Q3 2022 Lennar Corp Earnings Call

September 22, 2022

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 Alexandra Lumpkin for the reading of the forward looking statement.

Thank you and good morning, Today's conference call May include forward looking statements, including statements regarding <unk> business financial condition results of operation cashless dry disease.

Forward looking statements represent only when our estimates on the date of this conference call and are not intended to give any assurance as to actual future results because forward looking statements relate to matters that have not yet occurred. These statements are inherently subject to risks and uncertainties. Many factors could affect future results and may cause <unk> 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 the North annual report on Form 10-K, most recently filed with the SEC. Please note that one of our things no obligation to update any forward looking statements.

I would like to introduce your host Mr. Stuart Miller Executive Chairman, Sir you may begin.

Very good good morning, everyone. Thanks for joining us.

This morning, I'm here in Miami joined by Diane Bessette, Our Chief Financial Officer, David Collins, Our controller, and Vice President and of course, Alex who you just heard from John Jaffe, and Rick Beckwitt, Our co Ceos and co presidents are on the line also but they will be participating remotely for that.

Q&A.

As usual I'm going to give a macro overview and strategic Lenore plan. After my introductory remarks, Rick is going to talk about our markets around the country.

John will update on supply chain construction cost land strategy and as usual Diane will give a detailed financial highlights.

And we will give some rough boundaries for the fourth quarter to assist in go forward thinking and modeling and then we will answer as many questions as we can and as usual please limit to one question and one follow up.

So let me begin and start by saying that once again, our team has turned in an excellent third quarter results, which.

Which continues to enhance our positioning for the evolving market conditions.

Throughout our third quarter, we continued to manage the still constrained supply chain and workforce and delivered over 17200 homes with a gross margin of 29, 2% and a net margin of 23, 5%.

These deliveries continue to drive very strong cash flow and bottom line earnings as we continue to refine our already efficient operations with SG&A of five 8% for 120 basis point improvement over last year.

President and of course, Alex who you just heard from John Jaffe, and Rick Beckwitt, Our co Ceos and co presidents are on the line also but they will be participating remotely for the Q&A.

With strong bottom line earnings of $1 $47 billion.

Or $5 <unk> per diluted share driving strong cash flow, we've continued to fortify our balance sheet after paying down $575 million of maturing senior debt without replacement.

As usual I'm going to give a macro overview and strategic lenore.

After my introductory remarks, Rick is going to talk about our markets around the country.

We ended the quarter with $1 3 billion of cash nothing drawn on our revolver and a 15% debt to total capitalization ratio as compared to 21, 2% last year.

John will update on supply chain construction cost land strategy.

And as usual Diane will give a detailed financial highlights and we will give some rough boundaries for the fourth quarter to assist in go forward thinking and modeling and then we will answer as many questions as we can and as usual please limit to one question one follow up.

As a matter of cap careful capital allocation this quarter given current market conditions, we chose not to repurchase stock in favor of early retirement of debt.

As we've continued to drive strong closings in performance, we are well prepared to handle the current market conditions.

So let me begin and start by saying that once again, we will and our team has turned in an excellent third quarter results, which.

In addition to the well documented supply chain constraints and limited workforce slowing production.

Which continues to enhance our positioning for the evolving market conditions.

Housing has now been considerably impacted by the more than doubling of mortgage rates over the past months and therefore, the doubling of monthly payment costs and reduction of housing affordability.

Throughout our third quarter, we continued to manage this still constrained supply chain and workforce and delivered over 17200 homes with a gross margin of 29, 2% and a net margin of 23, 5%.

The housing market has continued to weaken as expected in response to the fed's too late but now very rapid and aggressive reaction to inflation.

These deliveries continued to drive very strong cash flow and bottom line earnings as we continue to refine our already efficient operations with SG&A of five 8% for a 120 basis point improvement over last year.

Homebuilding finds itself once again at the forefront of all of that is happening in the economy.

And the fed to use of its interest rate tool to curtail inflation is certainly having the desired effect on the for sale housing market the.

With strong bottom line earnings of $1 $47 billion.

Or $5 <unk> per diluted share driving strong cash flow, we've continued to fortify our balance sheet after paying down $575 million of maturing senior debt without replacement, we ended the quarter with $1 3 billion of cash.

The market is now adjusting.

The interest rate movements, we're very sudden and adjusted very quickly and that sudden this has always led to a pullback in housing demand.

Part of the pullback is driven by simple affordability and part of the pullback is driven by the psychology of the sudden and aggressive interest rate.

Nothing drawn on our revolver and a 15% debt to total capitalization ratio as compared to 21, 2% last year.

Interest rate hike, causing either monthly payments sticker shock or a sense of having missed the boat.

As a matter of cap careful capital allocation this quarter given current market conditions, we chose not to repurchase stock in favor of early retirement of debt.

The fed chairs additional increase of 75 basis points of the fed funds rate yesterday together with an articulated determination to do more suggests that even more challenges lie ahead.

As we've continued to drive strong closings in performance, we are well prepared to handle the current market conditions.

While demand is cool at once high priced at once high pricing levels demand for shelter still exist where price intersect with current interest rates to produce an affordable monthly payment.

In addition to the well documented supply chain constraints and limited workforce slowing production.

There is still a housing shortage across the country, especially workforce housing and household formation has continued to rise.

There is still very limited inventory.

The housing market has continued to weaken as expected in response to the fed's too late but now very rapid and aggressive reaction to inflation.

There is very little exposure to traditional inventory overhangs like foreclosures and speculators.

Additionally, buyers are still seeking shelter from inflationary pressures on rentals as scarce rentals and increased demand from those who would otherwise purchase drive and keep rents higher.

Building finds itself once again at the forefront of all of this happening in the economy and the fed's used of its interest rate tool to curtail inflation is certainly having the desired effect on the for sale housing market the.

As we bring prices down and incentives up demand is still there and these fundamentals give us assurance that while various short and medium term reconciliation the long term prospects for housing continued to be strong.

The market is now adjusting.

The interest rate movements, we're very sudden and adjusted very quickly and that sudden this has always led to a pullback in housing demand.

Demand remains reasonably strong at adjusted prices as buyers still have jobs as well as down payments and have attractive credit scores and can qualify.

Part of the pullback is driven by simple affordability and part of the pullback is driven by the psychology of the sudden and aggressive interest rate.

Interest rate hike, causing either monthly payments sticker shock or a sense of having missed the boat.

With higher rates prices must be adjusted downward in incentives used to find the market or sales just drop off.

The fed chairs additional increase of 75 basis points of the fed funds rate yesterday together with an articulated determination to do more suggests that even more challenges lie ahead.

Accordingly, we have carefully managed sales price and our pace through the third quarter exactly as we said we would last quarter.

Although our sales were down 12% from last year's levels, we have focused our management's attention on finding pricing levels that attract demand.

While demand is cool at once high priced at once high pricing level demand for shelter still exist where price intersect with current interest rates to produce an affordable monthly payment.

Each market is different and as much as it is an art and not a science. Our efforts has slightly lagged our goal of matching our sales pace with our start pace, but we feel certain that we will find pricing and accelerate that pace in the near future.

There is still a housing shortage across the country, especially workforce housing and household formation has continued to rise.

There is still very limited inventory.

In a few minutes Rick is going to give a more detailed overall market review that will give a more comprehensive snapshot of what we've seen in our markets across the country.

There is very little exposure to traditional inventory overhangs like foreclosures and speculators.

Additionally, buyers are still seeking shelter from inflationary pressures on rentals as scarce rentals and increased demand from those who would otherwise purchase drive and keep rents higher.

Along with bringing home sales price down we are also laser focused on bringing down production costs as well.

We are working with our vast network of trade partners to recognize that the world has changed and we all have to work together to keep the machine working.

As we bring prices down and incentives up demand is still there and these fundamentals give us assurance that while there is short and medium term reconciliation, but long term prospects for housing continued to be strong.

In fact last night I returned from a two day extraordinary supply chain conference that was hosted by our purchasing leadership group led by Kevin Gillis trade.

Demand remains reasonably strong at adjusted prices as buyers still have jobs as well as down payments and have attractive credit scores and can qualify.

It can kind of give us.

Great Partners and Lenore Division leaders convened to work together to attack cost find efficiencies and adjust to current market conditions.

With higher rates prices must be adjusted downward in incentives used to find the market or sales just drop off.

Rick and Jon will drive continued and focused attention on this critical initiative.

Accordingly, we have carefully managed sales price and our pace through the third quarter exactly as we said we would last quarter.

And as the market Recalibrates land costs will have to adjust as well.

Accordingly, we are reviewing and re underwriting every land deal in our pipeline to the current market conditions in time, new land deals will have different pricing that will be properly sized to the home sales prices.

Although our sales were down 12% from last year's levels, we have focused our management's attention on finding pricing levels that attract demand.

Each market is different and as much as it is an art and not a science. Our efforts has slightly lagged our goal of matching our sales space with our start pace, but we feel certain that we will find pricing and accelerate that pace in the near future.

Overall these are the trends as we see them and while we can choose to fight against the trend. The reality is that the market has been changing and we are getting ahead of it by making all necessary adjustments.

In a few minutes Rick is going to give a more detailed overall market review that will give a more comprehensive snapshot of what we've seen in our markets across the country.

Last quarter, we laid out our simple strategy playbook going forward.

Let me review and add a few items, we're going to keep it simple and focused and here to this core strategy.

Along with bringing home sales price down we are also laser focused on bringing down production costs as well.

First as I said last quarter, we're going to continue to sell homes adjust pricing to market conditions and maintain reasonable volume.

We are working with our vast network of trade partners to recognize that the world has changed and we all have to work together to keep the machine working.

We have discussed over the past years that we have a strong that we have a housing shortage across the country.

In fact last night I returned from a two day extraordinary supply chain conference that was hosted by our purchasing leadership group led by <unk> trade.

We will continue to build even as prices adjust in order to fill that shortfall and provide much needed workforce housing.

As we have noted many times in the past whether the market is improving or declining we employ our dynamic pricing model week by week to price product to current market conditions in order to maximize pricing and margin, while we maintain a very carefully and limited inventory.

It can kind of give us.

Great Partners and Lenore Division leaders convened to work together to attack costs find efficiencies and adjust to current market conditions.

