. And we look at this as a long term game. So we looked at those communities at the back half of the year and said, you know, what's going to make more money for the shareholders going next year? So that's just that's our measured approach to the way we run the business. And that's just that's our business philosophy.

Gotcha. And then when I think about what these communities are going to look like, I think, Glenn, you had previously been talking about your ASP, you know, dropping because of, you know, a mix and things like that. We haven't quite seen that in the closings ASP, but we did see something there on the order ASP. So I'm assuming it's coming. Are these communities also likely to be designed to run a little hotter on an absorption basis? You know, in other words, are they designed to run at a higher absorption than the communities they're replacing? And if so, can you give us a sense for like kind of how much higher that they would typically be geared to run?

I wouldn't necessarily say they're going to run hotter. I mean, our target is when we underwrite is three to four, and that depends on the type of the community. And it tends to average out to around three, five for a full year from an absorption base. The ASP slight decline maybe next year, and that is just mixed more Texas, more Carolinas, things like that. But it's just pure mix. And I think you like, he's referenced that that was the order mix in the quarter was just a little bit heavier weighted to those types of communities. But I wouldn't say our absorption is going to change. We tend to generally target that three, five.

Okay,

that's helpful. All right, great. Well,

I'll jump off. But thanks very much,

guys.

Our

next question is from Trevor Allison from Rua Wolf Research. Please go ahead.

Hi, good morning. Thank you for taking my questions. First, can you talk about the cadence of demand throughout the quarter as rates move lower? Did you see demand picked up as the quarter moved along? And then, Doug, you mentioned some hesitation here in October. You listed a few reasons why that might be occurring. And you talked with your operators in the field, is your sense that that's primarily a reaction to the higher rates that we've seen here over the last few weeks or some of those other impacts you mentioned like the election creating equally as large of a headwind here more recently?

Yeah, that's a good question. And I've been going through some operating calls with our divisions actually this week. And I would really label the buyer hesitation, especially in early October to some of the macro issues, but primarily the election. And, you know, I've been doing this for a long time and we actually we actually ran our absorption in the company in our own plan to adjust for this event. Linda can talk about that, too. She's seen it for years. So I would say that's the bigger, bigger hesitation that we're seeing in the field. Rates are not an issue. You know, we have the ability to pull different levers to get people across the goal line. I would also say that the demand is still really strong. It's just hesitation. And I'm very bullish about the spring selling season and we're seeing people sitting on the fence. Hence, the reason why we kind of played around with our community openings going in next year. I mean, we're a small, smaller builder. So we have the ability to make our business the most profitable business that could be going into the following year or any year. And so we're, you know, we're trying to be a little smart about what's going to happen in the spring selling season. And frankly, we think there's a lot of demand. And a lot of buyers just sitting there and it's not about rates. It's just getting a little confidence getting over this election.

Hey, Trevor, it's Tom, just to follow up relative to your question about cadence of orders during the quarter. You know, July was definitely the slowest month of the quarter. August picked up a little bit as people were perceiving rates to be coming down. Then September was pretty consistent with August. So that's kind of how it's gone. And as Doug mentioned, it's been choppy as we're heading into October with all the macro issues out there. But again, we're highly confident that we're building pent up demand and the spring suit is going to be strong.

Okay, thank you for all that that color. It makes a lot of sense. And Doug, I guess kind of piggybacking off a comment you made about profitability there. And I think you were kind of alluding to your choice of pace and price. Gross margin was solid in the quarter and it looks like 4Q is going to be roughly flat, which I think is a pretty good outcome in the current environment. So can you talk about, I guess, further what you were alluding to there about your decision on pace and price in the current environment, how you're balancing those two things? Thanks.

Well, again, we're always balancing pace and price. And we took an approach to illustrating that as we land for the 2024, margins will be steady at, I think, a glen .3% roughly. So that's, you know, our goal here, Trevor, is to grow our book value per share 10 to 15% a year. Again, we're a smaller builder and we're just focused on growing EPS and growing that book value per share and let the market multiples and other things adjust for what we're doing. We've got a very solid company, got a great team, and most importantly, we've got a very solid premium brand that we can enter into these new markets that are going to be very, very successful. So, you know, I think margins are looking good for the end of the year.

Okay, yeah, makes sense. Thanks for all the color there is very helpful and good luck moving forward. Thank you.

Next question is from Alan Ratner from the Zellman and associates. Please go ahead.

Hey, guys. Good morning. Thanks for all the info. Appreciate it. Doug, maybe just following on the gross margin topics since that's where the prior question left off. So I think and correct me if I'm wrong. I think you said incentives on orders were about five and a half percent of price this quarter. I think that's up from about three point seven and two Q. So just curious, you know, with the flattish gross margin guide for four Q, even though incentives ticked up, are there offsets there either on the cost side or mix or should we think about that bump in incentives impacting margin more in early twenty five.

