Tri Pointe Homes, Inc. (NYSE:TPH) Q1 2025 Earnings Call Transcript

Tri Pointe Homes, Inc. (NYSE:TPH) Q1 2025 Earnings Call Transcript April 24, 2025

Tri Pointe Homes, Inc. beats earnings expectations. Reported EPS is $0.7, expectations were $0.45.

Operator: Greetings, and welcome to the TRI Pointe Homes First Quarter 2025 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, David Lee, General Counsel. Thank you, sir. You may begin. Good morning, and welcome to TRI Pointe Homes earnings conference call. Earlier this morning, the company released its financial results.

David Lee: For the first quarter of 2025. 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. 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, 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. Good morning, and thank you for joining us today.

Doug Bauer: As we report our results for the first quarter of 2025. Our teams executed at a high level, achieving strong results demonstrating our ability to navigate the current political and economic volatility and its impact on the housing market. During the first quarter, we either met or exceeded all of our guidance. We delivered 1,040 new homes, with an average sales price of $693,000, resulting in home sales revenue of $721 million. Homebuilding gross margin remained strong in the first quarter at 23.9%, a 90 basis point increase compared to the same period last year. This margin underscores the resilience of our product offering, market positioning, and the successful execution of our premium lifestyle brand. Finally, net income was $64 million for the first quarter, resulting in diluted earnings per share of $0.70.

The spring selling season is off to a slower start than we normally experience with net new home orders of 1,238 for the quarter, on a monthly absorption rate of 2.8 per average selling community. While the longer-term outlook for housing remains favorable, with a continuing shortage of homes and strong demographics, it’s clear that elevated uncertainty about the economy is weighing on consumer sentiment. International trade tensions and the new tariffs have emerged as unpredictable variables in the current environment. The headline news of tariffs and their potential inflationary effects has dampened buyer confidence. However, we do not believe tariffs will have a material impact on our cost structure in Q2 2025. Our differentiated business strategy is to offer innovative designs and a premium brand experience with communities located in core locations in top markets.

Although incentives can drive urgency for our homebuyers, our margin and pace are typically driven by the location, product, and amenities we offer. Our teams are equipped with the right tools to meet our customer needs. We are utilizing a combination of targeted incentives and proactive mortgage financing solutions to help buyers achieve their monthly payment and home personalization goals. Our well-located communities close to job centers and great schools continue to attract a well-qualified homebuyer. Homebuyers in backlog financing through our mortgage company, TRI Pointe Connect, have an average annual household income of $219,000, an average FICO score of 750, 79% loan to value, and an average debt to income ratio of 40%. In light of current market conditions, we are proactively balancing risk mitigation with opportunity, leveraging the deep experience of our teams in navigating the local market environments.

We’re taking a disciplined and forward-looking approach to how we invest our capital, including land underwriting and structuring deals to better reflect current market dynamics. These actions position us to be selective and opportunistic while preserving flexibility and returns. Our balance sheet remains a key strength. We ended the quarter with total liquidity of $1.5 billion, including over $800 million of cash. With a homebuilding debt to capital ratio of 21.6%, and a net debt to net capital ratio of 3%, we are well-positioned to support our long-term growth objectives and take advantage of opportunities we see in the market. During the quarter, we repurchased $75 million of our common stock, reducing our shares outstanding by an additional 1.9%.

As of the quarter end, we have $175 million of authorization remaining and continue to view our stock as an attractive use of capital, particularly at current market levels. On a year-over-year basis, our book value per share has increased 14%, reflecting both earnings growth and disciplined capital deployment. Now I’d like to provide an update on our new market expansions. In Utah, two new communities are underway, with openings in February. Additionally, the land pipeline is strong, and we currently control approximately 500 lots. In Orlando, we have attracted a strong management team, and land acquisition is progressing with 250 lots owned or controlled. We recently started grading our first community in New Smyrna Beach, Florida. In the Coastal Carolinas, we remain on track for initial deliveries in Q2 2026, supported by growing operations and strong alignment with our Charlotte team.