Rick and Jon will drive continued and focused attention on this critical initiative.

Level.

As the market moves that is how we will continue to be responsive.

And as the market Recalibrates land costs will have to adjust as well.

Second we are going to work with our trade partners as I've said to rightsize, our cost structure to current market conditions as well.

Third we will and have sharpened our attention on land acquisitions.

We are being extremely selective on new land acquisitions, and new communities. We have re reviewed and re underwritten every land deal in our pipeline and we are re underwriting to current market conditions cap.

Overall these are the trends as we see them and while we can choose to fight against the trends. The reality is that the market has been changing and we are getting ahead of it by making all necessary adjustments.

Capital allocation is being micro manage every dollar invested in land must compete against repurchasing our own stock as we seek to maximize total shareholder value and returns.

Last quarter, we laid out our simple strategy playbook going forward.

Let me review and add a few items, we're going to keep it simple and focused and here to this core strategy.

In sync with selling homes, we will continue to improve our cost of doing business by focusing on and reducing SG&A.

First as I said last quarter, we're going to continue to sell homes.

Just pricing to market conditions and maintain reasonable volume.

We have discussed over the past years that we have a strong that we have a housing shortage across the country.

We have seen quarter over quarter improvement in our SG&A over the past years, and we expect to drive efficiencies through technology and process improvement to offset market adjustments, where possible, while we leverage our extraordinary management team across the country.

We will continue to build even as prices adjust in order to fill that shortfall and provide much needed workforce housing.

Next we will maintain tight inventory control.

We are aware that our inventory levels are up 20% year over year. This.

This increase is mostly a function of growth supply chain dysfunction and expanded cycle time.

<unk> level.

As the market moves that is how we will continue to be responsive.

As our growth rate is reduced to zero and our cycle times revert to normal our inventories should shrink and should generate sizable cash flow in the future.

Second we are going to work with our trade partners as I've said to rightsize, our cost structure to current market conditions as well.

Our commitment.

Third we will and have sharpened our attention on land acquisitions.

<unk> sales pace.

We will ensure that we will not create standing inventory in its place.

We are being extremely selective on new land acquisitions and new communities.

Next we will continue to focus on cash flow and bottom line to protect and enhance our already extraordinary balance sheet.

We have re reviewed and re underwritten every land deal in our pipeline and we are re underwriting to current market conditions.

And finally, we will conclude our long planned at a weighted spin off by year end recent.

Capital allocation is being micro manage at every dollar invested in land must compete against repurchasing our own stock as we seek to maximize total shareholder value and returns.

<unk> back and forth questions with the SEC could push the final date by a month or so but for taro will be listed very soon.

Of course prior to the spin we will have a comprehensive company overview and conference call to introduce the new management team and to further detail the financial elements of the company stay tune.

Yes.

In sync with selling homes, we will continue to improve our cost of doing business by focusing on and reducing SG&A.

As we have continued to refine and finalize the three verticals of our spin company.

We will spend a mature asset management company into the public markets along with billions of dollars of assets under management that we previously held on <unk> books.

<unk> will be a pure play homebuilding company with a simple mandate to build and sell homes that delight, our customers, while we drive and maximize shareholder value.

Next we will maintain tight inventory control.

We are aware that our inventory levels are up 20% year over year.

This increase is mostly a function of growth supply chain dysfunction and expanded cycle time.

The final spin of our new company Portera will trade under the stock symbol queue.

And we will have as noted before we will be an asset light asset management business that will have a limited balance sheet. We are very excited about the prospects for core tariff as this is our second spin in our history and we have great confidence for its prospects for the future.

As our growth rate is reduced to zero.

And our cycle times revert to normal our inventory should shrink and should generate sizable cash flow in the future.

Our commitment.

Two sales pace.

We'll ensure that we will not create expanding inventory in its place.

So let me conclude by saying that while the market is shifting and adjusting to a new higher interest rate environment.

Next we will continue to focus on cash flow and bottom line to protect and enhance our already extraordinary balance sheet.

<unk> are prepared.

We have been here before and we have navigated adversity.

And finally, we will conclude our long planned at a weighted spin off by year end.

We have a seasoned team that knows exactly what to do and how to do it every member of our management team is fully aligned and working in a coordinated way, we're extremely well positioned financially organizationally and technologically to thrive and succeed in these <unk>.

<unk> back and forth questions with the SEC could push the final date by a month or so but for terra will be lifted very soon.

Additionally.

We recognize that interest rates are rising inflation continues to be a legitimate threat and important parts of the economy are slowing.

As we have continued to refine and finalize the three verticals of our spin company.

We know that the fed is determined to curtail inflation and this will take some time.

We will spend a mature asset management company into the public markets along with billions of dollars of assets under management that we previously held on <unk> books.

But we also know how to adjust to the market to these market changes and we are making those adjustments.

As we look to the remainder of 2022, we recognize there are challenges in the market that we must carefully requirement expect that we will meet the challenges and that we will continue to adjust to maximize opportunity and drive <unk> into an ever better future with that let me turn it over to Rick.

<unk> will be a pure play homebuilding company with a simple mandate to build and sell homes that delight, our customers, while we drive and maximize shareholder value.

The final spin of our new company Portera will trade under the stock symbol queue and we will have as noted before it will be an asset light asset management business that will have a limited balance sheet. We are very excited about the prospects for core Terra as this is our second spin in our history.

Thanks, Stuart as you can tell from Stuart's opening comments. The overall housing market has been reacting to significant increases in mortgage rates continued inflation.

The volatile stock market, all of which has impacted affordability and homebuyer confidence.

Ari and we have great confidence for its prospects for the future.

We continue to have some strong markets in a more challenging areas, we've had to adjust prices and increased incentives to regain sales momentum.

So let me conclude by saying that while the market is shifting and adjusting to a new higher interest rate environment.

Our sales strategy has been to find the market clearing price for each of our homes on a community by community basis as quickly as possible.

<unk> are prepared.

We have been here before and we have navigated adversity.

We have a seasoned team that knows exactly what to do and how to do it every member of <unk> management team is fully aligned and working in a coordinated way.

Price our homes accordingly.

As required a detailed understanding of traffic trends inventory levels community and product specific pricing financing programs and buyer sentiment.

We are extremely well positioned financially organizationally and technologically to thrive and to succeed in these conditions with.

During the third quarter, our new sales orders declined by 12% from the prior year on a 1% lower year over year community count.

We recognize that interest rates are rising inflation continues to be a legitimate threat and important parts of the economy are slowing.

While our cancellation rate and sales incentives ticked up during the quarter, our sales orders and sales pace per community increased sequentially. Each month, as we successfully executed our pricing strategy and more and more markets.

We know that the fed is determined to curtail inflation and this will take some time.

But we also know how to adjust to the market to these market changes and we are making those adjustments.

Some color on that our sales pace per community in June July and August was 3739 and $4 five respectfully.

As we look to the remainder of 2022, we recognize there are challenges in the market that we must carefully regardless and expect that we will meet the challenges and that we will continue to adjust to maximize opportunity and drive <unk> into an ever better future with that let me turn it over to Rick.

Before for the quarter.

We achieved this we lowered.

We lowered our base new order sales price and increased sales in China.

Chinas in many communities.

On a companywide basis, new sales order incentives increased during the quarter from two 3% in June to 6% in August and varies significantly by market and community.

Thanks, Stuart as you can tell from Stuart your opening comments. The overall housing market has been reacting to significant increases in mortgage rates continued inflation.

Volatile stock market, all of which has impacted affordability and homebuyer confidence.

Based on these combined adjustments, our new net order sales price declined 9% sequentially from the second quarter, but was up 1% from the prior year.

We continue to have some strong markets are more challenging areas. We've had to adjust prices can increase incentives to regain sales momentum.

This pricing strategy produced enough new gross sales to offset cancellations companywide as our third quarter cancellation rate was 21%.

Our sales strategy has been to find the market clearing price for each of our homes on a community by community basis as quickly as possible.

Which is slightly above our historical average.

Our pricing strategy has continued to work successfully in September .

Price our homes accordingly.

This has required a detailed understanding of traffic trends inventory levels community and product specific pricing financing programs and buyer sentiment.

It gives us confidence in our new sales orders guidance for the fourth quarter.

Fundamentally believes at this price to market strategy reflects our balance sheet first folks focus where we can maintain starts with sales generate cash flow.

During the third quarter, our new sales orders declined by 12% from the prior year on a 1% lower year over year community count.

Keep our homebuilding machine going.

I'd now like to give you an update on our markets across the country.

They really fall into three categories.

The markets that have continued to perform well to markets, where we have adjusted pricing and incentives found the market price and have successfully regain sales momentum.

Put some color on this our sales pace per community in June July and August was $3 739, and $4 five respectfully.

The three markets that may require some additional pricing adjustments.

Again, our targeted absorption pace.

Yes.

Before for the quarter.

During the third quarter and so far in September .

We achieved this we lowered we lowered our base new order sales price and increased sales incentives.

Add in nine markets that continue to perform well.

These are southwest, Florida, Southeast, Florida from Atlantic, New Jersey, Maryland, and Virginia, Charlotte Indianapolis and San Diego.

In many communities.

On a companywide basis, new sales order incentives increased during the quarter from two 3% in June .

These markets are benefiting from extremely low inventory and many are benefiting from a strong local economy.

6% in August and varies significantly by market and community.

Climate growth and in migration.

While these markets has continued to be strong we have had to offer mortgage buy down programs and normalized incentives domain sale maintain sales momentum.

Based on these combined adjustments, our new net order sales price declined 9% sequentially from the second quarter, but was up 1% from the prior year.

Some communities in these markets have required targeted price adjustments on a limited basis.

This pricing strategy produced enough new gross sales to offset cancellations companywide as our third quarter cancellation rate was 21%.

Our category two markets, which reflect markets, where we have made more significant adjustments to regain sales momentum include 22 markets.

Which is slightly above our historical average.

Our pricing strategy has continued to work successfully in September .

Our Tampa, Orlando, and Jacksonville, coastal Carolinas, Atlanta, Chicago, and Nashville, Raleigh, Dallas, Houston, San Antonio Phoenix, Tucson, Las Vegas, Colorado Coastal Carolina, California coastal Carolinas.

