Q4 2023 Lennar Corp Earnings Call
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Welcome to <unk> fourth quarter earnings conference call. At this time, all participants are in a listen only mode. After the presentation. We will conduct a question and answer session. Today's conference is being recorded if you have any objections you may disconnect. At this time I will now turn the call over to David Collins for the reading of the forward looking statements.
David Collins: Thank you and good morning, everyone.
David Collins: Today's conference call May include forward looking statements, including statements regarding <unk> business financial condition results of operations cash flows strategies and prospects.
David Collins: Forward looking statements represent only <unk> estimates on the date of this conference call and are not intended to give any assurance as to actual future results.
David Collins: 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 our earnings.
David Collins: The release, and our SEC filings, including those under the caption risk factors contained in <unk> annual report on Form 10-K, most recently filed with the SEC.
Please note that <unk> assumes no obligation to update any forward looking statements.
David Collins: I would now like to introduce your host Mr. Stuart Miller Executive Chair.
Speaker Change: Decorative chairman, Sir you may begin.
Stuart Miller: Very good good morning, everybody and thank you for joining today.
Speaker Change: And then Miami today, together with Jon Jaffe, our co CEO and President Diane Bessette, Our Chief Financial Officer, David Collins, who you just heard from our controller and Vice President Bruce gross our CEO of <unk> financial services, and a few others as well.
Speaker Change: Well.
Stuart Miller: As usual I'm going to give a macro and strategic overview of the company. After my introductory remarks, John is going to give an operational overview updating construction cost cycle time.
John: And some of our land strategy and position as usual Diane is going to give a detailed financial highlights along with some limited guidance for fourth quarter and full year of 2024.
John: And then of course, we will have our question and answer period.
John: As usual I would like to ask that you. Please limit yourself to one question and one follow up so that we can accommodate as many as possible.
John: So let's begin.
John: Very pleased to report another very strong quarter and year end of operating results for LNR.
John: We've executed our operating plan effectively over the past year, and accordingly have simply never been better position from balance sheet to operating strategy to address market conditions and the new year 2024.
John: Throughout 2023, the dominant theme at the macro level has been the impact of higher interest rates on the homebuilding consumer as affordability has been tested and demand has been constrained by the ability to purchase.
John: Affordability and the ability to qualify.
John: Generally speaking consumers are employed and are generally confident that they will remain employed and that their compensation will generally rise overall.
John: Overall consumer confidence has been reasonably strong and buyers that can transact pep transacted.
John: Underlying this environment as a general chronic supply shortage of homes, especially affordable homes across the country as well as a growing pent up demand for housing that has that.
John: That is and has been held back by materially higher interest rates.
John: Been a very short supply of affordable product and a very strong demand for that affordable product.
John: The new homebuilders have worked out a variety of incentive structures that range from interest rate buy downs to closing cost pickups to price reductions to meet the buyer the purchaser at the intersection of need and affordability.
John: The existing home market has been quiet as existing homeowners have covenant, they're low interest rate mortgages and remained on the sidelines.
John: Homebuilders have been uniquely able to activate demand by using incentives that unlocked the affordability constraint and enable purchasers to transact.
John: Over the past quarter. This narrative has been particularly difficult as interest rates spike through the first two months of the quarter and then began to ease in November.
John: As mortgage rates began to migrate from seven 5% towards 8% the market began to feel like it was hitting a real inflection point and the overall market conditions softened materially.
John: Most recently of course sure Paul and the fed has signaled that we might be closer to the end of the tightening cycle and we might see lower rates as we enter 2024, you get into the new year.
Speaker Change: We'll see.
Speaker Change: Against this backdrop <unk> consistent strategy throughout the past year has been to continue to drive volume defined affordability to meet demand by using our dynamic pricing model and using appropriate incentives and provide supply to the market.
Speaker Change: Over the past year, we have consistently detailed our operating strategy with the expectation that we would do as follows number one reduced our land assets, while growing our business.
Speaker Change: Number two drive strong and consistent bottom line earnings while concurrently generating consistent net cash flow.
Speaker Change: Number three reduce our construction cycle times, while increasing our inventory turn.
Speaker Change: And <unk> and number four ultimately enhance the quality of our returns on equity and return on assets by focusing on the allocation of liquid assets Ie cash.
Speaker Change: 2023, it was a year of strategy and successful execution for Lenoir and sets us up extremely well for another strong year of execution in 2024.
Speaker Change: We began the year with a strong statement of operating strategy in a higher interest rate environment, and we focus on execution throughout the year.
Speaker Change: Even as the macroeconomic environment continued to shift and adjust to inflation with higher interest rates.
Speaker Change: We adhere to our strategy and we drove volume and production.
We believe that demand was strong, though constrained by affordability and supply was very limited.
Speaker Change: As others pulled back we leaned in and maintain pace.
We defined our operating strategy is driving production and sales pace, while using price incentives and margin reduction to enable affordability.
Speaker Change: Rather than further constraining supply, we drove production and used our formidable size and scale to enable cost and operating efficiencies to drive affordability.
Speaker Change: As you've seen in our press release, while driving higher volume. We also achieved strong operating results.
We delivered over 73000 homes in 2023, which represents a 10% year over year volume increase over 2022.
And we delivered and we delivered a strong bottom line of $3 9 billion or $4 82 a share.
Speaker Change: We also generated well in excess of the $3 5 billion.
Speaker Change: Of homebuilding cash flow that we generated relative to what we generated in 2002.
Speaker Change: And we are well positioned with land and community count to expect to deliver 80000 homes in 2024 again, another 10% increase year over year.
Speaker Change: Given the current interest rate signals from the fed we would also expect that margins will be at least consistent with our 2023 levels.
Speaker Change: And although we have embedded lower margins that will flow through the first quarter.
Speaker Change: Those reduced margins will clear over the next quarter and using our dynamic pricing tool, we will recover margin quickly and efficiently as lower interest rates enable us to reduce incentives.
Speaker Change: The strategic benefits of driving volume pain, and we will continue to come.
Speaker Change: With advantages that are both immediately valuable as well as durable for the company's future.
Speaker Change: I'd like to briefly detail some of those advantages.
Speaker Change: First by driving volume, we gained market share in most of our core markets as we leaned in when some others pulled that back.
Speaker Change: Our trade partners saw a consistent and dependable partner that became worthy of the designation of builder of choice.
Speaker Change: We worked side by side with our traditional trade partners and Additionally, we found additional trade partner relationships with participants that found that they had dependable and consistent work with our strategy.
Speaker Change: Through market share growth in local markets, we enhanced the ability to better manage our costs enhance our efficiency of operation reduced cycle times with efficient production templates and enhance our inventory churns John.
Speaker Change: John will discuss this in more detail shortly.
Speaker Change: Next and maybe most important by driving volume, we are positioned with land and communities for strong volume in all of our operating markets.
