Q2 2024 KB Home Earnings Call

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John: Good afternoon. My name is John, and I'll be your conference operator. I would like to welcome everyone to the KB Home 2024 second quarter conference call. Currently, all participants are in. Following the company's opening remarks, today's conference call is being recorded and will be available for replay after the, dot com. July 8: Now, I would like to turn the call over to Jill Peters, Senior Vice President, Investor Relations. Thank you, Jill. Thank you, John. Good afternoon, everyone.

John: Good afternoon, My name is John and I'll be your conference operator today.

John: I would like to welcome everyone to the Kb home 2024 second quarter earnings Conference call.

John: Currently all participants are in a listen only mode. Following the company's opening remarks, we will open the lines for questions.

John: Today's conference call is being recorded and will be available for replay at the company's website Kb home Dot com through July 18th 2024.

Speaker Change: Now I would like to turn the call over to Jill Peters Senior Vice President Investor Relations. Thank you Jill you may begin.

Jill Peters: And thank you for joining us today to review our results for the second quarter of fiscal 2024. On the call are Jeff Mezger, Chairman and Chief Executive Officer, Rob McGibney, President and Chief Operating Officer, Jeff Kaminski, Executive Vice President and Chief Financial Officer, Bill Hollinger, Senior Vice President and Chief Accounting Officer, and Thad Johnson, Senior Vice President and Treasurer.

Jill Peters: Thank you John Good afternoon, everyone and thank you for joining us today to review our results for the second quarter of fiscal 2024.

Speaker Change: On the call are Jeff Mezger, Chairman and Chief Executive Officer.

Speaker Change: Rob Mcgivney, President and Chief operating Officer.

Speaker Change: Jeff Kaminski Executive Vice President and Chief Financial Officer Bill.

Speaker Change: Bill Hollinger, Senior Vice President and Chief Accounting Officer, and Thad Johnson, Senior Vice President and Treasurer.

Jill Peters: During this call, items will be discussed that are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future results, and the company does not undertake any obligation to update them. Due to various factors, including those detailed in today's press release and in our filings with the Securities and Exchange Commission, actual results could be materially different from those stated or implied in this forward-looking statement.

Speaker Change: During this call items will be discussed that are considered forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095.

Speaker Change: These statements are not guarantees of future results and the company does not undertake any obligation to update them.

Speaker Change: Due to various factors, including those detailed in today's press release.

And in our filings with the Securities and Exchange Commission.

Speaker Change: Actual results could be materially different from those stated or implied in the forward looking statements.

Jill Peters: In addition, a reconciliation of the non-GAAP measure of adjusted housing gross profit margin, which excludes inventory-related charges, and any other non-GAAP measure referenced during today's discussion to its most directly comparable GAAP measure can be found in today's press release or on the investor relations page of our website at kbhome.com. And with that, here is Jeff Mezger.

Speaker Change: In addition, a reconciliation of the non-GAAP measure of adjusted housing gross profit margin, which excludes inventory related charges and any other non-GAAP measure referenced during todays discussion to its most directly comparable GAAP measure can be found in today's press release.

Speaker Change: <unk> on the Investor Relations page of our website at Kb home Dot com and with that here is Jeff Mezger.

Jeff Mezger: Thank you, Jill, and good afternoon, everyone. Our performance in the second quarter was solid, with key metrics that were above the high end of our guidance range. In addition, we achieve positive year-over-year comparisons for both net orders and net order values. We believe we are well positioned to achieve our goals over the remainder of 2024 with a backlog of committed buyers valued over $3 billion and meaningful improvement in our build time. As for the details of our results, we generated total revenues of over $1.7 billion and detailed earnings per share of $2.15.

Jeff Mezger: Thank you Jill and good afternoon, everyone.

Jeff Mezger: Our performance in the second quarter was solid.

Jeff Mezger: With key metrics that were above the high end of our guidance ranges.

Jeff Mezger: In addition, we achieved positive year over year comparisons for both net orders and net order value.

Jeff Mezger: We believe we are well positioned to achieve our goals over the remainder of 2024 with a backlog of committed buyers valued at over $3 billion and meaningful improvement in our build times.

Jeff Mezger: As for the details of our results we generated total revenues of over $1 7 billion and detailed earnings per share of $2 15.

