Q2 2021 Lennar Corp Earnings Call
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Please standby the conference will begin in just a couple of minutes again. Please standby the conference will begin in just a couple of minutes. We appreciate your patience again. Please standby. Thank you.
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Please standby the conference will begin shortly again, please standby the conference will begin shortly we appreciate your patience. Thank you and again please standby.
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Welcome to our second quarter earnings Conference call. At this time, all participants are in a listen only mode. After the presentation. We will conduct a question and answer session. Today's conference is being recorded if you have any objections you may disconnect. At this time I will now turn the call over to Alex Lumpkin for the reading of the forward looking statements.
Thank you and good morning, today's conference call May include forward looking statements.
Including statements regarding when our business financial condition results of operations cash flow strategies and prospects forward looking statements represent only loss estimates on the date of this conference call and are not intended to give any sense as to actual future results because forward looking statements relate to matters that have not yet occurred. These statements are inherently.
Jack to risks and uncertainties, many factors could affect future results and may cause actual activities or results to differ materially from the activities and results anticipated in forward looking statements.
These factors include those described in yesterday's press release, and our SEC filings, including those under the caption risk factors contained in monarch annual report on form 10-K, most recently filed with the SEC. Please note that when our assumes no obligation to update any forward looking statements.
I would now like to introduce your host Mr. Stuart Miller Executive Chairman, Sir you may begin.
Good morning, and thank you everyone.
So this morning, I'm here in Miami, with Rick Beckwitt, and Jon Jaffe, our co Ceos.
Co President.
Diane Bessette, our Chief Financial Officer, David Collins, our controller.
And Vice President Bruce gross CEO of Lennar financial services and of course, Alex who you just heard from.
It's been a while since we've done an earnings call together altogether.
We're all here and happy to be returning to normal.
So todays call is pretty straightforward. So we will try to keep our remarks as brief as possible and.
And leave time for your questions I'm going to give a macro and strategic lenoir overview.
Rick will talk about market strength community count and our growing single family for rent strategy and John will update our adjusted time land strategy supply chain production and construction costs.
As usual Diane will give detailed financial information highlights and guidance and then we'll attempt to answer as many questions as possible. Please limit questions to just 1 question for customer and 1 follow up.
So with that let me start and I want to start my remarks today with a big shout out to the entire line. Our operating team. There is simply no way to report our quarterly results without starting with the engine that produces those results the.
The market conditions have made these the best of times and the housing market.
These times have their challenges as well.
We're forming and these best of times, it's hard grinding work that requires the coordination of our first class hands on an engaged management team working in close partnership with extraordinary associates, who care deeply about our customers and our company and we have nothing on the field in achieving those.
Results.
I'd also like to give a shout.
So that to 1 person in particular and that is our chief operating officer, Fred Rothman It.
It is noteworthy that Fred is not with us here in the room today.
This is because he is probably 1 of our divisions.
Listening with the management team there.
He is connecting the dots between their performance and the performance of the company and the articulated strategies of the company.
<unk> is with the people.
Recently, we had a fortune magazine article written about the company.
It wasn't pictured nor interviewed because he was busy with the people that make things happen. In fact red is the every person of 1 owner not pictured not interviewed no limelight no fanfare just heads down doing the work that makes this company great. Thank.
Fred you make us proud.
The associates of Lenore from homebuilding to financial services to Linux to the outer reaches of our ancillary business segments performed the impossible on a regular basis.
<unk> care for all of our core constituents, our customers our shareholders, our building partners and our community as well as carrying for each other.
Harmony and come Rodriguez <unk> is in itself a real source of pride and that drives us all to excellence in our business to innovation to stay at the cutting edge to integrity in everything we do to shared prosperity across our communities with our money and our time.
In coordination with our <unk> Foundation.
I know I joined everyone.
I know I joined everyone in this room today, and saying a big thank you to our associates and telling our shareholders bondholders analysts and investors that we here in this room are proud to have the privilege to present their results to you today.
Now.
As I've already noted from a macro perspective, the housing market remains very strong as these are the best of times demand has continued to strengthen while the supply of new and existing homes has remained constrained.
New home construction cannot ramp quickly enough to fill the void of the production deficit that has persisted over the past decade.
And while some question whether that deficit is 1 million homes or $5.5 million homes. The bottom line is that supply is short.
Land labor and supply chain are all limiting factors and the drive to meet current demand. So supply is short and is likely to remain that way for some time to come.
Even though home prices have moved much higher and interest rates have moved slightly higher overall affordability remains strong.
Interest rates are still lower than they were a year ago and personal savings for deposits are strong.
Wages seem to be rising faster.
Faster than monthly payments.
Millennials are moving out of their parents homes, and forming families apartment dwellers or finding a first time home and demand is strong and growing yesterday's first time homes are selling at higher prices and that equity is enabling first time move ups yesterday as move up home is selling at a strong price.
With increased equity, enabling customers to consider and purchased a larger home the upward spiral of a strong housing market is in full swing.
Additionally, the <unk> buyer and single family for rent participants are providing additional liquidity to the marketplace to purchase and sell homes as they evolve and provide ever more frictionless transactions.
They are also solving important industry problems that have needed solutions for a very long time.
I buyers led by open door.
Becoming more than just a home sale option.
They are an ever more effective and instrumental convenience provider as the coordination of the closing of a new home is being complicated by supply chain disruption.
Expected closing dates move and the customer and customer plans are disrupted.
The fragile dance of selling an old home, while closing on a new home becomes frustrated by these delays.
Open door and other ride buyers have developed flexibility programs that are designed to bridge that gap and simplify unpredictable delays.
I buy our value proposition is more compelling than just are ready and convenient home buyer. It is becoming the core of our coordinated closing without double moves toward double housing costs. The convenience factor is becoming a real value proposition in and of itself.
The single family for rent participants are making a single family home lifestyle accessible to more families to working families.
Although higher home prices have exacerbated the well documented affordability crisis across the country.
Solution is to build more homes and make a growing portion of that housing stock available to 4 more families to rent if they can't meet the requirements for home ownership.
This is simply a social equity program that enables better housing for more families and more diverse families without weakening the mortgage market.
Professional ownership.
Professional ownership of homes enables renters to access a single family lifestyle, while they build the credentials to own and while commercial and professional owners manage the risk profile.
Better housing for families produces better outcomes for families and the industry as we re wiring to make better housing accessible and affordable to more families. Rick will cover this in more detail shortly.
The housing market is not only very strong but it is also going through some very interesting interesting structural changes that will promote stability in the market and extend housing benefits to the breadth of a diverse society.