Each of these markets represents a compelling long-term opportunity. We are executing with discipline, drawing on our internal expertise to ensure scalable growth. As a company, we are well-positioned to build on our foundation of growth, innovation, and operational excellence. Our strategy remains centered on driving revenue and returns through our premium lifestyle brand positioning, enhanced operational efficiency, prudent capital deployment, and an unwavering focus on customer satisfaction. We execute on these core areas of the business with discipline and consistency, and we are confident this strategy will continue to deliver strong results. We remain encouraged on the long-term fundamentals of the housing market. The U.S. continues to face a significant housing shortage, a structural imbalance that reinforces the sustained need for new home development.

Demographic tailwinds and the ongoing demand for housing support a positive long-term outlook for the industry. Despite the near-term volatility the market is experiencing, these underlying demand drivers provide a strong foundation for our business and validate the strategic investments we are making. As we continue to allocate capital towards the highest return opportunities, both in new markets and across our existing operations, we are confident in our ability to drive sustainable performance and create long-term value for our shareholders. With that, I will turn the call over to Glenn. Glenn?

Glenn Keeler: Thanks, Doug, and good morning. I would like to highlight some of our results for the first quarter and then finish my remarks with our expectations and outlook for the second quarter and full year of 2025. The first quarter produced strong financial results for the company. We delivered 1,040 homes, which is near the high end of our guidance. Home sales revenue was $721 million for the quarter, with an average sales price of $693,000. Gross margins were 23.9% for the quarter, which exceeded the high end of our guidance range due to the mix of deliveries in the quarter. SG&A expense as a percentage of home sales revenue was 14%, and better than our guidance due to some savings in G&A and leverage from being at the higher end of the range on those deliveries and ASP.

Finally, net income for the year was $64 million or $0.70 per diluted share. Net new home orders in the first quarter were 1,238, an absorption pace of 2.8 homes per community per month. For some market color, our absorption pace in the West was 3.2 for the quarter, with the Inland Empire, Las Vegas, and Seattle markets showing stronger demand. In the East, absorption pace was 3.2 for the quarter, with our DC Metro and Raleigh divisions showing strong demand. While market conditions have cooled in Charlotte, as Doug mentioned, we continued our approach of balancing pace and price using targeted incentives to drive orders during the quarter. Current incentive levels for March orders averaged 7.3%. By comparison, incentives on delivery in the first quarter were 6.1%.

Our cancellation rate on gross orders during the first quarter remained low at 10%. During the first quarter, we invested $246 million in land and land development. We ended the quarter with over 35,000 total lots, 52% of which are controlled via option. During the first quarter, we opened 18 new communities and closed out of 16, ending the quarter with 47 active selling communities. We continue to anticipate opening 65 communities for the full year of 2025, and end the year with 50 to 60 active communities. Looking at the balance sheet and capital spend, we ended the quarter with approximately $1.5 billion of liquidity, consisting of $813 million in cash, and $678 million available under our unsecured revolving credit facility. Our homebuilding debt to capital ratio was 21.6%, and our homebuilding net debt to net capital ratio was 3% at the end of the quarter.

During the first quarter, we repurchased 2.3 million shares for an aggregate of $75 million. We currently have $175 million available on our share repurchase authorization and anticipate continuing to be active buyers of our stock in the second quarter. Now I’d like to summarize our outlook for the second quarter and full year of 2025. For the second quarter, we anticipate delivering between 1,100 and 1,200 homes at an average sales price between $670,000 and $690,000. We expect homebuilding gross margin percentage to be in the range of 21.5% to 22.5%. The decrease in gross margin sequentially from the first quarter is a result of increased incentives and the community mix as we close out of higher margin communities. We expect our SG&A expense ratio to be in the range of 12.5% to 13.5%.

And we estimate our effective tax rate for the second quarter to be approximately 27%. For the full year, we are updating our guidance to a lower range of deliveries on the slower market conditions we have experienced so far this year. We now anticipate delivering between 5,000 to 5,500 homes for the full year with an average sales price between $665,000 and $675,000. We continue to expect our full year homebuilding gross margin to be in a range of 20.5% to 22%. Finally, we anticipate our SG&A expense ratio to be in the range of 11.5% to 12.5%. And we estimate our effective tax rate for the full year to be approximately 27%. 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 TRI Pointe team. Your dedication, talent, and hard work are the driving force behind our results. Thanks to your collective efforts, TRI Pointe has once again been named to the Fortune 100 Best Companies to Work For in 2025. This recognition speaks volumes about the culture of excellence that we’ve built together, and it’s something we should all be proud of. As a premium lifestyle brand, our ability to innovate and differentiate in the market is powered by this exceptional team. Thank you for your continued commitment and belief in our mission. With that, I’ll turn the call back over to the operator for any questions.