Gives us confidence in our new sales orders guidance for the fourth quarter.

We fundamentally believe that this price to market strategy reflects our balance sheet first suppose focus where we can maintain starts and sales generate cash flow and keep our homebuilding machine going.

The inland Empire.

The area, the Central Valley, Sacramento, Seattle and Portland.

I'd now like to give you an update on our markets across the country.

Each of these markets traffic has slowed and we saw a pickup in cancellations.

They really fall into three categories.

Inventory is limited in each of these markets we've had to offer more aggressive financing programs based price reductions <unk> increased incentives to regain sales momentum.

Any markets that have continued to perform well to markets, where we have adjusted pricing and incentives.

The market price and have successfully regain sales momentum.

Size of the adjustments has varied on a community by community basis has often been limited to specific homes, each week and each community each week.

Three markets that may require some additional pricing adjustments to regain our targeted absorption pace.

During the third quarter and so far in September you've had nine markets that continued to perform well.

In some cases to avoid cancellations, we have adjusted pricing on our homes in backlog.

We believe we are being very proactive with our pricing and not reactive.

These are southwest, Florida, Southeast, Florida, Atlantic, New Jersey, Maryland, and Virginia, Charlotte, Indianapolis and San Diego.

This allowed us to sell homes and avoid building finished inventory.

We are outselling the competition and are increasing our market share.

These markets are benefiting from extremely low inventory and many are benefiting from a strong local economy employment growth and in migration.

Category, three markets, which reflect.

More significant market softening in correction includes seven markets.

While these markets have continued to be strong we have had to offer mortgage buy down programs and normalized incentives remained sale maintain sales momentum.

Are the Philly Metro area, Minnesota, and Chicago, Austin, Reno Boise in Utah.

Some communities in these markets have required targeted price adjustments on a limited basis.

All the drivers and individual dynamics of these markets are very somewhat traffic has slowed significantly.

Our category two markets, which reflect markets, where we have made more significant adjustments to regain sales momentum include 22 markets.

Those are taking more time to make a purchase decision and many need to be convinced that now is the time to buy.

There is fear that sales prices has not hit bottom, which has led to an elevated level of cancellations. In these markets. We are focused on establishing pricing that generates new gross sales to offset cancellations.

Our Tampa, Orlando, and Jacksonville, coastal Carolinas, Atlanta, Chicago, and Nashville, Raleigh, Dallas, Houston, San Antonio Phoenix, Tucson, Las Vegas, Colorado, Coastal Carolina, California, coastal Carolinas inland Empire.

This has required us to work in many cases with backlog to prevent cancellations.

It also required a mix a significant base price adjustments.

The area, the Central Valley, Sacramento, Seattle and Portland.

Loans and aggressive mortgage buy downs.

Each of these markets traffic has slowed and we saw a pickup in cancellations.

While we've made progress in these markets.

Inventory is limited in each of these markets we've had to offer more aggressive financing programs based price reductions and increased incentives to regain sales momentum.

Still need to make some adjustments on a community by community basis.

There is not a one size fits all solution everything needs to be fine tuned to the specifics of the market and community.

Size of the adjustments has varied on a community by community basis.

I am confident that we'll make progress in each of these markets in the fourth quarter.

<unk> been limited to specific homes in each week and each community each week.

We're fortunate to have solid gross margins and limited completed unsold inventory. So we should be able to get these markets on track shortly.

In some cases to avoid cancellations, we have adjusted pricing on our homes in backlog.

I Hope this gives you a better picture of our markets across the country and what we're doing to keep our sales activity going.

We believe we are being very proactive with our pricing and not reactive.

Markets remain very fluid and we are making proactive strategic decisions and adjustments every day.

This has allowed us to sell homes and avoid building finished inventory.

Outselling the competition and are increasing our market share.

Committed as a management team to address any future market changes quickly.

Category, three markets, which reflect.

As we've said in the past, we're going to keep our homebuilding machine going maintain our starts pace and price our homes to market.

More significant market softening in correction include seven markets.

These are the Philly Metro area, Minnesota, and suppose Austin, Reno Boise in Utah wildly.

This is our balance sheet sources.

Before I turn it over to John I'd like to thank our all of our trade partners and associates for their hard work and endless dedication. During these rapidly changing times successfully executed our operating strategies.

While the drivers and individual dynamics of these markets are very somewhat traffic has slowed significantly buyers are taking more time to make a purchase decision and many need to be convinced that now is the time to buy.

Now I'd like to turn it over to John .

Thanks, Rick This morning, I will discuss our sales and inventory management focus our land strategy and give an update on the status of the supply chain.

Fear that sales prices has not hit bottom, which has led to an elevated level of cancellations. In these markets. We are focused on establishing pricing that generates new gross sales to offset cancellations.

I would like to start by laying out a few additional thoughts on the detail that Rick just walked you through.

As discussed this quarter was all about the daily process of adjusting home prices to find market clearing values and each individual community.

As required us to work in many cases with backlog to prevent cancellations.

Is it also required a mix a significant base price adjustments sales in chinas and aggressive mortgage buy downs.

As noted our starts and sales pace for the quarter were $4 four homes and 4.0 homes respectively.

We've made progress in these markets.

This gap between starts pace in sales pace comes from the time it takes to make the pricing adjustments necessary to be perceived as value by the consumer.

We still need to make some adjustments on a community by community basis.

Not a one size fits all solution everything needs to be fine tuned to the specifics of the market and community.

Finding that value proposition is a process that takes several weeks and is ongoing in other words once market pricing has found through discovery the market often experiences further adjustments and a new value proposition must be discovered.

I am confident that we will make progress in each of these markets in the fourth quarter.

We're fortunate to have solid gross margins and limited completed unsold inventory. So we should be able to get these markets on track shortly.

As we went through the process of finding clearing prices in communities. This informed our decision, making which enabled broader pricing adjustments leading to our improved sales pace across our entire platform for the month of August.

I Hope this gives you a better picture of our markets across the country and what we're doing to keep our sales activity going.

Markets remain very fluid and we are making proactive strategic decisions and adjustments every day.

Stuart noted our operators use our dynamic pricing model to help them understand the timing of inventory as it moves through the construction process.

Committed as a management team to address any future market changes quickly.

As we've said in the past, we're going to keep our homebuilding machine going maintain our starts pace and price our homes to market.

This tool gives us visibility into sales pace and associated pricing by community and even by plan, allowing us to maintain our starts pace without building up excess inventory.

This is our balance sheet sources.

Our inventory position at the end of the quarter was just over 500 completed unsold homes or 0.4 homes per community.

Next I want to discuss our land focus in the third quarter.

Now I'd like to turn it over to John .

Thanks, Rick This morning, I will discuss our sales and inventory management focus our land strategy and give an update on the status of the supply chain.

As expected we focus a lot of attention on reassessing every land deal in our pipeline along with updating our underwriting.

Based on our intense review, we move forward only on those deals which starts in 2023 and where we we're also confident in the updated financial underwriting.

I would like to start by laying out a few additional thoughts on the detail that Rick just walked you through.

As discussed this quarter was all about the daily process of adjusting home prices to find market clearing values and each individual community.

Most of the land deals we closed on in the quarter came from our strong land relationships with existing structure quarterly Takeouts. These takedowns or deals where we would be starting the homes quickly and still projected healthy margins all.

As noted our start in sales pace for the quarter were $4 four homes and 4.0 homes respectively.

All other deals based on the updated underwriting either had its timing delayed was restructured where we did not proceed.

This gap between starts pace in sales pace comes from the time it takes to make the pricing adjustments necessary to be perceived as value by the consumer finding.

Our intensified focus on our land light strategy was evidenced by our controlled homesites percentage, increasing to 63% at the end of the third quarter up from 53% last year.

Also further reduced the years of owned Homesites to two nine years at the end of the third quarter down from three three years last year.

We reduced the number of home sites purchased in the third quarter to about 13100 down 21% from 25% year over year and sequentially respectively.

Our extreme focus on a deal by deal review and adherence to our disciplined land lighter model drove the significant improvement and the strength of <unk> balance sheet as Stuart discussed.

Stuart noted our operators use our dynamic pricing model to help them understand the timing of inventory as it moves through the construction process.

This tool gives us visibility into sales pace and associated pricing by community and even by plan, allowing us to maintain our starts pace without building up excess inventory.

Now I'd like to turn to the current state of the supply chain or.

Our third quarter continued to presenting some favorable cycle time results, while still dealing with ongoing disruptions from certain materials shortages.

Our inventory position at the end of the quarter was just over 500 completed unsold homes or 0.4 homes per community.

Although it was minor it is still significant that we achieved a three day reduction in cycle time in Q3 from Q2.

Next I'll discuss our land focus in the third quarter.

Additionally, over 50% of our markets experienced cycle time reductions in the third quarter compared to 25% in the second quarter.

As expected we focus a lot of attention on reassessing every land deal in our pipeline along with updating our underwriting.

The primary material disruption in the third quarter was related to the delivery of electrical electrical equipment, such as switchgear multi meter boxes and pad melted transformers.

On our intense review, we move forward only on those deals which starts in 2023 and where we we're also confident in the updated financial underwriting.

Most of the land deals we closed on in the quarter came from our strong land relationships with existing structure quarterly Takeouts. These takedowns or deals, where we would be starting the homes quickly and still projected healthy margins.

Construction labor remains very tight as industry wide high levels of volume for second half deliveries moves through the various stages of construction.

We expect to start seeing some easing in labor as the overall industry reduce at the level of construction starts. This easing should start would start to first occurred in the fourth quarter with front end trades in the first quarter with finish trades.

All other deals based on the updated underwriting either had its timing delayed was restructured where we did not proceed.

Our intensified focus on our land light strategy was evidenced by our controlled homesites percentage, increasing to 63% at the end of the third quarter up from 53% last year.

As expected.

Cost, increasing our third quarter as increases from lumber that spiked in Q1 flowed through our third quarter closings were.

We also saw increases in other material costs and labor in Q3 closings, resulting in a total direct construction cost increase of 6% and 21% sequentially and year over year, respectively.

We also further reduced the years of owned Homesites to two nine years at the end of the third quarter down from three three years last year.