Speaker Change: As we drove volume and delivered homes, we purchased new land and communities for the next years deliveries.
Speaker Change: We are extremely well positioned to continue to sell on pace as prices recover and as incentives subside along alongside lower interest rates.
Speaker Change: We are positioned to drive even stronger bottom line results and cash flow as market conditions normalize.
Speaker Change: Additionally, by driving volume, we gained market share in land acquisition.
Speaker Change: Simply put we continue to sell land by selling homes, and then purchased land to replace communities, especially when others walked away.
Speaker Change: Market share advances have given us the critical position to be an even stronger land buyer of choice to the owners and developers of critical land assets.
Speaker Change: They saw a dependable market participant remain consistent as market conditions became more tenuous and we found that we were able to experiment with innovative land structures that work constructively as markets falter and then recover.
Speaker Change: Noteworthy in this regard is our variable land pricing tool that enables homesite values to move up or down as a percentage of the sale price.
Speaker Change: The home as markets move up and down.
Speaker Change: Next by driving consistent volume, even at lower margin, we generated consistent cash flow through more challenging times and enhanced our balance sheet and our cash liquidity, even after redeeming or repurchasing $1 $1 billion of senior notes.
Through the year and repurchasing 10 million shares shares of <unk> stock through the year.
Speaker Change: Situated today with a nine 6% homebuilding debt to total cap ratio with $6 $3 billion of cash on hand, and $0 drawn on our revolver and with an expected.
Speaker Change: Three and a half plus or minus $1 billion of net cash flow over the next year.
Speaker Change: We have the flexibility to invest capital strategically and growth, while retiring debt as it matures and repurchasing shares of our stock, which we expect to repurchase at least 2 billion or $2 billion of stock over the next year.
Speaker Change: Fourth by driving volume, we gained advantaged insights into and Brook bind the workings of our strategic land bank.
Speaker Change: The flow of volume through the land banking relationships that define our current approach to land acquisition was invaluable.
Speaker Change: Questions have now been answered as to the durability of the capital partners that makeup the counterparty relationship with the homebuilding machine.
Speaker Change: Our consistent volume helped define both trust and dependability, and making those and taking those relationships to another level as neither party flinched as market conditions tested the boundaries of relationship.
Speaker Change: While adjustments were made and lessons were learned the structures and relationships became stronger and more durable.
Speaker Change: Fifth by driving volume, especially in the more difficult interest rate environment of the past year, we were able to develop enhanced yields and improve <unk> machine.
Speaker Change: Our sales marketing and dynamic pricing machine is quickly becoming an advanced digital engine that has materially benefited by aggressive focused use and engagement while the market was most difficult.
We focused on what was required to drive volume while market conditions challenged affordability.
Speaker Change: We've pushed data and engagement through the component parts of this digital tool and stressed it often and to its limits.
Speaker Change: We reviewed 40 points of feedback from our 40 operating divisions and made adjustments and refinements as we learn.
Speaker Change: Good day and the result is that <unk> machine is becoming an invaluable partner as we drive volume by finding market at affordable pricing and driving sales at the same pace as production.
Speaker Change: Overall, our strategic focus on driving volume in both production and sales has enabled us to become a stronger and better positioned company that has become more durable through the ups and downs of housing cycles.
Speaker Change: Our balance sheet has never been stronger and our operation our operating platform has never been better aligned.
Speaker Change: Our fourth quarter and year end of 2023 has been another strategic and operational success for our company.
Speaker Change: While market conditions have been challenging we have consistently learned and found ways to address market need.
Speaker Change: We know that demand is strong and there is a chronic housing supply shortage that needs to be filled.
Speaker Change: We will continue to drive production to meet the housing shortage that we know persist across our markets.
Speaker Change: With that said as interest rates subsided normalize and if the fed is going to begin to actually cut rates. We believe that pent up demand will be activated and we will be well prepared.
Speaker Change: To date, we have seen overall market conditions remain generally constructive for our industry.
Speaker Change: As higher interest rates have subsided strong pent up demand has found ways to access to the housing market.
Speaker Change: Most recent movements in interest rates suggest a better road ahead.
Accordingly, we executed on our core strategy against the most difficult economic and industry backdrop.
Speaker Change: Given consistent execution, we are extremely well positioned for even greater success as strong demand for affordable offerings continues to seek short supply.
Speaker Change: We expect to start the new year with strong sales strong starts sales and closings as we have guided to $16500 to 17000 deliveries.
Speaker Change: In the first quarter.
Speaker Change: And a 21% to 21.25% margin as lower margin sales move through the first quarter.
We engaged the changing tides of the past year with a consistent strategy that has enabled certainty of execution throughout our company.
Speaker Change: Our strategy is well known and understood throughout our division offices, and we have a simple and consistent model of execution.
Speaker Change: We focus on maintaining volume, while we price our homes to drive matched face.
Speaker Change: We work with our trade base to manage cost and efficiencies and adjust product offering to meet the market.
We manage both our land and our production inventories to drive efficiency cash flow and returns on our asset base.
Speaker Change: We focus on our land light model in order to drive balance sheet efficiency.
Finally, we fortify our balance sheet to have the liquidity for strength and flexibility.
Speaker Change: Knowing what to do and executing per plan has driven this quarter's and this year's success and ensures consistent success for the foreseeable future.
Speaker Change: As we look ahead to a successful 2024, we are well positioned for an executive and expect to see much more of the same we are confident that by design. We will continue to grow perform and drive, Illinois to new levels of performance.
Speaker Change: With that let me turn it over to Jon.
Jon Jaffe: Good morning, Stuart discussed our operational teams that we are continued focusing on executing our operating strategy and our fourth quarter as our divisions continuously learn from their engagements with all of our machine.
Jon Jaffe: Provide feedback through enhancements that improve the machine in our execution of our strategies.
Jon Jaffe: You can see the evolution of this improvement in our even flow operating strategy throughout the year, our starts and sales for the second half of 2023 were evenly matched a $37 53 and 37032, respectively in.
Jon Jaffe: In the fourth quarter, our production patients defined by an average of five starts per community per month and average sales pace of four seven sales per community per month.
Jon Jaffe: Importantly, this strategy is not just about the pace of sales, but as importantly about selling the right homes at the right pace, our machining matches up unsold production as homes progress towards completion with pricing information from our dynamic pricing model on a community by community and home by home basis, and our fourth quarter.
Jon Jaffe: As interest rates peak this process informed us.
Jon Jaffe: Informed us as to how much we needed to buy down interest rates and offer other incentives maintain the desired pace.
Jon Jaffe: We maintain consistent starts and sales paces generating increased market share in almost all of the markets we build them. This.
Jon Jaffe: This is seen in our overall growth of 10% from last year as our consistent starts have filled the void of other builders, who have pulled back. Some examples of markets, where we have a leading and increased market share in 2023 over 2022 are as follows.
