Steel Partners Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 20, 2024

There are 13 speakers on the call.

Operator

Greetings, and welcome to TRI Point's 4th Quarter 2023 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. It is now my pleasure to introduce David Lee, Investor Relations for TRI Pointe Homes.

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 Q4 of 2023. Documents detailing these results, including a slide deck are available at www.tri pointhomes.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 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 Point's website and in its SEC filings. Hosting the call today are Doug Bauer, the company's Chief Executive Officer Glenn Keeler, the company's Chief Financial Officer Tom Mitchell, the company's Chief Operating Officer and President and Linda Mamey, the company's 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. During the call, we will review operating results for the Q4 and the full year, provide a market update and discuss key operating objectives. In addition, we will provide our Q1 and full year outlook for 2024. 2023 proved to be another strong year for Tri Pointe Homes capped off by a successful 4th quarter. We reached or exceeded the high end of all of our key operating metrics for the quarter, closing out the year with strong momentum.

Speaker 2

During the quarter, we delivered 1813 homes at an average sales price of 685,000 dollars leading to home sales revenue of $1,200,000,000 and diluted earnings per share of $1.36 Our gross margin for the quarter was 22.9 percent and our SG and during the Q4 at an average price of $27.23 for an aggregate dollar amount of $50,000,000 Despite the macro headwinds of inflation and volatile interest rate swings, 2023 was a strong year for our company, positioning us for further success in 2024. For the full year of 2023, we delivered 5,274 Homes at an average sales price of $693,000 leading to home sales revenue of 3,700,000,000 dollars Our homebuilding gross margin was 22.3 percent and diluted earnings per share was $3.45 We ended the year with a book value per share of $31.52 a 12% year over year increase. Fueled by a 40% rise in net new home orders in 2023, we increased our opening backlog of of 2023, there was a significant shift in mortgage interest rates. Initially peaking at cycle highs in October, rates subsequently declined as market sentiment shifted. As rates began descending in November, home buying activity increased with December ultimately exhibiting the strongest orders of the quarter.

Speaker 2

That ending year momentum has been sustained through January and into February and we would characterize the overall demand environment as strong demonstrated by our January absorption rate of 3.5. In addition, we opened 70 communities in 2023 ending the year with 155 active selling communities, representing a 14% increase compared to the prior year. Anticipated our higher community count coupled with the ongoing strong demand will help us achieve our projected 17% year over year increase in deliveries in 2024. Glenn will provide more color on our guidance during his remarks. We remain encouraged about the fundamentals of our business including household formations, strong demand from millennials and Gen Z buyers, a more normalized supply chain and shorter cycle times.

Speaker 2

While each of these factors contributes to the long term health of our industry, we're particularly optimistic about the ongoing favorable supply and demand dynamics that structurally support new home demand. In addition, the resale market remains locked in as many existing homeowners are holding mortgages far lower than current market rates. These dynamics should continue to support the homebuilding industry with new home market share of total home sales at historical highs. The strength of our balance sheet continues to be a priority. We ended 2023 with $1,600,000,000 in liquidity and a net debt to net capital ratio of 14.6%.

Speaker 2

We generated $195,000,000 of cash flow from operations during 2023 and remain committed to producing positive cash flow in the future as we balance our growth initiatives, while reducing debt and remaining active in our share repurchase program. With $869,000,000 of cash on hand at year end, we currently plan to pay off the $450,000,000 of senior notes that are due in June. By deleveraging, we expect to save $26,000,000 annually in interest costs and reduce our debt to capital ratio by approximately 30%. In December, we announced that our Board of Directors approved a new $250,000,000 share repurchase authorization demonstrating our commitment to returning excess capital to shareholders. For the full year of 2023, we repurchased 6,300,000 shares at an average price of $27.68 representing a total spend of $174,000,000 Share repurchases have been a key component of our capital plan over the past several years.