And we reduced the number of home sites purchased in the third quarter to about 13100 down 21% from 25% year over year and sequentially respectively.

A reminder, the drop in lumber prices, we saw earlier in the year materially benefited the cost of our starts in the third quarter and will flow through deliveries in the first half of 2023.

Our extreme focus on a deal by deal review and adherence to our disciplined land lighter model drove the significant improvement and the strength of <unk> balance sheet that Stuart discussed.

Thank you I'll turn it over to Diane.

Thank you John and good morning, everyone.

Rick and John is a great deal of color regarding our homebuilding performance. So therefore.

Now I'd like to turn to the current state of the supply chain.

Our third quarter continued to presenting some favorable cycle time results, while still dealing with ongoing disruptions from certain material shortages.

A few minutes on the results of our other business segments in our balance sheet, and then turn to Q4 guidance.

Turning to financial services.

Though it was minor it is still significant that we achieved a three day reduction in cycle time in Q3 from Q2.

This quarter, our financial services team produced operating earnings of $99 million, excluding the reporting of the onetime litigation pool, and then looking at the details our mortgage operating earnings was $64 million compared to $80 million in the prior year.

Additionally, over 50% of our markets experienced cycle time reductions in the third quarter compared to 25% in the second quarter.

The primary material disruption in the third quarter was related to the delivery of electrical electrical equipment, such as switchgear multi meter boxes and pad melted transformers.

As we've indicated for several quarters the mortgage market continues to be extraordinarily competitive purchase business. As a result secondary margins have been decreasing this decrease in earnings was partially offset by an increase in interest rate lock commitments.

Construction labor remains very tight as industry wide high levels of volume for second half deliveries moves through the various stages of construction.

Operating earnings were $33 million compared to $26 million in the training here.

We expect to start seeing some easing in labor as the overall industry reduce at the level of construction starts. This easing should start would start to first occur in the fourth quarter with front end trades in the first quarter with finish trades.

Earnings increased primarily as a result of higher volumes and an increase in revenue per transaction.

Financial services team continues to rise to the occasion, each and every quarter.

As expected cost increasing our third quarter as increases from lumber that spiked in Q1 flowed through our third quarter closings. We also saw increases in other material costs and labor in Q3 closings, resulting in a total direct construction cost increase of 6% and 21% sequentially and year over year, respectively.

Just our homebuilding divisions and properly service our customers.

And then turning to the other segment for the third quarter, our land and our other segment had an operating loss of 118 million. This loss was primarily the result of a noncash mark to market loss on our publicly traded technology investments, which totaled 86 million.

As a reminder, the drop in lumber prices, we saw earlier in the year materially benefited the cost of our starts in the third quarter and will flow through deliveries in the first half of 2023.

As we've mentioned before.

Clients in Mark to market many of our technology investments that are publicly traded.

Thank you and I'll turn it over to Diane.

<unk> will fluctuate from quarter to quarter.

Thank you John and good morning, everyone.

However, we believe these technology partnerships provide significant operational efficiencies for both our homebuilding and financial services platform and greatly improve our customers' experience.

Rick and Jon is great.

A great deal of color regarding our homebuilding performance. So therefore, I'm going to spend a few minutes on the results of our other business segments in our balance sheet, and then turn to Q4 guidance. So starting with financial services in the third quarter, our financial services team produced operating earnings of $99 million excluding any.

And then looking at our balance sheet quickly.

You've heard US mentioned in this quarter, we were laser focused on managing our balance sheet. He focused on generating cash by pricing to market and we focus on preserving cash by monitoring our subsea and.

Coating of the onetime litigation.

And then looking at the details our mortgage operating earnings of $64 million compared to $80 million in the Permian here as we've indicated for several quarters. The mortgage market continues to be extraordinarily competitive purchase business. As a result secondary margins had been decreasing this decrease in earnings.

And carefully reviewing potential land purchases in results as you try to say is that we ended the quarter with $1 3 billion of cash and no borrowings on our $2 6 billion revolving credit facility. This provided a total of $3 9 billion of homebuilding liquidity.

During the quarter, we continued our progress of becoming land lighter and at quarter end, we owned 184000, Homesites and controls 307000 home sites for a total of 491000 homesites.

Partially offset by an increase in interest rate lock commitments.

Total operating earnings were $33 million compared to $26 million in the training here.

Earnings increased primarily as a result of higher volumes and an increase in revenue per transaction or financial services team continues to rise to the occasion, each and every quarter.

This translates into two nine years of Homesites.

An improvement from eight three in the prior year and 62% Homesites control an improvement from 53% in the prior year.

Our homebuilding divisions and properly service our customers.

Most importantly, we believe this portfolio provides us with a strong competitive position to continue to grow our market share.

And then turning to the other segment for the third quarter, our linear or other segment had an operating loss of 118 million. This loss was primarily the result of a noncash mark to market loss on our publicly traded technology investments, which totaled 86 million.

Additionally, we continued to Delever, our balance sheet as we repaid 575 million senior notes due in November of this year and.

And we have no additional maturity in fiscal 2023, and the last several years, we have repaid $5 4 billion of senior notes with an associated annual interest savings of almost $300 million.

As we've mentioned before.

Clients in Mark to market many of our technology investments that are publicly traded.

<unk> will fluctuate from quarter to quarter.

However, we believe these technology partnerships provide significant operational efficiencies for both our homebuilding and financial services platform and greatly improve our customers' experience.

The continued pay down of senior notes and continued strong generation of earnings.

Homebuilding debt to total capital ratio down to 15% at quarter end, our lowest ever which is an improvement from 21 two in the prior year.

And then looking at our balance sheet quickly.

You've heard all of US mentioned this quarter, we were laser focused on managing our balance sheet. He focused on generating cash by pricing to market and we focus on preserving cash by monitoring our Scotts <unk> and.

Our stockholders' equity increased to 23 billion, our book value per share increased almost $79. A return on inventory was 32, 7% and our return on equity was 21%.

And carefully reviewing potential land purchases in results as you've heard US say is that we ended the quarter with $1 3 billion of cash and no borrowings on our $2 6 billion revolving credit facility. This provided a total of $3 9 billion of homebuilding liquidity.

Finally, we received an upgrade from Moody's during the quarter, our credit ratings increased from the <unk> three to be definitely too greatly appreciate needed confidence in our company and continue to be very pleased to have an investment grade rating from all three agencies.

During the quarter, we continued our progress in becoming land lighter at quarter end, we owned a 184000 Homesites and controls 307000 home sites for a total of 491000 homes.

In summary, the strength of our balance sheet strong liquidity and low leverage provide us with significant confidence and financial flexibility to navigate this uncertain market.

This translates into $2 90 years of Homesites.

An improvement from three three in the prior year and 62% Homesites control an improvement from 52% in the prior year.

With that brief overview I'd like to turn to guidance.

As Stuart mentioned it continues to be difficult to provide the targeted guidance that we have historically provided given the uncertainty in market conditions. So as we did last quarter. We are providing very broad ranges to give some boundaries for each of the components. So let's start with new orders, we expect Q4, new orders to be in the range.

Most importantly, we believe this portfolio.

It provides us with a strong competitive position to continue to grow our market share.

Additionally, we continued to delever, our balance sheet as we repaid $575 million.

<unk> of 14000 to 15500, and we expect our Q4 ending community count to increase about 5% from Q3.

That we do in November of this year.

And we have no additional maturity in fiscal 2023, and the last several years, we have repaid $5 4 billion of senior notes with an associated annual interest savings of almost $300 million.

We anticipate our Q4 deliveries will be in the range of 20 to 21000 homes.

Average sales price should be in the range of 475000 to 480000, our gross margins in the range of 26% to 27% interest G&A between $5 seven and five 9% as we continued to price to market, turning our inventory and generate cash for.

The continued pay down our senior notes and continued strong generation of earnings.

Our homebuilding debt to total capital ratio down to 15% at quarter end, our lowest ever which is an improvement from 21 two.

Two in the prior year.

Our stockholders' equity increased to 23 billion, our book value per share increased to almost $79. A return on inventory was 32, 7% and our return on equity was 21%.

For the combined homebuilding joint venture land sale and other categories, including Noncontrolling interest.

Stefan loss of approximately $15 million.

We anticipate our financial services earnings for Q4 will be in the range of 50% to $60 million as market competition for purchase business continues to increase.

Finally, we received an upgrade from Moody's during the quarter. Our credit rating was increased from <unk> three to be deadly to greatly appreciate needed confidence in our company and continue to be very pleased to have an investment grade ratings from all three agencies.

Expect earnings of $15 million to $20 million for our multifamily business into the other category, we'd stepped on loss of about $20 million. This guidance does not include any potential mark to market adjustments.

In summary, the strength of our balance sheet strong liquidity and low leverage provide us with significant confidence and financial flexibility to navigate this uncertain market.

Our technology investments since that adjustment will be to be determined by the stock prices at the end of the quarter.

We expect our Q4 corporate G&A to be about one 2% of total revenues and our charitable foundation contract contribution will be based on $1000 per home delivery.

With that brief overview I would like to turn to guidance.

As Stuart mentioned it continues to be difficult to provide the targeted guidance that we have historically provided given the uncertainty in market conditions.

We expect our tax rate to be about 24, 5% and a weighted average share count for the quarter should be approximately 288 million shares.

We did last quarter, we are providing very broad ranges to give some boundaries for each of the components.

So let's start with new orders, we expect Q4, new orders to be in the range of 14000 to 15500, and we expect our Q4 ending community count to increase about 5% from Q3.

So when you put all this together this guidance should produce an EPS range of approximately $4 65 to $5 30.

Per share for the fourth quarter and with that let me turn it over to the operator.

We anticipate our Q4 deliveries will be in the range of 20000 to 21000 homes.

Thank you at this time, we will begin the question and answer session. Please limit to one question and one follow up if you would like to ask a question you May Press Star one to withdraw your question you May Press Star two one moment. Please for the first question.

Our average sales price should be in the range of 475000 to 480000, our gross margins in the range of 26% to 27% interest G&A between five seven and five 9% as we continued to price to market, turning our inventory and generate cash.

Patterson with Wolfe Research you May go ahead Sir.

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

For the combined homebuilding joint venture land sales and other categories, including Noncontrolling interest.