The buyer states space promotes liquidity frictionless transactions and enables mobility, while professionally owned single family for rent is providing workforce housing with social equity and upward mobility that has never existed before.
These changes will also act as circuit breakers for the cyclicality cyclicality of the housing market in the future.
But for now the housing market is strong while it is evolving and some very constructive ways.
So in the context.
Yeah.
A very strong overall market conditions Lenoir has very strong second quarter results reflect a lot of hard work and a consistent and focused strategic plan.
We remain focused on orderly targeted growth with our sales pace tightly matched with our pace of production.
We have limited growth as the top line.
Yeah in favor of an even greater growth at the bottom line, we focused on gross margin by selling in step with production, while controlling costs and reducing our SG&A.
We have built adjusted time delivery system for land at the front end and we have built adjusted in time delivery system for our finished homes at the back end with our single family for rent program.
We are focused on cash flow debt reduction and stock buybacks land owned versus controlled return on capital and return on equity and of course on innovative technologies.
And we've carefully managed and already stressed supply chain by maintaining our delivery targets for the year, rather than increasing them, while we focus on delivering high quality homes to our customers.
All of this strategic focus shows through in our second quarter results and will carry through the <unk>.
Throughout the year and into 2022.
In the second quarter, we grew our deliveries 14% year over year and grew revenues, 22%, which drove a net after tax income increase of 61% and an after tax pre extraordinary items increase of 79%.
Our bottom line increase is driven by our second quarter gross margin of 26, 1% versus 2021, 6% last year.
And as noted in our press release, we expect our deliveries for the year to be consistent with prior guidance given the stressed supply chain, while our gross margin continues to grow consistently throughout the year.
At the same time, we've remained focused on improving our operating efficiency driving our SG&A down to a second quarter, all time low of 7.6% versus 8.3% last year and driving our net margin to 18, 5% this year versus 13, 3% last year.
Alongside our homebuilding operations, our financial services group has continued to exceed all expectations with $121 million of earnings contribution in part due to excellent secondary market execution.
The consistent performance from this group however continues to be driven by constant work and rework of the cost structure, even while costs are going up generally.
Together with our asset light focus strong gross and net margins and financial services execution.
We are driving significantly higher cash flow, which is driving balance sheet improvement as well.
In our second quarter, we achieved our 50% owned versus controlled land ratio goal 2 quarters earlier than expected and we reduced our land supply to 3.3 years from 3.9 years last year.
All of these events drove our balance sheet to a 23, 1% debt to total capital ratio with almost $2.6 billion of cash and zero borrowed on our on our bank line.
Let me briefly focus attention on return on equity return on capital and our inventory turn.
Noted to many of you that we remain very focused on cash flow returns and inventory returns and we have.
Our return on equity stands now at 18, 8%, which is 550 basis points or 550 basis point improvement over last year. Our return on capital is now, 15% and a 500 basis point improvement.
And our inventory turn which is just starting to move now stands at 1 times turn which is up from 9 last year.
While the land at what while Diane will give more detail.
And our guidance in her comments, it's important to note that these components are squarely in our focus they continue to make a compelling case for multiple expansion.
And they are at the top of our mind as we consider configure and size our proposed spin off.
These dramatic points of improvement, which we expect to continue through the year have enabled us to reconsider the size of our spinoff and actually aimed for a larger asset base in order to further fortify the spun business.
Accordingly, we are now targeting an asset base of $5 to 6 billion, which is which will leave the remaining lenoir pure play homebuilding and financial services company with an appropriately liquid balance sheet and no material loss of reported earnings.
We continue to believe that the best way to enhance <unk> business model is as a standalone pure play asset light high inventory turn homebuilder manufacturer and financial services company.
Aside from size, we have very little to update on the spin this quarter as noted last quarter. The new company will be configured as an independent and active asset management business that raising third party capital to support our ongoing business vertical.
2 of these verticals have raised third party capital have already raised third party capital and our active asset managers, that's LLC, our multifamily platform and <unk>, our growing single family for rent platform.
Both of these platforms are newly configured as independent self sustaining operations. Additionally, we have a dynamic and growing independent land and land management business and we have a growing technology investments business, which is part of <unk> ex <unk>.
As I noted last quarter. This separation from the homebuilder will enable these blue chip businesses to thrive and excel independently.
And while I'm certain that you all would like a lot more detail you can expect to hear a lot more about the spin and our next quarters earnings release.
So let me wrap up by saying that we have never been better positioned financially organizationally and technologically to thrive and grow in this evolving in exciting housing market.
We have an amazing group of talented associates, driving our business forward and caring about the world around them. We are performing excellently on all metrics driven by strategies that have worked to our benefit.
The market condition remains extremely strong for the foreseeable future as I've noted, we expect a very strong second half of 2021.
While we are not projecting more deliveries given the very tight land labor and materials market, we are projecting growing gross margin and a very healthy bottom line.
As we begin to look to 2022, we see continued strength in the market.
Simply put supply is short and demand is strong.
Some are concerned the demand is slowing at <unk> prices move higher and interest rates move it feels to US net sales are slowing because many sales were made early in building through those sales is slower than expected.
We believe that home production has been constrained for a decade, and we are making up for the deficit now which should keep the housing market is thriving for some time to come with that let me turn it over to Rick.
Thanks, Stuart as you can tell from spirits opening comments. The housing market is very strong our team is extremely well coordinated and our financial results continue to benefit from a solid execution of our core operating strategies.
Key to that has been running a finely tuned homebuilding machine, where we carefully match homebuilding production with sales on a community by community basis in this environment. It makes no sense to sell too far out ahead, because you lose your ability to offset potential pricing cost increases with sales.
Price increases.
In addition, and this appreciating market with slightly longer cycle times, we are strategically selling our homes later in the production cycle of the home to allow for further cost protection and sales price appreciation.
Our first quarter results prove out the success of this strategy as we achieved gross margin increases of 450 basis points year over year.
And 110 basis points sequentially.
During the second quarter, we started 5.5 homes per community, which was a 90% increase from last year and a 20% increase sequentially.
This production and margin driven sales focused program will drive further margin improvement and increased deliveries in the back half of the year given our ramp up in starts in the second quarter.
In the second quarter, new orders deliveries and gross margins were up strongly in each of our operating region in.
In addition, we saw strength in all product categories from entry level to move up and in our active adult communities. The strength of the market was also reflected in a historically low cancellation rate, which was 8.6% in the quarter down 120 basis points from last year and 100 basis.
Points sequentially. This is additional evidence that our buyers have the required down payment and mortgage qualifications to purchase a new home.
As we look across the country, we're seeing strength in all of our markets.
Here's some color on some of our stronger markets.