Q&A Session

Operator: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press 2 if you would like to remove your question from the queue. We ask that analysts limit themselves to one question so that others may have an opportunity to ask questions. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for questions. Our first question comes from Stephen Kim with Evercore ISI. Proceed with your question.

Stephen Kim: Yeah. Thanks very much, guys. Appreciate all the color as usual. I thought you performed strongly in a tough environment. But I wanted to talk a little bit about your absorptions. Your absorptions were below three sales per community in Q1, and absorptions are almost never higher for the year than they are in your Q1. So I’m curious, you’ve said before that you’re sort of targeting three absorptions this year, three to four on a longer-term basis. And I’m wondering, is that still the case for you? And, you know, are you willing and able to recalibrate that targeted pace, you know, both in the near term as well as in the long term?

Doug Bauer: Yeah. Steve, this is Doug. A couple of things there. I mean, as we noted, you know, generally speaking, the spring selling season has been off to a slower start than what we’ve normally experienced. You know, as far as trends, absorption was 2.5 in January, 2.9 in February, 3.1 in March. It’s got a little choppier. I think a few other companies have noted the same choppiness in the market. So, you know, originally, we were targeting around three for the year. I think 2.5 to three seems more appropriate. You know, this business is we just happen to sell the most expensive retail good in the U.S. And it requires a lot of and the consumer has definitely been impacted by what’s going on across the country. So while we see good job numbers and we see strong job growth, and frankly, we see a lot of strong buyers.

I would if I gave the market a letter grade, I don’t know, Tom, what you would say, but I’d say it’s about a C to a C plus. But I’m very happy with the results in light of the market conditions. We’re doing a great job, and we’re teed up as we go into ’26 with some strong community account growth. So, you know, it’s a choppy time, Steven.

Stephen Kim: Okay. Yeah. Fair. I guess my question was really, though, how long would you be willing to operate, you know, below what you had previously said was your targeted absorption range? Is this sort of like a thing that you can do kind of like holding your breath underwater? You can do it for a period of time? Or is it able to be more permanent?

Doug Bauer: Yeah. No. We continue to balance price and pace on a community-by-community basis to drive the best results. You know, our land is well-located, hard to replace. So we feel our current approach will create the best value. And we don’t feel that the best return will be you won’t get the best return by increasing incentives. It doesn’t drive incremental volume in our mind. So we’re going to stay at that steady kind of, you know, basis of pace and price as we go forward.

Stephen Kim: Okay. That’s helpful. Yeah. That’s what we’re saying.

Doug Bauer: Yep. We’re saying is, you know, in that two and a half to three pace, it works for us, and we’ve proven that we’re going to be able to get the returns and the profitability we desire.

Stephen Kim: Yeah. That’s perfect. That’s I think that’s really good to hear. Second question is a little bit more of a technical one, I guess, for Glenn. You had indicated that your well, your gross margin guide for February is only 50 basis points lower than what you had initially guided for January. You blew your Q1 gross margin guide out of the water. Right? But your Q2 guide is only fifty basis points lower than the range that you had given for Q1 of bridge initially. You had also said that incentives on your orders were a 20 basis points higher than the incentives on deliveries. And so my question basically is, you know, how do we reconcile the 20 basis points more incentives with the only 50 basis points lower gross margin guide?

And two potential answers come to mind. One is that the margin impact of 100 basis points or a 20 basis points in this case of incentives isn’t a 20 basis point hit to the margin. Because maybe you’re giving different kinds of incentives, or you’re just including you included a lot of conservatism in your initial Q1 guide, and you’re using less conservatism in the Q2 guide. And I’m wondering, you know, what is the reason basically that the gap between the 50 and the 20?

