Good morning and welcome to the Tri Pointe Homes' First Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this conference is being recorded. I would now like to turn the conference over to David Lee, General Counsel. Please go ahead.

Good morning and welcome to Tri Pointe Homes' earnings conference call. Earlier this morning, the company released its financial results for the first quarter of 2023. Documents detailing these results, including a slide deck are available at www.Tri Pointeehomes.com through the Investors link and under the Events & Presentations tab. Before the call begins, I would like to remind everyone that certain statements made on this call, which are not historical facts, including statements concerning future financial and operating performance, are forward-looking statements that involve risks and uncertainties. A discussion of risks and uncertainties and other factors that could cause actual results to differ materially are detailed in the company's SEC filings. Except as required by law, the company undertakes no duty to update these forward-looking statements. Additionally, reconciliations of non-GAAP financial measures discussed on this call to the most comparable GAAP measures can be accessed through 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 Chief Operating Officer and President; and Linda Mamet, the company's Chief Marketing Officer. With that, I will now turn the call over to Doug.

Thank you, David and hello to everyone on today's call. During the call, we will review operating results for the first quarter, provide a market update, and reiterate our key strategic operating drivers 2023. In addition, we will provide our second quarter and full year outlook. We are extremely pleased with the start of the year as overall market conditions have vastly improved relative to those in the final quarter of 2022. We reported outstanding results for the first quarter where we met or exceeded all of our stated guidance. For the first quarter, we delivered 1,065 homes, while generating $768 million in home sales revenue. Home sales gross margin for the quarter was 23.5% and SG&A as a percentage of home sales revenue was 11..5% These metrics culminated in a pre-tax income of $103 million $0.73 of diluted earnings per share. We generated positive cash flow from operations of $136 million for the first quarter and we returned $38 million to our shareholders in the form of share repurchases. Our balance sheet remains strong as we ended the quarter with a record low net debt to net capital ratio of 12.6% and total liquidity of $1.7 billion. While we are pleased with these first quarter financial results, more notably, we are encouraged by our ability to generate new home owners, reduce cancellations, and make significant strides in replenishing our backlog pipeline. Our key initiative going into the year was to increase our sales pace with a returns-oriented focus. We achieved this through product repositioning, targeted pricing, and incentive strategies that allowed us to adjust price on a community-by-community basis to meet the needs of today's buyers. Order pace for the first quarter 4.0 orders per community per month, which is firmly above our pre-pandemic normal levels for a first…

Thanks Doug and good morning. I'm going to highlight some of our results and key financial metrics for the first quarter and then finish my remarks with our expectations and outlook the second quarter and full year. At times, I will be referring to certain information from our slide deck, which is posted on our website. Slide six of the earnings call deck provides some of the financial and operating highlights from our first quarter. We delivered 1,065 homes at an average selling price of $722,000, resulting in home sales revenue of approximately $768 million. Deliveries came in above the high end of our guidance range as we are able to take advantage of the strong demand environment and utilize our spec strategy to sell and deliver move-in ready homes during the quarter. Our homebuilding gross margin percentage for the quarter was 23.5% which was at the midpoint of our guidance range. Finally, SG&A expense as a percentage of home sales revenue came in at 11.5%, which was an improvement compared to our guidance as a result of the increase in deliveries, which gave us better leverage over our fixed costs during the quarter. We recorded 1,619 net new home orders in the first quarter on an absorption pace of four per community per month. Demand increased as the quarter progressed. January absorption pace was 3.1%, February came in at 4%, and March increased to 4.8%. So far in April, we are experiencing continued strong demand and last week, we recorded 192 net orders, which was our highest weekly order number for the year, and the best single week for orders since March of 2021. In terms of market color, as Doug mentioned, demand was broad based across our geographic footprint. In the West, the overall absorption pace was 4.1…

Thank you, Glenn. Our strategic focus on driving increased orders, cost reductions, and returns will enable us to capitalize on market opportunities that exist. With this strategic focus in mind, we remain optimistic about the industry's strong long-term fundamentals, and we are confident that Tri Pointe is well positioned to grow and succeed. I'd also like to thank all of our team members for their excellent work in building our passionate culture. It is because of you that Tri Pointe Homes has been recognized as one of the 2023 Fortune 100 Best Companies to Work For. We consider ourselves to be in the life-changing business, for our customers and equally for our team members who make it all happen, putting our values and mission into action and delivering outstanding experience. With that, I'll turn the call back to the operator for any questions. Thank you.