Starting in Florida, Florida continues to benefit from core local demand as well as in migration from the northeast and the West Coast, which is driving both sales pace and price inventory is extremely limited and buyers and moving fast to go to contract the hottest markets in Florida.
Naples, and Sarasota in the southwest Miami, Broward and Dade in the southeast and Tampa. These are all markets, where we are the leading builder with the best land positions and.
In the Carolinas, Raleigh, Charlotte and Charleston are extremely strong markets benefiting from limited inventory job growth and quality of living.
We are the top builder in each of these markets.
Texas continues to be the strongest state in the country with and migration from the east and West The States Pro business employer friendly economy is driving corporate relocations and a tremendous growth job growth, especially in the technology sales.
State is also benefiting from the recovery in the oil and gas sector, the strongest market in the United States today is Austin.
Notwithstanding out migration from parts of California, the markets in California are strong.
Driven by the states severe housing shortage, there is more demand than supply, making housing the number 1 agenda item for the governor.
The inland Empire, Sacramento, and the East Bay area are the strongest markets are seeing a migration from the coastal markets due to a higher level of affordability compounded with the opportunity to buy a larger home for the money. This extra boost in demand combined with limited inventory in Great School is.
Fueling demand in these areas.
And Las Vegas are strong markets, both are benefiting from business friendly environments real job growth and in migration from California.
Vegas is benefiting from the full reopening of the casinos and increased tourism and Phoenix and subscribing due to real affordability.
The Pacific Northwest continues to be strong.
The market has a natural supply constraints and can strength by urban growth boundaries that limit production.
As I said these are some of the strongest markets that theres strength and depth of market across the company.
Country now I'd like to spend a few moments talking about growth in community count.
Even as we continue to closeout communities in a much faster pace than expected given the strength in the market our community count at the end of the second quarter grew to 1225 communities up 63 communities or 5.4% from the end of the first quarter.
We are also still on track to end fiscal 2021 with approximately 10% more communities on a year over year basis. This should position us for consistent continued growth in fiscal 2022.
Finally, I'd like to give you some additional details on <unk> fr. When our single family rental platform as we discussed last quarter when our formed <unk> to facilitate a better time delivery of our homes with reduced cycle times and to make the single family lifestyle accessible to more.
Please.
At the end of the first quarter LSF are formed the upward America venture, which was capitalized with 1.5 billion of equity from Blue chip institutional investors Jeff.
After the end of the second quarter LSF are close to $750 million credit facility with Deutsche Bank, which combined with the accuracy equity commitments positions. The upward America adventure with extremely cost effective capital to acquire over $4 billion of purpose built communities and scattered site home.
From Lennar, we expect an RFP capital investment in the venture to be $50 million over the duration of the vehicle.
Since the beginning the upward America venture has purchased 216 homes for approximately $48 million day.
It sounds we're located in 18 communities from 7 markets across 3 of <unk> operating regions.
<unk> hundred 88 of these homes were purchased and purpose built communities and 28 was scattered homes purchased on adjusted time basis from available inventory and in line ours existing sales for sale communities.
All of these home fit a pre determined by box approved by the venture's equity investors to facilitate the purchase of these homes LFR worked hand in hand, with Atlanta ex to develop proprietary technology that produces automated underwriting and pricing that harnesses when our data.
Management and business intelligence systems, along with third party data to evaluate which ethylene or tones fit within the ventures by box.
At the end of the second quarter. The upward America venture had a pipeline of 2534 homes under contract located in 2009 communities.
Across 11 markets with a total purchase price of $596 million 20.
<unk> 500 of these home are in purpose built communities and 34 homes are scattered homes and when ours existing for sale communities.
As Stuart mentioned in his opening comments, the social aspect of providing affordable housing and making the single family lifestyle available to more families is a critical aspect to the upward America venture.
This is proving to be just the case as the average lease to rent in the portfolio today is $1729, meaning that our household making $59280 a year or more can afford to live in a brand new home without a down payment.
To put some perspective on this the average teacher salary in 2019 and 2020 in the U S was $63465. This lines up squarely with our goal of providing brand new high quality homes at affordable prices. This is workforce housing.
With a single family lifestyle.
Can you expand on the potential to provide real home ownership to a broader base of families. We are focused on developing a rent to own program for scattered home purchases within the upward America venture.
We are in the final stages of developing this program with giving a land ex portfolio company, giving.
<unk> is a market leader and upward mobility for renters across the country. We expect this program to be up and running in the third quarter.
We're very excited with the progress we've made so far with <unk> the demand for single family rental homes remains strong lease up times are compressing and we have seen real rent growth now I'd like to turn it over to Jonathan.
Thank you Rick today, I'm going to walk you through 2 topics, how we execute on our asset light land strategy for adjusted time delivery system of home sites and how we are managing the current unprecedented challenges of supply chain disruptions and labor shortages.
<unk> noted <unk> made significant strides in strengthening our balance sheet with improved cash flow generation driven primarily by the reduction in land owned versus option in the years of land owned which respectively stand up 50% option and 3.3 years.
In the second quarter, we added about 38000 home sites net to our controlled total and purchased about 21500 homesites.
We began our asset light focus years ago, starting with several large regional land relationships, who own and develop land on monarch behalf. We then created a strategic national process around our approach. The first critical step in formulating this approach with the separate land into 3 distinct risk categories.
The first category is the initial land that is ready for the construction of homes to be started.
The second is land other development being ready for the first category is typically less than 4 to 5 years from being ready for construction starts.
Land and the third category is beyond the 4 to 5 year period that may need some entitlement significant planning and has not yet started development.
After separating land into these 3 buckets. We then match the risk profile of each asset with the right sorts of risk adjusted capital and expertise.
The first category of land is carried on our balance sheet.
As it is the land under the homes. We are building less land has no risk to it and our cash on hand, and revolver are the lowest cost of capital for it.
The second and third categories of land are structured as option agreements with various strategic relationships that are the <unk>.
<unk> and capital that fit the specific land profile.
Assets that are low risk profile may go into land banks, which have the next lowest cost of capital.
There are more complex land is a good fit for our large regional relationships.
More recently, we have added significantly larger national relationships structure to match the type of land asset and also contractually structured option agreements, which will survive potential market shocks that has historically created risk to defaulting on option deposits and to maintaining control of the option land, thus further reducing risk.
The distinct land business is compromised.
This distinct land business is compromised of an operational team with a singular focus on executing our asset light strategy by closely coordinating with our local division teams and our strategic third party relationships. This independent team works to ensure a consistent application of processes and procedures to execute on all of the moving pieces from land.