Glenn Keeler: Yeah. Good question, Steven. And it really is and this isn’t a very fun answer, but it really is mixed. So when you look at kind of the mix of communities where we’re losing some deliveries that we had in our original guidance, and then you look at the divisions that are doing well, those tend to be the, you know, higher margin divisions. And so some of that is just mix of how that worked in the quarter. Those incentives over the long term, they do impact margin by that same amount. You know, if you’re taking a 1% incentive off the top price, it’s going to impact your margin by that. So it is one point. You know, all our incentives hit revenue. Steven, I know you’ve asked that before, that’s where our incentives go. So it is a margin hit, but it really is just mix for us. And the mix in the quarter that’s driving that.

Stephen Kim: I would have thought that maybe there are some incentives that you know, maybe, like, upgrading materials or whatever that carry a lower gross margin hit than you know, % of that. Yeah. Yeah. Yeah.

Linda Mamet: Steven, this is Linda. Absolutely. Of that 6.5% incentive in the first quarter orders, we used 2.3% of the incentives in our design studio where our gross margins are over 40%. So certainly, that is a better use of incentives from a gross margin perspective, and it also is highly desirable to our buyers who want to personalize their home.

Glenn Keeler: Yeah. I thought you were asking this. Some incentives kind of in SG&A, which I know some builders put things down there. But yes, to Linda’s point, if that’s what you’re asking, that is correct.

Stephen Kim: Okay. Alright, guys. Appreciate it. Thank you.

Operator: Our next question comes from Trevor Allinson with Wolfe Research. Please proceed with your question.

Trevor Allinson: Good morning. Thank you for taking my questions. I want to follow-up on Steve’s question on the pace and price balance there. I appreciate it’s been a slower start to the spring selling season across the industry. So 2.5 to three makes more sense here. If you were to see demand slow further, what would be the reaction in that case? Would you potentially let your absorption drift even further below two and a half? Or do you view that more as a floor in which you want to operate in the current environment and therefore demand would be softer here, you would, at that point, lean more back into incentives to not drift further below the two and a half level?

Doug Bauer: Hey, Trevor. This is Doug. I would say that two and a half is somewhat of a floor. Again, our locations are in what I call core A locations. So it’s a little bit of patience and perseverance during these choppy times. But I would call that 2.5 a floor, and we might have to turn up the dial a little bit more on incentives. You know, a % of nothing is nothing. So it’s like I always joke with people. So, you know, we still got to turn and move homes, but, you know, as I mentioned earlier, the you know, it’s not great. It’s not bad. It’s just a choppy market. And before you know it, we’ll all get through this. And, you know, we’re really looking out the next two, three, four, five years into a very healthy situation for the homebuilders because of the unmet needs there. So hopefully, that answers your question.

Tom Mitchell: Hey, Trevor. Yeah. It does. One thing I’d add. Trevor, this is Tom. One thing I’d add to that is, you know, we really feel that the underlying demand is still in the marketplace. We’re seeing that consistently throughout all of our communities and our markets. And, you know, the buyer has just hit the pause button. There’s a lack of clarity, certainly a lack of consumer confidence, and they’re confused. But, fundamentally, I think the demand is there. And so as some of that confusion clears up, we do see a return to better absorptions.

Trevor Allinson: Yeah, and that’s actually a great segue into the next question I was going to ask was just on April trends, perhaps how they compare to March trends. Have you seen an improvement here in the back half of the month as we start to get further away from April 2 and then also, have you seen any differences in demand trends by price point thinking those with more wealth in the stock market? Have you seen any difference in their demand for them versus more of the first-time buyer? Thanks.

Doug Bauer: Well, as I mentioned, Trevor, absorption pace was 2.5 in January, 2.9 in February, 3.1 in March. It’s gotten a little choppy in April, with all the uncertainties that are in the economy right now. Linda, you might be able to talk about some of the different price points on absorption.

Linda Mamet: Yes, absolutely. We are still seeing more strength relatively, Trevor, in the second move up. In the first quarter, we saw a good pace there in the second move up at 3.2x. Active adult was at 3.4x. So certainly those segments are outperforming premium entry level, and we would expect that to continue. Where we see buyers who have more equity in their existing homes, they do not need as much help in financing, and more of them will come off the sidelines as they gain more confidence in the direction of the economy as Tom mentioned.