Jon Jaffe: Here in South Florida.
Jon Jaffe: We're ranked as the number one builder with a market share of 74% from 63% a year ago in Dade County, and 33% in Broward County up from 28%.
Jon Jaffe: Across the state and southwest, Florida, we have a 38% market share double that of the number two builder in.
Jon Jaffe: In the Carolinas, where the number one ranked order in Charlotte Raleigh, and Charleston, with market shares are generally five to 16, and 22, 5%, respectively, representing an average increase in share of about 150 basis points.
Jon Jaffe: In the Midwest, we're number one in Indianapolis, and Minnesota with over 25% market share in each market an increase of over 400 basis points in each.
Jon Jaffe: In Texas, we have increased market share in each of the markets there in Austin and Dallas Fort worth by 200 basis points to 11, five and 10% respectively in Houston by 300 basis points to 11, 5% and in San Antonio by 700 basis points to 22, 5%.
Jon Jaffe: Colorado, where we ranked number one in almost 10% market share, which is double that of the number two builder who has been the perennial market leader move.
Jon Jaffe: Moving out west in Phoenix, and Las Vegas, we have a number one share with 12 and 18% respectively.
In California, we're the number one builder in all of the markets there and have grown a significant market share across the state from 25% in the inland Empire and central valley to more than 35% in San Diego in Sacramento.
And lastly in the Pacific Northwest, we're the largest in Seattle, and Portland, with 14% to 17% share respectively. Both an increase of about 250 basis points.
Jon Jaffe: The execution of our pricing strategy is based on the strength of each individual market in Mexico the level of production by community in that market.
Jon Jaffe: As Stuart noted the market conditions, our fourth quarter was defined by the chronic shortage of housing supply and more volatile interest rate environment as compared to greater variations of market strength across our markets that we saw in prior quarters.
Jon Jaffe: Current market environment, all markets are benefiting to similar degrees from greater demand and supply.
Jon Jaffe: On a sales pace of $4 seven homes per community in Q4 was up from a pace of $3 seven compared to Q4 2022.
Jon Jaffe: Further demonstrating improvement in executing the strategy of a patients.
Q4 is that it was the same as our overall pace for fiscal 2023.
Jon Jaffe: As interest rates rapidly moved higher during the quarter. Our homebuilding teams work in close coordination with our mortgage to find the right mortgage solution homebuyer Baidu buyer.
Jon Jaffe: Focused execution of the process I just described led to completing the quarter with less than one unsold inventory homes per community.
Our strategy of finding market clearing pricing to match the pace of sales to homes under construction allows us to maintain both a high volume and a consistent volume of homes under construction, which is the foundation for our builder of choice program with our trade partners.
Jon Jaffe: As we continuously improve the way we execute this game plan, we are deepening partnerships with our trade base working together with our trade partners. We are consistently eliminated <unk> prevented supply chain constraints and reduce cycle times.
Jon Jaffe: These and other efficiencies that benefit our trade partners enable us to lower construction cost in a cooperative manner with our trades.
Jon Jaffe: By consistently starting homes, despite the changing interest rate environment during the quarter, we increased our starts in the fourth quarter by 43% from the prior year and starts were flat sequentially from Q3.
This increase in starts attracts larger trade VIX, Illinois, which together with a normalized supply chain environment led to another significant improvement in our cycle time for the fourth quarter cycle time decreased by 22 days sequentially from Q3 down to 161 days on average for single family homes and most of our markets.
Jon Jaffe: This represents the at or close to prepay, bringing cycle times.
Looking at our fourth quarter as expected our construction cost fell sequentially from Q3 by about 4%. In addition, our Q4 costs were down about 13% on a year over year basis. This is the direction of construction costs, we expected in our guidance from last quarter.
Moving forward, we expect cost to be consistent with where they are now over the next few quarters.
In order to further improve our production efficiencies, we are working side by side with our trade partners on value engineering quote planned charities and production sequencing across markets to reduce the cost and time to bill with the goal of delivering a greater value to the homebuyer customer.
Jon Jaffe: Next I will discuss the execution of our land light strategy and our fourth quarter. We continued to effectively work with our strategic land and land Bank partners with a purchase had on our behalf and then deliver just in time finished home sites to our homebuilding machine as Stuart described.
Consistent with the third quarter about 84% of our $1 $5 billion of land acquisition in the quarter was finished homesites purchased from our various land structures.
Jon Jaffe: We have made significant progress in the fourth quarter as our year supply of owned Homesites improved to one four years from $1 nine years, and our controlled homesites percentage increased to 76% from 69% year over year to.
Jon Jaffe: The Bottomline is focusing on our operating strategies, which results in a reduction in cycle time and a reduction in owned land has stood articulated increased our cash flow as well as help improve our inventory churn, which now stands at one five versus $1 two last year and 25% increase.
Jon Jaffe: Our community count at least.
Jon Jaffe: At the end of the fourth quarter was 206, which was up 4% from the year ago period, we expect to increase our community count in the mid to high single digits by the end of fiscal 2024.
Jon Jaffe: I want to recognize and thank all of our associates for their hard work and dedication of focusing on the execution of our strategies and also importantly for accomplishing the change management needed for the required process changes and implementing these strategies of our machine while at the same time, delivering a very strong fourth quarter and fiscal 2023.
Jon Jaffe: I'd now like to turn it over to Diane.
Diane Bessette: Thank you gentlemen, and good morning, everyone. Since joining John has provided a great deal of color regarding our homebuilding for funding so that flattens out and spend a few minutes on the results of our financial services operations and our balance sheet.
Diane Bessette: Can you comment on the first quarter. So we are looking at financial services for the fourth quarter. The financial services team had operating earnings of $168 million.
Diane Bessette: Mortgage operating earnings were $119 million compared to $80 million in the prior year and increasing earnings was driven by higher lock volume as a result of higher orders in capture rate on higher profit current locks alone as a result of higher secondary margins and lower cost per loan as the team continues to focus on it.
Diane Bessette: Sentences.
Diane Bessette: Final operating earnings were $50 million compared to $44 million in the prior year.
Earnings increased primarily as a result of higher volume inflated productivity also team continues to embrace technology to run a more efficient business.
Following these results were accomplished.
Diane Bessette: Results are great synergy between our homebuilding and financial services team a truly operate under the banner of one on.
Diane Bessette: Now turning to our balance sheet. This quarter. Once again, we were steadfast in our determination to turn on inventory and generate cash on maintaining production and pricing homes to market with the goal of delivering as many homes as possible to meet demand.
Diane Bessette: The results of these actions was that we ended the quarter with $6 3 billion of cash and no borrowings on our $2 6 billion revolving credit facility. This provided a total of $8 9 billion of homebuilding liquidity.
Diane Bessette: As a result of these.
