Tri Pointe Homes - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 EPS of $0.70 beat S&P Global consensus by $0.21 (vs. $0.49)* on stronger mix and disciplined incentives; total revenue of $740.9M also exceeded consensus by ~$28.3M (actual $740.9M vs. $712.7M)*.
• Home sales revenue fell 21.5% YoY to $720.8M on 25% lower deliveries, but homebuilding gross margin expanded 90 bps YoY to 23.9% on mix and operational discipline.
• Management lowered FY25 delivery guidance to 5,000–5,500 (from 5,500–6,100) and raised FY ASP to $665k–$675k (from $660k–$670k); gross margin range maintained at 20.5%–22.0%.
• Near-term caution: demand “choppy,” incentives trending ~7% on orders, and Q2 gross margin guide implies sequential pressure; medium-term confidence anchored by premium locations, backlog quality, and new-market expansion (Utah, Orlando, Coastal Carolinas).

What Went Well and What Went Wrong

What Went Well

• Margin resilience: Homebuilding gross margin rose to 23.9% (from 23.0% YoY), above internal expectations due to mix; SG&A ratio at 14.0% was better than guided range as G&A savings offset lower revenue.
• Pricing power/mix: ASP of delivered homes increased to $693k (+5% YoY), helping offset volume headwinds; adjusted homebuilding GM reached 27.3% (ex interest/impairments).
• Balance sheet/capital returns: $1.5B liquidity with $812.9M cash; repurchased 2.27M shares for $75M; net homebuilding debt-to-net capital at 3.0%.

What Went Wrong

• Orders and deliveries: Net new orders fell 32% YoY to 1,238; deliveries declined 25% YoY to 1,040 as buyers paused on macro/tariff headlines; cancellations edged up to 10% (from 7%).
• SG&A deleverage: SG&A rose to 14.0% (from 11.1% YoY) given lower revenue and investment in new divisions; management expects structural improvement over 3–5 years as expansions scale.
• Guidance cut in units: FY25 deliveries reduced to 5,000–5,500 on slower spring start; Q2 gross margin guided to 21.5%–22.5% (down from Q1’s 23.9%) as incentives/mix weigh.

Transcript

Operator (participant)

Welcome to the Tri Pointe Homes First Quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, David Lee, General Counsel. Thank you, sir. You may begin.

David Lee (General Counsel)

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 2025. Documents detailing these results, including a slide deck, are available at www.tripointehomes.com through the Investors link and under the Events and Presentations tab. Before the call begins, I would like to remind everyone that certain statements made on this call, which are not historical facts, including statements concerning future financial and operating performance, are forward-looking statements that involve risks and uncertainties. Discussion of risks and uncertainties and other factors that could cause actual results to differ materially are detailed in the company's SEC filings. Except as required by law, the company undertakes no duty to update these forward-looking statements.

Additionally, reconciliations of non-GAAP financial measures discussed on this call to the most comparable GAAP measures can be accessed through Tri Pointe's website and in its SEC filings. Hosting the call today are Doug Bauer, the company's Chief Executive Officer, Glenn Keeler, the company's Chief Financial Officer, Tom Mitchell, the company's President and Chief Operating Officer, and Linda Mamet, the company's Executive Vice President and Chief Marketing Officer. With that, I will now turn the call over to Doug.

Doug Bauer (CEO)

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

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

Although incentives can drive urgency for our home buyers, our margin and pace are typically driven by the location, product, and amenities we offer. Our teams are equipped with the right tools to meet our customer needs. We are utilizing a combination of targeted incentives and proactive mortgage financing solutions to help buyers achieve their monthly payment and home personalization goals. Our well-located communities, close to job centers and great schools, continue to attract a well-qualified home buyer. Home buyers in backlog financing through our mortgage company, Tri Pointe Connect, have an average annual household income of $219,000, average FICO score of 753, 79% loan to value, and average debt-to-income ratio of 40%. In light of current market conditions, we are proactively balancing risk mitigation with opportunity, leveraging the deep experience of our teams in navigating the local market environments.