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Stephen Kim with Evercore ISI. Please go ahead.

Yes. Thanks very much, guys. Congratulations on the good results. Wanted to talk to you a little bit about your average price. Can you give us a little insight into kind of how the average price of your order has trended over the past few months? I know that that's not a number we typically talk about, but just I'm wondering whether or not you've seen it trending down or up in the last few months?

Hey Stephen, it's Glenn. Well, like we said on the call, we've lower -- we've been able to lower incentives and raise based pricing on some communities and so from that perspective, the ASP has gone up. But overall throughout the course of this year, as we've discussed in the past, you're going to see our ASP go down as there's a higher mix of more attentively priced product coming from our newer growth divisions like Charlotte, Raleigh, and Dallas Fort Worth. So, that's kind of the directory direction of price.

And then when you talk about your land and your preparation for communities as we look out a year or more, we noticed that your land holdings declined, both in terms of owned and optioned units. And so curious as to whether or not you think the trajectory of that is going to be sort of up, flat or down in absolute units here over the next few quarters and whether there might be a divergence, maybe your owns might be flat or down, but your options would be up? Just trying to get a sense for how things are going to trend.

Good question. You're going to start to see that trajectory go back up and you'll see it more in the options to start before we take it down. But we are being more active in the land market as of right now as we've seen more stabilization in pricing and so you'll start to see that option number go back up.

Okay. But the owned, what should we think about that?

Well, owned will -- it's just a timing issue between when you take it down and when you deliver. Overall, though, I think we're still targeting over the next couple of years, a more 50-50 mix of option to known, if that's what you're asking.

Okay, that’s fine. Yes. And your leverage is incredibly low right now relative to what I think you've sort of talked about in the past. Can you talk a little bit about your -- what your plans are there, how we should expect you to make investments, maybe what the deal pipeline looks like, both in terms of M&A as well as maybe some other investments? And how patient you think you'd be keeping your leverage that low? Should we, for example, be surprised if you're patient and we see a leverage at this team's rate on net debt to cap by the end of the year?

Yes. So, part of it is we're looking out to next year, and we have our 2024 bonds coming due. And so we're putting ourselves in a position to pay those down. But that will continue to be opportunistic on that depending on how the debt market looks and what our capital needs are as we get through this year and next year. But we're -- our capital needs still remain the same. We're looking to invest, we're looking to grow. So, we're active in the land market. We're -- we don't have any M&A imminent now, but we're looking, right? We're -- there's markets that we're still interested in, and so long-term, we're still looking to grow, and we're in a good balance sheet position to allow us to do that.

Great. Thanks very much guys.

Thanks Stephen.

The next question comes from Truman Patterson with Wolfe Research. Please go ahead.

Hey good morning guys. Thanks for taking my questions. My first one on spec versus build-to-order gross margin. Some of your peers have suggested that the spread between the two is kind of returning to historical levels with build-to-order being a bit higher than spec. I'm just hoping you could give some color on what you're seeing in the market today?

Yes, Truman, this is Tom. And I would tend to agree with our peer set that we are beginning to see normalization in that build-to-order versus spec gross margin. Historically, it's been around 200 bps for us. We're not quite there yet, but we do expect it to continue to normalize.

Okay, perfect. And then I haven't heard a lot of discussion on the new FHFA fee structures. Could you all just kind of give your general thoughts and how it might impact your business going forward?

We -- Truman, this is Linda. We haven't really seen any big impact from that. I mean, obviously, at the moment, we are still providing financing incentives to customers that can help smooth out transitions and changes like that.

Okay, perfect. All right. Thank you.

One thing, Truman, relative to FHFA, it's only about 10% of our backlog portfolio right now.

Got you. Okay. Perfect. All right. Thank you, all.

The next question comes from Alan Ratner with Zelman & Associates. Please go ahead.

Hey guys. Good morning. Nice quarter and thanks for all the details so far. First on the gross margin, the guidance implies a bit of a sequential dip lower. And I'm just trying to figure out, is that more of a timing issue in terms of kind of the mix of deliveries and maybe more of those coming from homes that were sold late last year when pricing was still under pressure? Or is that more a function of maybe that spec versus build-to-order SKU or any other type of mix impact from perhaps more closings coming from newer markets that probably have stronger absorptions but maybe a little bit lower gross margin?

