Tri Pointe Homes (NYSE:TPH), a leading homebuilder, has reported a significant increase in home sales revenue and earnings per share for the second quarter of 2024. The company delivered 1,700 homes at an average price of $666,000, marking a 38% rise in revenue from the previous year. With an expanded gross margin and improved homebuilding operating margin, Tri Pointe Homes has also demonstrated strong demand and a robust buyer profile. The company's positive outlook is further bolstered by its expansion into new markets and strategic financial management, including the repayment of senior notes and share repurchases.
Key Takeaways
- Tri Pointe Homes delivered 1,700 homes at an average price of $666,000 in Q2 2024.
- Home sales revenue surged by 38%, with gross margin expanding to 23.6%.
- The company repaid $450 million of senior notes and repurchased over 1 million shares.
- Tri Pointe Homes is expanding into new markets, including Utah and the Carolinas.
- For Q3, the company anticipates delivering 1,450 to 1,550 homes at higher average prices.
- Full-year guidance has been raised to 6,300 to 6,500 homes with increased average prices.
Company Outlook
- Tri Pointe Homes expects to deliver a significant number of homes with increased prices in Q3 and the full year of 2024.
- The company is optimistic about the industry's future and its growth initiatives.
- Expansion into new markets aims to diversify the customer base and price points.
Bearish Highlights
- The Sacramento market underperformed expectations.
- Central region saw softer markets in Colorado and Austin.
- Lot costs have risen by 5% to 10%, although they are incorporated into the current guidance.
Bullish Highlights
- Southern California and the Bay Area markets showed strong performance.
- Houston and Dallas had positive outcomes, contributing to the overall robust quarter.
- Over 50% of communities could raise prices slightly during Q2.
Misses
- Third-quarter deliveries are expected to dip, but this is considered a normal seasonal fluctuation.
Q&A Highlights
- The order mix was slightly higher for move-up homes, with a balanced distribution across all home types.
- Annual savings of about $25 million from debt reduction are anticipated to positively impact margins.
- The company is preparing for controlled lot percentage growth through land banks.
- Spec homes contributed significantly to the second-quarter performance, with 1,900 starts, 62% being specs.
Tri Pointe Homes' financial results and strategic initiatives demonstrate the company's adaptability and commitment to growth in a dynamic market environment. With a strong backlog and positive regional performances, the company is well-positioned to navigate the challenges and opportunities ahead. Investors and industry watchers will be keeping a close eye on Tri Pointe Homes as it continues to execute its business plan and capitalize on market demand.
InvestingPro Insights
Tri Pointe Homes (TPH) has shown a noteworthy performance, with recent data from InvestingPro underscoring the company’s financial health and market position. Here are some key insights:
InvestingPro Data:
- The company boasts a market capitalization of $4.31 billion, reflecting its significant presence in the homebuilding industry.
- With a P/E ratio of 12.07 and an adjusted P/E ratio for the last twelve months as of Q1 2024 at 11.37, Tri Pointe Homes trades at a valuation that suggests investor confidence in its earnings capacity.
- The stock is trading near its 52-week high, at 96.12% of the peak, indicating strong market sentiment and potential investor optimism about the company's future prospects.
InvestingPro Tips:
- Analysts have revised their earnings expectations upwards for the upcoming period, which may indicate a positive outlook on the company’s performance and align with the company’s reported increase in home sales revenue and earnings per share.
- Tri Pointe Homes has a strong return over the last month, with a 23.17% price total return, complementing its robust quarter results and expansion into new markets.
For those interested in deeper analysis and additional insights, there are 12 more InvestingPro Tips available for Tri Pointe Homes at https://www.investing.com/pro/TPH. Utilize the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, offering a comprehensive understanding of the company's financial nuances and investment potential.
Full transcript - Tri Pointe Homes (TPH) Q2 2024:
Operator: Greetings, and welcome to the Tri Pointe Second Quarter 2024 Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, David Lee, General Counsel at Tri Pointe Homes. Please proceed.
David Lee: Good morning, and welcome to Tri Pointe Homes earnings conference call. Earlier this morning, the company released its financial results for the second quarter of 2024. These documents detailing these results, including a slide deck, are available at www.tripointehomes.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 Tri Pointe’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 President and Chief Operating Officer; and Linda Mamet, the company’s Executive Vice President and Chief Marketing Officer. With that, I will now turn the call over to Doug.