Diane Bessette: Our continued focus on balance sheet efficiency.
Diane Bessette: We once again as John mentioned made significant progress on our goal of becoming asset light quarter.
Diane Bessette: Quarter end or year increase for one full year from one nine years in the prior year and our Homesites controlled increased to 76% from 69% in the prior year.
Diane Bessette: Lowest yields and highest controlled <unk> in our history.
Diane Bessette: At quarter end, we own just under 100000 home sites and control 210000 Homesites.
Diane Bessette: Total of 410000 Homesites.
Diane Bessette: We believe this portfolio provides us with a strong competitive position to continue to grow market share in a capital efficient way.
Diane Bessette: Spent one 5 million on land purchases. This quarter was 84% in finished homesites preclinical construction loans since the team.
Diane Bessette: This is consistent with our manufacturing model of buying land on adjusting time basis, which is less capital intensive.
Diane Bessette: And finally looking at returns are in the space for me was one five times and our return on inventory was 29%.
Diane Bessette: Let me make one comment about our <unk> this quarter, we request of deposits on future land purchases and inventory into a separate line on our balance sheet. This re class, which was about $2 billion at year end was made to better align ourselves with most participants in our industry and boss brings greater.
Diane Bessette: <unk> and less confusion.
Diane Bessette: That certainly analyst communities.
Diane Bessette: During the quarter and consistent with our production focus we started about 18400 homes and ended the quarter with approximately 38200 total homes and William Stein.
Diane Bessette: Inventory number includes about 2200 models and also includes about 1200 home network completed unsold, which is slightly less than one home per community as we successfully managed our finished inventory levels.
Diane Bessette: And our continued effort to further strengthen and derisk, our balance sheet by reducing our debt balances as Nick mentioned in the fourth quarter.
Diane Bessette: And the remaining balance of $378 million of our quarter and 78 senior notes due in December 2023.
Diane Bessette: We purchased a $110 million of senior notes due in fiscal 2024 and five seven.
Diane Bessette: <unk> or below par for a quarterly total of 488 million.
Diane Bessette: Yes, we repaid or between $1 1 billion of senior notes.
Diane Bessette: As a result of inkjet each debt reduction initiatives. They ended the quarter with a total senior note balance of about $2 5 billion. There is only one note due in 2024, which is $464 million due in April.
Diane Bessette: Combined with strong earnings our homebuilding debt to total capital was nine six put an arm on lowest ever which is an improvement from $14 four in the prior year.
Diane Bessette: Yes.
Diane Bessette: Consistent with our commitment to strategic capital allocation, we repurchased $3 million of our outstanding shares for 337 million in the fourth quarter and for the year, we repurchased 10 million shares totaling $1 1 billion. Additionally, we paid dividends of 105 million during the quarter and 431.
Diane Bessette: And yet the REIT.
Diane Bessette: Further we returned almost $1 billion to our equity and debt holders in the fourth quarter and about $2 7 billion for the full fiscal year.
Diane Bessette: And then final points regarding our balance sheet, our stockholders' equity increased to almost $27 billion and our book value per share increased to $94 61.
In summary, the strength of our balance sheet and strong liquidity position provides us with significant confidence and financial flexibility as we enter 2024.
Diane Bessette: So with that brief overview I'd like to turn to Q1.
Diane Bessette: Given the evolving interest rate environment, we would like to once again provide some guidelines for Q1 to assist with your modeling starting with new orders, we expect Q1, new orders to be in the range of 17 five.
Diane Bessette: To 18000 homes.
Diane Bessette: As we keep production pace and sales teams plus four alone.
Diane Bessette: To support our Q1 deliveries to be in the range of 16000 517000 loans with a continued focus on efficiently turning any signs of cash.
Diane Bessette: Our Q1 average sales price should be about 420 <unk>.
And we expect gross margins to be in the range of 21 to 20, 125%, indicating some impact from higher interest rates in Q4. Additionally.
Diane Bessette: Additionally, also remember that our Q1 margins are only negatively impacted by the current period expensing of steel costs. While we are working towards an even sales process of starting in constructing homes on daily consistent quarterly Hs revenues in Q1 are the lowest of the year because of the season.
Diane Bessette: This Q1, the current period expensing will have a negative gross margin impact of approximately 150 basis points. When you look sequentially from Q4.
Diane Bessette: Also note consistent with last year, the first quarter will be a low point of margins during 2024.
Diane Bessette: Turning to SG&A, we expect to be in the range of eight to eight 2% for Q1 for.
Diane Bessette: For the combined homebuilding joint venture land sales and other categories. We expect to have earnings of about $20 million, we anticipate our financial services earnings for Q1 to be in the range of $85 million to $90 million.
Diane Bessette: And we expect a loss of about $25 million multifamily business and a launch of about $15 million favorable in our other category.
Diane Bessette: Are there estimate does not include any potential mark to market adjustments to our public technology investments what adjustment will be determined.
Diane Bessette: Prices at the end of the quarter.
Diane Bessette: We expect our Q1 corporate G&A to be about two 2% of total revenues <unk> expenses unlicensed turned up a bit as we continue to invest in cyber security and technology development that is robust and durable to support our future growth in.
Diane Bessette: And a charitable foundation contribution will be based on $1 per home delivery.
We expect our tax rate to be about 24, 5% and a weighted average share count should be approximately 279 million shares.
Diane Bessette: Combined basis. These estimates should produce an EPS range of approximately $2 15 to 2020.
Diane Bessette: Firstly after the first quarter.
Diane Bessette: And then finally just to reiterate a few months on fiscal 2024.
Diane Bessette: As we indicated we affirm our target of 10% to literally growth in 2024, which would result in approximately $80000 for the year and for gross margin as Stuart mentioned, we expect to maintain the levels of <unk> in 2023.
Diane Bessette: We also remain confident in our cash flow generation as such we continue to be committed to allocating capital to our stakeholders. We're targeting a total capital allocation of at least $2 5 billion for 2024, remembering that $454 million will be allotted to our April 2020 debt maturity.
And the challenge of roughly $2 billion to share repurchases I'd.
Diane Bessette: I'd like to end by sincerely thanking the landmark financial teams accounting planning and IR.
Combined great efforts that allow us to host our yearend earnings call two weeks after a year and you guys are amazing and with that let me turn over to the operator.
Speaker Change: Thank you we will now begin the question and answer session of todays conference. We ask that you limit your questions to one question and one follow up question until all questions have been answered if you would like to ask a question. Please on mute your phone press star one and record your name clearly when prompted.
Speaker Change: You need to withdraw your question at any time you may you start to again that is star one to ask a question.
Speaker Change: Our first question will come from the line of Stephen Kim from Evercore ISI. Please go ahead.
Great. Thanks, very much guys, yes, so much great information you provided so thanks a lot.
Speaker Change: Hi.