We are taking a disciplined and forward-looking approach to how we invest our capital, including land underwriting and structuring deals to better reflect current market dynamics. These actions position us to be selective and opportunistic while preserving flexibility and maximizing returns. Our balance sheet remains a key strength. We ended the quarter with a total liquidity of $1.5 billion, including over $800 million of cash. With a homebuilding debt-to-capital ratio of 21.6% and a net debt-to-net capital ratio of 3%, we are well-positioned to support our long-term growth objectives and take advantage of opportunities we see in the markets. During the quarter, we repurchased $75 million of our common stock, reducing our shares outstanding by an additional 1.9%. As of the quarter end, we have $175 million of authorization remaining and continue to view our stock as an attractive use of capital, particularly at current market levels.

On a year-over-year basis, our book value per share has increased 14%, reflecting both earnings growth and disciplined capital deployment. Now, I'd like to provide an update on our new market expansions. In Utah, two new communities are underway with openings in the third quarter of 2025. Additionally, our land pipeline is strong, and we currently control approximately 500 lots. In Orlando, we have attracted a strong management team, and land acquisition is progressing with 250 lots owned or controlled. We recently started grading our first community in New Smyrna Beach, Florida. In the coastal Carolinas, we remain on track for initial deliveries in 2026, supported by growing operations and strong alignment with our Charlotte team. Each of these markets represents a compelling long-term opportunity. We are executing with discipline, drawing on our internal expertise to ensure scalable growth.

As a company, we are well-positioned to build on our foundation of growth, innovation, and operational excellence. Our strategy remains centered on driving revenue and returns through our premium lifestyle brand positioning, enhanced operational efficiency, prudent capital deployment, and an unwavering focus on customer satisfaction. We execute on these core areas of the business with discipline and consistency, and we are confident this strategy will continue to deliver strong results. We remain encouraged on the long-term fundamentals of the housing market. The U.S. continues to face a significant housing shortage, a structural imbalance that reinforces the sustained need for new home development. Demographic tailwinds and the ongoing demand for housing support a positive long-term outlook for the industry, despite the near-term volatility the market is experiencing. These underlying demand drivers provide a strong foundation for our business and validate the strategic investments we are making.

As we continue to allocate capital towards the highest return opportunities, both in new markets and across our existing operations, we are confident in our ability to drive sustainable performance and create long-term value for our shareholders. With that, I will turn the call over to Glenn. Glenn?

Glenn Keeler (CFO and Chief Accounting Officer)

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

Finally, net income for the year was $64 million, or $0.70 per new share. Net new home orders in the first quarter were 1,238, an absorption pace of 2.8 homes per community per month. For some market color, our absorption pace in the West was 3.2 for the quarter, with the Inland Empire, Las Vegas, and Seattle markets showing stronger demand. In the central region, the overall absorption pace was 2.3 for the quarter. With increased supply of both new and resale homes, Dallas showed softer demand during the quarter, but we have seen some positive momentum recently in response to increased incentives. Austin and Houston experienced steady demand during the quarter, while the Colorado market continues to be challenging. Finally, in the East, absorption pace was 3.2 for the quarter, with our DC Metro and Raleigh divisions showing strong demand while market conditions have cooled in Charlotte.

As Doug mentioned, we continued our approach of balancing pace and price and using targeted incentives to drive orders during the quarter. Current incentive levels for March orders averaged 7.3%. By comparison, incentives on deliveries in the first quarter were 6.1%. Our cancellation rate on gross orders during the first quarter remained low at 10%. During the first quarter, we invested $246 million in land and land development. We ended the quarter with over 35,000 total lots, 52% of which are controlled via option. During the first quarter, we opened 18 new communities and closed out of 16, ending the quarter with 147 active selling communities. We continue to anticipate opening 65 communities for the full year of 2025 and end the year with 150-160 active communities.