Good question, Alan. And it is a little bit of mix. There's a couple of things going on there. There's -- the first quarter had some higher margins in it from some communities that were older, that we're closing out. And so that's part of the mix. And you're right, Q2 is still reflective of some deliveries that were homes that were started in the May, June time frame that had peak lumber in them. And so there is a little bit of mix related to that in Q2.

So, Glenn, can you -- I know you're not giving guidance for the full year, but I mean directionally speaking, as you look forward, there's a lot of moving pieces. You mentioned your price is probably going to drift lower due to mix. You do have some cost savings. It sounds like you're starting to pull back on incentives. Would you expect 2Q to be the low watermark of the year from a gross margin perspective? Or are there still too many unknowns at this point to directionally guide?

I think there's -- we want to get through the rest of the spring selling season and see how that goes. We're continuing to -- based on the demand, look at price and pace and balancing that. So, we'll update you at the next quarter with -- what we're seeing with margins.

If I could squeeze in one more maybe for Doug or Tom. Just on the cost side, you and others pulled back very sharply on starts in the back half of last year, and it's not terribly surprising to see that resulted in some cost savings. It seems like the industry is beginning to ramp up their start pace given the strong demand we've seen in the spring. Yet, I think I still heard there's a hope or an expectation that you could see further cost relief here for the remainder of the year. So, I'm just curious if you've kind of had conversations with your trades in the last few weeks as far as what they're seeing or expecting from a cost perspective and whether this ramping starts, whether they're equipped to handle it, because I would imagine coming into this year, they probably had a pretty cautious outlook and maybe adjusted headcount or get other things in anticipation of a lower start pace.

Yes, Alan, this is Doug. Good question. As we noted, we've had an overall goal of 10% to 20%, achieved about 8% to 10% on average and we're going to continue to pursue that. We see the greatest impact on cost improvement through some of the product repositioning and value engineering. And we are -- as we bring in new product that we're opening quite a few new communities this year that have gone through that process and continue to do so. We have a really strong subcontractor involvement in the bidding and purchasing process. So, we still have a goal of getting to that 20% number, but it's going to depend on the year and how builders continue to start and the market ramps up.

Understood. All right. Appreciate it. Thanks a lot.

Thanks Alan.

The next question comes from Carl Reichardt with BTIG. Please go ahead.

Good morning guys. Nice talking to you. You had -- I think you said 60% to 65% spec starts this quarter. I think I got that right. I'm just sort of thinking about whether or not the spec start strategy is a reflection of relatively recent market conditions that might be transitory? Or over time, is your expectation that two-thirds of your business will be spec and one-third build-to-order? How do you think about that strategically as you gradually move out of California, move to the rest of the country, change your product mix up?

Hi, Carl, this is Tom. Yes, I think you're hitting on something that is more of a directional influence where we do anticipate in the future, continuing to drive to that spec start model, specifically as we diversify geographically into Texas and the Carolinas. And then, of course, you know, given our phase building in California, that's largely spec start driven as well.

Carl, I would add, this is Doug. Tom hit it spot on. It is an important thing that we're very returns focused. And so as you implement more line and phase building in some of these markets outside of California, which you're very familiar with, you can definitely improve your cycle-times and your returns. So, going forward, as Tom said, it will continue to be about probably 65% of our business. Now, we still -- depending on the stage of those homes still can maximize our option revenue and achieve option margin. So, we can utilize that even with our entry-level premium product.

Okay, thank you Doug. Do you all have an inventory turn or asset turn goal relative to where you are right now?

Yes, definitely, Carl. And that's something we've been focused on, and it's been historically a little bit impacted by some of the longer-term land that we inherited through the merger, which has been great for us and obviously provided strong margins. But as we work through a lot of that, our focus now is to turn inventory over one time a year. And we got close to that over the last couple of years, but that's continued to be a focus of us -- of ours.

Okay. And if I could squeeze one more in. I think you have not quite 14,000 lots under option contract. What percentage of those do you intend to self-develop?

Yes, Carl, currently, self-development is the majority of our business. I'd say 70% of that is probably self-developed.

Great. Appreciate it guys. Thanks so much.

The next question comes from Mike Dahl with RBC Capital Markets. Please go ahead.

