Participants

David Lee; Vice President, General Counsel, Secretary; Tri Pointe Homes Inc (Delaware)

Douglas Bauer; Chief Executive Officer, Director; Tri Pointe Homes Inc (Delaware)

Glenn Keeler; Chief Financial Officer, Chief Accounting Officer; Tri Pointe Homes Inc (Delaware)

Thomas Mitchell; President, Chief Operating Officer; Tri Pointe Homes Inc (Delaware)

Linda Mamet; Executive Vice President and Chief Marketing Officer; Tri Pointe Homes Inc (Delaware)

Steven Kim; Analyst; Evercore ISI

Trevor Allinson; Analyst; Wolf Research

Mike Dahl; Analyst; RBC Capital Markets

Alan Ratner; Analyst; Zelman & Associates

Kenneth Zener; Analyst; Seaport Research Partners

Jay McCanless; Analyst; Wedbush Securities

Presentation

Operator

Greetings and welcome to the Tri Pointe Homes first quarter 2025 earnings conference call.
(Operator Instructions)
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

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'll now turn the call over to Doug.

Douglas Bauer

Good morning and thank you for joining us today as we report our results for the first quarter of 2025. Our teams executed at a high level, achieving strong results, demonstrating our ability to navigate the current political and economic volatility and its impact on the housing market. During the first quarter, we either met or exceeded all of our guidance. We delivered 1,040 new homes at an average sales price of $693,000 and 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's 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 by our 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 and top markets. Although incentives can drive urgency for our homebuyers, our margin and pace are typically driven by the location, product and amenities we offer. Our teams are equipped with the right tools to meet our customer needs. We are utilizing a combination of targeted incentives and proactive mortgage financing solutions to help buyers achieve their monthly payment and home personalization goals.
Our well-located communities close to job centers and great schools continue to attract a well-qualified homebuyer. Homebuyers and 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 environment. We're taking a disciplined and forward-looking approach to how we invest our capital, including land underwriting and structuring deals to better reflect current market dynamics. These actions position us to be selective and opportunistic while preserving flexibility and maximizing returns.
Our balance sheet remains a key strength. We ended the quarter with total liquidity of $1.5 billion, including over $800 million of cash. With the homebuilding debt-to-capital ratio of 21.6% and a net debt to net capital ratio of 3%, we are well positioned to support our long-term growth objectives and take advantage of opportunities we see in the market. During the quarter, we repurchased $75 million of our common stock, reducing our shares outstanding by an additional 1.9%. As of the quarter end, we have $175 million of authorization remaining and continue to view our stock as an attractive use of capital, particularly at current market levels.
On a year-over-year basis, our book value per share has increased 14%, reflecting both earnings growth and disciplined capital deployment. Now I'd like to provide an update on our new market expansions. In Utah, two new communities are underway with openings in 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 creating our first community in New Smart 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 represent a compelling long-term opportunity.
We are executing with discipline, drawn 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, enhance 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. US 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 supports a positive long-term outlook for the industry despite the near-term volatility the market is experiencing. These underlying demand drivers provide a strong foundation for our business and validate the strategic investments we are making. As we continue to allocate capital towards the highest return opportunities, both in new markets and across our existing operations, we are confident in our ability to drive sustainable performance and create long-term value for our shareholders.
With that, I will turn the call over to Glenn. Glenn?

Glenn Keeler

Thanks, Doug, and good morning. I would like to highlight some of our results for the first quarter and then finish my remarks with our expectations and outlook for the second quarter and full year 2025. First quarter produced strong financial results for the company. We delivered 1,040 homes, which is near the high end of our guidance. Home sales revenue was $721 million for the quarter with an average sales price of $693,000.
Gross margins were 23.9% for the quarter, which exceeded the high end of our guidance range due to the mix of deliveries in the quarter. SG&A expense as a percentage of home sales revenue was 14% and better than our guidance due to some savings in G&A and leverage will be 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 diluted share. Sannew 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 Inliner 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, while 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 to 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 and seton delivery in the first quarter were 6.1%. Our cancellation rate on gross orders in the first quarter remained low at 10%.
During the first quarter, we invested $246 million of land and new development. We ended the quarter with over 35,000 total lots, 52% of which are controlled via auction.
During the first quarter, we opened 18 new communities and closed out 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 or 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 homebuilding debt-to-capital ratio was 21.6% and our homebuilding net debt to net capital ratio is 3% at end of the quarter.
During the first quarter, we repurchased 2.3 million shares for an aggregate dollar spend to $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 sale price between $680,000 and $690,000. We expect whole noted gross margin percentage to be in the range of 21.5% to 22.5%. The decrease in gross margin sequentially from the first quarter is the result of increased incentives and new mix as we close out a higher margin comment. We expect our SG&A expense ratio to be in the range of 12.5% to 13.5%, and we estimate our effective tax rate for the second quarter to be approximately 27%.
For the full year, we are updating our guidance to a lower range of deliveries based on the slower market conditions we have experienced so far this year. We now anticipate delivering between 5,000 to 5,500 homes for the full year, with an average sales price between $665,000 and $675,000.
We continue to expect our full year homebuilding gross margin to be in the range of 20.5% to 22%. Finally, we anticipate our SG&A expense ratio to be in the range of 11.5% to 12.5%, and we estimate our effective tax rate for the full year to be approximately 27%.
With that, I will now turn the call back over to Doug for some closing remarks.

