Tri Pointe Homes Q3 2024 Earnings Call Transcript

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Provided by Quartr
October 24, 2024

Key Takeaways

  • Q3 results: Deliveries rose 32% to 1,619 homes and revenue grew 35% to $1.1 billion, with gross margin up 100 bps to 23.3% and EPS up 55% to $1.18, generating $168 million in operating cash flow.
  • Absorption held at 2.8 homes per community per month with demand matching seasonal norms; some slowdown in Austin, Dallas and Colorado was offset by strong performance in California, Arizona, Washington, Houston and the DC Metro market.
  • Buyer hesitation driven by mortgage rate volatility, the upcoming election, severe weather and geopolitical uncertainty prompted targeted incentives like rate buydowns and design studio credits, but pent‐up demand is expected to fuel a strong 2025 spring season.
  • Strong balance sheet: $1.4 billion of liquidity, homebuilding debt to capital at 22% and net debt at 7%, plus $97 million in share repurchases YTD, resulting in a 42% reduction in share count since 2016.
  • Growth strategy: Expansion into Utah (launching mid-2025) and entering Orlando and Coastal Carolinas (first sales early 2026), with a goal of 150–160 active selling communities by the end of 2025.
AI Generated. May Contain Errors.
Earnings Conference Call
Tri Pointe Homes Q3 2024
00:00 / 00:00

There are 14 speakers on the call.

Operator

Greetings, and welcome to TRI Point's Third Quarter 20 24 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, David Lee.

Operator

Thank you. You may begin.

Speaker 1

Good morning, and welcome to TRI Pointe Homes' earnings conference call. Earlier this morning, the company released its financial results for the Q3 of 2024. Documents detailing these results, including a slide deck, are available at www.tripointhomes.com through the Investors link and under the Events and Presentations tab. Before the call begins, I would like to remind everyone that certain statements made on this call, which are not historical facts, including statements concerning future financial and operating performance, are forward looking statements that involve risks and uncertainties. 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.

Speaker 1

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 Mamey, the company's Executive Vice President and Chief Marketing Officer. With that, I will now turn the call over to Doug.

Speaker 2

Thank you, David, and good morning to everyone on today's call. As we review our Q3 results, discuss our growth initiatives and update you on the current market conditions. We'll also share our outlook for the Q4 and the full year 2024. I'm pleased to report that TRI Point has once again delivered excellent financial results for the quarter. We achieved a 32% increase in deliveries to 16 19 Homes, a 2% increase in the average sales price to $688,000 and 35% growth in home sales revenue to 1,100,000,000 dollars The improvements in both volume and pricing were well balanced across our markets with each reporting segment achieving gains in deliveries and revenues.

Speaker 2

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 10.8 percent 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 and A leverage drove pretax earnings of $152,000,000 for the quarter, a 52% increase over the previous year. Diluted earnings per share was $1.18 reflecting substantial year over year growth of 55%. In addition to these strong earnings, we generated $168,000,000 of operating cash flow during the quarter and $336,000,000 for the 9 month year to date period.

Speaker 2

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.

Speaker 2

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 have demonstrated seasonally strong demand for TRI Pointe this quarter were Orange County and the Inland Empire in California, Arizona, Washington, Houston and the DC 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 community by community basis with targeted incentives such as interest rate buy downs and design studio credits that encourage home shoppers.

Speaker 2

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 5s to the low 6% range, improving housing affordability. We believe there is pent up demand from homebuyers who have been waiting on the sidelines and moderately lower rates will be a motivating factor. Our buyer profile at TRI Pointe continues to be strong.

Speaker 2

In our backlog with our mortgage company, TRI Pointe Connect, our buyers have average FICO scores of 752, debt to income ratios of 41%, loan 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 homebuyers. Our TRI Pointe Connect capture rate for the Q3 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 millennial 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 14,000,000 21,000,000 new homes over the next decade, while as an industry, we are only producing 1,300,000 homes annually. Regarding our capital allocation strategy, for the 9 months ended September 30, 2024, we've repurchased and retired 2,800,000 shares for $97,000,000 Since the inception of our share repurchase program, we've repurchased 76,000,000 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.

Speaker 2

In addition to executing this repurchase program, we've expanded our market scale, entered new markets and driven our debt 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 3 expansion markets: Utah, Orlando and the Coastal Carolinas.