So you all you all have been pretty open about the fact that you intended to throttle the incentive level to really drive volumes and.

The loss of approximately $15 million.

We anticipate our financial services earnings for Q4 will be in the range of $50 million to $60 million as market competition for purchase business continues to increase.

The orders down 12% is I think a good result in the current environment. So.

Your order ESP fell 9% sequentially.

Expect earnings of 15% to $20 million for our multifamily business into the Illinois.

All four regions it looks like they ticked lower.

Larry we've stepped on loss of about $20 million. This guidance does not include any potential mark to market adjustment.

Hoping you can help us understand how much of that that 12% decline was.

Our technology investments since that adjustment will be to be determined by the stock prices at the end of the quarter.

A function of base price cuts.

Incentives et cetera was it the overwhelming majority.

Our Q4 corporate G&A to be about one 2% of total revenues and our charitable foundation contract contribution will be based on $1000 per home delivered <unk>.

Or was there some product mix shift in there.

Okay.

Why don't I, let Rick take that go ahead, I'm going to play a little traffic cop here because we are in remote locations. So go ahead Rick.

Next our tax rate to be about 24, 5% and a weighted average share count for the quarter should be approximately 288 million shares and so when you put all this together this guidance should produce an EPS range of approximately $4 65 to.

As I mentioned in my commentary there was about a four 5% incentives that was priced in the quarter right.

Some of the some of that was a base price change.

With a slight mix adjustment as we closed.

To $5 30.

Per share for the fourth quarter and with that let me turn it over to the operator.

A more significant amount of.

Entry level homes during the quarter.

Okay, perfect. So that four 5% increase captures both the incentive level in the base price cuts are alright.

Thanks for that and.

You will now have increased your option land, 63% of your portfolio, it's been a pretty rapid.

Patterson with Wolfe Research you May go ahead Sir.

<unk> over the past couple of years and you mentioned that you reassessed every.

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

On your pipeline and Youre working with partners to improve underwriting standards.

So you all you all have been pretty open about the fact that you intended to throttle the incentive level to really drive volumes and.

Could you help us understand if you've actually been walking away.

From deals at an accelerated pace I noticed your option lot.

The orders down 12% is I think a good result in the current environment. So.

<unk> declined in the quarter.

Could you discuss just the willingness of your partners to work with you all and any chance you might be able to help us quantify what portion of controlled deals might be on the watch list or at risk.

Your order ESP fell 9% sequentially.

All four regions it looks like they ticked lower.

Just hoping you can help us understand how much of that that 12% decline was.

So let me.

A function of base price cuts.

Let me give a broad thought process on that.

Incentives et cetera was it the overwhelming majority.

There is there are a couple of buckets you got to think about.

Or was there some product mix shift in there.

Some of the shorter term deals that we have.

Hello.

Why don't I, let Rick take that go ahead, I'm going to play a little traffic cop here because we are in remote locations. So go ahead Rick.

Been working through that we owned Homesites in those homes sites continue to be.

Evaluable assets that we're working that.

As I mentioned in my commentary there was about a four 5% incentives that was priced in the quarter right.

Putting into production and generating an attractive margin on even in current market conditions.

Some of that was a base price change.

We will continue.

With a slight mix adjustment as we closed.

To build through those communities.

That's one of the benefits.

Benefits of shorter term deals.

A more significant amount of.

As.

Entry level homes during the quarter.

Yes.

They generally will work through and still generate an attractive margin.

Okay, perfect. So that four 5% increase captures both the incentive level in the base price cuts are alright.

In every land deal that we have in our pipeline, we are going back and doing the re underwriting.

Thanks for that and.

You will now have increased your option land, 63% of your portfolio, it's been a pretty rapid.

Not just one time, but on a pretty regular basis, given the movements in market conditions and so the answer to your question is we will walk away.

Shifting over the past couple of years and you mentioned that you reassessed every.

On your pipeline and Youre working with partners to improve underwriting standards.

From programs that we have a land that we have under contract that no longer meet the underwriting criteria.

Could you help us understand if you've actually been walking away.

From deals at an accelerated pace I noticed your option lots.

Sure.

And.

Where we have the ability to walk away at that.

<unk> declined in the quarter.

An attractive cost.

We're just not going to go forward on deals that no longer meet the underwriting criteria.

That is the benefit that that comes to bear given the way that we've migrated our land program over the past couple of years.

So let me.

Let me give a broad thought process on that.

Over this past quarter, there are deals that meet the stringent.

There is there are a couple of buckets you got to think about.

Alright, and criteria and deals that don't and those that don't fall out of the filter.

Some of the shorter term deals that we have.

We've walked away and we can come back another day.

<unk> been working through that we own home sites in those Homesites continues to be.

Okay.

So we probably we probably walked away from something in the nature of 10000 Homesites.

Evaluable assets that we're working that.

Just over this past quarter is that it.

Putting into production and generating an attractive margin on even in current market conditions.

And Rick Jon do you want to weigh in on that.

So I would just add that we have.

We will continue.

Extremely strong relationships with.

To build through those communities.

A lot of land partners.

That's one of the benefits.

Benefits of shorter term deals.

And relative to your question, we are able to work with them to either adjust timing.

As.

Yes.

To restructure.

They generally will work through and still generate an attractive margin.

To change pace.

And that combined with as Stuart described.

In every land deal that we have in our pipeline, we are going back and doing the re underwriting on.

Constant refresh analysis, just keeps us very current.

The land we are acquiring is turning into starts very quickly with very acceptable margins and if it doesn't fit that criteria. We're finding the appropriate alternative solution for the asset.

Not just one time, but on a pretty regular basis, given the movements in market conditions and so the answer to your question is we will walk away from programs that we have a land that we have under contract that no longer meet the underwriting criteria.

Alright, Thank you all and good luck in the upcoming quarter. Okay very good. Thanks next question. Please thank.

Thank you Susan Macquarie from Goldman Sachs. You May go ahead.

Area.

And where.

Thank you good morning, everyone. Good morning.

Where we have the ability to walk away at that.

Last question is Stuart you talked a lot about cash generation.

<unk> costs.

We're just not going to go forward on deals that no longer meet the underwriting criteria.

And as we do think about the overall market moderating can you talk to some of the changes in the business today relative to the past cycle, what that will mean for your ability to generate cash as we think about things changing on the ground in the areas that you're really focused on investing in in order to position the business for that eventual Rick.

That is the benefit that that comes to bear given the way that we've migrated our land program over the past couple of years.

Over this past quarter, there are deals that meet the stringent.

Coverage, and where you see <unk> going over time.

Alright, and criteria and deals that don't and those that don't fall out of the filter.

Great question.

We've walked away and we will come back another day.

Historically, if you look at the composition of Lenoir and many of the builders we've migrated away from those longer term land positions that have really stuck in the mud as the market has gotten slow.

<unk>.

So we probably we probably walked away from something in the nature of 10000 Homesites.

Just over this past quarter is that it.

And because we have basically converted our land asset to short term assets those assets, we will turnover.

Mike and Rick Jon do you want to weigh in on that.

So I would just add that we have.

Extremely strong relationships with.

As as we continued to produce through the current market conditions.

A lot of OEM partners.

Relative to your question, we are able to work with them to either just timing.

And so and we will replace those assets with land assets that are re priced given the current market condition. So that's a structural change.

To restructure.

Two to change pace.

And that combined with Stuart described.

<unk> refreshed analysis, just keeps us very current so that the land. We are acquiring is turning into starts very quickly with very acceptable margins and if it doesn't fit that criteria. We're finding the appropriate alternative solution for the asset.

Inland or specifically and in the industry more broadly.

That I think is going to be very cash generative. There are a number of things that work against homebuilders and downtime one of them as long term land.

Alright, Thank you all and good luck in the upcoming quarter. Okay. Very good. Thanks next question. Please. Thank you Susan Macquarie from Goldman Sachs. You May go ahead.

<unk>.

And and that's been that's been mitigated the second thing I'd say is.

When you're growing a homebuilding company.

Thank you good morning, everyone.

My first question is Stuart you talked a lot about cash generation.

One of the big cash users is the growth component, we're constantly buying land and putting more sticks and bricks in the ground to accommodate growth as you migrate to a slower growth level or a zero growth level that in itself is cash generative. So now short term land.

Physician plus migration to a no growth environment, both very cash flow positive and then the one anomalous component is the cycle time that is derived from the supply chain impairment that we've been.

Coverage, and where you see <unk> going over time.

Great question.

And with.

That has added about 25% more cash use inventory buildup relative to normalized times.

And because we have basically converted our land asset to short term assets those assets, we will turnover.

As we've noted before we've added about two months two are generally six months cycle time.

As as we continued to produce through the current market conditions.

And I think thats, an industry kind of average.

And that two months ultimately is going to find its way to resolution, we will see a reversion back to a normalized kind of cycle time in production and that also should be tailwind winds at our back in terms of generating cash as we have a normalization.

And so and we will replace those assets with land assets that are re price given the current market condition. So that's a structural change.

Inland or specifically and in the industry more broadly.

That I think is going to be very cash generative.

Might take place this year might take place over the next couple of years, but it should generate cash as we go forward.

A number of things that work against homebuilders and downtime one of them as long term land.

Okay.

And and that's been that's been mitigated the second thing I'd say is.

Very helpful color and then following up affordability is obviously, a key focus as rates rise and the macro changes can you talk to some of the benefits of your underlying operations and how youre able to sort of.

When youre growing a homebuilding company.

One of the big cash users is the growth component, we're constantly buying land and putting more sticks and bricks in the brands to accommodate growth as you migrate to a slower growth level or a zero growth level that in itself is cash generative.

Drive that narrow band between the tensions that exist on the cost side relative to what the consumer needs and the ability to get those first time kind of homebuyers into our house.

Well listen I'm going to have Rick and Jon both speak to this let me just say as a general overview.

Now short term land position plus migration to a no growth environment, both very cash flow positive and then the one anomalous component is the cycle time that is derived from the supply chain impairment that we've been dealing with.

Along those lines.

Three of US just less a two day session with our trade partners.

And the partnership that exists among our operating groups in the field and our trade partners.

That has added about 25% more cash use inventory buildup relative to normalized times.