The writing to acquisition development and completion of just in time home sites importantly, the independent of this team takes the burden off of our homebuilding divisions of negotiating unique individual option agreements with third parties, they are buying thereby allowing our divisions to be laser focused on running our core homebuilding operations. It also provides all of our.
Third party relationships the ability to work with 1 voice from a large geographically diverse company.
Our focus on separating our land purchases into these 3 distinct risk buckets has allowed us to secure the most cost effective capital for Legion each land asset as a result, we're lowering lowers cost and risk associated with purchasing each category of land.
Now I'd like to discuss how <unk> managing the current environment of supply chain disruptions.
You're all familiar with what is occurring the supply chain has been impacted by the pandemic by the storms in Texas and by the surge in demand from new construction and big box retailers. Many manufacturers are finding themselves without the materials and our capacity to keep up with their orders. Additionally, there is a nationwide shortage of trucks and drivers that add to the disruption.
As you would expect that <unk>, we have brought an intense daily focus to managing the situations, we're effectively managing through leveraging our strategic supply chain relationships as well as having the unprecedented internal connectivity between our division regional and national purchasing teams today.
Today, we work very closely with the leadership of our strategic supply partners as a result of having been focused on being their builder of choice over the over the past 5 years.
We are deeply we've been deeply involved in overtime and developing relationships processes and procedures to improve their businesses. This is not just lip service is over the past 5 years when orders change the way we run our business to improve the bottom lines of our strategic partners businesses. Our actions have earned us the right to sit down with our.
<unk> suppliers and find solutions to today's challenges.
Sometimes of expediting orders and even warehousing early deliveries in some cases, it's substituting products, but in all situations. We together with our partners are funding solutions. The net effect of these disruptions is about a 2 week increase to our cycle times.
With respect to our local trade partners the shortage of labor persist now more than ever like the supply chain situation. We have bought an intense daily focus to manage this again, our builder of choice focus for the past 5 plus years of paying dividends. We have also changed the way we do business with our local building trades over this period of time significantly we've refined the fork.
The new communication of starts and have implemented <unk> level scheduling program.
For greater visibility of the upcoming workloads for our trade partners. Today, we now have real time Dashboards show you exactly how many tests each trade has in the coming weeks and months. This enables them to accurately plan for their labor needs and keep our job sites productive. We believe these dashboards to be a best in class forecasting and communication.
<unk> solutions.
Also significant for both our suppliers and our local trade partners as our share of <unk>. Everything's included program. This has never been more important it simplifies the number of Skus, our suppliers and local trades new to carry in addition in this current environment. We've taken further steps to reduce the number of Skus, we use and certain constrained categories.
Areas of focus for us are using our level scheduling dashboards to support our ongoing even flow commitment to our trade partners along with maintaining our production first focus on matching sales to starts as Rick discussed.
Turning to the cost impact from the combination of supply chain disruptions the spike in lumber and labor shortages are construction costs in the second quarter were up 3.9% sequentially from 4.5% year over year. However, even though construction cost increased day decreased as a percent of revenues from 41, 8% and 44.5.
And 5% sequentially and year over year, respectively down to 41, 3% and our second quarter.
With respect to lumber specifically, we all know that lumber reached an all time high before very recently coming off of that Q.
Q4 of 2020 is when we saw the first significant increase in lumber costs, which impacted primarily our Q2 deliveries for lumber increases which occurred in Q1, and Q2 will mostly flow through our deliveries in the second half of the year, but as we noted and Diane will cover in more detail, we believe that with our pricing power.
While more than offset this and we expect to deliver stronger gross margins.
Looking forward, we expect to see some limited relief or a lumber cost for our July starts with more expected once of lumber works its way through the system.
If the current downward trend holds we will see a more significant benefit for August starts.
Lastly.
I want to thank the associates of our Nashville land team led by KC, David and Jim will close coordination with all of our division land teams effectively executed our land light strategy and just in time home site deliveries strategy I also want to thank our national regional and divisional purchasing associates led by Kent Gillis, who have the difficult job.
Battling through these unprecedented supply chain disruptions ex <unk>.
So a tremendous focus effort employees now I'd like to turn it over to Diane.
So thank you John and good morning, everyone. Although you've heard some of our financial results from Stuart Rick and Jon I'll begin by recapping certain Q2, 2021 highlights and then providing detailed guidance for Q3.2021 high level guidance for fiscal year on each line 1.
So starting with homebuilding.
Quarter, New orders totaled 17157 homes, a 32% increase year over year, we ended the quarter with 24741 homes in backlog with a dollar value of $11 billion and 1225 active communities our cancellation rate was 8.6.
Per cent for.
For the quarter deliveries totaled 14493 homes up 14% year over year.
Our gross margin was 26, 1% up 450 basis points from the prior year.
This increase was primarily driven by our continued focus on maximizing sales price while controlling cost increases as John described Additionally, our margin benefitted by a 2020 basis point decrease in interest expense as compared to the prior year as a result of our consistent focus on debt reduction.
Our SG&A was 7.6% an improvement of 70 basis points from the prior year. This decrease is primarily a result of our intense focus on incorporating technology to gain efficiencies across our homebuilding platform.
So for the quarter, we generated a net margin of 18, 5% the highest quarter net margin every day.
Our financial services team also executed at high levels reporting a $121 million of operating earnings mortgage operating earnings increased to $92 million compared to $81 million in prior year.
Mortgage earnings benefited from an increase in secondary margins tighter.
Hydro operations title operating earnings were $24 million compared to $76 million in the prior year.
Prior year included a gain of $61 million on the deconsolidation of states title now called zone. Excluding this gain title earnings increased due to growth in both volume and margin as technology initiatives improved agency productivity.
And then turning to our line our other segment during the quarter, we closed on the sale of our residential solar platform to Synovus energy International in exchange for shares in that company at.
At the time of the closing we recorded a gain of $151 million.
We are required to mark to market, our investments in Nova as well as our investment in open door, which went public in our first quarter at each quarter end based on their stock prices at that time, Accordingly, we recorded mark to market losses in the second quarter of approximately $273 million.
Now turning to the balance sheet.
We ended the quarter with $2.6 billion of cash and no borrowings outstanding on our $2.5 billion revolving credit facility, we continue to execute on our strategy to become asset lighter by developing adjusted time delivery system from land and homes, improving returns and generating significant homebuilding cash flow.
At quarter end, we owned a 189000 home sites and controlled 192000 home sites.
This resulted in our year supply owned decreased to 3.3 years from $3.9 years from the prior year and our homesites controlled increasing to 50% from 32% in the prior year, thus achieving our controlled percentage growth midyear instead of end of year.