Speaker 2

Slide 19 of our slide deck highlights the impact of our share repurchase program since its inception. From the end of 2015, we have reduced shares outstanding by 41% and grown our book value per share by 200%. That equates to a 15% compounded annual growth rate in our book value per share. Our goal is to continue to increase book value per share by 10% to 15% annually through a combination of share repurchases and consistently generating strong earnings. As a growth oriented company, we are focused on growing scale in our existing markets and targeting new markets through organic startups or M and A.

Speaker 2

In our existing markets, our West region is close to targeted scale and is generating strong margins and cash flow. Over the past few years, we have been investing heavily in our Central and East regions to grow community account and we are seeing the benefit from that investment. Over the next 2 years, we expect delivery volumes in Texas to grow over 60% compared to 2023. In the Carolinas, we anticipate delivery volume of over 30% delivery volume growth of over 30% in that same period. Not only will this provide for strong top line growth, but increased profitability as our Texas and Carolina divisions are currently producing homebuilding gross margins atorabovethecompanyaverage.

Speaker 2

For new market expansions, we recently announced our organic entry into Utah and we are already seeing positive momentum on the land front. We anticipate first deliveries from Utah starting in 2025. We are also actively looking for growth in the Southeast by expanding our footprint into the Coastal Carolinas and Florida markets. Another initiative that will be accretive to our long term growth goals is with our mortgage company, TRI Pointe Connect. Effective February 1, 2024, TRI Pointe Connect became a wholly owned subsidiary TRI Pointe Homes as we exercise the right to purchase a minority stake in our joint venture with LoanDepot.

Speaker 2

This alignment of mortgage operations with our core homebuilding business offers more flexibility in terms of the customer experience and competitive pricing and will provide increased earnings from our financial services business. BrightLine Connect is an integral part of our business with strong customer satisfaction and mortgage capture rate. We continue to see strength and quality in our homebuyers and backlog financing with TRI Pointe Connect With an average annual household income of $198,000 an average FICO score of 753, 80% loan to value and a 40% debt to income ratio. In summary, the prevailing positive macroeconomic conditions and strong housing fundamentals make us optimistic for 2024 and beyond. Given this environment, TRI Pointe is in excellent position to expand our scale in each of our markets, particularly considering our well positioned land holdings and our experienced team members.

Speaker 2

We're actively taking the necessary steps to capitalize on numerous growth opportunities that exist in the market today and are committed to deploying our capital into accretive long term growth initiatives. With that, I'll turn the call over to Glen. Glen?

Speaker 3

Thanks, Doug, and good morning. I'm going to highlight some of our results and key financial metrics for the Q4 and then finish my remarks with our expectations and outlook for the Q1 and full year for 2024. At times, I will be referring to certain information from our slide deck, which is posted on our website. Slide 6 of the earnings call deck provides some of the financial and operational highlights from our Q4. We generated 10 78 net new home orders in the 4th quarter, which was 143% increase compared to the prior year.

Speaker 3

Our absorption pace was 2.3 homes per community per month, a 109% increase compared to the prior year. As Doug mentioned, December was the strongest month in the Q4 for order activity and that momentum has carried over with a strong start in 2024. We recorded 5 36 net new home orders in January, which was a 27% increase year over year on a sales pace of 3.5 homes per community per month. Demand in January was broad based across both our markets and buyer segments and February is off to a similarly strong start. We took a disciplined approach with our use of incentives in the 4th quarter, largely targeting incentives towards completed or move in ready homes.

Speaker 3

Permanent rate buy downs remain a popular use of incentives for our homebuyers. Total incentives on orders in the 4th quarter were 4.8% of revenue and have trended down to 4.4% in January. For context, our historical incentive levels as a company have been in the range of 3% to 4%. We ended the year with 155 active selling communities, which was a 14% increase over the prior year. We plan to open approximately 65 new communities in 2024 and expect to close a similar number during the year.