Jeff Mezger: Our margins were healthy, with over 21% in gross and above 11% in operating income margins. This performance, along with the cumulative benefit of ongoing quarterly share repurchases, Inclusion, and an additional $50 million during the second quarter drove our book value per share up 14% year-over-year. Longer term housing market conditions remain favorable, supported by an undersupply of new and resale homes.

Jeff Mezger: Our margins were healthy with over 21% in growth and above 11% and operating income margin.

Jeff Mezger: This performance along with the cumulative benefit of ongoing quarterly share repurchases.

Jeff Mezger: Including an additional $50 million during the second quarter drove our book value per share up 14% year over year.

Jeff Mezger: Longer term housing market conditions remained favorable supported by an under supply of new and resale homes.

Jeff Mezger: Solid Employment, Wage Growth, Favorable Demographics, and Rising Household Formation. However, during the second quarter, we did see volatility return to the market correlated to the rise in mortgage rates. Periods of rate increases create uncertainty for consumers, which can delay their purchase decisions. Despite this, the desire for homeownership is strong, and the appeal of a personalized home is clear, as we generated a higher mix of sales of built-to-order homes in our second quarter than we have in several quarters. Personalization is a key differentiator for our company.

Jeff Mezger: Solid employment wage growth favorable demographics and rising household formations.

Jeff Mezger: However, during the second quarter, we did see volatility returned to the market correlated to the rise in mortgage rates.

Jeff Mezger: Periods of rate increases create uncertainty for consumers, which can delay their purchase decisions.

Jeff Mezger: Despite this the desire for homeownership is strong and the appeal of our personalized home as clear as we generated a higher mix of sales of built to order homes and our second quarter than we have in several quarters.

Jeff Mezger: Personalization is a key differentiator for our company.

Jeff Mezger: And its appeal is even stronger as our build times are normalizing and as most large production builders have migrated to an all-spec model, particularly for first time buyers. We are affordably positioned in our target markets with products that include features that we know buyers value based on our survey data. Our buyers can then significantly influence their final sales price as they personalize their choice of lot, elevation, and selections in our design studio, aligning their monthly payment with their budget.

Jeff Mezger: And its appeal is even stronger as our build times are normalizing and as most large production builders have migrated to an all spec model, particularly for first time buyers.

Jeff Mezger: We are affordably positioned in our served markets with products that include features that we know buyers value based on our survey data.

Jeff Mezger: Our buyers can and significantly influence their final sales price as they personalize their choice of lot elevation and selections in our design studio aligning their monthly payment with their budget.

Jeff Mezger: While the majority of our business is built to order, we've always offered quick move-in homes in each of our communities. As a result... We are in a unique position to satisfy the majority of customers who value choice, while also accommodating those buyers who prioritize a quicker move-in date. Operationally and financially, we gained several key benefits from our built-to-order model. The even flow production inherent in our approach provides visibility and consistency in deliveries, which is particularly important in periods of housing market volatility, as we work from a large backlog and do not need to sell homes at any price to achieve our delivery targets in a given quarter. In addition, the revenue that we generate from lot premiums and studio revenues helps to enhance our gross margin.

Jeff Mezger: While the majority of our business is built to order. We've always offered quick move in homes in each of our communities as a result.

Jeff Mezger: We are in a unique position to satisfy the majority of customers who value choice. While also accommodating those buyers who prioritize a quicker move in date.

Operationally and financially we gained several key benefits from our built to order model.

Jeff Mezger: The even flow production inherent in our approach provides visibility and consistency in deliveries.

Jeff Mezger: Which is particularly important in periods of housing market market volatility as.

Jeff Mezger: As we work from a large backlog and do not need to sell homes at any price to achieve our delivery targets in a given quarter.

Jeff Mezger: In addition, the revenue that we generate from lot premiums and studio revenues helped to enhance our gross margin.

Jeff Mezger: Despite the movement and rates during the quarter, we saw indicators that reinforced strength and demand. As the quarter progressed, we experienced a sequentially higher level of traffic in our community. In addition, our cancellation rate was well below our average levels and one of the lowest that we have seen during a quarter of volatile rates.

Jeff Mezger: Despite the movement in rates during the quarter, we saw indicators that reinforced strengthened demand.

Jeff Mezger: As the quarter progressed, we experienced a sequentially higher level of traffic in our communities and.