Looking at the balance sheet and capital spend, we ended the quarter with approximately $1.5 billion of liquidity, consisting of $813 million of cash and $678 million available under our unsecured revolving credit facility. Our home building debt-to-capital ratio was 21.6%, and our home building net debt-to-net capital ratio was 3% to end the quarter. During the first quarter, we repurchased 2.3 million shares, for an aggregate dollar spend of $75 million. We currently have $175 million available on our share repurchase authorization and anticipate continuing to be active buyers of our stock in the second quarter. Now, I'd like to summarize our outlook for the second quarter and full year of 2025. For the second quarter, we anticipate delivering between 1,100 and 1,200 homes at an average sales price between $680,000 and $690,000. We expect home building gross margin percentage to be in the range of 21.5%-22.5%.

The decrease in gross margin sequentially from the first quarter is the result of increased incentives and the community mix as we close out of higher margin communities. We expect our SG&A expense ratio to be in the range of 12.5%-13.5%, and we estimate our effective tax rate for the second quarter to be approximately 27%. For the full year, we are updating our guidance to a lower range of deliveries based on the slower market conditions we have experienced so far this year. We now anticipate delivering between 5,000-5,500 homes for the full year, with an average sales price between $665,000 and $675,000. We continue to expect our full-year homebuilding gross margin to be in the range of 20.5%-22%.

Finally, we anticipate our SG&A expense ratio to be in the range of 11.5%-12.5%, and we estimate our effective tax rate for the full year to be approximately 27%. With that, I will now turn the call back over to Doug for some closing remarks.

Doug Bauer (CEO)

Thanks, Glenn. In closing, I want to express my sincere gratitude to the entire Tri Pointe team. Your dedication, talent, and hard work are the driving force behind our results. Thanks to your collective efforts, Tri Pointe has once again been named to the Fortune 100 Best Companies to Work For in 2025. This recognition speaks volumes about the culture of excellence that we've built together and is something we should all be proud of. As a premium lifestyle brand, our ability to innovate and differentiate in the market is powered by this exceptional team. Thank you for your continued commitment and belief in our mission. With that, I'll turn the call back over to the operator for any questions. Thank you.

Operator (participant)

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

Stephen Kim (Senior Managing Director)

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

Doug Bauer (CEO)

Yeah, Steve, this is Doug. A couple of things there. I mean, as we noted, generally speaking, the spring selling season has been off to a slower start than what we've normally experienced. As far as trends, absorption was 2.5 in January, 2.9 in February, 3.1 in March. It's gotten a little choppier. I think a few other companies have noted the same choppiness in the market. Originally, we were targeting around 3 for the year. I think 2.5-3 seems more appropriate. This business, we just happen to sell the most expensive retail good in the U.S. It requires a lot of confidence. The consumer has definitely been impacted by what's going on across the country. We see good job numbers, and we see strong job growth. Frankly, we see a lot of strong buyers.

If I gave the market a letter grade, I do not know, Tom, what you would say, but I would say it is about a C to a C-plus. I am very happy with the results in light of the market conditions. We are doing a great job, and we are teed up as we go into 2026 with some strong community account growth. It is a choppy time, Stephen.

Stephen Kim (Senior Managing Director)

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

Doug Bauer (CEO)

Yeah, no, we continue to balance price and pace on a community-by-community basis to drive the best results. Our land is well located, hard to replace, so we feel our current approach will create the best value. We do not feel that the best return will be you will not get the best return by increasing incentives. It does not drive incremental volume in our mind. We are going to stay at that steady kind of basis of pace and price as we go forward.

Stephen Kim (Senior Managing Director)

Okay. That's helpful. Yeah.

Doug Bauer (CEO)

I think what we're saying is in that 2.5-3 pace, it works for us, and we've proven that we're going to be able to get the returns and the profitability we desire.

Stephen Kim (Senior Managing Director)

Yeah. That's perfect. I think that's really good to hear. The second question is a little bit more of a technical one, I guess, for Glenn. You had indicated that your, well, your gross margin guide for 2Q is only 50 basis points lower than what you had initially guided for 1Q. You blew your 1Q gross margin guide out of the water, right? Your 2Q guide is only 50 basis points lower than the range that you had given for 1Q initially. You had also said that incentives on your orders were 120 basis points higher than the incentives on deliveries. My question basically is, how do we reconcile the 120 basis points more incentives with the only 50 basis points lower gross margin guide? Two potential answers come to mind.