All of this progress resulted in achieving a 20% return on inventory excluding consolidated inventory not owned and is consistent with our intense focus on increasing all of our returns.
During the quarter, we paid dividends totaling $78 million and we repurchased 1 million shares totaling 98 million.
And at quarter end, our homebuilding debt to total capital was 23, 1% down from 31, 2% in the prior year.
After quarter end in fact, just this week. We retired early at par our 300 million 6 <unk> senior notes that were due in December 2021, further reducing our senior note balance and saving about $9 million in interest our next maturity $600 million due in January 2000.22020.
2 is a 3 month par call, which we will utilize to prepay those notes in October of this year.
After that payment we will have no senior note maturities until October 2022.
And just a few final points on our balance sheet, our stockholders' equity increased to approximately $20 billion from $17 billion in Q2 of the pioneer and our book value per share increased to $62.68 from.
$52.90 day in the prior year and.
And finally last week, we were upgraded to investment grade by S&P. We are really pleased with the rating agency upgrades. We have achieved in recent months and are now investment grade in all 3 with all 3 agencies.
So in summary, our balance sheet is very strong and we will of course continue to remain focused on generating high returns for our shareholders.
So with that brief overview I would now let's turn to guidance I will first provide detailed guidance for the third quarter and then some high level guidance for the fiscal year, starting with homebuilding, we expect Q3, new orders to be in the range of 16000 to 16300 homes and acute the Q3 deliveries to be in the range of <unk>.
<unk> thousand 800 to 16100 homes, our Q3 average sales price should be between 420 and 425000, we expect our gross margin to be in the range of 27 to 27, 5% for Q3, and we expect our SG&A to be in the range of $7.3 to 7.
4% and for the combined homebuilding joint venture land sale and other categories. The expenses, we expect a Q3 loss in the range of $10 million to $15 million and then looking at our other business segments from.
Financial services, we believe our financial services earnings for Q3 will be in the range of $95 million to $100 million and for our multifamily operations, we expect a loss in the range of $5 million to $10 million.
And so there are other category, we expect a loss in the range of 10 to 15 million note that this guidance does not include any potential mark to market adjustments on our current or future publicly traded technology investments, we expect our Q3 corporate G&A to be about 1.4% of total revenues.
And our charitable foundation contribution will be based on $1000 per home deliveries fourth quarter.
We expect our tax rate to be approximately 22, 5% and a weighted average share count for the quarter should be approximately 310 million shares and so when you pull all this together this guidance should produce an EPS range of $3.7 to.
<unk> to $3.32 per share for the quarter.
And now let me provide some high level guidance for the fiscal year, we still expect as I mentioned, our deliveries to be between 62000.64000 homes.
But within now higher gross margin guidance of 26, 5% to 27% for the year and then even more efficient operating platform with SG&A guidance of $7.3 to 7.5% for the year. We believe our average sales price for the year will be about 420000, and we still expect our true.
Net accounts increased approximately 10% year over year by year, and our financial services earnings will be in the range of $460 million to $470 million and finally, our tax rate should be about 28, 5%.
As we continue to execute our core operating strategy to maintain a strong balance sheet and remain focused on cash flow generation and returns.
Well positioned for an excellent year and with that let me turn it over to the operator.
Sure.
Thank you we will now begin the question and answer session of today's conference call. We ask that you limit your questions to 1 question and a follow up question until all questions have been answered if you would like to ask a question. Please on mute your phone press star 1 and record your name clearly when prompted if you need to withdraw your question at any time you may you start too.
Again that is star 1 to ask a question and our first question comes from Michael Rehaut from Jpmorgan. Your line is open.
Thanks Scott.
Good morning, everyone and thanks for all the details always true.
Perhaps on the results from bodes well.
First question I, just wanted to hit on probably the number 1 SKU.
Is my area of concern today, which is around demand trends and.
I think theres been.
No.
Concern specifically around the potential for demand slowing a little bit.
In the face.
The extraordinary amount of home price appreciation that's occurred over the last several months.
Stuart you mentioned in your prepared remarks that.
Unit sales have been slowing more due to.
In effect production constraints in managing the sales pace.
I was hoping for any sense of how you view demand as it progressed throughout the quarter.
And what makes you comfortable around the idea that.
Overall, the demand backdrop remains not only robust, but it appears still well in excess of available supply.
So let.
Let me start with a notion proposition that the market has been extremely extremely hot.
So when you go from extremely extremely hot to extremely hot.
That's net.
Let's say.
A step down that is really quite acceptable it's actually.
Little bit better and of course.
As pricing goes up.
People.
Fewer people can afford.
So.
I would just say Mike that while the market might have a mild cooling. It is it is just from such a high level.
That demand is still well in excess of supply and we see this on the ground at our welcome home centers on a regular basis and this is not in any specific market. It really is across the country.
So when we look at the day.
Temperament.
<unk> of sales in our welcome home centers, the traffic Thats coming in the discussions that we're having.
We're still seeing very strong demand.
We still see very limited supply.
And we recognize that the country and the production of housing has been in deficit for the better part of a decade and we can argue whether the deck. The deficit is 1 size or another I think that there are a lot of competing views on that but.
But still.
Based on what we see in the market.
And the that the logic that we're applying to what we've seen over the past years and the appetite of the buying public the millennials that still have income out of their parents' home. We think theres a very very strong demand profile that is out there for an extended period of time.
Yes, I guess I would add to that Michael that if you look at the quarter, we sold 17000 plus homes during the quarter and the variability between the months, where it's plus or -100 columns. So.
We've really seen no impact.
Associated with the cooling.
And again for us that ties into our match.
Our strategy of sales to production, we're able to hit exactly that pace.
So when you go from very very hot very hot.
Bill well above the levels were at a year ago, which were very strong.
Yes.
Right right.
All makes sense.
Thanks for that color.
Secondly, I think perhaps the other key area of debate out there right now is around the sustainability of gross margins.
With the success that you've highlighted this year in terms of.
Managing sales pace in.
And opportunistically improving margin and obviously a part of that is.
To cover.
Cost inflation, but you've been able to been able to do well in excess of that.
Interesting right now that the gross margins you are projecting for 'twenty 1 are in excess of the prior peak margins in 2005.
Interestingly you are on track to have revenue.
Homebuilding revenue more than double 2005.
So you'd think that there are scale benefits certainly associated with that.
But I was wondering if you could give any perhaps.
It's on.
How you think about gross margins going forward over the next couple of years, obviously I'm not asking for guidance for 'twenty 2.
But just more broadly.
When you think about the gross margin levels that you're generating for this year.
What might be the puts and takes outside of sales incentives, which are hard to.