Speaker Change: I imagine folks will be asking you about a little bit more detail on the gross margin. So what I actually wanted to focus on was your balance sheet and in particular you ended the year with.
Speaker Change: Very heavy level of cash.
Speaker Change: Over $6 billion I think on the homebuilding cash.
And I was curious what did you feel a sort of a normal level once all the dust settles in.
You get to a level of cash where you feel sort of sustainable and appropriate to sustain over the long term what that level roughly would be how we should think about that and related to that.
Speaker Change: Given that I assume 6 billion is probably more than that number.
Speaker Change: I am guessing by maybe a couple of billion or something like that.
Speaker Change: Your 2 billion in share repurchases that you sort of said as as the.
Speaker Change: The baseline level.
Speaker Change: Seems frankly, a little low.
Speaker Change: Given that we're expecting you guys to generate cash flow and so forth. This year. So I was wondering if you could help us understand how.
Speaker Change: How we should be thinking about your cash balance.
Speaker Change: Going forward and what it would take for you to.
Speaker Change: Applying more of that to repurchases.
Speaker Change: And I guess I should have specified that I'm curious if you could articulate why you're willing to hold more cash than you need.
Speaker Change: At this time.
Speaker Change: Well, Steve let me start by saying you know the old adage richer core it's good to have cash right.
Speaker Change: So just starting there.
Speaker Change: I would say that.
Speaker Change: We're really growing into the new us in developing a.
Speaker Change: By design approach to the way that we operate our business and as is the case with.
Speaker Change: With.
Speaker Change: Evolution in general you've kind of grow into with <unk>.
Speaker Change: Some stops and starts.
Speaker Change: The new version of how you kind of look at the way you are configured.
Speaker Change: So I would say I would say yes.
Speaker Change: We're starting to look at our cash flow numbers cash flow generation.
Speaker Change: We're starting to see kind of a consistency.
Year over year in the.
Speaker Change: Kind of a baseline in $335 billion range.
Speaker Change: Youll, probably see in our Q that.
Speaker Change: Good morning RK.
Speaker Change: That that number will be higher for 2023.
Speaker Change: The amount of consistent.
Speaker Change: Annual cash flow is something that we are.
Speaker Change: We're watching develop over time and.
Speaker Change: So when you asked your question that fits into the context of.
Speaker Change: How do we think about the certainties of the programming that we have in place.
Speaker Change: As I noted in my comments one of the interesting things of this past year was looking at the durability of our land banking relationships to capital providers and the execution in and around land bank as markets become stressed there has been a tremendous amount of learning around that and evolution.
So the answer to the question as we kind of see our.
Speaker Change: Steady state cash flow is developing around three $3 5 billion a year.
Speaker Change: How much cash we feel comfortable holding it.
Something that we are we've.
Speaker Change: <unk>.
Speaker Change: Maybe.
Speaker Change: Maybe at $6 billion or $5 billion or $7 billion.
Speaker Change: Some might say that thats too much as we gain confidence as we start looking at.
Speaker Change: By design approaches to the component parts of it.
Speaker Change: <unk> is developing into Illinois machine.
Speaker Change: We're going to be an increasingly amount that we returned to shareholders through stock buybacks and other mechanisms.
Speaker Change: And.
Speaker Change: And so we might be a bit behind the curve that people perceive.
Now, we're going slower rather than faster as we develop real core components to our strategy that are becoming etched in stone and where we are developing confidence so again might be a little slower than some might think it should be but we're hitting stride with our comfort zone.
Speaker Change: And buying back stock and thinking about the deployment of liquid assets.
Speaker Change: That's really helpful. Because obviously you are undergoing a very.
Speaker Change: Significant transformation and I think I'm hearing a lot of steady state I'm hearing a lot of predictability and what you're laying out.
Speaker Change: And obviously, that's something that we think is critically important to an eventual revaluation.
Speaker Change: It just seems like when you had initially when you started off your comments you said, it's great to have cash, but I think that when you are arguing for a revaluation of some of the investors that we speak with would argue that holding too much cash actually is a.
Speaker Change: A hindrance to our reevaluation because it effectively it seems like the company may be holding onto cash with the hope that they could deploy it in some sort of traditional way I E land or or something like that which maybe isn't.
Speaker Change: In line with what a lot of the rhetoric around being asset light is so.
Speaker Change: Your commentary about this is a period of time, where you were sort of gradually developing.
Speaker Change: Developing the systems to the point, where you have that predictability I guess that's helpful. So if I'm interpreting your comments right. We should basically expect the level of cash to come down to a more too.
Speaker Change: Maybe a lower level. Once you have established those systems to your satisfaction, but youre not there yet is that a proper way to paraphrase and what youre, saying.
Speaker Change: Thank you.
Speaker Change: The commentary I think that helps me answer a little bit better.
Let me say that we are decidedly not holding onto cash.
To execute the next large scale M&A program or some.
Speaker Change: Out of the box growth program.
So I wanted to spell that thought process, it's simply is.
Speaker Change: And this past year has been an incredible year for our company in terms of developing the confidence around durable systems are actually working very well, it's been a proving ground.
Speaker Change: So I would say don't read too much into the holding this cash.
Speaker Change: It simply is the development of confidence and stride in terms of the way that we deploy liquid assets.
Speaker Change: Okay.
Speaker Change: Helpful I really appreciate it.
There was some news very recently regarding the marketing of your rental portfolio. I was wondering if you could put some context around that for us because we got a lot of questions from folks around whether this is something that we should be expecting to just to provide a cash infusion even above and beyond the normal.
Speaker Change: Operations.
Speaker Change: Would generate.
Speaker Change: Alright, So look I think that the answer to that question is we will see.
Speaker Change: The.
Speaker Change: Determination to market the portfolio was driven by <unk>.
Speaker Change: Limited partners.
Speaker Change: And.
Speaker Change: Sure.
Speaker Change: The timing is.
Speaker Change: <unk>.
Speaker Change: Is one where it's kind of a sub optimal time to be thinking about.
Speaker Change: Although who knows where interest rates go at.
Speaker Change: That could change quickly.
Speaker Change: So, we'll see what happens what might or might not be.
Wishes and episodic.
Yeah.
Speaker Change: Program, where it.
Speaker Change: It will happen, but it won't be material to the <unk>.
Speaker Change: The balance sheet or the income statement and company owned shortly.
Speaker Change: Any profit would be discounted.
Speaker Change: And.
Speaker Change: And in terms of the cash infusion it would simply be.
Speaker Change: Additive to our cash position and might even inspire us too.
Speaker Change: Do more stock buyback. So we'll just have to wait and see on that I don't think theres any additional guidance that could be given at this point.
Speaker Change: I appreciate that thanks, so much.
Speaker Change: Thank you.
Speaker Change: Next we'll go to the line.
Speaker Change: Alan Ratner from Zelman <unk> Associates. Please go ahead.