Jeff Mezger: In addition, our cancellation rate was well below our average levels and one of the lowest that we've seen during a quarter of volatile rates.

Robert V. McGibney: Both of these factors contributed to nearly 4,000 net orders during the quarter, a positive comparison relative to the year-ago period. On a per community basis, our absorption pace grew to 5.5 monthly net orders, in line with the expectation that we shared on our last earnings call. Our focus remains consistent on optimizing each asset on a community by community basis and generating high inventory terms. With that, I'll pause for a moment and ask Rob to provide an operational update. Rob.

Both of these factors contributed to nearly 4000 net orders during the quarter.

Jeff Mezger: Positive comparison relative to the year ago period.

Jeff Mezger: On a per community basis, our absorption pace grew to $5 five monthly net orders in line with the expectation that we shared on our last earnings call.

Jeff Mezger: Our focus remains consistent and optimizing each asset on a community by community basis, and generating high inventory turns.

Speaker Change: With that I'll pause for a moment and ask Rob to provide an operational update Rob.

Robert V. McGibney: Thank you, Jeff. I will begin by providing additional color on our order results. At 5.5 net orders per community, our monthly absorption pace was above our average second quarter level of the last decade. This is notable given the volatility in interest rates during the quarter, moving above 7%, and the fact that we raised prices modestly in the majority of our communities, helping to offset the cost of mortgage concessions. As Jeff mentioned, our cancellation rate remained low, improving slightly as compared to the first quarter to 13% of our gross orders and stable at 10% of our backlog at the beginning of the quarter. These levels are below our historical averages, which indicate to us that buyers have confidence in their purchase.

Robert V. McGibney: Thank you Jeff.

Robert V. McGibney: I will begin by providing additional color on our order results at five five net orders per community on a monthly absorption pace was above our average second quarter level over the last decade. This is notable given the volatility in interest rates during the quarter moving above 7% and the fact that we raise prices modestly in the.

Robert V. McGibney: Majority of our communities, helping to offset the cost of mortgage concessions.

Speaker Change: As Jeff mentioned, our cancellation rate remained low improving slightly as compared to the first quarter to 13% of our gross orders and stable at 10% of our backlog at the beginning of the quarter.

Speaker Change: These levels are below our historical averages, which indicate to us that buyers have confidence in their purchase decisions.

Robert V. McGibney: Mortgage concessions in the second quarter were flat as compared to each of the prior two quarters, with roughly 60% of our orders having some form of mortgage concession associated with them. While we had believed that we could lower our use of these incentives as the spring selling season unfolded, given the strength of the market conditions early in the spring, the move-in rates impacted demand to an extent, and we continued using mortgage concessions to support our buyers. As we had anticipated, we accelerated our starts in the second quarter on a sequential basis. We started nearly 4,300 homes, ending the quarter with about 7,700 homes in production.

Speaker Change: Mortgage concessions in the second quarter were flat as compared to each of the prior two quarters with roughly 60% of our orders, having some form of mortgage concession associated with them.

Speaker Change: While we didn't believe that we can lower our use of these incentives as the spring selling season unfolded given the strength of the market conditions early in the spring the move in rates impacted demand to an extent and we continued using mortgage concessions to support our buyers.

Speaker Change: As we had anticipated we accelerated our starts in the second quarter on a sequential basis, we started nearly 4300 homes ending the quarter with about 7700 homes in production.

Robert V. McGibney: Together, with a backlog of 6,270 homes, we believe we are well positioned for the second half of 2024, and we are beginning to shape the early part of our fiscal 2025 as well. Moving on to build times, we achieved a significant sequential improvement during the second quarter, and as a result, our starts are now being completed in about five months. We are realizing the benefits of product and design studio simplification, efficiency enhancements in our construction schedules, and systems and processes that are back in rhythm given the return of a predictable supply chain in most areas.

Speaker Change: Together with a backlog of 6270 homes. We believe we are well positioned for the second half of 2024.

Speaker Change: We are beginning to shape the early part of our fiscal 2025 as well.

Speaker Change: Moving onto build times, we achieved a significant sequential improvement during the second quarter and as a result, our starts are now being completed in about five months. We are realizing the benefits of product and design studio simplification efficiency enhancements in our construction schedules and systems and processes that are backend rhythm.

Given the return of a predictable supply chain in most areas.