Speaker 2

Our market entry in Utah is progressing well. We've targeted core submarkets close to employment, amenities and strong schools. So far, we control 3 communities totaling 346 Lots with the 1st community expecting to launch sales in mid-twenty 25. 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.

Speaker 2

Our Orlando and Coastal Carolina divisions are making significant progress as we expand our team and operational presence. In the Q3, we welcomed 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.

Speaker 2

In conclusion, Tri Point 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 undersupply 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% annually, while delivering strong returns and creating sustained value for our shareholders.

Speaker 2

With that, I will now turn the call over to Glenn. Glenn?

Speaker 3

Thanks, Doug, and good morning. I'd like to highlight some of our results for the Q3 and then finish my remarks with our expectations and outlook for the Q4 and full year for 2024. The 3rd quarter produced strong financial results for the company. We delivered 16 19 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.

Speaker 3

Based on our backlog and mix of specs that could deliver in the quarter, we expect margins to remain consistent at approximately 23.3% for the 4th quarter. SG and A expense as a percent of home sales revenue came in better than our guide at 10.8%, due largely to the additional leverage gained through the increase in deliveries resulting and resulting revenue in the quarter. Finally, diluted EPS was $1.18 a 55 percent increase compared to $0.76 a year ago. Net new home orders in the Q3 were 12.52 on an absorption pace of 2.8 homes per community per month. Incentives on orders for the Q3 were 5.5 percent and approximately 65% of our orders during the quarter were on spec homes.

Speaker 3

Our cancellation rate on gross orders during the quarter remained low at 10% and we ended the quarter with approximately 2,300 homes in backlog representing $1,700,000,000 of future revenues. Turning to communities, we opened 9 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 Q4, 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 Q3, investing $192,000,000 in land and land development. We ended the quarter with approximately 33,000 total lots with 51% owned and 49% controlled.

Speaker 3

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 $1,400,000,000 of liquidity consisting of $676,000,000 of cash and $698,000,000 available under our unsecured revolving credit facility. Our homebuilding debt to capital ratio was 22.1% and our homebuilding net debt to net capital ratio was 7% to end the quarter. During the Q3, we repurchased 273,000 shares for an aggregate dollar spend of $9,900,000 leaving us with $153,000,000 available under our current authorization.

Speaker 3

We continue to view share repurchases as a valuable part of our capital allocation strategy and we are targeting to repurchase approximately $50,000,000 in stock during the Q4. Now I'd like to summarize our outlook for the Q4 and full year for 2024. For the Q4, we anticipate delivering between 16018 100 homes at an average sales price between $710,000 We expect homebuilding gross margin percentage to be in the range of 23% to 23.5 percent and we anticipate our SG and A expense ratio to be in the range of 10.5% to 10.9%. Lastly, we estimate our effective tax rate for the Q4 to be approximately 26%. For the full year, we anticipate delivering between 6,306,500 homes with an average sales price of approximately 680,000.

Speaker 3

We expect our full year homebuilding gross margin to be approximately 23.3 percent we anticipate our SG and A expense ratio to be approximately 10.9%. Lastly, we estimate our effective tax rate for the full year to be approximately 25.5%. With that, I will now turn the call back over to Doug for some closing remarks.

Speaker 2

Thanks, Glenn. As we wrap up, I want to take a moment to thank the TRI Pointe 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.

Speaker 2

Operator?

Speaker 4

Great. Thank you. At this time,

Operator

we'll be conducting a question and answer Our first question is from Stephen Kim from Evercore ISI. Please go ahead.

Speaker 5

Thanks very much guys. Appreciate all the color. I wanted to ask about your community count and with that sort of implied volume expectations. 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.

Speaker 5

So a shortfall there of 15 to 20 communities, correct me if I'm wrong. And it sounds like 3Q 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.

Speaker 5

So I'm wondering with the 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?

Speaker 3

Hey, Stephen, it's Glenn. Good question. Our previous guide was that $140,000,000 to $150,000,000 So a couple of things going on there. We did close out of a handful of communities earlier than expected. So that played a role in it.

Speaker 3

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 2025 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.

Speaker 5

Got you. 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

Operator

outlook for next year? Why would it cascade like that if it's sort

Speaker 6

of just like a kind of a pushing out?