<unk> came to light as we had straight conversation about what the market's doing and partnership and recognizing that we've all got to find a way to reconcile cost to enable affordability in the sales price of the home.

As we've noted before we've added about two months two are generally six months cycle time.

That goes to our land partners as well as to our trade partners.

And I think thats, an industry kind of average.

I think that.

Across the industry everybody recognizes that there is going to have to be a cost reconciliation as interest rates go up it's clear that theres going to be more increase in interest rates that we're going to be dealing with so we've got a band together to make the machine more and that means a cost structure that enables affordability Rick Jon.

Might take place this year might take place over the next couple of years, but it should generate cash as we go forward.

<unk>.

Yes, exactly what you said store, it's a combination of us reducing sales prices and having a margin impact and you saw that we executed on that during the quarter.

Okay. That's very helpful color and then following up affordability is obviously, a key focus as rates rise and the macro changes can you talk to some of the benefits of your underlying operations and how youre able to sort of.

We've discussed with our trade partners that there needs to be a sharing.

Everyone made a lot of money during the up cycle and it's time to work as partners to restructure the cost side on both the labor and material side.

Drive that that narrow band between the tensions that exist on the cost side relative to what the consumer needs and the ability to get those first time kind of homebuyers into a house.

And in addition, as Stuart will walk through the land side of the business.

There's going to be some adjustments in land pricing.

The collective.

Well listen I'm going to have Rick and Jon both speak to this let me just say as a general overview.

Of all three of those that we will do in order to execute the strategy.

<unk> momentum going.

Along those lines.

Three of US just left a two day session with our trade partners.

And the only thing I would add is that.

Also during this time.

And the partnership that exists among our operating groups in the field and our trade partners.

Highlighted we have to fund.

Right price to match the affordability perspective in reality that our customer has.

As we look very carefully at our product offering.

Really came to light as we had straight conversation about what the market's doing and partnership and recognizing that we've all got to find a way to reconcile cost to enable affordability in the sales price of the home.

See where we can do some significant value engineering as well as introduce smaller more efficient product into certain markets.

We continue to move down the price curve.

Meet the place where affordability for the consumer intersects with mortgage payment in home prices.

That goes to our land partners as well as to our trade partners.

Yes, I guess bottom line. This is a dynamic situation and the.

I think that.

Across the industry everybody recognizes that there is going to have to be a cost reconciliation as interest rates go up it is clear that theres going to be more increase in interest rates that we're going to be dealing with so we've got a band together to make the machine more and that means a cost structure that enables affordability Rick Jon.

Sure.

Execution part of that is alignment you hear alignment with me, Rick and Jon and we've conveyed that through the Lamar organization through the trade partners and to our land partners as well.

We're going to be done and everybody is at work.

Yes, exactly what you said store, it's a combination of us reducing sales prices and having a margin impact and you saw that we we executed on that during the quarter.

Okay. Thank you and good luck with everything. Thank you next question. Please.

Thank you Stephen Kim with Evercore ISI you May go ahead Sir.

Okay. Thanks, very much guys. Just a first question just from a housekeeping perspective from calculating your starts were probably about 15700 correct me if I'm wrong and then you talked about inventory, maybe freeing up some cash I think you said that cycle times moderating cycle times eventually.

We've discussed with our trade partners that there needs to be a sharing.

Everyone made a lot of money during the up cycle and it's time to work as partners to restructure the cost side on both the labor and material side.

And in addition, as Stuart will walk through the Lance side of the business.

It was.

Was 25% I guess with the growth.

Going to be some adjustments in land pricing.

I suppose that was a comment about your sticks and bricks inventory. So bottom line is on the inventory I am thinking that the cycle time negative impact.

The collective.

Of all three of those that we will do in order to execute the strategy to keep the sales momentum going.

Am I right in thinking that Youre, saying that thats about one $8 billion of cash that's burdening your current inventory.

The only thing I would add is that we're also during this time.

As Rick highlighted we have to fund.

The right price to match the affordability perspective in reality that our customer has as we look very carefully at our product offering.

So that number and then also the 15700 starts is that in the ballpark.

So happy you asked the question that way Steve.

To see where we can do some significant value engineering as well as introduce smaller more efficient product into certain markets. So we continue to move down the price curve.

I will tell you that Diana tried to figure out what the number is and that specificity.

Is.

We haven't been able to put our finger on it but it is in that kind of neighborhood.

The place where affordability for the consumer intersects with mortgage payment in home prices.

A significant amount of dollars that are either because of the cycle time increase.

Yes, I guess bottom line. This is a dynamic situation and the.

Yes.

And to give you a frequency of about 16000 start disclosing that map got.

Sure.

The execution part of that is alignment.

Got you and then in addition to that $1 8 billion neighborhood kind of number you had also mentioned that you could see your inventory shrink further due to slower growth more on the on the land side and that sort of stuff, but I assume that growth comment as temporary so I'm thinking the near term to longer and longer term the opportunity is probably really on the web.

Our alignment with me, Rick and Jon and we've conveyed that through the Lamar organization through the trade partners and to our land partners as well.

We're actually going to be done and everybody is at work.

Okay. Thank you and good luck with everything. Thank you next question. Please.

So correct me if I'm wrong on that.

Stephen Kim with Evercore ISI you May go ahead Sir.

But I wanted to ask about your standing inventory comment as well.

Yes, thanks, very much guys. Just a first question just from a housekeeping perspective from calculating your starts were probably about 15700 <unk>.

You said I think John you mentioned you have about 500 finished completed spec our finished specs right now.

Correct me, if I'm wrong, and then you talked about inventory, maybe freeing up some cash I think you said that cycle times moderating cycle times eventually.

The way I calculate that that's about two to three times.

You typically have two to three times more than that before the pandemic hit and all of that on a per community basis, and so I'm wondering is this 500 like the new normal for you is this a new desired level for you and if so why is that if what we've been hearing is true that you are you seeing that folks are.

<unk>.

It was 25% I guess with the growth.

I suppose that was a comment about your sticks and bricks inventory. So bottom line is on the inventory I am thinking that the cycle time negative impact.

Am I right in thinking that Youre, saying that thats about one $8 billion of cash that's burdening your current inventory.

Fairly.

So that number and then also the 15700 starts is that in the ballpark.

So I'm happy you asked the question that way.

And why you might be looking to reduce that that number in light of customer preferences.

I will tell you that Diana tried to figure out what the number is and that specificity.

It's another good observation.

It is.

Absolutely right.

We basically run our inventory around about one home per community.

We haven't been able to put our finger on it but it is in that kind of neighborhood.

A significant amount of dollars that are either because of the cycle time increase.

And Youre right were a little bit less than half of what normal has been pre pandemic.

Yes.

And to give you a frequency of about 16000 start disclosing the net got it.

And we do envision that we will grow our inventory to a more normalized level, we might even go beyond that.

And then in addition to that $1 8 billion neighborhood kind of number you had also mentioned that you could see your inventory shrink further due to slower growth more on the on the land side and that sort of stuff, but I assume that growth comment as temporary so I'm thinking that near term or longer and longer term. The opportunity is probably really on the web.

<unk>.

The point.

Raising the low level of inventory. So we don't we want people to understand we want everyone to understand that we're not just putting production in the ground and allowing inventory to build up.

So correct me if I'm wrong on that.

A disciplined approach to sales and making sure that we're clearing inventory that's what our dynamic pricing model is all about and we're on it every day, but at the same time your point that having some standing inventory is a benefit to customers looking for an infant move in.

But I wanted to ask about your standing inventory comment as well.

You said I think John you mentioned you have about 500 finished completed spec our finished specs right now.

The way I would calculate that that's up about two to three times.

We will.

You haven't been able to have inventory on the ground during the pandemic time.

Is best practice to have a little bit more than we have right now and will grow to that level.

But it will be done in a very disciplined way, John where if you want to add to that.

Fairly.

I think you've really covered exactly what our operating strategy is Gordon and that's given your assessment of the numbers is right and the consumer desirability, especially in a changing interest rate environment.

Actually preferring customers are preferring homes that they can move into more quickly just wanted to understand if theres any change in your thinking about managing specs as they get near completion and and why you might be looking to reduce that that number in light of customer preferences.

A quick move in they can.

Lock in their rate if they buy today and create that certainty for themselves. So that is definitely an advantage.

So it's another good observation.

But we're very focused as Stuart highlighted using dynamic pricing to make sure. Our homes are sold in time, so as they come off our construction Assembly line, we're able to deliver them to the customer and that will fall in that range.

Absolutely right.

We basically run our inventory of around about one home per community.

And Youre right were a little bit less than half of what normal has been pre pandemic.

On a more normalized time of about one committed per week and.

It'll fluctuate from time to time, but that's our focus.

And we do envision that we will grow our inventory to a more normalized level, we might even go beyond that.

And the only thing I'd add to that Steve is yes.

Stuart said in his comments and I had mentioned as well, we're very focused on cash generation.

<unk>.

The point.

And raising the low level of inventory. So we don't we want people to understand we want everyone to understand that we're not just putting production in the ground and allowing inventory to build up.

<unk> cash to generate is the sale of a completed home.

But to the extent that we have standing inventory, we're going to sell that home because we've got homes moving through the production cycle that are going to replace that.

We have a disciplined approach to sales and making sure that we're clearing inventory that's what our dynamic pricing model is all about and we're on it every day, but at the same time your point that having some standing inventory.

Whether it's a half for one week.

<unk> continued to refine our pricing strategy to maximize the cash and quickly sell the inventory as it progresses from stage to stage.

And then just.

A benefit to customers looking for an infant moving.

To add do go back to your earlier comment yes, Steve.

We will.

Zero growth rate would be a temporary condition not a permanent one.

You haven't been able to have inventory on the ground during the pandemic time.

But there is there is an overhang or an overshadowing concept and that is we don't want to fight the tape.

It is best practice to have a little bit more than we have right now and will grow to that level.

But it will be done in a very disciplined way John Murray do you want to add to that.

So we're not going to try to grow when the tape is telling us not to and Thats clearly the case, but as the market comes back and as I noted in my comments. The long term prospects for housing are strong and good as the market turns around we'll be very well positioned with a very strong cash position to be able to lean into mark.

I think you really cover exactly what our operating strategy has started and is given the Susquehanna numbers is right and the consumer desirability, especially in a changing interest rate environment.