One is that the margin impact of 100 basis points, or 120 basis points in this case of incentives, is not a 120 basis points hit to the margin because maybe you are giving different kinds of incentives or you jusst included a lot of conservatism in your initial Q1 guide, and you are using less conservatism in the Q2 guide. I am wondering, what is the reason, basically, the gap between the 50 and the 120?

Doug Bauer (CEO)

Yeah. Good question, Stephen. It really is, and this is not a very fun answer, but it really is a mix. When you look at kind of the mix of communities where we're losing some deliveries that we had in our original guidance, and then you look at the divisions that are doing well, those tend to be the higher margin divisions. Some of that is just mix of how that worked out in the quarter. Those incentives over the long term, they do impact margin by that same amount. If you're taking a 1% incentive off the top price, it's going to impact your margin by that. It is one point. All our incentives hit revenue. Stephen, I know you've asked that before, and that's where our incentives go.

It is a margin hit, but it really is just mix for us and the mix in the quarter that's driving that.

Stephen Kim (Senior Managing Director)

I would have thought that maybe there are some incentives that maybe like upgrading materials or whatever that carry a lower gross margin hit than 100%.

Doug Bauer (CEO)

That's true. Yeah, that's true.

Linda Mamet (EVP and CMO)

Stephen, this is Linda. Absolutely. Of that 6.5% incentives in the first quarter orders, we used 2.3% of the incentives in our design studio where our gross margins are over 40%. Certainly, that is a better use of incentives from a gross margin perspective, and it also is highly desirable to our customers who want to personalize their homes.

Doug Bauer (CEO)

Yeah. I thought you were asking some incentives kind of in SG&A, which I know some builders put things down there. Yes, to Linda's point, if that's what you're asking, that is correct.

Stephen Kim (Senior Managing Director)

Okay. All right, guys. Appreciate it. Thank you.

Operator (participant)

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

Trevor Allinson (Director of Equity Research)

Good morning. Thank you for taking my questions. I wanted to follow up on Steve's question on the pace and price balance there. Appreciate it's been a slower start to spring selling season across the industry, so 2.5-3 makes more sense here. If you were to see demand slow further, what would be the reaction in that case? Would you potentially let your absorption drift even further below 2.5, or do you view that more as a floor in which you want to operate in the current environment? Therefore, if demand were to be softer here, you would, at that point, lean more back into incentives to not drift further below the 2.5 level?

Doug Bauer (CEO)

Yeah, George, this is Doug. I would say that 2.5 is somewhat of a floor. Again, our locations are in what I call Core A location. It is a little bit of patience and perseverance during these choppy times. I would call that 2.5 a floor, and we might have to turn up the dial a little bit more on incentives. 100% of nothing is nothing. I always joke with people. We still got to turn and move homes. As I mentioned earlier, it is not great. It is not bad. It is just a choppy market. Before you know it, we will all get through this. We are really looking out the next two, three, four, five years into a very healthy situation for the home builders because of the unmet needs there. Hopefully, that answers your question.

Tom Mitchell (President and COO)

Hey, Trevor.

Yeah. One thing I'd add, Trevor, this is Tom. One thing I'd add to that is we really feel that the underlying demand is still in the marketplace. We're seeing that consistently throughout all of our communities and our markets. The buyer has just hit the pause button. There's a lack of clarity and certainly a lack of consumer confidence, and they're confused. Fundamentally, I think the demand is there. As some of that confusion clears up, we do see a return to better absorptions.

Trevor Allinson (Director of Equity Research)

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

Doug Bauer (CEO)

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

Linda Mamet (EVP and CMO)

Yes, absolutely. We are still seeing more strength relatively, Trevor, in the second move-up. In the first quarter, we saw a good pace there in the second move-up at 3.2. Active Adult was at 3.4. Those segments are outperforming Premium Entry Level. We would expect that to continue where we see buyers who have more equity in their existing homes. They do not need as much help in financing. More of them will come off the sidelines as they gain more confidence in the direction of the economy, as Tom mentioned.

Trevor Allinson (Director of Equity Research)

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

Doug Bauer (CEO)

Thanks.

Linda Mamet (EVP and CMO)

Thank you.