Doug Bauer: Thank you, David, and good morning to everyone on today’s call. During the call, we will share the operating results for the second quarter, provide a market update and discuss the progress on some of our growth initiatives. In addition, we will provide our third quarter and full year outlook for 2024. We’re extremely pleased with Tri Pointe’s outstanding results in the second quarter, which were driven by our focus on building scale and efficiencies within our existing markets as we continue to lay the foundation for organic growth in three new markets. We delivered 1,700 homes at an average sales price of $666,000, resulting in home sales revenue of $1.1 billion, a 38% increase compared to the previous year. This growth was fueled by a 45% increase in deliveries, resulting from strong market conditions, increased community count and improved cycle times. Our gross margin expanded by 320 basis points to 23.6% compared to the prior year, driven by the pricing power we have experienced over the past several quarters, which has enabled us to increase base pricing and moderate incentives. Higher revenue provided operating leverage to SG&A, as our ratio as a percentage of home sales revenue improved by 90 basis points to 11% for the quarter. This help generate a 420 basis point improvement in homebuilding operating margin, which was 12.6% for the quarter. The combination of strong revenue, disciplined cost management and strong operational execution led to diluted earnings per share of $1.25 or a 108% increase compared to the prior year. Our net new orders for the quarter were 1,651 with a monthly absorption rate of 3.6 orders per community per month, reflecting continued healthy demand levels despite mortgage rates that averaged 7% during the quarter. Incentives on orders in the quarter were 3.7%, which was down slightly from 3.8% in the first quarter, indicating the strength of demand in our core market locations coupled with a strong buyer profile that is financing with our mortgage company, Tri Pointe Connect. Our buyers in backlog with Tri Pointe Connect have an average FICO score of 753 and debt-to-income ratio of 40%, loan-to-value ratio of 79% and an average gross household income of $207,000. First-time homebuyers are 55% of our backlog. And from a generational perspective, 63% are millennials and 6% are Gen Z. Our capture rate with Tri Pointe Connect in the second quarter remained strong at 85%. With mortgage rates remaining elevated, and nearly 80% of existing mortgage holders enjoying rates below 5%. The lock-in effect continues to bolster demand for new construction homes and influence overall selling conditions across most of our markets. These dynamics support both sales volume and pricing as the share of total home sales garnered by new homebuilders remains elevated compared to historical norms. We have seen normal seasonal demand trends take shape as June drew to a close and so far into July. Historically, we have experienced lower absorption rates in the summer months, and we will continue to focus on balancing pace and price to meet our overall sales objectives. We have been pleased to see that traffic and orders have improved throughout July as mortgage rates dipped below 7%. Considering how strong demand trends have been with elevated rates, the possibility of lower rates in the back half of the year would be a positive for the consumer and our business. Long term, we maintain a very optimistic outlook for the industry and our company. The ongoing demand for new housing from millennials and Gen Z, coupled with persistent supply constraints in the resale market, land availability and labor resources, create a strong foundation for sustained growth in the new housing market. These factors position our company favorably for future success as we continue to address the increasing need for new homes in the face of limited existing inventory. During the second quarter, we repaid $450 million of senior notes, eliminating $26 million in annual interest payments. This was accomplished using existing cash, demonstrating our ability to generate positive cash flow to delever the balance sheet while still investing in our business to grow community count and staying active in our share repurchase program. Our homebuilding debt to capital ratio improved to 22.9% while maintaining strong liquidity of $1.2 billion. Speaking of our share repurchase program, we repurchased just over 1 million shares during the quarter for a total spend of $37 million. We have reduced our share outstanding share count by 5% over the past 12 months, bringing the total reduction to 42% since the beginning of 2016. Through this reduction in shares and strong profitability, we have achieved a 15% growth in book value per share compounded annually over the same period. As we discussed on the prior earnings call, we are committed to growing our scale and share in existing markets, while further diversifying our company and positioning us for ongoing strategic growth in our three new expansion markets of Utah, Coastal Carolinas and Orlando. In Utah, we are pleased with our progress towards meeting our goal of first deliveries in 2025. We have our first projects under control, including a community in the highly desirable city of Holladay in Central Salt Lake, which will offer premium detached homes and townhomes. It’s still early innings in both the Coastal Carolinas and Orlando markets, but our teams are attracting talent