Robert V. McGibney: Now that we have lowered our build times to the high end of our four to five month historical range, we are focused on further improvement to drive build times closer to four months. Delivering a personalized home in a shorter timeframe will make our built to order homes even more appealing to buyers as the gap between a 60 day spec home and a four and a half month personalized built to order home narrows.

Speaker Change: Now that we have lowered our build times to the high end of our four to five month historical range. We are focused on further improvement to drive build times closer to four months.

Speaker Change: Delivering a personalized home in a shorter timeframe, we will make our built to order homes, even more appealing to buyers as the gap between a 60 day spec home and a four five month personalized built to order home narrows.

Robert V. McGibney: We are seeing the benefit of this with built-to-order homes representing more than 60% of our net orders in the second quarter, as Jeff referenced. In addition, faster construction times improve our inventory terms and expand the population of homes available for delivery. Before I wrap up, I will review the credit metrics of our buyers who financed their mortgages through our joint venture, KBHS Homebook.

Speaker Change: We are seeing the benefit of this was built to order homes, representing more than 60% of our net orders in the second quarter as Jeff referenced.

Speaker Change: In addition, faster construction times improve our inventory turns and expand the population of homes available for delivery.

Speaker Change: Before I wrap up I will review the credit metrics of our buyers and finance their mortgages through our joint venture K VHS home loans.

Robert V. McGibney: We had a solid increase in our capture rate, with 86% of the mortgages funded during the quarter having been financed through our joint venture, as compared to 80% in the prior year quarter. Higher capture rates help us manage our backlog more effectively and provide more visibility in closings, which benefits our company as well as our buyers. In addition, we see higher customer satisfaction levels from buyers who use KBHS versus other lenders. The average cash down payment was 16%, up slightly year over year, equating to over $77,000. On average, the household income of our KBHS customers was about $130,000, and they had a FICO score of 744.

Speaker Change: We had a solid increase in our capture rate was 86% of the mortgages funded during the quarter, having been financed through our joint venture.

Speaker Change: As compared to 80% in the prior year quarter higher capture rates help us manage our backlog more effectively and provide more visibility in closings, which benefits our company as well as our buyers.

Speaker Change: In addition, we see higher customer satisfaction levels from buyers, who use kv hs versus other lenders.

Speaker Change: The average cash down payment was 16% up slightly year over year equating to over $77000 on.

Speaker Change: On average the household income of our K VHS customers was about 130000, and they had a FICO score of 744.

Jeff Mezger: Even with about one half of our customers purchasing their first home, we are attracting buyers who can qualify for their mortgage while making a significant down payment. With the first half of the year now behind us, we are focused on a strong close to 2024 with a daily emphasis on maintaining our high customer satisfaction levels, further improving build times, and value engineering our products to lower direct costs. More broadly, our objectives are to increase our scale, profitability, and returns by acquiring more lots while adhering to our underwriting standards, opening up our communities on time, driving net orders, and balancing pace and price to grow our margins and returns. And with that, I will turn the call back over to Jeff. Thanks, Rob.

Speaker Change: Even with about one half of our customers purchasing their first home we are attracting buyers who can qualify for their mortgage while making a significant down payment.

With the first half of the year now behind US we are focused on a strong close to 2024 with a daily emphasis on maintaining our high customer satisfaction levels further improving build times and value engineering, our products to lower direct costs.

Speaker Change: More broadly our objectives are to increase our scale profitability and returns by acquiring more lots, while adhering to our underwriting standards opening at our communities on time, driving net orders and balancing pace and price to grow our margins and returns and with that I will turn the call back over to Jeff.

Jeff: Thanks, Rob.

Jeff Mezger: During the quarter, we invested over $275 million to acquire land and another $390 million to develop lots that we already own. In total, an increase of nearly 70% year over year. We are accelerating our land investment in 2024 as we position the company for future growth. While remaining diligent with respect to our underwriting criteria, product strategy, and price point, we are also mindful of macroeconomic conditions, and we will remain flexible in adjusting our pace of investment as market conditions warrant. We grew our lot position by 17%, ending the quarter with over 65,500 lots owner-controlled, of which roughly 39,900 were owned. Of these zoned lots, over 16,000 are in a finished condition.

Jeff: During the quarter, we invested over $275 million to acquire land and another $390 million to develop lots that we already own.