Trevor Allinson: Yeah. Makes a lot of sense. Thank you all for all the color and good luck moving forward.

Operator: Thanks. Thank you. Our next question comes from Mike Dahl with RBC Capital Markets. Please proceed with your question.

Mike Dahl: Hi. Thanks for taking my question, and thanks for the candor. I want to follow-up on the incentives and make sure we heard correctly. The 7.3%, was that on March orders, or was that the average for the March quarter? And maybe just give us a sense of where that stands, you know, as we get closer to April?

Glenn Keeler: Yeah. So it was 7.3 on March, the month of March orders. And that’s fairly consistent with where April has been trending as well.

Mike Dahl: Got it. Okay. When I look at the margin guidance, understanding their mix impacts, you know, pros and cons. Q2, let’s say you hit the midpoint of your Q2 guide, you’ll deliver the 23% gross margin, and you’re guiding, you know, 20.5 to 22. I mean, the simple math is that you’d have to be 20% or below in the back half. Just to get down to the midpoint of that full year. And so I guess the question is kind of what are the moving pieces? Because that’s still a pretty material drop off in the back half. Are you assuming incremental incentives? Is it lot cost? What walk us through that or whether or not there’s just still some conservatism there.

Glenn Keeler: Yeah, Mike. So good question. And your math is correct. The midpoint of the full year guidance implies a 20% gross margin in the back half of the year. It’s similar to what we said in the first call. Some of it is lot cost. Right? You have a lot of communities rolling off. You know, we closed out 16 communities in the first quarter. There’s going to be more closeouts as we move through the year. And those are older communities that, you know, benefited from price appreciation and higher margins. And then, you know, incentives do play a role. Right? I mean, incentives were higher in the first quarter than we originally projected by, you know, I would say, a point. We were probably more in the 6% range, and we exited at the 7% range. So incentives are playing a role in that as well.

Mike Dahl: Glenn, are you assuming there’s incremental incentive pressure versus the seven three or it’s full impact of that seven three coming out?

Glenn Keeler: In our the midpoint of our guide assumes that that 7% carries through the rest of the year.

Mike Dahl: Okay. Got it. Thank you.

Operator: Our next question comes from Alan Ratner with Zelman and Associates. Please proceed with your question.

Alan Ratner: Hey, guys. Good morning. Thanks for all the details so far. And, you know, nice performance in a tough market. So, I know it’s challenging out there. First question on SG&A. So if I look at the guide, for the year, roughly 12% that’s going to be running about 150 basis points above kind of where you were pre-COVID, up about 300 bps from the near-term low in ’22. I’m curious, what impact, if any, is coming from costs in your new market expansion maybe and not yet seeing the revenue associated with those markets versus how much of that increase is being driven just by broader inflation in employment costs and other ancillary things?

Glenn Keeler: It’s a good question, Alan. This is Glenn. It definitely is, you know, there’s some impact to the new expansion divisions. Right? We have three new divisions that we are incurring costs in that don’t have any associated revenue to it. So that does have an impact. But there has been general inflation if you’re comparing it to COVID levels. Obviously, there’s been wage inflation and other inflation pressures on the G&A line. So it is a combination of both of those. Then, obviously, if you’re comparing this year to last year, it’s the lower revenue and less leverage on those fixed costs that is tracking that out.

Alan Ratner: So with the goal longer term to be, you know, to kind of get back to where you were pre-pandemic in that kind of 10%, 10.5% range once these new markets begin generating revenue?

Glenn Keeler: That’s exactly right, Alan. That is the goal once we get those markets to scale. In the next, you know, three to five years. You know, that’s a good goal for us.

Doug Bauer: Yeah. I would add, Alan. This is Doug. You know, we’ve got a pretty good playbook at the expansion divisions. Yeah, it costs you a little bit of money in G&A, but the way I look at it is I’d rather spend that money building the right team with the right people. We believe those three markets have excellent potential for our premium lifestyle brand. They’re going out and paying, you know, X for some builder that you find. You put a bunch of goodwill on your balance sheet, you’re writing that off. So we look at this business in five-year increments. In the next three to five years for those three expansion divisions, it costs you a little bit of money, but it’s going to pan out very well.