Alan Ratner: Hey, guys. Good morning, Thanks for all the detail and congrats on the great performance this year.
Speaker Change: Stuart I'd love to get your thoughts because I heard a lot in the commentary about the.
Speaker Change: The tailwind that you guys had over the course of this year related to tight inventory.
Interest rate move these last few days or weeks, it's been obviously striking but I think one of the great unknowns and uncertainty is what impact that does have on the resale market as far as.
Speaker Change: Potentially freeing up some inventory and getting some people to move and obviously there is puts and takes to that on your business, but what is your expectation there assuming kind of rates settle out near current levels as far as what that could do to the resale market and how the new home market might might react to higher inventory.
Speaker Change: And 24.
Speaker Change: Yes, it's really interesting question Allen.
Speaker Change: I thought about this a lot over the past year.
Speaker Change: As the resale market has appropriately held onto mortgages that are very attractive interest rates and therefore have not added to the traditional supply that defines the resale market.
Speaker Change: More I think about it and test my thinking.
Speaker Change: Seems to me to be a zero sum game.
If the retail market is activated.
Speaker Change: A tick down in interest rates, which it might be.
Speaker Change: Because in traditional fashion first time buyers find that the family is growing and they move up to two a move up second move up position.
Speaker Change: It does seem to be that to the extent that interest rates do activate the resale market and additional supply comes on the market along with that supply comes additional demand.
Speaker Change: Because what has been missing from the market is the traditional resell buyer looking for that move up home and decidedly.
Speaker Change: First time.
Speaker Change: The first time market they've been.
Speaker Change: Very thirsty for four new home product because the traditional resale products simply hasnt been available. So I suspect if the existing home market is activated as interest rates do trend down should they trend down.
Speaker Change: That it will result, both in.
Speaker Change: Additional supply for the first time buyer and additional demand for the move up buyer and we've been thinking a lot about that and I think that we're very well prepared for that migration as well.
Great I appreciate your thoughts on on that topic.
Speaker Change: Secondly on the margin interesting so youre not given formal full year guidance, but I guess, we can certainly piece together your expectations.
Speaker Change: Are you, saying that you expect full year margins to be pretty similar to 'twenty three so that would imply a.
Speaker Change: Fairly healthy ramp through the year.
Was hoping you can just give us maybe some specifics on what type of trajectory on incentives does that imply I would imagine land costs are going to be trending up in terms of what splunk through the P&L. So should we just interpret that as your expectation that incentive should come down to 300 plus basis.
Speaker Change: So over the course of the year from where they sit today.
Okay.
Speaker Change: So.
Speaker Change: If you go back to.
The days when the seasonality was the norm.
Speaker Change: We went on a seasonality hiatus for a period of time that was always the case the trajectory of our margin started lower in the first quarter and accelerated through the year and I think I have detailed that in her comments.
Speaker Change: Comments, that's all that has been the case.
Speaker Change: I think that.
Speaker Change: In our case, specifically as we went through the fourth quarter.
Speaker Change: Sure.
Speaker Change: The fourth quarter was a pretty rugged interest rate quarter, especially as we went through the first couple of months.
Speaker Change: And so I think that you have kind of an anomalous.
Speaker Change: Margin.
Speaker Change: Pushed down.
Speaker Change: In our first quarter, I think that youre going to see a normal flow.
Speaker Change: Margin improvement as we go through the year I think the more extreme.
Speaker Change: <unk> in the fourth quarter to maintain case.
Speaker Change:
Speaker Change: Was it looks today as it's really a thing of the past at that level.
Speaker Change: And as.
Speaker Change: As we look at where our margin is likely to go I think we have pretty good visibility because we.
We went through November.
Speaker Change: In November and then early December and seeing the market kind of EBITDA and the buyer come back to the market.
Speaker Change: Interest rates did start to ease John <unk> I would agree with what you said Stuart. In addition, we did see as we moved into the holiday season at the end of the quarter.
Speaker Change: <unk>.
Speaker Change: Less of a rebound as interest rates came down.
Speaker Change: Due to the holiday seasonality.
Sort of normal.
Speaker Change: I also think that you should expect that we will focus on not just the fact that rates are lower but more effective use of adjustable rates.
Speaker Change: In order to bring down the cost of mortgage buy downs as the <unk>.
Speaker Change: <unk> still has a need of a of a lower effective interest rates, both qualifying and afford homes at today's prices.
Great. Thanks, again, guys I appreciate it.
Speaker Change: Okay. Thank you Tom.
Speaker Change: Next we will go to the line of Kenneth sooner from Seaport Research partners. Please go ahead.
Kenneth Sooner: Good morning, everybody.
Kenneth Sooner: Good morning.
Kenneth Sooner: A key part of even flow.
Kenneth Sooner: Cadence.
Kenneth Sooner: As structuring land as a variable cost.
Kenneth Sooner: I think a very meaningful innovation for you guys.
Kenneth Sooner: So can you quantify what percent of your closings.
Have been coming from these finished homesites that averaged 85% to 90% of your purchases. This year. So how many what percent of the closings came from these finished home sites in the quarter. If you could give us some context that would be useful versus last year or earlier. This year and then this is the key question quantify the.
Kenneth Sooner: Margin impact that you are making versus the asset efficiency that you're achieving because I think the latter point is misunderstood.
Speaker Change: My first question. Thank you.
Speaker Change: Well can I can just add.
Speaker Change: So in the fourth quarter up 48%.
Speaker Change: Great.
Speaker Change: We're on some sites that we purchase from third parties I don't know what it was at the beginning of the year, but I'm sure in alternative F&B equivalent and I think that we should expect to see that trending up in 2024.
Speaker Change: <unk> continued to become even more land later.
Speaker Change: Interestingly on our balance sheet and having more control.
Speaker Change: There was a second part too.
Speaker Change: Right.
Speaker Change: So in.
Speaker Change: In the margin.
Speaker Change: Asset efficiency.
Speaker Change: Yes, So I think if you look big picture, it's a growing number but I would say that it's probably 20 or 30 basis points is probably a good answer and that will probably grow LNG.
Speaker Change: Increase that percentage.
Speaker Change: But for now it takes about 20 or 30 basis points.
Speaker Change: Excellent.
Speaker Change: And then I think the second item and I think this is more about messaging and we've spoken about this in the past, but investors are seeking.
Speaker Change: Seeking clarity on net income to cash flow and buybacks.
Speaker Change: I realize.
Speaker Change: Your company is evolving as you reduce your land exposure, but just generally as you heuristic.
Could you kind of a firm the statement I think Diane you Might've said, that's actually that's a balance of cash flow will go to share repurchases absent that payments is that as simple rule of thumb that is guiding your company.
Diane Bessette: Stuart I think you were highlighting that you are not looking for large land deals. So I think with the simple heuristics people would have more confidence in that.