Jeff: In total an increase of nearly 70% year over year.

Jeff: We are accelerating our land investment in 2024, as we position the company for future growth.

Jeff: While remaining diligent with respect to our underwriting criteria product strategy and price points.

Jeff: We are also mindful of macroeconomic conditions.

Jeff: And we will remain flexible in adjusting our pace of investment as market conditions warrant.

Jeff: We grew our lot position by 17% ending the quarter with over 65500 lots owned or controlled of which roughly 39900 were owned.

Jeff: Of these owned lots over 16000 are in a finished condition.

Jeff Mezger: We are pleased with the composition of our portfolio, including the quality of the locations, geographic mix, and cost basis. Our focus is on capital efficiency. Developing Lots Wherever Possible in Smaller Phases and Balancing Development with our Start Space to Manage our Inventory of Finished Lots. We currently own and control all the lots that we need to achieve our delivery targets for 2025, as well as the majority of our deliveries in 2026. As we have stated in the past, our divisions have roadmaps in place to reach at least the top five positions in each of our CERT markets. For those divisions that are already in the top five, the next step is to achieve a top three rank.

Jeff: We are pleased with the composition of our portfolio, including the quality of the locations geographic mix and cost basis.

Jeff: Our focus is on capital efficiency.

Jeff: Developing lots wherever possible in smaller phases, and balancing development with our starts pace to manage our inventory of finished slot.

Jeff: We currently own or control all the lots that we need to achieve our delivery targets for 2025 as.

Jeff: As well as the majority of our deliveries in 2026.

Jeff: As we've stated in the past.

Jeff: Our divisions have roadmaps in place to reach at least the top five position in each of our served markets.

Jeff: For those divisions that are already top five the next step is to achieve a top three ranking.

Jeff Mezger: And for those divisions currently in the top three in their markets, we have targeted growth plans in place. Overall, we feel we have significant upside opportunities through taking share in the markets we serve. We continue to generate a strong level of cash flow and are taking a balanced approach in allocating this capital.

Jeff: And for those divisions currently in the top three in their markets, we have targeted growth plans in place overall.

Overall, we feel we have significant upside opportunities through taking share in the markets we serve.

Jeff: We continue to generate a strong level of cash flow and are taking a balanced approach in allocating this capital.

Jeff Mezger: We are reinvesting in our growth and returning cash to stockholders through a significant share repurchase program utilizing the $1 billion authorization that our board approved in April, as well as our quarterly dividend, which we raised during the second quarter. Our top priority is to invest in the growth of our business. Having said that, we're generating sufficient cash to accomplish our growth goals and also return cash to stockholders. While we had previously guided to share repurchases this year in the range of $200 million to $400 million, we're now raising the minimum level of repurchases to $250 million.

Jeff: We are reinvesting in our growth and returning cash to stockholders through a significant share repurchase program utilizing the $1 billion authorization that our board approved in April as well as our quarterly dividend, which we raised during the second quarter.

Our top priority is to invest in the growth of our business, having said that we are generating sufficient cash to accomplish our growth goals and also return cash to stockholders.

Jeff: While we had previously guided to share repurchases. This year in the range of $200 million to $400 million, we're now raising the minimum level of repurchases to $250 million.

Jeff Mezger: Since we began repurchasing shares on a regular basis in 2021, we have repurchased over 22% of the shares then outstanding, which is accredited to both our diluted earnings per share and return. Additionally, over this period of time, we have returned more than $1 billion in cash to our stockholders. In closing, I want to thank the entire KB Home team for their commitment to serving our homebuyers and contributing to our solid performance.

Jeff: Since we began repurchasing shares on a regular basis in 2021, we have repurchased over 22%.

Jeff: Of the shares then outstanding.

Jeff: Accretive to both our diluted earnings per share and returns.

Jeff: Over this period of time, we have returned more than $1 billion in cash to our stockholders.

Jeff: In closing I want to thank the entire Kb home team for their commitment to serving our homebuyers and contributing to our solid performance.

Jeff Mezger: We are realizing the potential of our business as our operations return to a steady rhythm, given faster build times and a normalizing supply chain. Our buyers are demonstrating a preference for our built-to-order model and see the benefit of flexibility in making choices based on what they value and can afford. We have a healthy backlog, which, together with our homes in production and starts, is well balanced to achieve our $6.8 billion revenue projection this year.