Speaker 3

Our new community openings are weighted more heavily to the first half of the year, so we expect to see a higher community count in the first and second quarter before leveling off in the back half of the year. Based on our strong land pipeline with approximately 32,000 owned or controlled lots, we expect to grow our 2025 ending community count by approximately 10%. Looking at the balance sheet and capital spend, we ended the quarter with approximately $1,600,000,000 of liquidity consisting of $869,000,000 of cash on hand and $698,000,000 available under our unsecured revolving credit facility. Our debt to capital ratio was 31.5 percent and net debt to net capital ratio was 14.6%. We continue to be active in our share repurchase program repurchasing 1,800,000 shares during the quarter for a total aggregate dollar spend of 50,000,000 dollars For the Q4, we invested approximately $275,000,000 in land and land development.

Speaker 3

Going forward, we expect to spend approximately $1,200,000,000 to 1,500,000,000 dollars annually on land and land development to support our growth targets. I'd like to summarize our outlook for the Q1 and full year for 2024. For the Q1, we anticipate delivering between 12014 100 homes at an average sales price between 645,000 655,000 We expect homebuilding gross margin percentage to be in the range of 22% to 23% and anticipate our SG and A expense ratio to be in the range of 12% to 13%. Lastly, we estimate our effective tax rate for the Q1 to be approximately 26.5%. For the full year, we anticipate delivering between 6,06,300 homes, which would be a 17% increase year over year using the midpoint of our guidance.

Speaker 3

We anticipate our average sales price on those deliveries to be between 645,000 655,000. Dollars We expect homebuilding gross margin percentage to be in the range of 21.5 percent to 22.5 percent and anticipate our SG and A expense ratio to be in the range of 10.5% to 11.5%. Lastly, we estimate our effective tax rate for the year to be approximately 26.5%. With that, I will turn the call back over to Doug for closing remarks.

Speaker 2

Thanks, Glenn. In summary, our industry remains positioned for long term success due to the continued supply shortage and strong consumer demand we discussed earlier. At TRI Pointe, we are focused on steady growth to both the top and bottom lines, while efficiently allocating our cash to support our growth initiatives and share buybacks. We expect this focus will continue to benefit our shareholders by increasing book value per share year over year. With a strong balance sheet composed of a land portfolio focused on core locations and ample liquidity, we are well positioned to meet our objectives going forward.

Speaker 2

Finally, I want to express our gratitude to the entire TRI Pointe team for their hard work and dedication. I'm especially proud that their steadfast commitment to operational excellence led to TRI Point being named to the 2024 list of Fortune's World's Most Admired Companies. This is especially gratifying as those on the list are ranked and chosen by industry peers for their financial soundness, long term investment value, innovation, ability to attract and retain top talent among many factors. We couldn't be more prouder of this team and what their talent and dedication promises for the future of our company. Now I'd like to turn it back to turn the call back over to the operator for any questions.

Operator

Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer Our first question comes from the line of Joe Alsmaier with Deutsche Bank. Please proceed with your question.

Speaker 4

Hey, good morning everybody. How are you doing?

Speaker 2

Good. Very good.

Speaker 4

Yes. The comments on the land spend, if you don't mind maybe just going into a little more detail about where that's going to be deployed maybe from a buyer standpoint, buyer level standpoint and

Speaker 3

there's still and we still need to resupply the community count in the West as well. So it's fairly spread across our communities and it's about half Land Act and half development is that kind of spend going forward.

Speaker 4

Understood. And does that include any potential deployment to M and A of smaller builders?

Speaker 3

It does not include that, no.

Speaker 4

Okay, understood. And then just a quick follow-up, if I could. On the decision to retire the debt, Maybe just a little surprising kind of in the context of deploying capital to more accretive avenues, I mean, the kind of after tax cost of debt pretty low relative to incremental returns on your business. So just maybe talk about why you may be taking that out? Is it difficult to refinance?

Speaker 4

I mean, you could probably put it on the revolver even. Just any thoughts there?

Speaker 3

Yes. It's definitely not difficult to refinance. It's just where the rates are at right now are not that attractive to refinance it, especially considering we have almost $900,000,000 of cash. And so we always have the ability to be opportunistic and do a new debt issuance later on if rates are in a better place and we need the capital. So as of right now, we have plenty of capital, we're going to pay them off.