Good morning. Thanks for taking my questions. Just had a question on the closing cadence and the guide. I mean, you'd be pretty handily in the quarter. Your spec starts are up. Your pace comments are pretty strong, the full-year guide on closing is unchanged on units. So, can you just help us understand some of the puts and takes? And is that conservatism or is there something we should be thinking about as you kind of work through what was maybe a little elevated level of specs you see lower backlog conversion in the back half of the year? Just help us understand that a little more.

Yes, good question, Mike. I think what happened in the first quarter relative to our guide was we did enter the first quarter with an elevated level of specs and move-in ready homes. And so with the strong demand, we were able to sell and close those homes in the quarter. And then for Q2, with that guide between 900 and 1,000, some of that's just impacted by the fact that it was slower in the third and fourth quarter and so we were coming into the quarter with a lower backlog for the second quarter. And we have a little bit less of the move-in ready homes than we did entering in the first quarter, although we still have a healthy spec mix going into the second quarter. That's the cadence. And then the back half of the year, we're going into kind of a normal seasonality cadence where you've seen in the past where the majority of our deliveries will be in the fourth quarter due to the strong spring selling season.

Sorry, Mike, I was just going to add, as you see demand beginning to normalize, and we've got a much clearer picture, our starts are going to normalize as well. So, on a comparative basis, back in Q4, we were only starting about 400 homes and we've more than doubled that in Q1 to starting over 1,000. So I think you'll begin to see that normalize now.

And that's more of a part of the point, time being, that will be more of a 2024 impact to closings?

That's correct. Mike, this is Doug. I think part of your question was also on the guide on the closings for the year. We bumped the lower end of the range because of the demand, but it's going to be pretty tight to go much above the upper end of the range because of the timing of new community openings, which we have quite a few between second, third and fourth quarter. And so that will feed right into 2024, as you mentioned.

Got it. Okay. Makes sense. And then on the lands comments, I think a lot of your peers have still kind of signaled that there's a little bit of a standstill in the land market and everyone's also kind of still been evaluating their own land book. It sounds like you're already potentially getting more active. And so I'm curious just what you're seeing, whether it's geographically or otherwise, what's allowed you to have some success getting back in the market today? Is it just hey, you're able to underwrite today's higher pace on more deals pencil? Or have you seen sellers come off ask price and a little more narrowing of bid/ask? Maybe just a little more color on what you're seeing there.

Yes, that's a good question. And it's really market specific. Now that we're feeling pricing has stabilized in certain of our markets and most of our markets actually have stabilized. We feel more confident, I mean, underwriting land deals. Land residuals are all a function of house revenue, as you know. And we have an excellent land pipeline for growth in 2024 and 2025. So, we're really looking for land deals that would be new communities, maybe late 2025, but for sure 2026. So, we're being very selective. We've got our normal underwriting standards, but we'll continue to be very disciplined as we use a mix of margins and return metrics to look at new land deals.

Thanks Doug.

The next question comes from Tyler Batory with Oppenheimer. Please go ahead.

Thank you. Good morning. Just wanted to put a finer point on the price incentive commentary. Can you talk a little bit more, give some numbers around your incentive activity on orders in Q1, how that compared with Q4? And then talk about how much more you can reduce incentives for the rest of the spread here.

Thanks Tyler. Yes, as we mentioned, we have been able to reduce incentives during the first quarter. And we'll just have to see how that goes and what happens with interest rates from here because we want to remain nimble and ensure that we're providing month -- attainable monthly payments for our homebuyers.

Okay, great. And then in terms of the buyer segment commentary, I mean, you mentioned demand pretty broad-based strength there across entry-level move up. I wanted to focus on that move-up piece a little bit more. I mean, you look so far year-to-date into April, with rates a little bit more stable. You're starting to see a little bit more improvement or more interest or more traffic in some of those communities.

Yes, certainly. First move-up was very strong as we talked about. So, yes, we're seeing very good interest from both entry-level and move-up. And our new community openings are reflective of that. We're seeing strong demand in openings for move-up communities as well as entry level.

Okay. And then last one for me, just from a market perspective, I mean, California, still a big part of the mix, lot of noise, headlines out there. Just talk a little bit more what you're seeing on the ground, sales pace, traffic, et cetera, on the last month and a half or so out there?