Predict.
How you see gross margin, let's say this cycle and perhaps over the next couple of years versus the last cycle.
So.
Let's let's take out.
Just the.
The volume component.
Improvement in margin I mean, if you if you look at the composition of our margin.
It is a combination of.
A lot more efficiency in the way that we're managing our company. The technologies that we are engaging in and incorporating into the way that we're running our business.
The efficiency of our land program just in time delivery of land.
And frankly.
Emergent inventory management component of our single family for rent.
Okay.
They're tremendous efficiencies that we are embedding in the core operation of our business.
And we think that these are becoming more and more important.
The way that we're managing our supply chain.
As a matter of absolute efficiencies being brought into the way that we're operating our business.
And youre going to see that we hasnt.
Hasnt company and hopefully as an industry are recasting the cost structure, all the way from heart costs labor materials to the softer costs around SG&A. We are rewiring the way that this business operates to the benefit of a lower cost structure.
And an opportunity to maintain good margins and still bring affordability to the housing market.
And I think that that's been.
In extreme part of our program I do want to highlight that additionally.
Wind at the back wind at our backs is our reduced debt level as we bring that down we have less capital Corp.
And that's continuing to help our margin picture and we expect to continue to bring net debt level down.
So all of the components from technology or the way, we run our business net levels.
The way that we're just we're becoming more of a adjusted time program I think is a protective coating around margins for the future and we're pretty optimistic about where we're going.
So the only add that as I noted in my comments.
With a focus on purchasing we've brought our direct cost down to 41.
Sorry, 41% of our.
Revenues and so look at that ratio.
We've got a lot of room to go before the lines cross between revenues coy off and cost to be able to maintain our margins.
And I guess the final point I'd make is if you look at what we're building today compared to that 2005.2006 timeframe. Our homes are so much more value engineered and efficient to build so the cost structure associated with the production of those home.
Significantly different than the last cycle.
Alright, let's go alright, thanks, everybody.
Net.
Thank you. Our next question comes from Stephen Kim from Evercore ISI. Your line is open.
Yeah, Thanks, a lot guys.
Just say that I think people would really love to hear a little bit about the spin co and particularly what you think the book value reduction would be when you spun it off if you could talk about the assets, but the book value I think would be important.
But my questions are going to focus on our core homebuilding business.
In this environment, where you are deliberately in some cases holding back sales to Asia. Your work in process inventory. It seems like the best indication of future sales isn't actually the number of homes are selling today, but how many homes you're building.
And given that I noticed that your starts and <unk> were up about 28% from <unk>. The nations starts were only up 7% sequentially not seasonally adjusted so clearly youre gaining a lot of share.
You started I think the actual number was like over 20000 units in the quarter.
And I would think your production capability should increase from here because your community counts increasing so my question is basically.
Is it reasonable to think that before too long you're closings should be able to exceed 20000 units in a quarter.
Well.
Let me, let me give a couple of corrective pieces.
First of all Steve and most importantly, we never deliver units, it's always homes at <unk>. So.
Got to get that 1 right number 2 <unk> and <unk> when we talk about a spin in terms of dollars, we're talking about book value.
So.
When you asked I think that when you ask.
The question, which we won't hold that as 1 of your questions about spin co and the impact to book it as a direct 1 to $1.
<unk>.
Dollar amount that clear great yes.
Yes. Thank you.
And then.
As it relates to our starch or starts.
I think we are at 19.5.
Not over 'twenty.
But I'll, let Jonathan addressed the question.
Let's see if we have been.
Very laser focus on our even flow production and <unk>.
Gradually ramping that up to the increased art level that you noted.
And that ultimately does flow through.
As I noted, we're seeing about a 2 week cycle time delay so it's Scott.
Perfectly flow through but.
We should see in subsequent quarters, our deliveries matching that start pace.
Yes.
Just a further what John said, we purposely did start a higher number of homes in the last quarter, because we've seen demand.
So if you look at it from a start sales differential was about 2500 more home started then sold but we could have sold all of those home. We're just choosing to sell them later in the construction cycle in order to maximize margin and to take advantage of more finely tuned.
Delivery cycle.
Yeah, absolutely makes sense very sensible strategy I would say.
The second question relates to home prices I think the most striking development across the market has been a massive surge in home prices not just that you're experiencing but across the market.
According to some measures retail pricing is up 25% year over year, you know when people hear the SMA instinctively think it's a setup for home prices to fall in the future.
Which by the way it would set off a pretty bad chain of events have happened.
Our own view is that the price jump as a correction rather than an overshoot. It's the result.
Hours of under supply and pent up demand and not just low interest rates and so it makes it very different from like Oh, 5 like when demand was very speculative and supply wasn't constrained because I think people would really like to hear from you. How you see the longer term outlook for pricing are we seeing a blow off peak like what happened recently the lumber futures.
Or something or have we found a new level of home price if that can be resilient in the face of potentially higher rates.
Hello.
From everything that we're seeing in the field I think that where we're just hitting a new level I think.
I wouldn't have thought of it as a correction, but the way that you have said it I think that that makes sense I think that home prices are and have reached.
A point and are continuing to grow by the way. This is not this hasnt slowed.
But.
Home prices have clear are reaching a point where.
Where it is kind of a correction to a higher price level I think its stagnated for a very long period of time as we went through the underproduction years, and maybe the mortgage market kind of disabled.
Production and the demand for home home.
<unk> or certainly early after the downturn, but.
You have this really interesting time, where.
Not only has the mortgage market normalized and I think normalized in a very credible way.
Protective of that mortgage market, but you also have this really interesting demand coming from single family for rent and Theres. Some theres some questions around single family for rent in interesting ways, but it's single family for rent is enabling a single family lifestyle to a broader range of people.
Who cannot necessarily acquire the downpayment or meet the metrics that are needed to qualify for a mortgage but certainly have the ability to afford the rent on a single family lifestyle and this notion that the way that people.
Live the housing that is available to a broader range of people.
It's very predictive of outcomes for families is a really important component thats in merchant and the enablement of the single family for rent business is just enabling homes available to a broader range a bigger part of the population and I think this is a greater good and we believe.
And I think Rick day later that you highlighted it very well we believe that when we're providing more work force housing we're expanding the amount of demand thats out there and yes, we're driving costs up or the price of housing up a little bit.
That is driving the cost of housing up because there is more demand and less supply, but at the same time, it's asking the industry to provide more and provide more accessibility to more people I think thats generally great impact for the industry.
Yes, I agree on the steppingstone, there or the single family for rent is really an important development. So thanks very much guys I appreciate it okay you bet.
Thank you. Our next question comes from Alan Ratner from Zelman Your line is open.