Speaker 3

And then if we have different capital needs down the road, we can be opportunistic.

Speaker 5

Okay. Appreciate it. Thanks guys.

Speaker 3

Thanks, Joe.

Operator

Our next question comes from the line of Truman Patterson with Wolfe Research. Please proceed with your question.

Speaker 6

Hey, good morning guys. Thanks for taking my questions.

Operator

Good morning.

Speaker 6

Hey, good morning. Just wanted to run through the gross margin guidance down I think about 70 bps year over year in 24. Could you just help us understand what's embedded in that land versus thick and brick inflation? And any thoughts on potential pricing power as we move through the year? The pricing power portion is I'm trying to understand you've got kind of a step down embedded in your gross margin guidance in 2Q through 4Q versus the Q1?

Speaker 2

Yes, Truman. This is Doug. Our forecast our business plan forecast is for margins to be slightly down compared to 23%, but it's early. And with good market conditions, which we are currently seeing, we should see those margins tighten subject to cost conditions as well, obviously. But that's where we see it right now.

Speaker 2

But it's we had a long way to go.

Speaker 6

Yes, understood. And when I'm thinking about your all's community count over the past couple of years, I think is up quite a bit like 40% or so. Could you just talk about your kind of targeted absorption pace? Is it still in that 3.5% range? And I'm trying to understand if that might be kind of an upper bound limit based on labor or a lot availability and anything above that you kind of start pulling on the pricing lever a little bit harder?

Speaker 2

This is Doug again. There is no upper bound limit for labor supply chain. It's actually quite normal, if anything is normal in today's world. So but our pace years years years ago, we kind of targeted 3, but our pace today target is

Speaker 3

3.5. Okay, got you. And if

Speaker 6

I could just squeak sneak one more in there. You said we're off to a good start in January February. Just trying to understand with the pullback in rates and kind of the demand rebound that you've seen so far. Have you all been able to reduce or pull back on incentives at all the past several weeks? Are you kind of taking a bit more of a wait and see approach not to disrupt kind of the momentum building ahead of the spring selling season?

Speaker 7

Thank you, Truman. Good question. This is Linda. So yes, we are pulling back on incentives. In January, we were at 4 0.4% incentives and continuing to reduce that to under 4% month to date in February.

Speaker 7

So still seeing a good opportunity to keep a strong pace while pulling back on incentives community by community.

Speaker 6

Perfect. Thank you all and good luck in 2024.

Speaker 2

Thanks, Truman.

Operator

Our next question comes from the line of Stephen Kim with Evercore. Please proceed with your question.

Speaker 8

Yes, thanks very much guys. Appreciate all the color so far and the guidance. Wanted to ask a couple of longer term questions to try to get a sense for how you're thinking about positioning the company once the dust sort of settles here with the rate volatility over the last couple of years. So I'm curious if you could give us a sense for longer term goals for, let's say, community count growth and the growth in the business. I mean, throughout a 10 number, it sounds like we're going to see in 2025 because it sounds like 2024, we're going to be kind of flat by the end of the year on community count, but then growing 10% it sounds like in 2025.

Speaker 8

Wondering if that 10% is a good level that we should be thinking about for you guys for growth. Similarly, curious if you could give us a sense of what your target is for like leverage, what you're sort of thinking longer term? And then also what do you think the longer term operating margin can kind of be? So kind of top line growth, leverage you want to run the business at and kind of what you think is a sustainable kind of operating margin for the company?

Speaker 2

Well, as far as growth, I'll take the top line. Stephen, this is Doug. We are continuing to establish operations. We are we announced Utah last year, and I would expect to have established operations the Florida and Coastal Carolina markets this year. So either organically or through M and A, we're going to continue to grow top line growth in those new markets.

Speaker 2

In our existing markets, we've got 15 divisions across the country, half are close to stabilization on the West, generating strong cash flow, very good margins. And then the Central and East continues to be our growth markets, seeing tremendous growth, as I mentioned in the prepared remarks in the Texas and Carolina markets, which we're very bullish on.