Douglas Bauer

Thanks, Glenn. In closing, I want to express my sincere gratitude to the entire Tri Pointe team. Your dedication, talent and hard work are the driving force behind our results. Thanks to your collective efforts, Tri Pointe has once again been named in 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.

Question and Answer Session

Operator

(Operator Instructions)
Steven Kim, Evercore ISI.

Steven Kim

Yeah, thanks very much guys. Appreciate all the color as usual. I thought you performed strongly in a tough environment. But I wanted to talk a little bit about your absorptions. Your absorptions were below three sales per community in 1Q, and absorptions are almost never higher for the year than they are in your 1Q.
So I'm curious, you've said before that you're sort of targeting three absorptions this year, three to four on a longer-term basis, and I'm wondering, are you -- is that still the case for you? And are you willing and able to recalibrate that targeted pace both in the near term as well as in the long term?

Douglas Bauer

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. So originally, we were targeting around three for the year. I think 2.5 to 3 seems more appropriate. This business is -- we just happen to sell the most expensive retail good in the US, and it requires a lot of confidence, and the consumer has definitely been impacted by what's going on across the country. So without -- we see good job numbers, and we see strong job growth.
And frankly, we see a lot of strong buyers. I would -- if I gave the market a letter grade I don't know, Tom, what you would say, but I'd say it's about a C to C+. But I'm very happy with the results and in light of the market conditions, we're doing a great job, and we're teed up as we go into '26 with some strong community count growth. So it's a choppy time, Stephen.

Steven Kim

Okay. Yes, 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 kind of like holding your breath under water, you can do it for a period of time? Or is it able to be more permanent?

Douglas Bauer

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. And we don't feel that the best return will be -- you won't get the best return by increasing incentives.
It doesn't drive incremental volume in our mind. So we're going to stay at that steady pace and price as we go forward.

Thomas Mitchell

What we're saying is in that 2.5 to 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.

Steven Kim

Yeah, that's perfect. That's -- 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 got out of the water, right? But 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. And so my question basically is how do we reconcile the 120 basis points more incentives with the only 50 basis points lower gross margin guide? And two potential answers coming to mind.
One is that the margin impact of 100 basis points or 120 basis points in this case of incentives isn't a 120 basis point hit to the margin because maybe you're giving different kinds of incentives or you're just including -- you included a lot of conservatism in your initial 1Q guide, and you're using less conservatism in the 2Q guidance. I'm wondering what is the reason basically the gap between the 50 and the 120?

Glenn Keeler

Yeah, Good question, Stephen. And it really is -- and this isn't a very fun answer, but it really is mix. So when you look at kind of the mix of communities where we're losing some deliveries that we had in our original guidance, and then you look at the divisions that are doing well, those tend to be the higher margin divisions. And so 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 at the top price, it's going to impact your margin by that. So it is 1 point. All our incentives hit revenue Stephen, I know you've asked that before, and that's where our incentives go. So it is a margin hit, but it really is just mix for us and the mix in the quarter that drive them out.

Steven Kim

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%.

Glenn Keeler

Yeah, that is true.

Linda Mamet

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%. So 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 home.

Glenn Keeler

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

Steven Kim

All right guys, appreciate it thank you.

Operator

Trevor Allinson, Wolf Research.

Trevor Allinson

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

Douglas Bauer

Trevor, this is Doug. I would say that 2.5 is somewhat of a floor. Again, our locations are in what I call core A locations. So it's a little bit of patience and perseverance during these choppy times. But I would call that 2.5 a floor, and we might have to turn up the dial a little bit more on incentives.
100% of nothing is nothing. So -- as I always joke with people. So we still got to turn and move homes, but as I mentioned earlier, it's not great, it's not bad. It's just a choppy market. And -- and before you know it, we'll all get through this. And we're really looking out the next two, three, four, five years into a very healthy situation for the homebuilders because of the unmet needs there. So hopefully, that answers your question.

Thomas Mitchell

Trevor, one thing I'd add to that -- 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. And that 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 but fundamentally, I think the demand is there. And so as some of that confusion clears up, we do see a return to better absorptions.

Trevor Allinson

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

Douglas Bauer

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

Linda Mamet

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

Trevor Allinson

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

Douglas Bauer

Thanks.

Operator

Mike Dahl, RBC Capital Markets.

Mike Dahl

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

Glenn Keeler

Yeah, so it was 7.3% on March -- the month of March orders and that's fairly consistent with where April has been trending as well.