Jeff: We are realizing the potential of our business as our operations return to a steady rhythm given faster build times and are normalizing supply chain.

Jeff: Our buyers are demonstrating a preference for a build to order model and see the benefit of flexibility in making choices.

Jeff: Just on what they value and can afford.

Jeff: We have a healthy backlog.

Jeff: Which together with our homes in production and start as well balance to achieve our $6 $8 billion revenue projection this year.

Jeff Mezger: Our expanding lock count will drive future community count growth, and our business is better diversified today relative to the past few years as our newest divisions ramp up their scale. We remain committed to driving stockholder value through the profitable growth of our company, driving volume and returns, as well as returning capital to stockholders, which we continue to execute on. We have again incrementally raised our full-year guidance, which we expect will drive an increase in our year-over-year return on equity.

Jeff: Our expanding lot count will drive future community count growth.

Jeff: And our business is better diversified today relative to the past few years as our newest divisions ramp up their scale.

Jeff: We remain committed to driving stockholder value through the profitable growth of our company.

Jeff: And driving volume and returns as.

As well as returning capital to stockholders, which we continue to execute on.

Jeff: We have again incrementally raised our full year guidance, which we expect will drive an increase in our year over year return on equity.

Jeff Mezger: As we move through the remainder of 24, we look forward to updating you on our business. With that, I'll now turn the call over to Jeff for the financial review. Thank you, Jeff. And good afternoon, everyone.

Speaker Change: As we move through the remainder of 'twenty four we look forward to updating you on our business with that I'll now turn the call over to Jeff for the financial review Jeff.

Jeff J. Kaminski: I will now cover highlights of our 2024 second quarter financial performance and provide our current outlook for the third quarter and full year. We are pleased with our second quarter execution that produced financial results exceeding our expectations across all key metrics amid a volatile and uncertain mortgage interest rate environment. Alongside our healthy top line performance and double-digit operating, we generated robust cash flow, enabling us to reinvest in our business. Return capital to our stockholders through common stock repurchases and a higher quarterly dividend, and end the period with over $1.7 billion of liquidity.

Speaker Change: Thank you, Jeff and good afternoon, everyone I'll now cover highlights of our 2024 second quarter financial performance and provide our current outlook for the third quarter and full year.

Jeff: We are pleased with our second quarter execution that produced financial results exceeding our expectations across all key metrics amid a volatile and uncertain mortgage interest rate environment.

Jeff: Alongside our healthy top line performance and double digit operating margin, we generated robust cash flow, enabling us to reinvest in our business returning capital to our stockholders through common stock repurchases and a higher quarterly dividend and end of period with over $1 $7 billion of liquidity.

Jeff J. Kaminski: Our housing revenues of $1.7 billion for the quarter were down 3% from the prior year period, reflecting a 4% decrease in the number of homes delivered, partially offset by a slight increase in our overall average selling price. The number of homes delivered in the second quarter represented a backlog conversion rate of 61 percent, the highest second quarter rate since 2013, and a significant improvement from 52 percent for the year earlier quarter. Due to both our improved bill times as well as the lower cancellation rate in the current period.

Jeff: Our housing revenues of $1 7 billion for the quarter were down 3% from the prior year period, reflecting a 4% decrease in the number of homes delivered and partially offset by a slight increase in our overall average selling price.

Jeff: The number of homes delivered in the second quarter represented a backlog conversion rate of 61% the highest second quarter rates since 2013, and a significant improvement from 52% for the year earlier quarter due to both our improved build times as well as the lower cancellation rate in the current period.

Jeff J. Kaminski: Based on our current construction cycle times and backlog, we anticipate our 2024 third-quarter housing revenues will be in a range of $1.65 to $1.75 billion. Additionally, based on housing market conditions and anticipated continued improvement in our bill time, for the full year, we expect to generate housing revenues in a range of $6.7 to $6.9 billion. An increase of $100 million at the midpoint versus our prior guide. In the second quarter, our overall average selling price of homes delivered increased to $483,000 from $479,500 in the prior year period.

Based on our current construction cycle times and backlog, we anticipate our 2024 third quarter housing revenues will be in a range of $1 $65 billion to $175 billion.

Jeff: Italy based on housing market conditions, and anticipated continued improvement in our build times for the full year, we expect to generate housing revenues in a range of $6 seven to $6 9 billion, an increase of $100 million at the midpoint versus our prior guidance.