and identifying core market land opportunities for our premium product. We are enthusiastic about these new divisions and confident that they will contribute significantly to further growth and geographic diversification for our company. We started Tri Pointe Homes in California in 2009. And as the fourth largest builder currently in the state measured by deliveries, we continue to produce strong revenue and profits. With that said, we have seen the benefits of growing our business outside of California to diversify our customer base and price points while always focusing on land in core market locations. Revenue from non-California divisions previously represented less than 50% of the total company revenue. Currently, revenue generated outside of California is expected to grow to approximately 70% of our business by 2026, demonstrating our successful expansion into other top MSAs across the country. In conclusion, Tri Pointe Homes is poised for a very positive second half of 2024 and beyond. As we continue to capitalize on our strengths and pursue opportunities in both existing and new markets. The housing industry’s underlying fundamentals remain robust with a persistent undersupply of homes driving demand. Our strategic focus on profitability, growth and shareholder returns, combined with a strong industry outlook, fuels are optimism. We remain committed to our goal of increasing book value per share by 10% to 15% annually while generating strong returns, driving incremental value for our shareholders. With that, I will turn the call over to Glenn. Glenn?
Glenn Keeler: Thanks, Doug, and good morning. I’d like to highlight some of our results for the second quarter and then finish my remarks with our expectations and outlook for the third quarter and full year for 2024. As Doug mentioned, demand remained strong in the second quarter with 1,651 net new homeowners at an absorption pace of 3.6 homes per community per month. For some color on the markets, West continue to show outsized demand with Arizona, California, Nevada and Washington all report an absorption paces above four for the quarter. Results in the Central region were moderate with an overall absorption pace of 2.5. In Texas, our Houston division continued to show strong buyer activity for our well-located premium entry-level and move-up communities. Demand in DFW and Austin showed some softening in the quarter due to higher rates and an increase in supply of both new and resale homes, while Colorado has remained a challenging market. In the East, our Charlotte and Raleigh markets with attractive price points across a range of product types continue to produce strong absorption rates above the company average. Finally, our D.C. metro market continues to benefit from lack of supply and high demand with an absorption pace over five for the quarter. Our cancellation rate during the quarter remained low at 9%, and we ended the quarter with approximately 2,700 homes in backlog, representing $2 billion of future revenues. Turning to communities. We opened 19 new communities in the quarter and closed 22, ending with 153 active selling communities, which was a 5% increase over the prior year. We are excited about our land pipeline and future community count growth. We ended the quarter with approximately 34,000 total lots. We are approaching our short-term goal of a 50-50 owned and controlled lot ratio with our controlled lots this quarter increasing to 48%. Looking at the balance sheet and capital spend. We ended the quarter with approximately $1.2 billion of liquidity, consisting of $493 million of cash and $700 million available under our unsecured revolving credit facility. Our debt-to-capital ratio decreased 860 basis points sequentially to 22.9% after paying off $450 million of senior notes during the quarter. Our homebuilding net debt to net capital ratio was 12.2% to end the quarter. We do not have another debt maturity until 2027, which puts us in a strong position to use our capital to invest in our business and support the stock through our share repurchase program. During the second quarter, we repurchased a little over 1 million shares for a total aggregate dollar spend of $37 million, leaving us with $160 million available under our current authorization. We continue to be active in the land market during the second quarter, investing approximately $275 million in land and land development. Now, I’d like to summarize our outlook for the third quarter and full year for 2024. For the third quarter, we anticipate delivering between 1,450 homes and 1,550 homes at an average sales price between $685,000 and $695,000. We expect homebuilding gross margin percentage to be in the range of 23% to 23.5%, and we anticipate our SG&A expense ratio to be in the range of 11% to 11.5%. Lastly, we estimate our effective tax rate for the third quarter to be approximately 25.5%. Based on our strong backlog heading into the back half of 2024, we are raising our guidance of full year deliveries to an updated range of 6,300 to 6,500 homes. We are also increasing our expected average sales price to an updated range of $670,000 to $680,000. We expect our full year homebuilding gross margin to be in the range of 23% to 23.5%, and we anticipate our SG&A expense ratio to be in the range of 10.5% to 11%. Lastly, we estimate our effective tax rate for the year to be approximately 25.5%. With that, I will now turn the call back over to Doug for some closing remarks.