Alan Ratner: Yeah. My second question, Doug, was kind of on that topic in the new markets. Because I would imagine while it’s probably not fun to be operating in a market like we’re in today, on the other hand, if you are in the position to be entering new markets, I would imagine there are some opportunities that could come about, whether it’s, you know, good people that maybe are let go from other competitors, land deals that are kind of walked away from. So I’m just curious, are you seeing any of those opportunities yet in your newer markets or, do you anticipate those to unfold in the next few months? And if so, is there an opportunity maybe to accelerate those growth plans in those new markets?

Doug Bauer: No. You’re spot on. And I would agree with everything you said. I was talking to some of our expansion divisions, and there’s definitely it’s a good time to using a funny basketball analogy, hang around the hoop, because there’s going to be some rebounds and retrades that are going to happen. And, you know, we’re still focused on main and main A locations. And even in some of our existing markets, we’ve seen some of that activity as well. But we’re being very disciplined, being very smart in our underwriting. We’re going to tend to be on the higher end of the side of underwriting right now because there’s a lot of uncertainty on how all this tariff activity and economic uncertainty lasts, as you know. And we all know.

But everything you said is exactly playing in our favor for these expansion divisions. And frankly, we don’t have a gun to our head to do stupid deals. We can be very smart with those divisions and grow very smartly. So that’s the other benefit we have in Orlando, the Coastal Carolinas, and Utah.

Tom Mitchell: The other thing, Alan, it’s important to remember what you led off with. A big benefit that we’ve seen in all those expansion markets is the talent of people. Yeah. We’ve been able to really attract the right people to build our teams probably faster than we normally would have been able to do so. So we’re really encouraged about that.

Alan Ratner: Great. I appreciate the thoughts, and good luck.

Doug Bauer: Thanks.

Operator: Our next question comes from Ken Zener with Seaport Research Partners. Please proceed with your question.

Ken Zener: Good morning, everybody. Good morning, again. Just checking on my phone service. It’s working. It’s Verizon. Alright. So the narrative was we were undersupplied, not the long-term stuff. But, like, 2022. Right? 2023. And now according to census data, for new homes for sale, we’re still very high outside of the 2005-2011 period. Yet your inventory units are down 23% year over year. Can you kind of comment on like this national narrative we’re seeing in contrast to, you know, your data and some of the other public builder data where we’re down substantially year over year. When you hear that narrative, what do you how do you guys resolve that in the boardroom? Like, why do you think that’s happening? Is it all private? Is it all in Michigan where people don’t build that much?

Glenn Keeler: Well, I think for us, if you’re saying year over year inventory down, I think it just shows how quick builders can pivot and be smart with starts and, you know, manage their inventory levels. You know, compared to, you know, some of that national data. We don’t look at it that closely from, you know, our own portfolio. We kind of look at our specific markets and what we think is right for each one of our communities and markets. So, you know, that’s how we manage it.

Doug Bauer: And I think I’d add, Ken, I mean, it’s a lot of apples and oranges. I don’t think there’s a national narrative. I mean, you’ve got the larger public homebuilding companies. That’s a different business model than little TRI Pointe sitting here. I mean, it’s a production machine that needs to produce homes every quarter on an even flow basis, basically. So, you know, we’re building on A locations, main and main, and we’re going to continue that focus in that premium lifestyle brand focusing in on providing a great customer experience that will increase our brand, not only in our existing markets, but in others. So how I don’t get too lathered up about the national narrative and stay focused. This is still a very local business.

And, Ken, you know we run it on a very balanced approach. You know, as you’ve looked at our move-in ready homes and completed inventory, it’s really the historically acceptable levels for us, you know, overall. With our spec home about 12 per community right now. We’ve got a little bit under three completed inventory per community. And then as we look at starts, we’re balancing that to our absorption pace, and, you know, year over year, we’re down a little bit, about 20% in our Q1 starts, but that’s appropriate given the other inventory level that we’re targeting and driving our business towards.