Speaker 5

Pushing out? I guess that would be my first question.

Speaker 2

Hey, Stephen, it's Doug. How are you doing? Good. Yes. We take a very measured approach to our business focusing in on growing PT pretax earnings.

Speaker 2

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, 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.

Speaker 5

Got you. 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 dropping because of mix and things like that. We haven't quite seen that in the closings ASP book, 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?

Speaker 5

In other words, are they designed to run at a higher absorptions 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?

Speaker 3

I wouldn't necessarily say they're going to run hotter. I mean our target is when we underwrite is 3 to 4 and that depends on the type of the community and it tends to average out to around 3.5 for a full year from an absorption pace. The ASP slight decline maybe next year and that is just mix more Texas, more Carolinas, things like that. But it's just pure mix. And I think like you referenced that, that was the order mix in the quarter was just a little bit heavier weighted to those types of communities.

Speaker 3

But I wouldn't say our absorption is going to change. We tend to generally target that 3.5.

Speaker 5

Okay. That's helpful. All right, great. Well, I'll jump off, but thanks very much guys.

Operator

Our next question is from Trevor Allison from Wolfe Research. Please go ahead.

Speaker 7

Hi, good morning. Thank you for taking my questions. First, can you just 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.

Speaker 7

You mentioned a few reasons that why they might be occurring. As you talk with your operators in the field, is your sense 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?

Speaker 2

Yes, 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 I've been doing this for a long time and we actually ran our absorption in the company in our own plan to adjust for this event. Linda can talk about that too.

Speaker 2

She's seen it for years. So I would say that's the bigger hesitation that we're seeing in the field. Rates are not an issue. 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.

Speaker 2

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 into next year. I mean, we're a smaller builder. So we have the ability to make our business the most profitable business it could be going into the following year or any year.

Speaker 2

And so 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 are sitting there. And it's not about rates. It's just getting a little confidence getting over this election.

Speaker 6

Hey, Trevor, it's Tom. Just to follow-up relative to your question about cadence of orders during the quarter. 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.

Speaker 6

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 season is going to be strong.

Speaker 7

Okay. Thank you for all that color. It makes a lot of sense. And Doug, I guess, kind of piggybacking up a comment you made about profitability there and I think you're 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.

Speaker 7

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.

Speaker 2

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, at Glen 23.3 percent roughly. So that's 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.

Speaker 2

So I think margins are looking good for the end of the year.

Speaker 7

Okay. Yes, it makes sense. Thanks for all the color there. It's very helpful and good luck moving forward.

Speaker 2

Thank you.

Operator

Our next question is from Alan Ratner from Zelman and Associates. Please go ahead.

Speaker 8

Hey guys, good morning. Thanks for all the info. Appreciate it. Doug, maybe just following on the gross margin topic 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 5.5% of price this quarter.

Speaker 8

I think that's up from about 3.7% in 2Q. So just curious with the flattish gross margin guide for 4Q even though incentives ticked up, are there offsets there either on the cost side or mix? Should we think about that bump in incentives impacting margin more in early 2025?

Speaker 3

Hey, Alan, it's Glenn. I'll take that one. Incentives were slightly elevated in the 3rd quarter, but it was on a lower order base. Our incentives overall in backlog are still lower than that obviously. And so that's what's really driving that margin in the Q4.

Speaker 3

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.

Speaker 8

Got it. Okay. That's helpful. And then I know you're not giving specific 25 guidance yet and it's early, but I'm just curious if we could think through kind of the setup heading into the year. Obviously, it sounds like you're pretty bullish on the spring selling season, but you're probably going to enter the year with backlog down plus or minus 20%.

Speaker 8

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 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 growth is going to look like through the year? Or does that set you up maybe to make it a bit more difficult to grow from a unit perspective next year?

Speaker 3

Good question, Alan. And you're trying to make us give guidance without giving guidance,

Speaker 8

but I try.

Speaker 9

Yes, I do. I do.

Speaker 3

No, we do believe in the spring selling season. And like you said, we are going to start the year with lower community count than we started last year. Backlog coming into the year is lower because of the back half 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 1300 homes right now that are started and unsold.