Doug Bauer: Thanks, Glenn. In closing, I want to express my sincere gratitude to the entire team as we celebrate 15 years since the founding of Tri Pointe Homes. Their work and relentless pursuit of excellence are the foundation of our success. Their commitment to our values and dedication to our mission are the reason we once again earn certification as a great place to work in 2024, an honor we are particularly proud of. I remain confident in our company’s future and the broader industry landscape. We have a clear vision, a robust strategy and the right team in place to capitalize on the opportunities ahead. While we navigate the inevitable challenges that arise, our unwavering commitment to continuous improvement ensures we emerge stronger every year. With that, I’ll now open the call for questions. Thank you. Operator?
Operator: Thank you. [Operator Instructions] Our first question comes from Stephen Kim with Evercore ISI. Please proceed.
Stephen Kim: Yes, thanks very much guys. Congratulations on the good numbers this quarter. I was wondering if you could talk a little bit about incentives specifically. I think last time you spoke with us, you’d indicated they really hadn’t risen as of late April. Curious how they’ve been trending through the quarter and kind of how they’re trending now. And if you could also talk about your absorption pace. I think you talked about how there’s some seasonality there that typically slows in the summer months and so forth. Do you – could you give us a sense for kind of like how you generally think about absorption rates as you get into the fall. Do you typically see a reacceleration? And maybe talk to us a little bit about what your – what you see as a normal seasonal pattern through the year?
Doug Bauer: Yes, Stephen, this is Doug. How are you doing?
Stephen Kim: Great.
Doug Bauer: As we reported our incentives for the quarter, we’re a tad bit below the first quarter. And I’d say market conditions are acting very much like we had planned. We typically see some are choppiness. And then the one thing that you have to add into your planning is the national election, which happens every four years. So we add that into our playbook. So sometimes that will require more levers to be pulled as you go through the summer months and into the fall, it starts picking up. Obviously, if rates tick down in September as anticipated, that will help, too. So everything is actually working just as we planned.
Stephen Kim: That’s encouraging. And if you could talk a little bit about maybe specifically in the area of specs. It seems like when we look at your land holdings, if I’m not mistaken, your landholdings in owned lots, I think was down, but your inventory, I think, is up. Just given what we’re seeing in terms of your backlog turn, it sort of implies that your spec activity has increased. Curious if you could sort of talk about that. Is that – how much of that is, in your view, sort of a semi-permanent kind of change, maybe are there geographic mix issues there? What’s kind of driving the, if I’m right, leaning into spec activity?
Glenn Keeler: Hi, Stephen, it’s Glenn. That’s a good question. I wouldn’t say we’ve changed our spec strategy this quarter. It’s roughly the same. I think about 61% of our orders were on spec homes this quarter. And our start spec strategy has been up the same. It’s somewhere between 60% to 70% of our starts are on spec, and that’s been pretty consistent for us over the last couple of years. I think what you’re seeing in a little bit of an inventory build is it’s just getting ready for the year-end deliveries, right? We always deliver more homes in the back half of the year, and those homes are started and underway.
Stephen Kim: Got you. Any geographic issues there or factors or other maybe price point mix? Because I noticed your ASP has been trending up pretty nicely.
Glenn Keeler: It has. That’s just mix. But nothing really to point out there. I think all this is done on a community-by-community basis. And I don’t think any geography sticks out one way or the other. I think it’s all kind of, like Doug said, going according to plan.
Stephen Kim: All right. Great – sounds great guys. I’ll turn it over to the other questioners. Thanks.
Glenn Keeler: Thanks, Stephen.
Operator: The next question comes from Mike Dahl with RBC Capital. Please proceed.