Mike Dahl

Got it. Okay. When I look at the margin guidance, understanding their mix that impacts pros and cons in Q2, 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% to 22%. I mean, the simple math is that you'd have to be 20% or below in the back half just to get down to the midpoint of that full year. And so I guess the question is kind of what are the moving pieces because that's still a pretty material drop off in the back half. Are you assuming incremental incentives? Is it lot cost? Walk us through that or whether or not there's just still some conservatism there?

Glenn Keeler

Yeah, Mike. So good question. And your math is correct. The midpoint of the full year guidance implies a 20% gross margin in the back half of the year. And similar to what we said in the first call, some of it is lot costs, right?
You have a lot of communities rolling off. We closed out of 16 communities in the first quarter. There's going to be more closeouts as we move through the year. Those are older communities that benefited from price appreciation and higher margins. And then 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. So incentives are playing a role in that as well.

Mike Dahl

And are you assuming there's incremental incentive pressure versus the 7.3% or it's full impact of that 7.3%?

Glenn Keeler

The midpoint of our guide assumes that, that 7% carries through the rest of the year.

Mike Dahl

Okay, got it, thank.

Operator

Alan Ratner, Zelman and Associates.

Alan Ratner

Hey, guys. Good morning. Thanks for all the details so far. And nice performance in a tough market. So I know it's challenging out there. First question on SG&A. So if I look at the guide for the year, roughly 12%, that's going to be running about 100, 150 basis points above kind of where you were pre-COVID up about 300 bps from the near-term low in '22.
I'm curious, 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

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 coin that don't have any associated revenue to it. So that does have an impact.
But there has been general inflation, if you're comparing it to COVID levels. Obviously, there's been wage inflation and other inflation pressures on the G&A line. So it is a combination of both of those. And then obviously, if you're comparing this year to last year, it's the lower revenue and less leverage on those fixed costs that is tracking that out.

Alan Ratner

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

Glenn Keeler

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

Douglas Bauer

I would add, Alan, this is Doug. We are -- we've got a pretty good playbook at the expansion divisions. Yes, 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. So we look at this business in five-year increments in the next three to five years for those three expansion divisions. it cost you a little bit of money, but it's going to pan out very well.

Alan Ratner

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

Douglas Bauer

No, you're spot on. And I would agree with everything you said, I was talking to some of our expansion divisions yesterday. And there's definitely -- it's a good time to using a funny basketball analogy, hang around at who because there's going to be some rebounds and retrades that are going to happen. And we're still focus on Main and Main A locations. And even in some of our existing markets, we've seen some of that activity as well.
But we're being very disciplined, being very smart in our underwriting. We're going to tend to be on the higher end of the side of underwriting right now because there's a lot of uncertainty on how all this tariff activity and economic uncertainty lasts, as you know, and we all know. But everything you said is exactly playing in our favor for these expansion divisions. And frankly, we don't have a gun to our head to do stupid deals. We can be very smart with those divisions and grow very smartly. So that's the other benefit we have in Orlando, the coastal Carolinas and Utah.

Thomas Mitchell

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

Alan Ratner

Great, I appreciate the thoughts and good luck.

Douglas Bauer

Thanks.

Operator

Ken Zenner, Sea Park Research Partners.

Kenneth Zener

Good morning, everybody.

Douglas Bauer

Good morning again.

Kenneth Zener

Just checking on my phone service. All right. So the narrative was we were undersupplied not the long-term stuff, but like 2022, right, 2023. And now according to Census data, for new homes for sale, we're still very high outside of the '05, 2011 period. Yet your inventory units are down 23% year-over-year.
Can you kind of comment on like this national narrative we're seeing in contrast to your data and some of the other public builder data where we are down substantially year-over-year. When you hear that narrative, how do you guys resolve that in the board room like why do you think that's happening? Is it all private? Is it all in Michigan where people don't build that much?

Glenn Keeler

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

Douglas Bauer

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

Thomas Mitchell

And 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. And then as we look at starts, we're balancing that to our absorption pace. And 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

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

Glenn Keeler

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

Kenneth Zener

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

Glenn Keeler

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 will depend on how that old inventory rolls out. But you will see with our lower debt levels flush through over the next 18 months.

Kenneth Zener

I mean the thing is, this is why I ask Glenn and Doug, Tom obviously chime in because like 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 this home 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, it is interesting.

Glenn Keeler

Yeah, understood.

Kenneth Zener

Thank you, guys.

Douglas Bauer

Thanks, Ken.

Operator

Jay McKennis, Wedbush Securities.

Jay McCanless

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

Douglas Bauer

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

Jay McCanless

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

Glenn Keeler

Are you talking absorption, Jay?

Jay McCanless

Just on closings and then maybe how that's trending for orders at least thus far in 2Q?

Thomas Mitchell

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

Jay McCanless

Great. And then last question. It looks like you did nudge up the full year average price a little bit. Is that just from 1Q or do you guys think you're going to have a little richer mix as you go through the rest of the year?

Glenn Keeler

It's just a richer mix. So a little bit more heavy-weighted towards the west and the mix.

Jay McCanless

Okay, great, thanks for taking my question.

Douglas Bauer

Thank, Jay.

Operator

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

Douglas Bauer

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

Operator

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