Tyler, good question. I think California is very misunderstood. And our results have been strong in California across all product segments and geographic regions. So, we're really encouraged by the depth of demand in California. I think we've proven up that there are buyers in plenty when we're offering 5% to 6% interest rates and the incentives have worked well, our product repositioning has hit on. And then just remember, we have a focus on design and innovation and core market locations that I think has been very well received. So, we expect California to continue to be strong going forward this year.

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

The next question comes from Jay McCanless with Wedbush. Please go ahead.

Hey good morning everyone. So, Tri Pointe and several of your peers have talked about increasing starts into the spring. But I haven't heard anybody talk yet about labor availability, especially on the front end. Is that labor to drive those starts? Is that coming from the private builders, do you think you're taking meaningful share, you and the other publics are taking meaningful share from the privates right now to drive those starts?

Good question, Jay. This is Tom. Certainly, labor has been impacted pre-pandemic levels for sure. And it continues to be a stress point for all builders. But I think the publics, in particular, are gaining more and more market share and driving more and more of that labor to their jobs. So, -- it's improved from pandemic times, but it was a challenged pre-pandemic, and we expect that to continue. But again, we are looking to position ourselves as a builder of choice for the trades and I think we're being very successful in that.

Jay, this is Doug, Jay. I would -- on a macro, you actually hit on a key point, and I don't think it's being felt this early. But with the banking crisis of the small regional banks, for the smaller builders, which I think you're alluding to, I think it's going to be the second half of this year going into 2024 where you're going to continue to see the larger or the public builders that have plenty of capital to continue to increase market share during this effectively a credit crunch for especially the small -- regional small private builders. I'm not saying to larger privates, but builders that are doing under 500 closings a year.

You actually stole my second question, Doug, I was going to ask what -- if you'd seen the ability to start taking down some fresh lot projects or maybe a little loser terms around land deals coming your way. So, if you can just maybe give an expanded answer there, especially as it relates to like opportunistic project buys or something like that?

Yes, I think it's early. The -- even if you're a small or regional builder, you're having success selling homes, right? So you're generating cash flow, but I think the opportunity will be felt more in the second half of this year where even some of the smaller regional land developers in the central region and in the east region will probably find some issues in obtaining capital. And so our land teams are in the market, being very disciplined, but looking for and hopefully being opportunistic, I'm sure all are brother to doing the same thing.

Right. And then the other question I had, just ex lumber, can you talk about what you're seeing from cost trends, concrete drywall, et cetera?

Yes, Jay, this is Tom. As you know, lumber has been a key driver to our cost reductions, but we are seeing reductions on other areas of our costs as well. Doug alluded to it in our prepared remarks that through value engineering on both existing and new products, we have been able to simplify and see some significant reductions there. Our national team is working really well on those larger-scale relationships and we're seeing some reductions from some of our big suppliers, and it's being displayed in our product offerings currently. So, we feel pretty good about our costs, and we're looking forward to continuing our efforts there and hopefully, we'll see some continuation of those savings.

Okay, sounds great. Thanks guys.

Thanks Jay.

The next question comes from Alex Barron with the Housing Research Center. Please go ahead.

Thanks guys and good job on the numbers. I was in Southern California a few weeks ago, and I heard about a program the state launched, I think it was called FHA or FA or something like that, where they give buyers like 20% of the home payment. I was wondering to what extent you guys were able to participate and take advantage of that program?

Thanks Alex. We did take advantage of that program, but the funds did run out very quickly. So, clearly, there is housing demand there when people can get additional assistance for their down payment.

Was it like significant or did it run out to where it really didn’t amount?

Yes. In total magnitude of our orders in the first quarter, it was insignificant because there was a very short window for us to be able to take advantage of that before the funds were depleted.

Okay. All right. And then I guess, towards the end of last year, there was talk among builders about reducing starts and understandably so, but there was also an expectation that for those builders who would start more specs, they would be able to capture some cost savings from subs looking for work. I'm just curious to what extent that's been achievable or not?

Alex, it's Doug. I mean, as we saw the engine -- the housing engine slowed down through the end of last year going into the first quarter of this year, as we mentioned, we've achieved roughly 8% to 10% in cost savings from a combination of existing programs, existing communities and new community starts.

Okay. But it sounds like that's, I guess, the extent of it because if things are reaccelerating then I suppose--

Yes, I mean, as we mentioned in our prepared remarks, our goal, as we said at the beginning of the year, and it's still today to get up to towards 20%. And in certain markets, we may achieve that. But you're right. I mean as the market improves, cost and pricing as we see will firm up. But we're seeing the most success in cost improvement when we reposition product and bring out new product for the trades to bid on. And there's plenty of trades that are looking for work and bidding on and being very aggressive in their bids. So, that's where we're seeing the most success in cost improvement compared to what we had underwritten a year ago.