Mike Dahl: Good morning. Thanks for taking my questions. Just to stick with Steve’s kind of questions around your comments on June, July. I guess there’s, on one hand, you’re saying that you’re seeing the seasonal slowing. On the other, you’re saying that traffic and orders improved the last few weeks as rates tick down. Can you just help square that up? I know you typically see your pace down for 3Q versus 2Q. But relative to your normal seasonality, is it your intent to message that July may be tracking better than your normal seasonality? Or just how would you characterize?
Doug Bauer: Hey, Mike, it’s Doug. No, it’s normal seasonality. So as you look into the Q3 pattern and we plan, like I said, this seasonal pattern, I don’t see anything different than I’ve seen previously. And you can’t make a quarter out of three weeks or three weeks of the year, either. So we’re very bullish where we stand today, and there’s very strong demand between the millennials and Gen Zs. But it’s normal during the summer months. And then as I mentioned, and I’m sure a lot of you are familiar with the national election also creates, it almost creates an additional summer month, to be honest with you. So it just takes a few more levers to get people across the goal line. And very normal. And again, everything we plan in our business going forward.
Tom Mitchell: Hey Mike, this is Tom. Just to add on to that, relative to the comments regarding improvements in traffic and buyer quality into July. I’d say that’s more reflective of the positivity around a declining rate environment. And so we do see some short-term fluctuation in that. But overall, as Doug said, normal seasonality is what we’re experiencing.
Mike Dahl: Okay. All right. Thank you. Second question just in terms – I mean there’s been put and takes around your community count. Obviously, that’s always tough to predict, your position for some nice growth over the next couple of years. But in the near term, your close out is paste your openings [ph]. Can you just update us on how you’re thinking about the back half? Sorry, if I missed it in the opening remarks, but just the community count trajectory and then remind us on that updated basis, regional SKUs where you’re having more or less success right now?
Glenn Keeler: Yes. Mike, this is Glenn. I’ll take that one. Community count, everything is – all our openings that we planned for the year have opened. So it’s just we’ve closed out of a few more communities than we originally thought, just with some strong absorption paces in certain markets. And I think originally, we thought we had guided that we were going to be roughly flat year-over-year this year when it comes to ending community count. I think we might be a little bit down from that. I think now we’ll be in somewhere in the range from 140 to 150 communities to end the year. But again, that has nothing to do with openings. That’s all just kind of closing out some communities a little bit faster. And so the community count pipeline into next year and like you said there will be some community count growth into next year and the year after as well.
Mike Dahl: Given that lower ending base and faster closeouts, is there any comment you can make about 2025 and just level setting around what you think for 2025?
Glenn Keeler: We had said last quarter that we’re going to see roughly 10% community count, ending community count growth in 2025, and I think we still feel good about that compared to where we’re going to end this year. And so yes, the community pipeline is still there. It’s just – it’s like you said, it’s hard to predict when it comes to close out. So that’s all that’s driving that towards the end of the year.
Mike Dahl: Okay. Great. Thanks guys.
Operator: The next question comes from Alan Ratner with Zelman & Associates. Please proceed.
Alan Ratner: Hey guys. Good morning. Nice results in the quarter. First question, I’d love if maybe you could just drill in a little bit in terms of what you’re seeing across price points and segments within your consumer. Any notable shifts during the quarter? I guess I’m especially interested in, given the volatility in rates, did you see any more elasticity among more of your first-time buyers move up and kind of where things sit today?
Glenn Keeler: Not much difference there. It’s a pretty good mix. When you at – let’s look at absorption pace for the quarter, for instance, it was fairly consistent between entry and move up and active adult. And so it was pretty consistent. When you look at margins, they’re fairly consistent across those regions. Because again, I think our entry level is more of a premium entry level, and so it doesn’t require maybe the level of incentive as you see as some entry-level builders out there. So it felt pretty even out there.
Linda Mamet: And I’ll add to that, Alan. The order segment mix was just slightly higher for move-up this quarter, but very slight. I mean, typically, it’s fairly even for us between premium entry level and move-up.