Speaker 3

So we have about 1300 specs going into the Q4. And then we do have our backlog and our community count next year is going to ramp to that 150 to 160, but it's going to be pretty ratably over the year. It's not heavily weighted towards the back half or the front half, just to give you some kind of color there.

Speaker 6

Yes, Allen, it's Tom. Just to tag on that 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 construction right now.

Speaker 8

Great. Last one, if I could. That 1300 homes under construction spec, how does that compare to a year ago?

Speaker 4

I'd have to look at

Speaker 10

It's actually very similar. Last year, we were at 1372 in the Q3, so very similar.

Speaker 5

Okay.

Speaker 8

Thank you, Linda. Appreciate it, guys. Thanks a lot.

Speaker 3

Thanks, Alan.

Operator

Our next question is from Mike Dahl from RBC Capital Markets. Please go ahead.

Speaker 11

Thanks for taking my questions. Doug, Glen, Tom, 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, if you're looking out at Q4 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 essentially differently in 4Q than the quarter we just exited? Are you going to kind of pull back on incentives and let pace kind of shake out where it does, just given your view that spring is going to be much better? Or really how should we be thinking about the other strategic implications there?

Speaker 2

Yes, this is Doug, Mike. I mean, generally speaking, in the call at the beginning of Q4, end of Q3 this year, you're going to have some homes that you're going to probably have to sell for a division to meet their closing plan. So the incentives will be a tad bit higher going into the Q4. And there's a lot of buyer hesitation as I mentioned on the macro side. And as we look into the spring selling season, we would expect that incentives would be a little bit lower with those new communities that we're opening.

Speaker 2

So that's kind of strategically how we look at it.

Speaker 11

Okay.

Speaker 6

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 ins. So we're continuing to want to turn our inventory relative to that.

Speaker 6

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 meet our plans through utilizing slightly increased incentives, but overall outlook for next year is decreasing incentives.

Speaker 11

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 buyers. I guess how much is also a response to the competitive dynamics on the ground where clearly a lot of builders have leaned into spec as well? And is it also kind of a response to, hey, 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 openings.

Speaker 11

So that would be my kind of follow-up question there if you could.

Speaker 2

Yes. Mike, that's a really, really good question. And let's break it down by a market. Austin has been on the radar screen for everybody. And relative to the competition, the bigger homebuilders will play a much bigger incentive absorption game.

Speaker 2

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 closer locations, closer to amenities, school and work. So the larger builders aren't typically what's driving us. It's really we offer a premium brand opportunity and even in an Austin market that's very choppy. We're getting better than our share of market in that market. I don't know, Linda, if you want to add to that too.

Speaker 10

No, I think you've shared that really well. I mean, it is so variable by market right now. Austin is the market that does have more inventory currently. But when you look across all of TRI Point's footprint on a weighted average basis, the supply in our markets is under 3 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.

Speaker 11

Okay. And then sorry to harp on this and squeeze another one in, but then should we think about the delayed openings as aligning with those regional dynamics? Or how would you characterize the regional mix of where you pushed out some of those openings?

Speaker 2

I don't have that in front of me, Mike. I'd probably have to get to unless Glenn, do you have it?

Speaker 3

Yes. It's a little bit aligned 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 Q4.

Speaker 3

So it's not that big deal

Speaker 2

to a point in front of us. And 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 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.

Speaker 6

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

Speaker 11

Got it. Okay. Thank you very much.

Operator

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

Speaker 12

Thanks. Hey, guys. Glenn, just a quick one on the SG and A guide for the next quarter. I think you made at the midpoint, you'll be up $100,000,000 sequentially in revenue. Is there anything special in that SG and A?

Speaker 12

Is it related to costs associated with community openings or any additional spend? I just could assume you got a little bit better leverage in the next quarter than what your guide says.

Speaker 3

Yes, good question. And there is a range there, 10.5% to 10.9%. So, some of that is just timing of spend in the 4th quarter. But we also are ramping up those 3 new start up 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 Q4.

Speaker 3

But we'll see how that ends up shaking

Operator

out in the 4th quarter. Okay. That makes sense. All right. Thank you, Glenn.

Speaker 3

And then on along those lines, quarter.

Speaker 12

Okay. That makes sense. All right. Thank you, Glenn. And then on 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?