A quick move in they can.

Lock in their rate if they buy today and create that certainty for themselves. So that is definitely an advantage.

Conditions, improving as that happens.

Excellent thanks, very much guys okay.

But we're very focused as Stuart highlighted using dynamic pricing to make sure. Our homes are sold in time, so as they come off our construction assembly volume, we're able to deliver them to the customer and that will fall in that range.

Thank you. Your next question. Thank you. Our next caller is Alan Ratner from Zelman and Associates. Please go ahead Sir.

Hey, guys. Good morning, Thanks for the time appreciate it.

A more normalized time of about one community per week and it'll fluctuate from time to time, but that's our focus.

I guess first.

Stuart maybe directed at you.

<unk> talked in the past about build for rent and in that space being a potential kind of counter cyclical of vehicle in the event of a.

And the only thing I'd add to that Steve as Stuart said in his comments and I mentioned as well, we're very focused on cash generation.

Slowdown in primary demand, which is clearly what we're seeing today and I'm. Just curious if you could talk to your current VFR business, whether perhaps you are leaning a bit more heavily on that in the current climate and obviously with your relationship with the fund and the investors there.

Easiest cash to generate is the sale of our completed homes.

To the extent that we have standing inventory, we're going to sell that home because we've got homes moving through the production cycle that are going to replace that.

Whether it's a half for one week.

The.

The current appetite is among those investors.

Continue to refine our pricing strategy to maximize the cash and quickly sell the inventory as it progresses from stage to stage.

Great.

As Rick to jump in after a first comment and say that.

And then.

That.

If you go back to your earlier comment yes.

I do believe that single family for rent is going to continue to grow and be a meaningful part of the housing market.

Zero growth rate would be a temporary condition not a permanent one.

But there is an overhang or an overshadowing concept of method, we don't want to fight the tape.

No.

And over the years that <unk> has always been a part of the market more dominated by the mom and pop.

Participants now it's been professionalized and more institutional buyers are significant part of the market, but that's part of the market has pulled back as interest rates have gone up as prices have come down and it has moderated.

Got.

It is still a very small part of our production and our sales program.

Conditions, improving as that happens.

Excellent thanks, very much guys okay.

Overall.

And.

I have no question that as prices moderate the SSR business will push in and become more of a significant part of the recovery.

Thank you. Your next question. Thank you. Our next caller is Alan Ratner from Zelman and Associates. Please go ahead Sir.

Hey, guys. Good morning, Thanks for the time appreciate it.

So Rick do you want to fill in some of the thoughts of numbers there, yes, Stuart as you mentioned as rates have risen.

I guess first.

Stuart maybe directed to view we've.

<unk> talked in the past about build for rent and in that space being a potential kind of counter cyclical vehicle in the event of a.

Several of the SF our players use leverage that's floating in order to underwrite to finance their deals.

Slowdown in primary demand, which is clearly what we're seeing today and I'm. Just curious if you could talk to your current VFR business, whether perhaps you're leaning a bit more heavily on that in the current climate and obviously with your relationship with the fund and the investors there.

Accordingly.

Some of the investment in that space has slowed down.

But rents are continuing to maintain.

And as a result.

Get the ultimately get their embedded yields that they're looking for for us as a company. We had about a thousand homes that we sold to the single family rental space in the last quarter.

The what's the current appetite is among those investors.

Great.

As Rick to jump in after <unk>.

Probably underestimated because there were some additional sales in our communities that other folks are investing in and renting.

First comment and say that.

That.

I do believe that single family for rent is going to continue to grow and be a meaningful part of the housing market.

Are captured in that number.

But it was about a thousand in our <unk> program itself was a little bit more than 700 during the quarter.

<unk>.

I've learned over the years that <unk> has always been a part of the market more dominated by the mom and pop.

Let me just add to that and say that.

Embedded in your question I think is the question.

Participants now it's been professionalized and more institutional buyers are significant part of the market, but that part of the market has pulled back as interest rates have gone up as prices have come down and it has moderated so.

What percentage of <unk> ramping up.

The port care, a part of our <unk> program.

And the fact, the reality is that our program has taken a very disciplined approach to stepping back and waiting for the market to kind of reconcile itself. So.

It is still a very small part of our production and our sales program.

And what you might have thought we're probably selling less to our own program.

Overall.

<unk>.

I have no question that as prices moderate the SSR business will push in and become more of a significant part of the recovery.

And more to other <unk> programs outside of Illinois.

Okay, that's really helpful and thank you for that disclosure there.

So Rick do you want to fill in some of the thoughts of numbers there, yes as Stuart as you mentioned as rates have risen seven.

That's very helpful.

I guess second question just on the kind of the monthly cadence you described.

All of the SFA or players use leverage that's floating in order to underwrite to finance their deals.

Yes, I think given the the 4% increase in incentives slash based price reductions combined with the fact that in August we obviously saw mortgage rates pull back temporarily it's not too surprising to see that that kind of be the strong strongest months of the quarter.

Accordingly.

Some of the investment in that space has slowed down.

Rents are continuing to maintain.

And as a result.

I think you mentioned that September was was kind of following a similar trajectory, which I guess I'm a little surprised that given the continued increase in mortgage rates or the reemergence and mortgage rates. Since the end of August. So have you further increased incentives or gotten even more aggressive on price reductions to kind of.

Will get ultimately get their embedded yields that theyre looking for breath as a company we had about a thousand homes that we sold to the single family rental space in the last quarter, it's probably underestimated because there were some additional sales in our communities that other folks are investing in and renting.

Combat that move we've seen in rates or are you still seeing that momentum continue in spite of higher rates.

That are captured in that number but.

But it was about 1000 in our <unk> program itself was a little bit more than 700 during the quarter.

So let me clarify something so for Q3, our incentives were about four 5%.

Let me just add to that and say that.

It was probably about 3% that was based price reduction on top of the incentives with the balance being somewhat next oriented to a lower price point as we move to <unk>.

Embedded in your question I think is the question.

What percentage of Norway ramping up.

The port tear apart of our <unk> program.

And the fact, the reality is that our program has taken a very disciplined approach to stepping back and waiting for the market to kind of reconcile itself. So.

We actually have been fairly consistent with where we were in the third.

Third quarter ending August.

From a pricing standpoint.

We're just slightly ticked up slightly slightly from that incentive standpoint, our actual net sales prices up higher than it was in August.

You might have thought we're probably selling less to our own program.

And more to other <unk> programs outside of the norm.

That might be mix.

Our cancellation rate, we're right on top of where we were for the quarter.

Okay, that's really helpful and thank you for that disclosure there.

So we are and from a sales pace standpoint, we're very consistent with where we were in August so we haven't seen.

It's very helpful.

I guess second question just on the kind of the monthly cadence you described yes.

Given the the 4% increase in incentives slash based price reductions combined with the fact that in August we obviously saw mortgage rates pull back temporarily it's not too surprising to see that that kind of be the strong strongest month of the quarter.

Any dramatic changes.

I think what this is really demonstrating as we really fine tuned our sales execution strategy.

Got it that's.

That's great to hear.

We are finding the market and we are finding the market primarily with primary buyers.

I think you mentioned that September was was kind of following a similar trajectory, which I guess I'm a little surprised that given the.

And as we find the market there is demand out there, but the demand needs affordability.

The continued increase in mortgage rates or the reemergence and mortgage rates since the at the end of August . So have you further increased incentives or gotten even more aggressive on price reductions to kind of combat that move we've seen in rates or are you still seeing that momentum continue in spite of higher rates.

No.

That's basically what's happening.

To that point Stuart if I could squeak in one more.

Sounds like many of your competitors have been a bit more reluctant to be as aggressive as you have on the pricing side. So I am curious if if youre seeing more builders of late kind of respond to enforce.

No let me clarify something so for Q3, our incentives were about four 5%.

To try to match with what you guys are doing and presumably one or two of the other larger builders are doing or is there really a clear divergence right now in terms of strategies out there some builders trying to hold onto margin as long as possible and others trying to find the market as you guys are doing.

It was probably about 3% that was based price reduction on top of the incentives with the balance being somewhat next oriented to a lower price point as we moved into.

We actually have.

Look it's a mixed bag.

Fairly consistent with where we were in.

There are some builders that are.

The third quarter ended August .

Going along with the program that we have in place there are a lot of others.

From a pricing standpoint.

We're just slight ticked up slightly slightly from an incentive standpoint, our actual net sales prices up higher than it was in August .

That have different strategies.

The smaller builders are reacting a little differently than some of the larger builders.

And.

It might be mix from.

That just adds to the choppiness of the market condition.

From a cancellation rate, we're right on top of where we were for the quarter.

All I can tell you is that market by market, we know exactly what the competitors are doing we see the inventory buildups, where theyre happening, we see that migration to sell to a price hold and wait.

So we are and from a sales pace standpoint, we're very consistent with where we were in August . So we haven't seen any dramatic changes.

What this is really demonstrating as we really fine tuned our sales execution strategy.

And ultimately falling off the cliff in saying reconciliation.

Each of these plays out in each market and it's why we emphasize our dynamic pricing model.

Got it.

Great to hear.

We are finding the market and we are finding the market primarily with primary buyers.

Each of our divisions, because thats, what keeps us tuned in to the competitive field exactly what's happening and making the judgments that are necessary I think Rick said it really well. This is an art not a science and.

And as we find the market there is demand out there, but the demand needs affordability.

No.

That's basically what's happening.

We are we are playing.

To that point, if I could squeak in one more.

The game in each market that exists by knowing what the competitive field and reacting to it.

It sounds like many of your competitors have been a bit more reluctant to be as aggressive as you have on the pricing side. So I'm curious if if youre seeing more builders of late kind of respond to enforce.

Alright, I really appreciate the thoughts guys. Thanks a lot.

Next question. Thank you John Lovallo with UBS you May go ahead Sir.

Try to match with what you guys are doing and presumably one or two of the other larger builders are doing or is there really a clear divergence right now in terms of strategies out there some builders trying to hold onto margin as long as possible and others trying to find the market as you guys are doing.

Thank you for taking my questions guys. The first one is can you just help us on the sequential walk in gross margin from <unk> to <unk>, it's about 270 basis points at the midpoint.