Alan Ratner: Great. Thank you for that Linda and Glenn. Second question, I guess, this is probably more for Glenn on the debt pay-down. Just curious how you’re thinking about the reduction there in interest expense. It’s probably about $25 million annually, if I’m doing the math correctly. And I know that won’t filter through to the P&L immediately given the capitalization of interest. But I guess as you think about the go forward, should we expect that to be kind of a straight drop down to your GAAP gross margin? Or do you think about that differently in the sense of now maybe even being able to compete more aggressively for land against builders that have a lower interest burden and maybe it doesn’t – it’s not a one-for-one on margin, but maybe facilitates growth a bit easier?
Glenn Keeler: Yes, Alan, good question. It is about $25 million, $26 million annually savings. And you’re right, it will take maybe year and a half until you see that impact to margin. And I think there will be a slight positive impact to margin, although we are also utilizing land banks to grow our controlled lot percentage. And so that cost hits margins as well. But it gives us the opportunity to delever and to be opportunistic with our balance sheet and our leverage where it’s at. I don’t know if we’re – it allows us to pay for land. I mean that’s on the margin. I think we have a really good underwriting process, and we stick to that. So I don’t think that really factors into it.
Alan Ratner: Appreciate it. Thanks guys.
Operator: The next question comes from the Carl Reichardt with BTIG. Please proceed.
Carl Reichardt: Thanks. Morning, everybody. Just on regional color, I wondered if you could talk about just within California strengths in terms of the specific metros. And then the Central region absorptions are down, what, 35%, 40% year-on-year. And I’m kind of wondering if you’re thinking through a more aggressive pricing, more incentive strategy in that particular region, just given the softness relative to the rest of the business?
Tom Mitchell: Good morning Carl, good questions. This is Tom. On California, we continue to be encouraged by activity throughout all our markets there. But specifically, Southern California has been very strong, noted by the Inland Empire. You can see the volume of activity that we’re having there. The Bay Area continues to go well. I’d say, as is typical, we see first changes in the Sacramento market, and we have had a little softer Q2 in Sacramento than anticipated. And we’ll continue to focus on balancing pace and price and making sure we’ve got the right tools in our toolbox to continue our order pace.
Doug Bauer: Hey Carl, this is Doug. On the Central region, when you look at probably the two softer markets that we’ve been having to pull more levers at is definitely Colorado and Austin. The resale market has definitely peaked up in the Austin area. Houston still is very strong. Dallas had some weather issues. So it’s actually coming back very strong as we get into June and the early part of July. So I think if you would ask me, my two primary markets that we focus on with the right levers to pull would be Austin and Colorado. That would be my assessment.
Carl Reichardt: Okay, thank you, Doug. Thank you, Tom. And then just to Glenn, back on the issue of next year’s community count. Is your anticipation, Glenn, as you look at it, that there’ll be any kind of a meaningful mix shift in terms of regions or addressed price point, so entry-level versus move-up next year? Or do you expect the mix in 2025 to look roughly similar, given that we got some new markets coming, some growth in some – in the Carolinas, et cetera. So I’m just thinking about that in terms of pricing for next year. Thanks.
Glenn Keeler: Yes, good question. Not significantly, Carl. I think you will see a slightly more mix in the Central and the East, as there is a good community count pipeline in places like Houston and Dallas and Charlotte and Raleigh, but it’s not going to be a big, meaningful mix shift.
Carl Reichardt: Okay, thanks Glenn. And by the way congratulations, Linda on your promotion too. Thanks all.
Linda Mamet: Thank you, Carl.
Operator: The next question comes from Jay McCanless with Wedbush Securities. Please proceed.
Jay McCanless: Hey, thanks for taking my questions. The first one, just wanted to stay on that inventory comment for a minute, Doug. And is the inventory existing and new, I guess, in Austin and Colorado? Is that more harmful or more of a threat to your entry-level communities or your move-up communities in those markets?
Doug Bauer: Hi, Jay. How are you doing?
Jay McCanless: Good.
Doug Bauer: The inventory in Austin is really on the resale market. You can pull up the data, it’s definitely peaked up. So that is a competitor now to us in the new home market. Most of the builders – and we focus on core locations. In our core locations, we’re still doing very well. And builders typically have less new home inventory. If you actually look at the inventory levels in DFW, for example, you’ll see new home inventory a little bit higher and the resale market is still very, very locked in. So it’s kind of a tale of two different analysis there.