Got it. If I could ask one other one. Let's say, hypothetically, the Fed does one more high-grade and they're done. And then something leads them to start lowering interest rates, whether it'd be they feel inflation is done or whether it's a crisis or whatever. I guess the question is if rates were to go back down significantly, do you feel like the industry has capacity to handle or ramp up in starts? Or do you feel like we're just going to go back to supply chain bottlenecks and all that stuff?

My personal opinion is I think the industry does have, especially the publics will -- and they'll be very measured as we are increasing our starts, as Tom mentioned. And I think it will be more of a normal market condition. I don't -- my own personal forecast is I don't think rates are going to change much unless there's some sort of other banking or other crisis out there. I think the Fed inflation is very sticky. And my own personal opinion is they're going to probably see another rate increase, a modest one and then probably stay flat. But, hey, it's anybody's guess. This has been the most anticipated recession I've ever seen in my life, right?

Correct. Okay. Yes, just wanted to get a sense of if there was a -- if you felt there was an opportunity to ramp up starts and deliveries more than single digits.

Yes, I think based on demand, if demand is there, the industry has capacity to increase starts and capitalize on volumes that we've proved over the last couple of years and I do believe that supply chain is being normalized and the labor environment is normalizing. So, we feel good about the opportunities in the future for growth.

All right. great. Well, let's hope so. Thanks. Take care.

Thanks Alex.

And we have a follow-up from Truman Patterson with Wolfe Research. Please go ahead.

Hey just a quick follow-up. In Denver, Colorado, your orders were down about 70%. I'm just hoping you can give an update of what you're seeing on the ground there as well as your kind of strategy in the market, it looks like community count dropped a little bit to about six communities. Is that a target area of this community count growth going forward?

Yes, absolutely, Truman. And good questions and you're right on with your assessment. A large portion of that order decline was due to lower community counts and then just selling out and being at the tag end of some communities as well. We've got new product offerings that are coming into the market this quarter that we're very excited about, and we have seen a pickup in demand overall across the market and specifically at our new product offerings as well. So expect that to improve.

Okay, got you. So, it sounds like the market on the ground, it might be a little bit more internal constraints than overall market conditions.

Yes, I think the market lagged some of the rebound early on in Q1, but it gained footing as the quarter moved through. And then that coupled with our lack of offerings, I think, is why you're seeing the decline in orders for us. But yes, we'll both be seeing an improved overall market condition as well as our offerings that will lead to better orders for us.

Perfect. Thank you all for the time and good luck in the coming quarters.

Thanks Truman.

And we have a follow-up from Stephen Kim with Evercore ISI. Please go ahead.

Yes, thanks a lot guys. I know we talked about starts. And I think you said there are about 1,000, maybe a little less is what I'm calculating. But that was a number that kind of averaged around, I don't know, 1,700 or so post-pandemic, I believe. And I was curious as to whether or not you felt like you could pretty effectively get back there, how quickly that sort of thing?

Yes, Stephen, this is Tom. As we've talked about, starts are a function of demand and we certainly have the capacity to improve starts and we're going to balance it with our absorption paces. So, I think as you see Q2, we will improve upon, but average a little over 500 starts a month. So, we'll be getting closer to your 1,700 normalized number in Q2 going forward.

Perfect. And then on a similar note, production homes per community, I think, I believe they were down about 18 or so, a little less than 18 for community. That's a -- that level, you were kind of running between 18 and 22, I think, pre-pandemic. But with your -- with more spec building, I'm curious what level of sort of production homes per community should we be thinking might be normal for you going forward?

Stephen, we'll have to look at that. I think what you've seen historical shouldn't be any different going forward, but a lot of that is timing of when we're getting starts out. And so it's not a perfect number to look at, at a point in time because it really depends on the timing of when that goes. But like Tom said, our whole goal is just balance starts with demand, and that's how we look at it on a community-by-community basis.

Okay, that’s fine. Perfect. Thanks much.

Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Doug Bauer for any closing remarks.

Thank you, Andrew, and thank you for joining us on today's call. We look forward to updating you all on the spring selling season next quarter and have a great weekend. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.