Jeff: In the second quarter, our overall average selling price of homes delivered increased to $483000 from 479500 in the prior year period, reflecting shifts in geographic and product mix.

Jeff J. Kaminski: Reflecting shifts in geographic and product, for the 2024 third quarter, we're projecting an overall average selling price of approximately $482,000, and we expect a sequential increase in the fourth quarter due to a higher mix of deliveries from our West Coast region, which has the highest ASP of our four. We believe our average selling price for the full year will be approximately $485,000 to $495,000. Home building operating income in the current quarter was $188.2 million, as compared to $202.1 million in the year-earlier quarter.

For the 2020 for third quarter, we are projecting an overall average selling price of approximately $482000 and expect a sequential increase in the fourth quarter due to a higher mix of deliveries from our West Coast region, which has the highest asps of our four regions.

Jeff: We believe our average selling price for the full year will be approximately 485000.

Jeff: Two $495000.

Jeff: Homebuilding operating income in the current quarter was $188 $2 million.

Jeff: Compared to $202 1 million in the year earlier quarter.

Jeff J. Kaminski: The current quarter included abandonment charges of $1.2 million versus $4.3 million a year ago. Excluding inventory-related charges, our operating margin for the current quarter was 11.1%, as compared to 11.7% in the prior year period, primarily reflecting higher selling, general, and administrative expenses incurred to position our operations. We expect our 2024 third-quarter home building operating income margin, excluding the impact of any inventory-related charges, to be in the range of 10.8 to 11.4%.

Jeff: The current quarter included abandonment charges of $1 2 million versus $4 3 million a year ago.

Jeff: Excluding inventory related charges, our operating margin for the current quarter was 11, 1% as compared to 11, 7% in the prior year period, primarily reflecting higher selling general and administrative expenses incurred to position our operations for future growth.

Jeff: We expect our 2024 third quarter homebuilding operating income margin, excluding the impact of any inventory related charges to be in the range of 10 eight to 11, 4%.

Jeff J. Kaminski: For the full year, we expect our operating margin, again, excluding any inventory-related charges, to be in a range of 11.0 to 11.4%. Our 2024 second quarter housing gross profit margin of 21.1% was even with the year earlier quarter. However, excluding inventory-related charges in both periods, our gross margin decreased by 20 basis points to 21.2%.

Jeff: For the full year, we expect our operating margin again, excluding any inventory related charges to be in the range of 11.0 to 11, 4%.

Jeff: Our 2024 second quarter housing gross profit margin of 21, 1% was even with the year earlier quarter, excluding inventory related charges in both periods. Our gross margin decreased by 20 basis points to 21, 2%.

Jeff J. Kaminski: Assuming no inventory-related charges, we are forecasting a 2024 third quarter housing gross profit margin in a range of 21.0 to 21.4% and a full year margin in a range of 21.1 to 21.5%. Our selling general administrative expense ratio is 10.1% for the 2024 second quarter, compared to 9.6% for the 2023 second quarter, mainly reflecting higher marketing and other expenses associated with the planned increase in community count and growth in housing We believe our 2024 third quarter SG&A expense ratio will be in the range of 9.9 to 10.3%.

Jeff: Assuming no inventory related charges, we are forecasting a 2024 third quarter housing gross profit margin in the range of 21.0 to 21, 4% and our full year margin in a range of 21 121, 5%.

Jeff: Our selling general and administrative expense ratio was 10, 1% for the 2024 second quarter compared to nine 6% for the 2023 second quarter, mainly reflecting higher marketing and other expenses associated with the planned increase in community count and growth in housing revenue.

Jeff J. Kaminski: And our full year ratio will be about 10.1%. Moving on from operating income, another contributor to our pre-tax earnings in the current quarter was a $12.5 million gain on the sale and ownership interest in a privately held technology, which was included in the interest and other line. Our income tax expense for the second quarter of $52.7 million represented an effective tax rate of 23.8% compared to 23.5% for the prior year period.

Jeff: We believe our 2024 third quarter SG&A expense ratio will be in the range of nine 9% to 10, 3% and our full year ratio will be about 10, 1%.

Jeff: Moving on from operating income another contributor to our pre tax earnings in the current quarter with a $12 $5 million gain on the sale of an ownership interest in a privately held technology company, which was included in the interest and other line item.