Ken Zener: Right. And then appreciate your guys’ thoughtful responses. So do you think like your inventory units are basically going to be down a similar amount to what we’re facing right now? When we exit the year given your start and closing assumptions?

Glenn Keeler: I would think so. Obviously, it’ll depend on how absorption flows in the back half of the year and where we’re seeing the overall market. I think in our company and we actually were just talking about this yesterday with our management team. We have the ability to flex upstarts if we see the upside in demand, and we have the ability to moderate start. So I think we have a nimble engineer to be able to react to the market.

Ken Zener: Right. And then, you know, what I find really interesting about your guys the debt that you’re still incurring. So your gross margins and I usually like to look at interest expense, although fully loaded. But, I mean, you’re about 27%, which would be quite appealing to many people. But for the fact you have 320 bps of interest drag. Can you comment on the given that you paid off that $900 million-ish debt, how long is it going to take for us to see that? It’s 3.2% this quarter. 3.3 last year. Like, when are we going to start to see that benefit? And how does that fully load to gross margin? Kinda compare to what you see as your choices around the interest you’re amortizing. So if you had a 27% gross margin, which you do, ex interest. Maybe you’d be more flexible. You know? So how quick is that interest going down, and how does that affect your thinking around slashing inventory to get to your lower leverage levels today?

Glenn Keeler: I know if it it our inventory levels, but you will see that interest level go down as we go through this year, and then you’ll see the bigger benefit into next year because it will depend on how quickly we, you know, it’ll depend on absorption and how quickly we move inventory that already has capital inventory into it. That’s why it’s hard to give a specific answer because it’ll depend on how that old inventory rolls out. But you will see with our lower debt levels that that flush through over the next eighteen months.

Ken Zener: I mean, the thing is, this is why I asked, Glenn, and Doug Tom obviously chime in. Because, like, you’re 27, you know, if you’re saying 20 in the back half, fully loaded with interest, you know, that’s still 23%. And if you just flush out those homes that have the interest expense and reset to your current level, that’s actually kind of appealing. You know? Right. Because as long as you’re holding on to that stuff, it’s hard to, you know, flush it out. Anyways Right. It’s just interesting.

Glenn Keeler: Yep. Understood. Thanks.

Ken Zener: Yep. Thank you, guys.

Doug Bauer: Thanks, Ken.

Operator: Our next question comes from Jay McCanless with Wedbush Securities. Please proceed with your question.

Jay McCanless: Hey. Good morning, everyone. Kind of following on that question I was going to ask. Where you’re seeing and especially the markets you called out is not performing well. Is that a buyer issue? Or is that more of a competition issue from resales? Or too many new home sales kind of I think kind of in line with what Ken was asking.

Doug Bauer: Well, I mean, we’re just, Doug. We’re seeing strength in first quarter Raleigh, Seattle on the West Coast, and East Coast DC. Actually, Raleigh on the East Coast too. Vegas, Bay Area. Orange County, Inland Empire. The more challenging markets in the first quarter were Colorado, DFW, and Charlotte. And to me, it’s more about buyer profile and a very anxious buyer profile than a competitive factor. Again, in our locations, typically don’t run into as many of the big production mentalities that are going to be pushing incentives to drive volume. So it’s more of a buyer mentality.

Jay McCanless: Where do you think your split was between first-time versus the other active adult and move up? In the quarter. Are you talking absorption, Jay? When they just get on closings and then maybe how that’s trending for orders at least thus far in February?

Doug Bauer: Yeah. On deliveries for Q1, Jay, our entry level was about 41% and combined move up was about 53%. And on orders, it was pretty much about the exact same.

Jay McCanless: Great. And then last question. It looks like you did nudge up the full year average price a little bit. Is that just from Q1, or do you guys think you’re going to have a little richer mix as you go through the rest of the year?

Glenn Keeler: It’s just a richer mix. So a little bit more heavy weighted towards the West. In the mix.

Jay McCanless: Okay. Great. Thanks for taking my question.

Doug Bauer: Thanks, Jay.

Operator: There are no further questions at this time. I would now like to turn the floor back over to Doug Bauer for closing comments.

Doug Bauer: Well, thank you for joining us today, and we look forward to chatting with all of you in July. Have a great week and weekend. Thank you.

Operator: This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.