Diane Bessette: Application of your cash flow.
Speaker Change: Thank you.
Stuart Miller: Yes, I think thats, a good characterization for right now.
But what I'm trying to articulate is that we are evolving our thinking in this regard.
Stuart Miller: I want to say emphatically that we're not looking for we're not looking for and holding back for large land deals, we're not looking for and holding back for M&A transactions.
Stuart Miller: So, let's let's say that that's not the direction that we're that we're growing right now.
Stuart Miller: And that the cash flow generated.
Stuart Miller: Both conservatively right now allocation between debt retirement.
Stuart Miller: <unk> and the remainder for stock buyback.
Speaker Change: I think Ken I would ask switches.
Speaker Change: As it relates to that you might be referring to the soccer.
Speaker Change: <unk> closed in prior years.
Speaker Change: We did a fair amount of earlier than others.
Speaker Change: Pension.
Speaker Change: On our future.
Speaker Change: And then just because everyone has always said that while the debt to total capital ratio is important I think.
Speaker Change: More important in my mind is more of a nominal dollars on your balance sheet and so we really wanted to take down the nominal dollars.
Speaker Change: <unk> balance another one 2 billion.
Billion.
Speaker Change: It feels like there isn't quite the need to keep climbing that falling we can just kind of pay it down in an orderly fashion as it comes due so that's not how we're thinking about it at the moment.
Speaker Change: Thank you very much.
Speaker Change: Thank you.
Speaker Change: Thank you next we'll go to the line of Michael Rehaut from Jpmorgan. Please go ahead.
Speaker Change: Thanks.
Michael Rehaut: Good morning, everyone are I guess almost good afternoon. Thanks for all the comments so far and also congrats on the fast turnaround after year end that is very impressive. So I would agree with Dan's comments earlier.
Michael Rehaut: I wanted to.
Michael Rehaut: Zero in a little bit on SG&A and corporate G&A for the first quarter.
Speaker Change: It looks like you are.
Speaker Change: Having.
Speaker Change: Yeah.
Speaker Change: Revenue growth expectations, alongside the predominantly driven by the higher closings.
Speaker Change: But.
Speaker Change: Negative leverage I guess on on both metrics.
Pretty decent margin given given the double digit revenue growth outlook. So just wanted to understand the drivers of that I know you said on the corporate G&A, there's more investments. So maybe just talking a little bit more on SG&A, if there's higher commissions or other factors that we should be aware of and on a full year.
Speaker Change: Should we expect SG&A incorporate G&A leverage.
Speaker Change: Outside of just this first quarter dynamic.
Speaker Change: Yeah, So I think Mike.
Speaker Change: We've been as we've been articulating we have been seeing a little bit more broker participation ourselves too thin.
Speaker Change: Although challenging at certain times.
Speaker Change: And.
<unk> purpose judiciously.
Speaker Change: Certainly.
Speaker Change: Tiered programs and the like to.
Speaker Change: So that means our catchment sales, but spending dollars judiciously. Additionally, as you kind of talked about the machine are there the cargo side.
Speaker Change: Yes.
Speaker Change: Lead generation on the digital side, how do we get more leads into the funnel. So that we have higher conversion rates and shall we soon again judiciously spending dollars on match them because we believe that in the end.
Speaker Change: That will really produce a higher net margin for us because it's less costly than focus on other things. So I think those are the two areas that.
Speaker Change: <unk> has already been impacting our SG&A in the last few quarters, yes that was that was required articulation.
Speaker Change: The operational side of that that was good.
Speaker Change: But.
Speaker Change: The fact is that as we've gone through this.
Speaker Change: The ups and downs of the past year with interest rates.
Speaker Change: The <unk>.
The use of our digital platform has really been a learning curve.
Speaker Change: And has challenged us to get better and better and better.
Speaker Change: And while we have great affection for and engagement with our realtor community.
Speaker Change: We certainly don't want to incur costs that we don't have to incur.
Speaker Change: And so we.
Speaker Change: We have been working.
Speaker Change: Carefully to make sure we're managing the balance between.
The necessary engagement with with Realtors and what we can actually accomplish organically to our digital platform and that is rippling through our SG&A.
We've seen.
Speaker Change: Sure.
Realtor spend and some of the marketing spend kick up as we have.
Speaker Change: Driven to maintain shelf space. So we're seeing some of that is going to be a story of evolution. As we go through 2024 anything you want to think Thats articulation as you said in your opening remarks that we're continuing to learn about the execution of our machine.
Speaker Change: We turned the dials or whether it's interest rate buy downs or incentives or the flow through our digital funnel or the selected use of brokers.
Speaker Change: We're in that stage, where we are trying learning experimenting and providing feedback to how do we get better and more efficient at each of those.
Speaker Change: The levers that we pull to drive with consistent production and sales pace.
Speaker Change: Alright, great. Thank you for that.
Speaker Change: I guess, secondly, just drilling down a little bit more on the gross margins and understanding it's a pretty fluid situation certainly but.
Speaker Change: Against kind of a backdrop, where you've done low 24% gross margins in the back half of 'twenty. Three now you are talking about low 21% in the first quarter, but.
Speaker Change: Perhaps the full year getting back to something around what you did on a full year basis in 'twenty three.
Speaker Change: Would seem like.
Speaker Change: This upcoming first quarter.
Speaker Change: Obviously took steps to ensure volume and orders coming in the door.
That appear to be maybe I don't want to say extraordinary but.
You did what you needed to do let's say to ensure those volumes coming through and maybe a little bit more of a stress period.
Speaker Change: Is it fair to kind of.
Speaker Change: Think about perhaps the.
Speaker Change: A 200 basis point or two to 300 basis point type of first quarter deviation.
Speaker Change: As being.
Speaker Change: Kind of.
Speaker Change: I don't want to say.
Speaker Change: A one time event, but.
Speaker Change: As you have.
Speaker Change: <unk>.
More recent interest rate backdrop coming back to late summer.
Speaker Change:
Speaker Change: And were you did a gross margin closer to that 24.
Speaker Change: Is there any reason not to think that you'll be getting back to that 23, 24% type of gross margin in relatively short order.
Outside of again, perhaps some more aggressive measures that you took from an insane.
Speaker Change: That are kind of tangible and.
Speaker Change: Quantifiable that you see as more of just affecting the first quarter is that kind of the right way to think about.
Speaker Change: Kind of moving past this.
Period in the very short term.
Speaker Change: So.
Great question, Mike and it's one that we're thinking a lot about and I think that the answer to that is we will see whether it is our instinct that that is very much a case as I noted in the fourth quarter.
Speaker Change: You really you really saw as interest rates started to migrate.
Above 75% towards eight.
Speaker Change: As I said in my remarks.
Speaker Change: It really felt like you were hitting an inflection point, where we really fell.
Speaker Change: In the field.