Speaker 3

And then Steven, I'll take some of the others on. Targeted leverage, we don't have a specific target because it will depend on the business needs. But I think where we're at right now and then after we pay off the bonds is a good place to be. We're low 30s now and a debt to cap will be low 20s after we pay off the bonds. Somewhere in that range, I think is a good spot for us to be in.

Speaker 2

As far as margins long term, Stephen, I mean, listen, we underwrite our land deals 18% to the 22% range. But we do self develop about 65%, probably closer to 70% of our lots. And when we underwrite those deals, it's typically in the low 20s, somewhere between 20% to 24%. So if you're developing more lots, you should have a better margin profile, right? If you're buying finished lots, you're going to be at 18% margin.

Speaker 2

So that's kind of how we look at the long term.

Speaker 3

And I know you asked to figure

Speaker 9

that out.

Speaker 3

Go ahead, David.

Speaker 10

No, no, no. I don't want to interrupt you.

Speaker 9

Okay. I know

Speaker 3

you asked about operating margin and I think as we get more scale in the out years, you're going to see that increase to the operating margin. Our goal there is to get more leverage on our fixed costs and increase that bottom line operating margin.

Operator

Makes sense. Okay.

Speaker 8

And then, got you.

Speaker 2

Let me interrupt you one more time, Stephen. We're in a very if anything is normal, as I mentioned earlier, but our business plan is very simple. We've increased book value per share 15% since the end of 2015. And our goal is very simple. We're going to increase book value per share 10% to 15% through a combination of share repurchases and strong earnings.

Speaker 2

So our focus is driving the stock price up. We just focus on book value per share because all the other extraneous discussion on multiples and everything, it really doesn't mean anything to us. We'll trade with the group however they trade. We're just focused on making more money going forward and delivering a great customer experience.

Speaker 8

Okay. Yes, that's helpful context. I noticed that your lot option count, not your supply, but the actual number of lot options you had declined for a couple of quarters has now declined for 2 quarters in a row. Curious if you could give a little context around that where you see that going forward? And then Glenn, what do you think is on a year supply owned basis, a level that we should be thinking that you can run the you intend to run the business at?

Speaker 8

Kind of low 3s in terms of year supply owned is my guess?

Speaker 3

Yes, Stephen, good questions. I think the overall lot supply that you're seeing and it's been kind of flattish over the last couple of quarters, that's just timing. We have a strong pipeline. And so there's good growth in that pipeline. But part of what you're seeing is you're seeing a decrease in some of those longer term land holdings that are owned as we continue to work through some of those assets and we're replacing a lot of that with more option land.

Speaker 3

So that's just a mix change there. And then going forward, we're targeting 2 to 3 years owned from a land perspective and it just depends on the market. There are some markets where we're under 2 and then some markets that we're closer to 3, but that's kind of the range. Got you.

Speaker 8

Great. Thanks a lot guys. Appreciate

Speaker 2

it. Thanks, Steven.

Operator

Our next question comes from the line of Tyler Batory with Oppenheimer. Please proceed with your question.

Speaker 5

Good morning. Thank you. My first question is just strategic around market expansion, new markets. Can you just revisit your philosophy around organic market expansion compared with M and A, talk through some of the positives and negatives of those avenues. And the reason I asked, there has been a fair bit of M and A so far in the space this year.

Speaker 5

So I'm not sure if that changes your perspective or perhaps if you have a different view on the M and A landscape today compared with the last call in the fall?

Speaker 2

No, I mean, like I mentioned earlier, I would expect us to establish operations in Florida and the Coastal Carolinas this year, either organically or through M and A. As you can imagine, the only the big difference between M and A and organic is you're paying a multiple of some sort on M and A and organically, you're paying book value. So that's really the difference. And frankly, we started organically back in 2,009. So we do have a very strong playbook of growing organically.

Speaker 2

We've had tremendous success. So we'll continue down both paths.