Alan, it's Glen. I'll take that one incentives were slightly elevated in the third quarter, but it was on a lower order base. Our incentives overall and backlog are still lower than that. Obviously. And so that's what's really driving that margin in the fourth quarter. It wasn't enough to really move that margin because there's good to be built margins and backlog. And that's what was driving a lot of that Q4 margin.

Got it. Okay, that's helpful. And then, you know, I know you're not given specific twenty five guidance yet and then it's early, but I'm just curious if we could think through. You know, kind of the the setup heading into the year. Obviously, it sounds like you're pretty, pretty bullish on the spring selling season, but you're probably going to enter the year with backlog down, you know, plus or minus twenty percent. I don't recall if you gave the specific homes that you have under construction, so I know the backlog number isn't necessarily telling the full picture because of the pivot to more specs. But, you know, given that backlog entering the year, do you still feel like you have enough opportunity to grow from a closings perspective based on what you have under production based on what your community count growth is going to look like through the year or does that set you up, you know, maybe to make it a bit more difficult to grow from a unit perspective next year.

Good question. Now, and you're trying to make us give guidance without giving guidance, but no. But I try. Yeah, I know. No, we do believe in the spring selling season. And like you said, we're going to start the year with lower community count than we started last year backlog coming into the year is lower because of the backup of this year. So that does present somewhat of a challenge to grow deliveries, but we do. We are coming into the year with a good amount under construction. So we have about thirteen hundred homes right now that are started and unsold. So we have about thirteen hundred specs going into the fourth quarter. And then, you know, we do have our backlog and our community count next year is going to ramp to that one fifty to one sixty, but it's going to be pretty radically over the year. So it's not heavily weighted towards the back half or the front half just to give you some kind of color there.

Yeah, Alan, it's Tom to tag on a little bit. We really do feel pretty good relative to our spec inventory moving into that spring selling season. So a lot will just depend on how strong that spring selling season is. Obviously, if it's as robust as we think it is, we have the ability to react and capitalize on that. But really fortunate to be entering into that season with the spec units we have under under construction right now.

Great last one, if I, if I could that thirteen hundred homes under construction spec on how does that compare to a year ago?

I'd have to look,

but it's actually very similar. Last year we were thirteen hundred and seventy two in the third quarter. So very similar.

Okay, thank you. Appreciate it guys.

Thanks a lot. Our next question is from Mike from RBC capital market. Please go ahead.

Thanks for taking my questions. Doug, it's interesting in terms of the strategic decision to move the community openings. And I kind of begs a couple of questions. The first one is, you know, if you're looking out at fourth quarter and making that decision around something as meaningful as when do I open a community? How should we think about how you're managing your pace and incentives potentially differently in in four Q than the quarter we just exited? Are you, are you going to kind of pull back on incentives and and let let pace kind of shake out where where it does? Just given your view that the spring is going to be much better or really? How should we be thinking about the other strategic implications there?

Yeah, this is Doug Mike. I mean, generally speaking in the call at the beginning of the fourth quarter in the third quarter this year, you're going to have some homes that you're going to probably have to sell to for a division to meet their, their, their closing plan. So the incentives will be a tad bit higher going into the fourth quarter. And there's a lot of buyer hesitation, as I mentioned, the macro side. And as we look into the spring selling season, we would expect that incentives would be a little bit lower with that. Those new communities that were opening. So that's that's kind of strategically how we look at it.

Okay, so sorry,

Mike, I was just going to add just to highlight our approach to that and how we think about it is obviously we are focused on moving completed inventory to match our plan as Doug just said. So, as we look at incentives, they do vary community by community, depending on what inventory we have out there available for ready move in. So, we're continuing to want to turn our inventory relative to that. And then we're focused on individual buyer demographics and incentives are primarily being utilized towards finance closing costs and then options and upgrades. And it's about a fifty fifty mix. So, it is somewhat fluid, but I would agree with Doug that with the choppy back half, we'll, we'll meet our plans through utilizing slightly increased incentives. But overall outlook for next year is decreasing incentives.

Okay, got it. So what's on the ground today? You'll keep moving through to hit reasonable targets. In terms of kind of the, so you're facing some hesitancy in terms of. I guess how much is also a response to the competitive dynamics on the ground where clearly a lot of builders have leaned into into spec as as well. And is it also kind of a response to, hey, there's just, there's just. A little too much inventory in some of these markets. We might as well kind of hold off on some of these. These openings so that that would be my follow up question there. If you could.