Speaker Change: Yet the buyers.
Speaker Change: There may be starting to hit a tipping point of losing some confidence.
Speaker Change: The way I think about it is.
Speaker Change: As we've gone through this this.
Speaker Change: Higher interest rates, even as we saw a sharp increase in interest rates at the end.
<unk>.
Speaker Change: We were able to see incentives work.
Speaker Change: Incentives were able to help the buyer get to a point of affordability and they transacted on the need for their housing.
Speaker Change: <unk>.
Speaker Change: No.
Speaker Change: As we got into the fourth quarter.
Speaker Change: And we're starting to get to that point, where we werent sure that.
Speaker Change: Incentives even on the aggressive side.
Speaker Change: We're going to work.
The timeline on interest rates started to moderate just a little bit not kind of as they did in the past couple of days.
Speaker Change: But just at that moderation took kind of the edge off and maybe the market needed to get to a new normal I don't know what that was actually going to be but the question is the <unk>.
Speaker Change: Answer to your question is.
Speaker Change: We did what we had to do we did what it took to activate the market at the moment in time, we're not going to build inventory we are not going to.
Speaker Change: To pull back on the overriding strategy.
Speaker Change: Driving cash flow, we're going to meet the market, where the market is and we're going to drive through it and Thats exactly what we did through our fourth quarter, you're right at some of the margin impact might be a bit more severe as we reflect that through the first quarter.
Speaker Change: There could well be a.
Speaker Change: Kind of snap back and we'll have to wait and see because we are going through the seasonality of this time of the year right now.
Speaker Change: If I could add as you think about the machine and the process that we've been describing to you for quarters now.
Speaker Change: It's really a reflection of the reality is that none of US has a crystal ball at any moment in time to see which way rates or.
Our buyer enthusiasm is moving so as we sat in the fourth quarter. We just dealt with the rate for what they were versus the speculation of where they might go and so Stuart just articulated we appropriately used.
Mortgage rate buy downs to keep that pace going.
Speaker Change: As we sit here today rates look better, but again, we don't know where theyre going but we're well positioned to just maintain that pace, which by definition means we.
Use lower cost mortgage buy downs continue to drive the consistent pace.
Speaker Change: As a stiff articulated a articulated we'll use our margin as a shock absorber within market conditions interest rate environments, and you should see it move up and down as the market moves up and down.
Speaker Change: One last thing I'll say is.
Speaker Change: An interesting anomaly that we noted through our fourth.
Speaker Change: Fourth quarter was there was greater reluctance.
Speaker Change: To use an arm product that would normally take place as we go through an interest rate cycle and much more focus on a 30 year fixed buy down.
Speaker Change: Which which was more expensive.
Speaker Change: And.
And just a small tech or normalization of interest rates and especially what's happened over the past days.
Speaker Change: It's migrating the attention of buyers to the prospect of an arm product being more acceptable. This is of course reduces the amount of.
Speaker Change: Incentives is flowing through the system.
Speaker Change: And so we're going to have to wait and see again touching fee.
Speaker Change: Day by day basis, and Thats what were working on.
Speaker Change: Why don't we take one more question.
Speaker Change: Thank you. Our final question comes from Susan Mcclary from Goldman Sachs. Please go ahead.
Susan Mcclary: Thank you for squeezing me in good afternoon.
Yes.
Susan Mcclary: My first question is just building on your comments in response to the last question, which is as you think about coming into the year with less than one finished spec per community, which is the low and especially relative to maybe some of your peers that are in sort of a similar product price points market.
Susan Mcclary: How do you think about the ability to leverage the improvements in our non machine to flex the business to get to the 80000 clothing that you've guided to or even perhaps flex up or flex down relative to that number depending on how the market comes together this year.
Susan Mcclary: Well.
Susan Mcclary: To that extent everything that we're doing even the migration to.
Susan Mcclary: The larger number of deliveries is by design, it's about the number of communities that we have in the ace through those communities.
And this.
Susan Mcclary: This is becoming very much a.
Susan Mcclary: Focus detailed program that is managed by John.
Susan Mcclary: What we call our daily call. It's actually every other day and our operating group is laser focused on.
Susan Mcclary: Hence the production pace starts pace.
Susan Mcclary: Our cycle times Dovetailing with sales pace at the division and community level.
<unk> is being handled.
Susan Mcclary: Very active Amazon basis John.
Susan Mcclary: This is as sensitive to the by design approach is to not have completed inventory, which have new inventory moving through our production machine.
Susan Mcclary: Which we don't need to flex up or down it will consistently come through and we will consistently drive deliveries towards our goal of about 80000 for this year. So the market conditions will ebb and flow most likely whatever she will be very consistent through that delivering that by design.
Susan Mcclary: <unk> target that we have.
Susan Mcclary: Okay.
Speaker Change: And then in your comments you detailed some really impressive market share gains that you've realized over the course of the year. As you think about the forward year can you talk a bit to maybe who those share gains you seek largely came from and then the ability to further outgrow the market as you drive some of these company specific initiatives.
Speaker Change: So.
Speaker Change: We're certainly not going to be naming names and it's different across the platform.
I don't think you would even be able to identify a specific.
Where it came from I would say every market is different every every strategy in various markets.
Speaker Change: For the competitive landscape has been different.
Remember that.
Speaker Change: There are some there are some numbers that have been constrained by access to capital.
Speaker Change: And then others that just has a very different strategy our strategy has been clear and consistent.
Speaker Change: And where there has been pulled back by one another or a group of.
Speaker Change: Other builders.
We have wins and we filled certain voids and picked up market share and that process, whether it's been on land acquisition, whether it's within the acquisition of new trading partners too.
Speaker Change: To help focus on cycle time.
Britain caution too.
Speaker Change: <unk> focus.
Speaker Change: <unk> focus or whether it's been in.
Speaker Change: Accelerating.
Speaker Change: Sales of our sales pace.
Speaker Change: Been able across the board to lean in and drive market share.
I think the market share that position as a byproduct of the strategy as you're hearing.
Speaker Change: Becoming.
Speaker Change: The most efficient effective buyer of choice for many sellers and the most efficient effective builder of choice for our trade partners, that's what really drives our strategy.
Speaker Change: This is because there is other builders pull back or maybe accelerate and will provide us consistent growth consistent volumes of both DRAM sellers into our trade partners.
Speaker Change: Okay.
Speaker Change: Right.
Speaker Change: Okay. Thank you very much.
Speaker Change: We're going to end it there I won't say I. Thank everybody for joining us it's been a really exciting year for our company in terms of evolution in terms of execution and in terms of learning curve.
Speaker Change: And look forward to reporting on progress through 2024, thanks for joining.
Speaker Change: That concludes today's conference. Thank you all for participating you may now disconnect your lines and please enjoy the rest of your day.
Speaker Change: Thank you.
Speaker Change: Yes.