Speaker 5

Okay, great. And then a follow-up on gross margin, just specific on the guidance in Q1. Just help us bridge where you exited in Q4 versus what you're expecting in Q1. It sounds like you're pulling back a little bit on incentives, but gross margins still going to be perhaps down. So just trying to get a good sense of what you're expecting in terms of your outlook in Q1 specifically?

Speaker 3

Yes. Doug talked about it a little bit earlier, but just to give a few more details. From Q4 to Q1, it's largely flat, so really strong margin than Q1. But then what you're seeing, there's a little bit of land vintage too because we're opening new communities and closing out of older communities. So that plays a part into the full year guide.

Speaker 3

But overall, like Doug said, it's early. And so as the spring selling season unfolds, if we can continue to see strong demand, that will have an impact on margin.

Speaker 5

Okay, great. That's all for me. Thank you.

Speaker 3

Thanks, Tyler.

Operator

Our next question comes from the line of Jesse Lederman with Zelman and Associates. Please proceed with your question.

Speaker 11

Hey, good morning. Congrats on the strong results and thanks for taking my question.

Speaker 3

Thanks, Jesse.

Speaker 11

At your Investor Day in May 2022, you discussed your expectation for ASP to trend lower as your business shifts from attached and smaller product? And is that still the plan with the affordability equation becoming a bit more balanced here as late with rates having pulled back?

Speaker 3

Yes, good question, Jesse. It's definitely still part of the plan and we've executed on that plan. Even in our what most people would consider higher priced areas like California, we're doing a lot more attached than we used to and like that with an eye towards affordability and pace. And that's worked out well for us. But overall, you will see our ASP trend down a little bit compared to where it's been.

Speaker 3

And some of that is just mix though obviously with more Central and East deliveries from Texas and the Carolinas where the ASP is a little bit more affordable in those markets.

Speaker 11

Great. That's helpful. One question on price point differentiation. Are you seeing any particular segment stronger or weaker as the year rolls over here?

Speaker 3

Another good question. In the Q4, we actually saw pretty consistent demand across all our segments from entry level to first move up. So overall, pretty strong margin profiles are actually fairly consistent as well. So I think all segments are working well.

Speaker 11

And that's continued even with the strong start to the year. Have you seen any segment lag or be particularly strong or is it pretty consistent across them?

Speaker 3

Pretty consistent. Great. Thank you.

Operator

Our next question comes from the line of Jay McCanless with Wedbush. Please proceed with your question.

Speaker 5

Hey, good morning everyone. First question, could you talk about where cycle times are now and how much further

Speaker 8

if at all, you need

Speaker 9

to get back to pre COVID levels?

Speaker 12

Good question, Jay. This is Tom. We're really pleased with the cycle time improvement as it was one of our key initiatives last year. And I'd say we're back to pre pandemic cycle times, average or template of what we're striving for is 115 day production schedule. And we're pretty close to being right on schedule.

Speaker 12

So we may have the ability to extract a little bit more out of that as we're looking at new templates to potentially reduce cycle times even further.

Speaker 3

Okay, great. That's all I had. Thanks everyone. Thanks Jay.

Speaker 2

Thanks Jay.

Operator

Our next question comes from the line of Mike Dahl with RBC Capital Markets. Please proceed with your question.

Speaker 9

Good morning. Thanks for taking my questions. Just another follow-up on kind of the price incentive trends. It's encouraging to hear that February to date has come down further. We have had a bit of an uptick in rates instead versus Jan.

Speaker 9

It sounds like things are still kind of strong on the ground and you're dialing back incentives. Can you talk a little bit more to that? Do you think you've still been able to secure kind of advantaged rates and therefore you haven't seen that impact yet? Or you season the demand has just been strong enough that this uptick in rates hasn't had really any impact here?

Speaker 2

Hi, Mike, it's Doug. As we Linda mentioned earlier, incentives on orders in the quarter were 4.8%. In January, they're 4.4%. We have a very good supply of move in ready homes, promoting rate buy downs, but they're typically used we don't use any forwards, but about 86% of our orders are using some sort of financing incentive. Most of it's permanent versus temporary.