Operator (participant)

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

Michael Dahl (Managing Director of Equity Research)

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

Doug Bauer (CEO)

Yeah. It was 7.3 on March, the month of March orders. That is fairly consistent with where April has been trending as well.

Michael Dahl (Managing Director of Equity Research)

Got it. Okay. When I look at the margin guidance, understanding there are mixed impacts, pros and cons of 2Q, let's say you hit the midpoint of your 2Q guide, you'll have delivered a 23% gross margin, and you're guiding 20.5%-22%. I mean, the simple math is that you'd have to be 20% or below in the back half just to get down to the midpoint of that full year. I guess the question is kind of what are the moving pieces? Because that's still a pretty material drop-off in the back half. Are you assuming incremental incentives? Is it lot costs? Walk us through that or whether or not there's just still some conservatism there.

Glenn Keeler (CFO and Chief Accounting Officer)

Yeah, Mike. Good question. Your math is correct. The midpoint of the full year guidance implies a 20% gross margin in the back half of the year. It is similar to what we said in the first call. Some of it is lock costs, right? You have a lot of communities rolling off. We closed down to 16 communities in the first quarter. There is going to be more closeouts as we move through the year. Those are older communities that benefited from price appreciation and higher margins. Incentives do play a role, right? I mean, incentives were higher in the first quarter than we originally projected by, I would say, a point. We were probably more in the 6% range, and we exited at the 7% range. Incentives are playing a role in that as well.

Michael Dahl (Managing Director of Equity Research)

Glenn, are you assuming there's incremental incentive pressure versus the 7.3, or it's full impact of that 7.3 coming in?

Glenn Keeler (CFO and Chief Accounting Officer)

No. The midpoint of our guide assumes that that 7% carries through the rest of the year.

Michael Dahl (Managing Director of Equity Research)

Okay. Got it. Thank you.

Operator (participant)

Our next question comes from Alan Ratner with Zelman & Associates. Please proceed with your question.

Alan Ratner (Managing Director)

Hey, guys. Good morning. Thanks for all the details so far. Nice performance in a tough market. I know it's challenging out there. First question on SG&A. If I look at the guide for the year, roughly 12%, that's going to be running about 100-150 basis points above kind of where you were pre-COVID, up about 300 basis points from the near-term low in 2022. I'm curious, what impact, if any, is coming from costs in your new market expansion, maybe, and not yet seeing the revenue associated with those markets versus how much of that increase is being driven just by broader inflation in employment costs and other ancillary things?

Glenn Keeler (CFO and Chief Accounting Officer)

Yeah. That's a good question, Alan. This is Glenn. It definitely is there's some impact to the new expansion divisions, right? We have three new divisions that we are incurring costs in that don't have any associated revenue to it. That does have an impact. There has been general inflation if you're comparing it to COVID levels. Obviously, there's been wage inflation and other inflation pressures on the G&A line. It is a combination of both of those. If you're comparing this year to last year, it's the lower revenue and less leverage on those fixed costs that is driving that up.

Alan Ratner (Managing Director)

Would the goal longer term be to kind of get back to where you were pre-pandemic in that 10-10.5% range once these new markets begin generating revenue?

Glenn Keeler (CFO and Chief Accounting Officer)

That's exactly right, Alan. That is the goal once we get those markets to scale in the next three to five years. That's a good goal for us.

Doug Bauer (CEO)

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

Alan Ratner (Managing Director)

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

Doug Bauer (CEO)

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

Frankly, we don't have a gun to our head to do stupid deals. We can be very smart with those divisions and grow very smartly. That's the other benefit we have in Orlando, the coastal Carolinas, and Utah.

Glenn Keeler (CFO and Chief Accounting Officer)

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

Alan Ratner (Managing Director)

Great. I appreciate the thoughts and good luck.

Doug Bauer (CEO)

Thanks.

Operator (participant)

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

Kenneth Zener (Senior Analyst)

Good morning, everybody.

Doug Bauer (CEO)

Good morning. Hey, Ken.

Glenn Keeler (CFO and Chief Accounting Officer)

Just checking on my phone service.