Yeah, yeah, Mike, that's a really, really good question. And it's break it down by a market. You know, Austin is has been on the radar screen for everybody. And relative to the competition, the bigger home builders will play a much bigger, bigger incentive absorption game. But, but when you look at what we offer as a premium brand opportunity, our share of the market that we're getting is very strong because we build in in closer locations, closer to amenities, school and work. So the larger builders aren't aren't typically what's driving us. It's it's it's really we offer a premium brand opportunity. And even in an Austin market, that's that's very choppy. We're getting better than our share of market in that market. I don't Linda, if you want to add to that,

too. So I think you've shared that really well. I mean, it is so variable by market right now. Often is the market that does have more inventory currently. But when you look across all of tricorne's footprint on a weighted average basis, the supply in our markets is under three months of supply from the resale side. And in some of our markets, like Washington with the premium locations that we have or Southern California, there is very little new home competition in those markets for our product.

Okay. And then start a harp on this and squeeze another one in. But then should we think about the delayed opening as a lining with those regional dynamics or how would you characterize the regional mix of where you pushed out some of those openings?

I don't have that in front of me. Mike probably have to get to Glenn. Do you have it?

Yeah, it's a little bit of line with that. But I also think we might be making too big of a deal out some of the push outs. We're talking about a community that was going to open maybe in the end of November. That's now going to open in January or February. Right. So not a major impact and not a huge impact to Q4 obviously. And if the spring selling season is strong like we think it's going to be, we'll be able to make up for any orders that we potentially didn't get in the fourth quarter. So it's not that big deal to us.

I would add to that. It's not weighted at all in, let's say, some of the, as we noted in our remarks, some of the slower markets, it's actually spread out in these new communities and some of the stronger markets. So just like Glenn said, it's adjusting openings from the holiday period of late November, December to January.

I think the most important thing to guys relative to that is in that slight shift of timing relative to openings, it will not have any impact on deliveries for next year.

Okay, thank you very much.

Our next question is from Carl from BTIG. Please go ahead.

Thanks. Hey, guys. Glenn, just a quick one on the SG&A guide for the next quarter. I think even at the midpoint, you'll be up 100 million sequentially in revenue. Is there anything special in that SG&A? Is it related to costs associated with community openings or any additional spending? Just would assume you got a little bit better leverage in the next quarter than what your guide says.

Yeah, good question. And, you know, there is a range there, 10-5 to 10-9. So some of that is just timing of spend in the fourth quarter. But we also are ramping up those three new startup divisions and hiring more people. And so there is a little bit of that that's not that impactful, but just a little bit of noise in the fourth quarter. But, you know, we'll see how that ends up shaking out in the fourth quarter.

Okay, that makes sense. All right. Thank you, Glenn. And then along those lines, so, Doug, now that you've kind of moved Greenfield into some pretty significant markets, could we consider you sort of out of the market for acquisitions of small builders? And then as you look at your capital outlay over the course of the next couple of three years, could we expect a more aggressive lean into the new Greenfield markets you've opened?

Yeah, Carl, good question. I mean, we're always inquisitive, but I would tell you I would lean into what you're saying. I mean, we're leaning really into the Utah's got a lot of momentum. So does Orlando and, you know, the batting lineup, I would tell you, coastal is right behind Orlando. So we're very leaning into those three new expansion divisions, both in land and in people. I can't tell you how I mean, it's quite flattering for me and Tom to get around to these markets and how land sellers are opening their door to Tripoint because of our premium lifestyle brand. They have really gotten the message. We can demonstrate the product and it allows us to be in those core locations. I always kind of kid it as main and main. I know Doug, you really won't like me for saying that, but, you know, we're focused on the core locations. That's why we do a lot of joint ventures with toll.

That makes sense. Thank you very much, Doug. I appreciate that. And I'm rooting for your ducks. Okay. Have a good one.

Thanks.

Redux.

Our next question is from Jane McCandless from White Bush Securities.

Please go ahead.

Thanks everyone. So, Doug, I wanted to dig down on what you're saying about rates aren't an issue. Is that more? You can do the buy downs, rate buy downs, things like that, or something about customer mix because basically that's the exact opposite of what we've been hearing from a lot of your competitors is that rates, especially here in October, really become a headwind to the buyer sentiment.

Jay, this is Linda. I'll start and have Doug add in here as well. But there's really two things to think about. One is what is happening with rates in terms of the consumer's understanding of it. When there's volatility, consumers tend to hesitate or pause because they may not understand the reason for the volatility. On the other side, there's what TryPoint's customers can qualify for. And as Tom said earlier, one of the things that's very interesting on the use of our incentives is that even though we advertise forward commitments and they are great at driving traffic into our new home galleries, our customers ultimately choose to use more of their incentive dollars for design studio to personalize their homes. They don't need as much help in financing because they have good incomes and they can qualify. So ultimately, rate is not a reason for our customers not to move forward and buy. But we are doing a lot of education to help people understand the volatility. So,

Jay, to put it into perspective for you, relative to our deliveries in Q3, the average mortgage rate was 6.3%. And then moving forward of our locked backlog, the average mortgage rate is 6%. So while we are utilizing permanent buy downs, it's not significant. So as Linda said, our buyers are well qualified and able to purchase kind of in that 6% range.