Jay McCanless: So when we were all last together on the first quarter call, you guys talked about an absorption in April at 3.9, but you finished the quarter at 3.6. Could you maybe walk us through what happened during the quarter when things really slowed down? And what type of these works and numbers you’re seeing so far in July?
Glenn Keeler: Yes, Jay, good question. April, it was actually fairly consistent throughout the second quarter. April was 3.8, so pretty close to that 3.9 that we talked about. And then May and June were both at 3.5. I think when you saw rates kind of tick up a little bit in May is when you saw a little impact to pace. But for us, we plan our business somewhere in that three to four range, and 3.5 is still a nice healthy absorption pace. And then like we said, July is going into kind of normal seasonal patterns. It’s a little early to say on absorption. But right now, it feels good and normal like we said.
Jay McCanless: All right. Could you also tell me, Glenn, what percentage of communities during the quarter you guys were able to either hold or take price?
Glenn Keeler: Yes. It was roughly a little over 50% of communities we were able to slightly raise pricing, either through a combination of base price increases or lowering of incentives. So a little over 50% of our communities.
Jay McCanless: Okay, great. That’s all I had. Thanks guys.
Operator: The next question comes from Alex Barron with Housing Research Center. Please proceed.
Alex Barron: Good morning everyone. Thanks. Yes, I was just wondering more along the lines of the pattern, I guess, of the deliveries this year. This quarter, I think you guys were above your guidance. Next quarter, sequentially down. And then I guess the full guidance implies back up in fourth quarter. So I was just kind of wondering what’s been driving the pattern or the timing of delivery that way, which is somewhat unusual from historical?
Glenn Keeler: Hey Alex, it’s Glenn. Good question. It’s normal to see our highest deliveries in the fourth quarter. So I don’t think that’s out of the norm. I think what you’re seeing in the third quarter is just a little dip we had. We came into the second quarter and the first quarter with a good spec pipeline, and we were really successful kind of selling and closing homes within those quarters. And so I think that’s what kind of led to the outperformance in the second quarter. And then so – and then you’re filling back up that pipeline and backlog, and then you’ll see the normal higher deliveries into the fourth quarter.
Alex Barron: Got it. And in terms of starts, did you give that number? I don’t know if I missed it.
Tom Mitchell: No, we didn’t give that number, Alex. But we’re right around almost 1,900 starts for the quarter, which was right on our pace. And about 62% of those...
Alex Barron: Sorry.
Tom Mitchell: And about 62% of those were specs for those starts.
Alex Barron: Okay. Got it. Thank you so much. Have a great rest of the year. Thanks.
Glenn Keeler: Thank you.
Operator: We have a follow-up from Jay McCanless with Wedbush Securities. Please proceed.
Jay McCanless: Hey, thanks for taking my follow up. I did want to ask, with the gross margin guide that you put out for the quarter for 3Q and for the full year, could you talk about what type of lot cost inflation you contemplated in that guide? And any insight color you could give us as to how you’re thinking about lot cost inflation going into next year would be appreciated.
Glenn Keeler: Yes. Obviously, the lot costs are factored into our guidance. And I think going into next year, we don’t think it’s a huge contributing factor. I mean, lots are actually going – costs have gone up, but they always go up. I think we talked about last call that we’re seeing anywhere from 5% to 10% in lot costs. So we haven’t given guidance for next year. But obviously, there’s always that new community mix that has some impact.
Doug Bauer: Yes. And Jay, this is Doug. I would add. I mean, the lot costs for next year are all known. We own and control our deliveries for 2025 so – and actually, a majority of our delivery forecast for 2026. So the lot cost is not a variable in our business plan. It’s pretty well known. The variable will be direct cost revenues, indirect costs, stuff like that. So land that we’re looking at today is a variable for really late 2026, but really 2027 and beyond.
Jay McCanless: Great. Thanks for taking my follow up.
Doug Bauer: All right. Thanks.
Operator: Thank you. There are no further questions at this time. I would like to turn the call back over to Mr. Bauer for closing comments.
Doug Bauer: Well, thanks, everybody, for joining us on today’s call. We look forward to chatting with you all next quarter, and I hope you enjoy your summer months. Thank you.
Operator: This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.
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