Kenneth Zener (Senior Analyst)

It's working.

It's Verizon. All right. The narrative was we were undersupplied, not the long-term stuff, but like 2022, right? 2023. Now, according to census data for new homes for sale, we're still very high outside of the 2005-2011 period. Yet your inventory units are down 23% year over year. Can you kind of comment on this national narrative we're seeing in contrast to your data and some of the other public builder data where we're down substantially year over year? When you hear that narrative, how do you guys resolve that in the boardroom? Why do you think that's happening? Is it all private? Is it all in Michigan where people do not build that much?

Glenn Keeler (CFO and Chief Accounting Officer)

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

Doug Bauer (CEO)

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

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

Kenneth Zener (Senior Analyst)

Right. I appreciate your guys' thoughtful responses. Do you think your inventory units are basically going to be down a similar amount to what we are facing right now when we exit the year, given your start and closing assumptions?

Glenn Keeler (CFO and Chief Accounting Officer)

I would think so. I mean, obviously, it will depend on how absorption flows in the back half of the year and where we are seeing the overall market. I think in our company, and we actually were just talking about this yesterday with our management team, we have the ability to flex up starts if we see the upside in demand, and we have the ability to moderate starts. I think we have a nimble engine here to be able to react to the market.

Kenneth Zener (Senior Analyst)

Right. What I find really interesting about your guys, the debt that you're still incurring. Your gross margins, and I usually like to look at interest expense. I'll fully load it. I mean, you're about 27%, which would be quite appealing to many people, but for the fact you have 320 basis points of interest drag. Can you comment on the given that you paid off that $900 million-ish debt, how long is it going to take for us to see that? It's 3.2% this quarter, 3.3% last year. When are we going to start to see that benefit? How does that fully loaded gross margin kind of compare to what you see as your choices around the interest you're amortizing? Because if you had a 27% gross margin, which you do, ex interest, maybe you'd be more flexible.

How quick is that interest going down, and how does that affect your thinking around fleshing inventory to get to your lower leverage levels today?

Glenn Keeler (CFO and Chief Accounting Officer)

I don't know if it influences our inventory levels, but you will see that interest level go down as we go through this year, and then you'll see the bigger benefit into next year because it will depend on how quickly we, it will depend on absorption and how quickly we move inventory that already has capitalized inventory into it. That's why it's hard to give a specific answer because it'll depend on how that old inventory rolls out. You will see with our lower debt levels, it flushed through over the next 18 months.

Kenneth Zener (Senior Analyst)

I mean, the thing is, this is why I ask Glenn and Doug, Tom, obviously, chime in because you're 27. If you're saying 20 in the back half, fully loaded with interest, that's still 23%. And if you just flush out those homes that have the interest expense and reset to your current level, that's actually kind of appealing because as long as you're holding on to that stuff, it's hard to flush it out. Anyways, just interesting.

Doug Bauer (CEO)

Yeah. Understood.

Alan Ratner (Managing Director)

Thank you, guys.

Doug Bauer (CEO)

Thanks, Ken.

Glenn Keeler (CFO and Chief Accounting Officer)

Thanks, Ken.

Operator (participant)

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

Jay McCanless (Research Analyst)

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

Doug Bauer (CEO)

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

Jay McCanless (Research Analyst)

Okay. Where do you think your split was between first time versus the other active adult and move-up in the quarter?

Doug Bauer (CEO)

Are you talking absorption, Jay?

Linda Mamet (EVP and CMO)

Just on closings and then maybe how that's trending for orders, at least thus far in Q2.

Doug Bauer (CEO)

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

Jay McCanless (Research Analyst)

Great. Then last question, it looks like you did nudge up the full year average price a little bit. Is that just from one Q, or do you guys think you're going to have a little richer mix as you go through the rest of the year?

Glenn Keeler (CFO and Chief Accounting Officer)

It's just a richer mix. A little bit more heavyweighted towards the left in the mix.

Jay McCanless (Research Analyst)

Okay. Great. Thanks for taking my questions.

Doug Bauer (CEO)

Thanks, Jay.

Operator (participant)

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

Doug Bauer (CEO)

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

Operator (participant)

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