Right. And ultimately, only 3% of our orders in the third quarter use the forward commitment. And obviously, we prefer for our customers to use design studio. That's not dollar for dollar

approach. Thank

you, Linda and Tom. The other question I had when you think about the community growth for next year, is it still going to have, call it a 48, 50% entry level mix or how are you thinking about what you're opening next year? What is that customer mix going to look like,

Linda? Very similar to what we're delivering now, which is about that 50% premium entry level. And then the rest is that mix of first move up and second move up with

your way to first move up. Okay, let's all head. Thank you. Thanks. Okay. Our next question is from Ken Zener from Seaport Research Partners. Please go ahead. Good morning, everybody.

Hey, Ken.

Doug, you said broadly on a national footprint, you talked about being a smaller builder, but you're large in California. I think you refer to the fourth largest. So, could you talk about, I think you gave talks about incentives by orders, but for many of the builders, we've seen real strength in the West after quite a period of weakness, I would say, in terms of margin expansion versus other regions. Could you maybe parse the comments around incentives and demand or margins, what you're seeing, you know, kind of in the West versus your other regions pre the segment data? Thank you.

Well, overall, as we mentioned, Orange County and Lenn Empire have been very strong markets for us, including Washington, Arizona. And so, you know, the incentives that are offered there in line with what we announced on a market basis in our remarks, but the West Coast and California continues to be a big driver for a try point. But it represents a little less than 50% of our orders and deliveries now.

Hey, Ken, it's Tom. Welcome. We're glad to have you. The bottom line, the West continues to perform very well for us. And so I appreciate you highlighting that. It's been misunderstood over the years, but California and as Doug said, the rest of the rest is really performing well. And we expect that to continue.

Thank you. And could you just housekeeping? What was the whip? That piece of inventory. Thank you.

I don't have that right in front of me. I'll have to get back to you on that. Ken. That's fine. Have a good day. Everybody. Thanks.

Our next question is from Alex Baron from housing research center. Please go ahead.

Hey, everybody. Good morning. I know that's about about the hesitation comments. I was wondering how you guys are interpreting that. Are people waiting to see who wins the election or are they waiting for? The Fed to lower interest rates further. What is the hesitation as far as you guys understand it?

Well, Alex is Doug. I mean, it's something we've seen in our careers for a long time. And this election is no different, probably creates a little more anxiety around the kitchen table. And it's nothing more than the consumer is wanting to see more clarity about what's happening here in this election. And you've got other events that we've talked about. I mean, the hurricanes, the geopolitical uncertainties. I mean, remember, this business is a very I guess if we hired a psychiatrist, it would be helpful in the three regions that we build in because you're buying the most expensive, durable good you're ever going to buy in your life. And you need a lot of confidence about where where the world is going, where the country is going, where your own job is going and so on and so forth. So those are all just factors that provides a little hesitation. But as as we mentioned, the demand is very strong. They're very deep, I should say. And I think that demand is that is hesitating is going to fall into. I would project a very good spring selling season and hopefully a little earlier spring selling season. So that's that's what we're seeing in the field right now. And that's what we're hearing.

And I guess that was going to be my my next question, because as I look at the order pattern in, say, fourth quarter of of last year, 23, it looks like it did quite a bit sequentially. And then we had a huge jump in first quarter of this year. So I was wondering if that's generally what you guys are anticipating. We could see, you know, as we move into into 25.

That that follows kind of normal seasonality Alex, so I think that's a reasonable expectation.

We'd like to call it the January jump.

Sounds good. What about bill times? Did you guys see an improvement in bill times this quarter? And if so, how much was it sequentially in year over year?

Yeah, we continue to be encouraged by our build times, and we're really on our baseline template schedules. Seen a slight improvement, maybe picked up a day or two quarter over quarter. But on average, we're right on our hundred and fifteen day working day schedule. So that's very much normalized.

Do you guys expect any further improvement or you think you're pretty much at your normal baseline now?

We're at our normal baseline, but we will continuously look for improvement. And if we see an ability to adjust our templates more favorably, we're going to look at that in all of our

markets. OK, well, best of luck, guys. I'll get back in the queue. Thank you.

Thanks, Alex.

This concludes the question and answer session. I'd like to turn the floor over to Doug Bauer for any closing comments.

Well, thank you, everyone, for joining us on today's call. And I hope you all have a wonderful upcoming holiday season. Thank you again, and we'll talk to you soon.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.