Speaker 2

Another factoid in our backlog at TPC, our average mortgage rate was 6.3% with using 2.1 percent points and that's our lock backlog. And in the Q4 TPC deliveries, it's 6.6 So the beauty of higher rates is the homebuilders have the ability to pull a lot of leverage to keep absorption. We had another excellent week of sales last week. So there's this continued locked in effect with the resale market that continues to allow the new homebuilders to increase market share of total home sales. I think it's well over 30% now, which is typically 10%.

Speaker 2

And my own personal forecast, I think rates are going to stay pretty much where they are, maybe to trend up a little, but it's an election year, so probably won't move much. But that's where it is right now.

Speaker 10

Got it. Yes, that helps, Doug. I was kind

Speaker 9

of curious about whether there was any impact from forwards in there that maybe just delayed some of the impact on kind of going back about 7%, but doesn't sound like that per case, which again is encouraging that you're able to dial back further in Feb. I guess just segueing since you brought up the point on what your stats look like for TPC. Can you now that that's wholly owned, can you help us level set on the what we should be thinking about for total contribution from compared to kind of I think you still had finance profits, you had some other income. So just if there's kind of an apples to apples comparison, we should be thinking about 2024 versus 2023?

Speaker 3

Sure, Mike. Hey, this is Glenn. So under our old model, when we were a joint venture, we got 65% of the economics of those transactions. So just assuming we're going to get 100% of the economics going forward is probably a good place to start. I think longer term as we get more efficient in that business, we could probably even draw out more economics from our financing financial services mortgage companies.

Speaker 3

And we're also continuing to look at other ancillary businesses to add to that financial services area as well.

Speaker 9

Got it. Okay. Thank you.

Speaker 2

Thanks, Mike.

Operator

Our next question comes from the line of Alex Barron with Housing Research Center. Please proceed with your question.

Speaker 10

Hey, guys. Great job for the quarter and the year. My questions are around your geographic expansion into Utah and you mentioned Florida. I was just wondering if you guys can help us on timing of when we would see first orders and first deliveries in those two respective markets roughly?

Speaker 2

Yes, it's Doug. We're expecting deliveries in Utah by the end of 'twenty five, and I would expect deliveries from the Florida and coastal markets in 2026.

Speaker 10

Got it. Thanks. And then as far as your margin guidance, it looks like it's going to trend lower in the back half of the year versus the Q1. Is that because you guys increased incentives recently or you just geographic mix that's kind of trending you in that direction?

Speaker 2

Can you repeat that question?

Speaker 10

Yes. Thanks. Your guidance for the margins, the gross margins said that you expect 22% to 23% in the Q1 and then 21.5% to 22.5% for the full year. So I'm trying to understand what's causing that trend. Is it that you increased your incentives recently or it's just the geographic shift

Speaker 9

or is

Speaker 10

it rising land costs or what's driving that?

Speaker 3

Yes, it's mainly just land vintage, closing out of some higher margin older communities in the 1st part of the year. And then you're opening like we said, 65 ish communities, new communities this year that are newer land vintage. So it's some of that is just a mix of that. But like we said earlier, it will all depend on how demand if demand continues the way it's going right now, you could see some upside to margin as the year goes forward.

Speaker 10

Okay. And then if I could ask one more. I think I heard Doug say, 60% growth in Texas over 2 years and 30% in Carolinas. Were you guys referencing deliveries versus deliveries in 2023 or versus orders? That was correct.

Speaker 10

Deliveries. Deliveries, yes.

Speaker 3

23 versus 23 in the next 2 years.

Speaker 10

Got it. All right. Awesome. Thanks a lot and good luck.

Speaker 2

Thank you. Thanks, Alex.

Operator

There are no further questions in the queue. I'd like to hand the call back to Doug Bauer for closing remarks.

Speaker 2

Well, I'd like to thank everyone for joining us today and we look forward to chatting with all of you next quarter. Have a great week. Thank you.

Operator

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.

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Earnings Conference Call
Steel Partners Q4 2023
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