Speaker 12

And then as you look at your capital outlay over the course of the next couple of 3 years, could we expect a more aggressive lean into the new greenfield markets you've opened?

Speaker 2

Yes, 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 has got a lot of momentum, so does Orlando. And in the batting lineup, I would tell you, Coastal is right behind Orlando. So we're very leaning into those 3 new expansion divisions, both in land and in people.

Speaker 2

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 TRI Pointe 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 Maine and Maine. I know Doug you really won't like me for saying that, but we're focused on the core locations.

Speaker 2

That's why we do a lot of joint ventures with Toll.

Speaker 12

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

Speaker 12

Thanks.

Speaker 2

Thanks for ducks.

Operator

Our next question is from Jay McCanless from Wedbush Securities. Please go ahead.

Speaker 9

Hey, 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 is it 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.

Speaker 10

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 consumers' understanding of it. When there's volatility, consumers tend to hesitate or pause because they may not understand the reason for the volatility.

Speaker 10

On the other side, there's what TRI Point'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.

Speaker 6

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.

Speaker 10

Right. And ultimately, only 3% of our orders in the Q3 used the forward commitment. And obviously, we prefer for our customers to use Design Studio. That's not dollar for dollar approach.

Speaker 9

All right. 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 with what you're opening next year? What is that customer mix going to look like, Lyndon?

Speaker 3

Very similar to what we're delivering now, which is about that 50% premium entry level. And then the rest is that mix of 1st move up and second move up with heavier weight to 1st move up.

Speaker 9

Okay. That's all I had. Thank you.

Speaker 2

Thanks, Jay. Thanks, Jay.

Operator

Our next question is from Ken Zener from Seaport Research Partners. Please go ahead.

Speaker 13

Good morning, everybody.

Speaker 3

Hey, Ken.

Speaker 13

Doug, you said broadly on a national footprint, you talked about being a smaller builder, but you're large in California. I think you referred to the 4th largest. So could you talk about I think you gave talked 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. But could you maybe parse the comments around incentives and demand or margins, what you're seeing kind of in the West versus your other regions pre the segment data? Thank you.

Speaker 2

Well, overall, as we mentioned, Orange County, Inland Empire, were very have been very strong markets for us, including Washington, Arizona. And so 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 TRI Pointe, but it represents a little less than 50% of our orders and deliveries now.

Speaker 6

Hey, Ken, it's Tom. Welcome. We're glad to have you on today's call. The bottom line, the West continues to perform very well for us. And so I appreciate you highlighting that.

Speaker 6

It's been misunderstood over the years, but California and as Doug said, the rest of the West is really performing well and we expect that to continue.

Speaker 13

Thank you. And could you just housekeeping, what was the WIP piece of inventory? Thank you.

Speaker 3

I don't have that right in front of me. I'll have to get back to you on that, Ken.

Speaker 13

That's fine. Have a good day, everybody.

Operator

Thanks, Ken.

Speaker 2

Thanks, Ken.

Operator

Our next question is from Alex Barron from Housing Research Center. Please go ahead.

Speaker 4

Hey, everybody. Good morning.

Speaker 3

Good morning, Al.

Speaker 2

I wanted

Speaker 4

to ask 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?

Speaker 2

Well, Alex, this 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, geopolitical uncertainties.

Speaker 2

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 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 we mentioned, the demand is very strong out there, 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 what we're seeing in the field right now and that's what we're hearing.

Speaker 4

Ken, I guess that was going to be my next question because as I look at the order pattern in say Q4 of last year, 2023, it looks like it did quite a bit sequentially and then we had a huge jump in Q1 of this year. So I was wondering if that's generally what you guys are anticipating we could see as we move into 20 25?

Speaker 3

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

Speaker 10

We'd like to call it the January jump.

Speaker 9

Yes.

Speaker 4

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

Speaker 6

Yes. We continue to be encouraged by our build times and we're really on our baseline template schedules. We've seen a slight improvement, maybe picked up a day or 2 quarter over quarter. But on average, we're right on our 115 day working day schedule. So that's very much normalized.

Speaker 4

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

Speaker 6

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.

Speaker 4

Okay. Best of luck, guys. I'll be back in the queue. Thank you.

Speaker 2

Thanks, Alex.

Operator

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

Speaker 2

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

Operator

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

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