Hey, actually it's Ivy Zelman, Thank you for taking our questions.
Maybe Stuart just to clarify so maybe John you said that you are purposely starting more.
So you can sell later in the process, but your guidance for sales for next quarter just to be clear. It remains the GAAP is still there prevalent. So is that just mean that youre going to hold those or are you just don't want to guide to the full production capacity that you can in fact.
<unk>.
We think thats accurate guidance I agree based on us.
<unk> methodically scheduling when we're going to sell a home.
It's not the same in all markets. It's later in some markets than others, but it is a very carefully very meticulous plan not to sell out ahead of ourselves.
Okay, just want to make sure. So let me go to a higher level question Stuart for you recognizing that we are seeing inflation robust inflation across the entire ecosystem, including home prices that Steve can just addressed and as well as rent inflation, especially single family.
Rent inflation that I think invitation homes in American homes for rent actually at NAREIT said that they were raising a new moving up 14, 17%. We've got home prices in places like Austin up 25% do you not think that there is going to be some type of affordability for both asset classes that wages are certainly not.
Increasing at those levels.
Where is the ceiling, where it's no longer affordable for a renter or for a home buyer.
Well look.
Don't think that there is math that can tell us where there might be a ceiling.
And it seems to us.
Wages are increasing.
And home or the cost of home.
And only 1 say ownership of.
The cost of living.
<unk> is going up at the same time and that defines the low inflationary environment.
But where do you find affordability.
Rick again did a really interesting job of laying out the single family for rent World is kind of an equalizer in that field and the program that we're really working on is saying, okay. So housing affordability might be out of the reach of some people.
How do we bring it in the reach through a rental program and then how do we start to build a rental program that provides upward mobility. So that that renter can start to become an owner.
Earning the credentials to get there when you can make single family lifestyle available to our workforce and that workforce starts with a rental and can earn into owning it. It just creates a stepping stone and it enables that workforce to afford that higher priced home.
Now where is the top.
Certainly going to plateau at some point, but the question is where is that moment, we're not sure right now we're going to work that work together.
We also remember from a macro view that today. The home is the hub of People's life very different than it was in the past. So it's not just where they live where they work that's where the educators with a wreck recreate and post pandemic, that's still going to be the case for the large part and therefore people view the home is more valuable and we will put a larger portion.
Of their income towards that more important asset the home.
No that's helpful and just to clarify because we've seen a lot of the single family rental production Thats now being leased up it's comparable net square footage basis, if not higher to a monthly payment.
For sale. So are you, suggesting that your workforce housing that you are providing on the single family rental space is going to be below the monthly payment because of the.
Obviously costs are monthly the consumer thinks of it as a monthly payment because we're seeing it not only in line apples to apples, but even at a premium. So are you taking a different strategy than your competitors.
Our strategy is to provide a single family home ownership.
Workforce housing for people that can't afford to rent and qualify for that housing. So if you look at comparable rents and the neighboring areas.
Stacking right on top of what comparable rents are and where most of the issues. Our IV is that these people don't have the down payment thats required to.
To buy a home it's not that they can't pay the mortgage payment. They just can't qualify in other ways and so our focus is on a monthly payment that's very similar to the mortgage payable David Rick highlighted without the Bel payments.
Great. Thanks, guys. Good luck.
Thank you.
Thank you. Our next question comes from Susan Mcclary from Goldman Sachs. Your line is open.
Thank you good morning, everyone.
Good morning. Good morning. My first question is you talked about the focus that you have on ROE.
And improving that and when we think back to the last housing cycle ROE where at least in the mid Twenty's, maybe even the high Twenty's and our model and granted there is changes in the business today relative to them, but.
Back then it was more of an output of what was going on in the housing market. When you think about the focus that you have to Diane expanding those ROE and all the different elements of the business that are coming together, where do you think your returns can get to this time and how do we think about that path relative to the past.
Well.
I think that.
I think that 1 of the limiting factors is the fact that the equity is growing at a sizable clip.
That's a positive but the limiting factor relative to us.
<unk>.
At the end of the day, we continue to see growth in our earnings.
And therefore growth in our returns limited by the fact that the equity is growing.
At a pretty sizable clip.
I think GAAP to think in terms of as we move forward with our spin. It also helps to define the efficiency.
The effectiveness of the way that we're running our business in our core homebuilding business, where we're able to focus.
And.
And equity base that is just geared towards the homebuilding business I think youll see that return kind of revert back to some of the ROE that define the industry at an earlier time.
So it's a combination of things, but the efficiency that we're injecting and our business is going to continue to grow our returns which will be even further enhanced by the separating of logical businesses to where they can operate most effectively.
Okay.
Paul.
My follow up question is on lumber, obviously, we've seen that come down in the last week or so you talked about the benefits that you expect to see from that in the back half of the year, but can you talk to what youre seeing out there in terms of the lumber market how sustainable do you feel like this pullback is how are you kind of planning for cost as we think about the future quarter.
And going into 'twenty 2.
With respect to lumber.
Anyone felt that the high level that it was that was sustainable.
Sort of the perfect storm.
We've seen I think at the beginning stages of the pullback in lumber costs.
A pullback in demand from the big box retailers of the do it yourself market.
Postponing projects for 2 reasons, 1 is for post pandemic, they're spending money and their time elsewhere.
They didn't want to pay that high cost so theres been a pull back on demand on.
The lumber supply chain, which is now starting to bring costs down from from the unsustainable levels.
So as.
As we think about it every 10% reduction in.
And random lengths.
Equates to about plus about $2700 over our average sized home.
And for.
For OSB.
About the same about another $1700 per home.
So as you can see a drop from the level of that new hire 500, we'd expect probably.
Our August starts to see a benefit of 2 to $300.1000 board feet in random lengths.
OSB.
Less than that is I would start coming down yet, but it should follow suit.
Okay. Thank you very much.
Thank you. Our next question comes from Truman Patterson from Wolfe Research. Your line is open.
Hey, good morning, everyone and thanks for taking my questions. So.
I wanted to follow up a little bit, but asked about affordability in a little different way. So very very strong gross margins strong pricing fourth quarter. Gross margin suggests that you all are more than covering peak lumber costs right and now we've seen lumber rollover. So.
That likely will be able to offset some of these other cost pressures that are picking up so if inflation aggregated kind of levels off in the back half of the year, especially as you all are opening more <unk>.
Communities just wanted to understand your philosophy on pricing are you all looking to step off the gas to maintain affordability if rates begin to rise or is it truly pricing to the market really without regard for potential rate hikes.
So the first thing I want to say is thank you for acknowledging our everything's included quarter, we were new roles.