Look it's a mixed bag.

Much as base price reductions how much is other incentives rising costs and how much of an offset as sort of the typical seasonal operating leverage.

There are some builders that are.

Going along with the program that we have in place there are a lot of others.

Yes.

We're going to take that.

That have different strategies.

Putting cost to the side I would say that.

Smaller builders are reacting a little differently than some of the larger builders.

Half of.

As it was.

And.

Sales incentives.

That just adds to the choppiness of the market condition.

40%, 30% of it was based price reductions.

All I can tell you is that market by market, we know exactly what the competitors are doing we see the inventory buildups, where they are happening we see the migration to sell to a price hold and wait.

And the balance was probably some cost and mix.

Hi, John.

I think thats right.

We've talked about on prior calls the <unk>.

And ultimately falling off the cliff at the same reconciliation.

Second happened in the fourth quarter will be our peak construction costs are the highest lumber.

Each of these plays out in each market and it's why we emphasize our dynamic pricing model.

Worked through that and that will start coming down at the very end of the fourth quarter and into the first quarter. So.

That makes sense, what you said, Rick and clearly the biggest driver is what we're doing to adjust to market to keep our sales pace.

Yes, let me just add to that and say that.

In addition to.

We are we are playing.

Pricing.

The game in each market that exists by knowing what the competitive field is in.

And.

Base price as well as incentives management, we're also managing our backlog.

Reacting to it.

Alright, I really appreciate the thoughts guys. Thanks a lot.

Recognizing that as price adjust prices adjust we also sometimes you have to go back to our backlog, we don't want to turn yesterday sales and customers into our cancellation and so theres some administration of that as well.

Next question. Thank you John Lovallo with UBS you May go ahead Sir.

Thank you for taking my questions guys. The first one is can you just help us on the sequential walk in gross margin from <unk> to <unk>, it's about 270 basis points at the midpoint.

So lot of moving parts in the walk from third quarter to fourth quarter margins.

Much as base price reductions how much is other incentives rising costs and how much of an offset as sort of the typical seasonal operating leverage.

It's not as linear as just what the new sales are.

Okay. That's helpful guys. Thank you and then maybe switching gears to core Tara.

Third party equity commitments for the asset management business I think were $4 billion last quarter, what has that grown to and how much third party capital has been committed to the land strategies.

Greg likes to take that.

Putting cost to the side I would say that.

<unk>.

<unk> of it was.

We sell incentive.

We haven't put those numbers out so I really can't put those numbers on the table, we're bit restricted as to what we can disclose at this point and we're going to do something more comprehensive.

40%, 30% of it was based price reductions.

And the balance was probably some cost and mix.

And putting together conference call to really let all of those pieces of numbers be known as we're getting ready to actually go public.

Hi, John .

I think thats right.

<unk> talked about on prior calls the second happened in the fourth quarter will be our peak construction costs of the highest lumber.

I would say again stay tuned.

Okay Fair enough. Thank you okay. Thank you and we'll take our last question now.

Worked through that and that will start coming down at the very end of the fourth quarter and into the first quarter. So.

Mike Rehaut from Jpmorgan, Sir you May go ahead.

That makes sense, what you said, Rick and clearly the biggest driver is what we're doing to adjust to market to keep our sales pace.

Thanks, Thanks for squeezing me in I.

I guess its good afternoon, everyone.

Yes, let me just add to that and say that.

Just wanted to get a sense directionally.

In addition to.

Pricing.

For gross margins at least as we think past the fourth quarter and.

And.

Base price as well as incentives management, we're also managing our backlog.

Obviously.

Totally appreciate youre, not giving guidance for a good reason at this point for fiscal 'twenty.

'twenty three but as we think about maybe the first quarter or two.

And you look at the.

<unk> four 5% average incentives for the quarter and you ended August around 6%, So youre talking about another 150 bps.

So lot of moving parts in the walk from third quarter to fourth quarter margins.

The.

If we just kind of help things there.

It's not as linear as just what the new sales are.

And also held cost and I know, you're working hard on the cost as well, but is that a good starting point to think about the difference between.

Okay. That's helpful guys. Thank you and then maybe switching gears to core Tara.

First quarter 'twenty, three gross margins and what Youre doing currently that additional 150 bps.

Again holding other.

We haven't put those numbers out so I really can't put those numbers on the table, we're bit restricted as to what we can disclose at this point and we're going to do something more comprehensive.

Understandably key variables constant.

So.

Mike I think the best way for me to answer this is to say that.

We have decided not giving guidance for the fourth quarter because there are so many moving parts. We recognize the best we can do is give some boundaries.

And putting together conference call to really let all of those pieces of numbers be known as we're getting ready to actually go public.

I'd say it again stay tuned.

Help the modeling.

Okay fair enough. Thank you.

I think that there.

Okay. Thank you and we'll take our last question now.

It gets even more complicated as we go out to the to the first quarter. So we're not going to wait into those waters simply because theres a lot moving around.

Mike Rehaut from Jpmorgan, Sir you May go ahead.

Thanks, Thanks for squeezing me in.

As we said yesterday and listen to chair Powell.

I guess its good afternoon, everyone.

Lay out kind of his thinking for the way forward.

Just wanted to get a sense directionally.

For gross margins at least as we think past the fourth quarter and.

Just helps us recognize that.

That we're living in a dynamic environment, that's going to change a lot of things.

Obviously.

Totally appreciate youre, not giving guidance for a good reason at this point for fiscal 'twenty.

Month by month quarter by quarter.

And we're focused on week by week, our management team gets together every other day to to coordinate to find alignment and to look at the patterns that are revealing themselves real time in the marketplace and each market is different so.

'twenty three but as we think about maybe the first quarter or two.

And you look at the four 5% average incentives for the quarter and you ended August around 6% <unk> add another 150 bps.

To me.

I guess, that's a big and long winded excuse.

If we just kind of help things there.

But we're not really going to weigh in on our first quarter numbers right now.

And also held cost and I know, you're working hard on the cost as well, but is that a good starting point to think about the difference between.

Okay.

Appreciate that.

I guess.

Similarly at the risk of <unk>.

First quarter 'twenty, three gross margins and what Youre doing currently that additional 150 bps.

Asking another question that might be hard to answer but.

Directionally, how should we think about community count in 2003, obviously this year youre looking at and with some sequential growth.

Again holding other.

Understanding the key variables constant.

So.

Mike I think the best way for me to answer this is to say that.

<unk>.

Given the moderation in sales pace.

We have decided we not giving guidance for the fourth quarter because there are so many moving parts. We recognize the best we can do is give some boundaries.

Obviously.

Delays in such can impact that.

Rate of openings, but is growth.

Help the modeling.

We should think about next year and if so any.

I think that there is.

Any sense of degree of magnitude.

It gets even more complicated as we go out to the to the first quarter. So we're not going to Wade into those waters simply because theres a lot moving around.

Great question, we've given that a considerable amount of thought I'm going to turn to Rick and a second on this because it's his favorite topic.

As we said yesterday and listened to chair Powell.

But.

But we are thinking about community count growth into next year can't prove it right now, but we think that theres going to be some comparable reconciliation and land pricing.

Lay out kind of his thinking for the way forward.

Just helps us recognize that.

That we're living in a dynamic environment, that's going to change a lot of things.

Which will enable us to find opportunities that are right sized for current market conditions.

By month quarter by quarter.

But we're going to have to wait and see on that Rick could you answer that.

So our community count is so tricky because it has.

<unk> impacted by your sales pace in your existing communities development.

Timing.

Whether it's internal development or third party developers in house, whether they get their community is done at the appropriate time.

I guess, that's a big and long winded excuse.

But we're not really going to weigh in on our first quarter numbers right now.

And sitting here today.

We believe our community count will increase in 2023.

Okay.

Appreciate that.

A single digit low single digit increase.

I guess.

Similarly at the risk of <unk>.

And that could be skewed by what happens in the land market because as other builders may walk away from deals that have finished homesites.

Asking another question that might be hard to answer but.

Directionally, how should we think about community count in 2003, obviously this year you are looking at and with some sequential growth.

Look good for us from an underwriting standpoint, because of our low cost structure.

We may find some opportunities.

<unk> to <unk>.

To add to community count.

Given the moderation in sales pace.

As Stuart said, it's tough it's a tough read right now, but it looks slightly up.

Obviously.

Delays in such can impact the rate of openings, but is growth.

Great. Thanks, so much thank you Mike Alright.

We'll wrap it up there one thank everyone for joining us these are tricky times.

We should think about next year and if so.

Any sense of degree of magnitude.

This is a seasoned management team thats been there been here before.

Great question, we've given that a considerable amount of thought I'm going to turn to Rick and a second on this because it's his favorite topic.

Have a game plan strategy.

You can expect that we're going to be adhering to that strategy.

But.

But we are thinking about community count growth into next year can't prove it right now, but we think that theres going to be some comparable reconciliation and land pricing.

With certainty and look forward to reporting back as we get to the end of the fourth quarter. Thank you everyone.

And thank you. This concludes today's conference call. You May go ahead and disconnect at this time.

Which will enable us to find opportunities that are right sized for current market conditions.

But we're going to have to wait and see on that Rick could you add to that.

So our community count is so tricky because it has.

<unk> impacted by your sales pace in your existing communities development.

Timing.

Whether it's internal development or third party developers in house, whether they get the community is done at the appropriate time.

Sitting here today.

We believe our community count will increase in 2023.

Probably a single digit low single digit increase.

And that could be skewed by what happens in the land market.

As other builders may walk away from deals that have finished home sites.

Look good for us from an underwriting standpoint, because of our low cost structure.

We may find some opportunities.

To add to community.

But as Stuart said, it's tough it's a tough read right now, but it looks slightly up.

Great. Thanks, so much thank you Mike Alright.

We'll wrap it up there one thank everyone for joining us these are tricky times, but.

This is a seasoned management team thats been there been here before.

We have a game plan strategy.

You can expect that we're going to be adhering to that strategy.

Certainty and look forward to reporting back as we get to the end of the fourth quarter. Thank you everyone.

And thank you. This concludes today's conference call. You May go ahead and disconnect at this time.

Yeah.

Q3 2022 Lennar Corp Earnings Call

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