Yeah.
Thank you.
Yes.
So.
Your question is a throwback to discussions that we've had.
Many times over quarters in the past, it's been it's been less of a.
A discussion point as the market has evolved more recently, but we're very very focused on our pricing to meet market conditions.
And.
Our dynamic pricing model is all about measuring where the market is and going to the pricing at where the market is currently so the answer is as as prices might fluctuate as.
As.
Price increases, perhaps moderate or plateau.
Our dynamic pricing model is very much focused on getting us to the exact pricing to reach our.
Our deliveries commensurate with where our production has been.
So the answer is you can very much expect that our pricing will moderate as the market moderates or accelerate as the market accelerates can be very tuned into market conditions.
And this is so consistent with everything we've talked about really for the last 3 or 4 years, we've been matching sales with production.
And we thank John and I tanker with werewolf sales during the production cycle based on that fundamental demand in the marketplace.
It's a very precise.
Production, driven sales program and we haven't talked about our dynamic pricing program for a while but it's just become kind of part of the fabric of the way, we operate and it's getting better and better with each passing quarter. It does not.
A discussion right now.
Okay. Okay. Thank you for that and then Diane.
Diane this might be 1 for you, but $2.6 billion in cash on the balance sheet.
Spending a lot of free cash flow in the back half of the year next year, well over $2 billion plus right.
A couple part question, 1 what cash balance we feel comfortable maintaining.
Then how should we really think about share repurchases going forward either quantitative disc.
The discussion is.
Is it.
Programmatic opportunistic.
Especially in regard with the equities pulling back recently.
Yes, I think that we said we jump back into the market again this quarter with the 1 million shares and I guess my thinking is that it.
It's probably a little bit of both programmatic as well as opportunistic and line I mean, I think buying some level of shares every quarter is.
Is the right answer.
However, I think we should also be opportunistic so as Theyre Gibson. The stock then we can take advantage of them because we have the cash to do so.
So I think just having a consistent program is first and foremost the most important thing, but youll find that we'll be opportunistic within each quarter to take advantages of whenever the might market might bring to US yes, but let me just say that with that said from a new bring up the fact that we have a lot of cash on the book right now and are likely to <unk>.
<unk>.
More in the back half of the year isn't a great I mean.
We have been laser focused on cash flow and <unk>.
And it's really starting to show just how how our focus has consistently.
Rippled through our numbers.
I think I think the 1 thing I want to add to Diane comment.
You might.
Expect a more bold statement about stock buyback and we don't really give color as to where we're going on that as we look ahead, but the thing to also keep in mind is that we're also working with the composition and the size of our spin.
And we are laser focused on the spin off and we want to make sure that our balance sheet properly supports the extent of what we want to do because we're not just going to when it's new.
Not just about building an ever better when our homebuilding and financial services group. It's also.
Look historically, when we spun LNR back off from the in the nineties, we built a great company a durable sustainable company and we expect to do the exact same thing with the spun company here.
We're enthusiastic about presenting more in the future on that but our balance sheet our cash position.
And.
And the size and scope of the spin all work together, so I would say just bear with us a little bit as we put these pieces together because it all ties together with our stock buyback program.
Okay is there a certain cash balance that you want to maintain to support the core homebuilding operations.
The way, we think about cash is more.
Yes.
We're not going to limit cash flow and we are.
To that point don't think that a 50.50 land owned versus controlled program is where it ends we hit our goal early.
And we're still focused on migrating forward Johns articulation of our land strategy and the waterfall of short term medium term long term land and the way that we're configuring to maximize cost of capital and where we put land and how we generate cash flow is something that we work on.
Rick Jon myself work on every day, so cash flow continues to be a focal point of this company and just to add also and as I mentioned.
Alongside also with the continued that focus so youll see us reaching into 2022 with those debt maturities pulling them forward and really.
Getting some.
Positive impact to our margin as we as we have done that and Joe for punctuation at the end of your question I want to say again. Thank you for the Everything's included call.
Yeah.
Thank you I appreciate it.
Paul's title so good luck on the upcoming quarter and.
Thank you.
Okay. Thank you, Okay, and we will take 1 more question.
Thank you and our last question comes from Jade Rahmani from <unk>.
VW Your line is open.
Good morning, Thank you very much.
I appreciate the chance to ask questions I, just wanted to ask at a high level.
To what extent do you think <unk> in particular, but also the major production builders are in control of their own destiny.
Mentions various factors, including the land strategy relationships with suppliers. So to some extent since new home sales are only about 10% of total aggregate home sales you can tailor the product to the market.
Just overall question.
Do you think that the company has a price taker of price giver and overall, how would you respond to that question. Thank you very much.
Well it's.
Greg that we're going to get to a metaphysics.
On the call today.
I guess I guess I will always say jade that.
We're always a little bit of both the fact of the matter as market conditions dictate a portion of what defines what we're able to do but also our ability to work and act within market conditions.
Is in part a driver of how we perform and how our product is received.
And and.
And the pricing that we get for that so I would say there isn't a binary answer to the question of whether world price taker or a price maker I think in every market condition. There is a dynamic that is in part given to us and.
And in part.
<unk> by Us.
And in that regard.
Tried to be very clear in my comments and I think.
Rick and John as well.
And Diane.
Have all daylight that we're sitting in the midst of market conditions that are very strong.
And in those market conditions are moving around a little bit, but very very strong short supply volume demand and thats. The market that is given to us, but within the condition of that market.
We probably reporting our numbers, saying that we have maximize the market. That's in front of US. We've made strategic moves that has enabled us to navigate these waters as well as as can be.
And we think we've done a really good job and we think that we can continue to get better and better.
<unk> also at the same time, a price taker and a price maker.
And advocating.
Testing waters. So that's how I would answer that I don't know if you could give us a little bit of additional perspective.
<unk> dramatically by market, we have some markets, where we're 30% to 40% of the share of the market and in those markets. We have the ability to control things a little bit more and were setting the cadence in that market and markets, where we're a smaller percentage, but really pricing to market as we've done.
On.
And for really the last several years, so it really varies across the board depending on the market.
So.
Why don't we go ahead and ended there.
And let me say just kind of as the last word I want to apologize we tried to keep our remarks brief.
You didn't do a very good job of that but I hope. We gave you a lot of detail. We know we didnt leave a lot of time for Q&A.
That's why we went over a bit.
But we think it's important to get as many questions as we can.
Of course will speak to many of you offline. Thank you for joining us today, and we look forward to reporting on our progress as we go forward. Thank you.
Thank you all for participating in today's conference you may disconnect your line and enjoy the rest of your day.