Our income tax expense for the second quarter of $52 $7 million.

Jeff: Represented an effective tax rate of 23, 8% compared to 23, 5% for the prior year period.

Jeff J. Kaminski: We expect our effective tax rate for the 2024 third quarter to be approximately 24% and for the full year to be approximately 23%. Overall, we produced net income for the second quarter of $168.4 million, or $2.15 per diluted share, compared to $164.4 million, or $1.94 per diluted share for the prior year period. The 11% year over year growth in earnings per share reflected both the 2% improvement in net income and the favorable impact of our share repurchases over the past several quarters. Turning now to community count, our second quarter average of 243 decreased 4% from the year earlier quarter.

Jeff: We expect our effective tax rate for the 2024 third quarter to be approximately 24% and for the full year to be approximately 23%.

Jeff: Overall, we produced net income for the second quarter of $168 $4 million or $2 15 per diluted share compared to $164 $4 million or $1 94 per diluted share for the prior year period.

Jeff: The 11% year over year growth in earnings per share reflected both the 2% improvement in net income and the favorable impact of our share repurchases over the past several quarters.

Jeff: Turning now to community count our second quarter average of 243 decreased 4% from the year earlier quarter.

Jeff J. Kaminski: We ended the quarter with 247 communities, roughly flat year-over-year and up 4% sequentially. We anticipate our average community count for the 2024 third quarter to be up in the low single digits year over year, with a sequentially flat quarter and community count, resulting in a mid to high single-digit increase over the third quarter of 2023. We believe our 2024 fourth-quarter average community count will also be higher than in the prior year period, as we remain focused on increasing the number of open selling communities to drive top-line growth and market share.

We ended the quarter with 247 communities roughly flat year over year and up 4% sequentially.

Jeff: We anticipate our average community count for the 2020 for the third quarter to be up in the low single digits year over year with a sequentially flat quarter and community count, resulting in a mid to high single digit increase over the third quarter of 2023.

Jeff: We believe our 2020 for fourth quarter average community count will also be higher than in the prior year period as we remain focused on increasing the number of open selling communities to drive topline growth and market share.

Jeff J. Kaminski: At the same time, while we expect year-over-year growth in our community count in the last two quarters of 2024, we're anticipating more sellouts in the second half of the year. This will impact a year-end community count now expected to be in the range of 250 to 250,000.

Jeff: At the same time, while we expect year over year growth in our community count in the last two quarters of 2024, we are anticipating more sellouts in the second half of the year.

Jeff: This will impact our year end community count now expected to be in the range of 250 to 255.

Jeff J. Kaminski: To drive continued new community openings, we invested $668 million in land and development during the second quarter, an increase of 69% compared to the prior year, and ended the quarter with a pipeline of over 65,500 lots, of which 61% were owned and 39% were under contract. The percentage of lots under contract is up significantly compared to 27% as of our 2023 year end and 25% a year ago. During the quarter, Moody's Investor Service upgraded the company's debt rating to BA1, reflecting the company's scale and anticipated expansion, strong market position across our region, The Leveraging Track Record and Disciplined Approach to Balance Sheet Management.

Jeff: To drive continued new community openings, we invested $668 million in land and development during the second quarter, an increase of 69% compared to the prior year and ended the quarter with a pipeline of over 65500 lots of which 61% were owned.

And 39% were under contract.

Jeff: The percentage of lots under contract is up significantly compared to 27% as the edge of our 2023 year end and 25% a year ago.

Jeff: During the quarter Moody's investors service upgraded the company's debt rating to be a one reflecting the company's scale and anticipated expansion <unk>.

Jeff: Strong market position across our regions deleveraging track record and disciplined approach to balance sheet management.

Unknown Executive: Management. We ended the quarter with a debt to capital ratio of 29.8%.

Jeff J. Kaminski: We ended the quarter with a debt-to-capital ratio of 29.8%. In April, our board approved an increase in the quarterly cash dividend to $0.25 per share from $0.20 per share and authorized the repurchase of up to $1 billion of our outstanding common stock. We repurchased nearly 765,000 shares of our common stock at an average price of $65.38 during the quarter.

Jeff: We ended the quarter with a debt to capital ratio of 29, 8%.

Jeffrey Mezger: In April, our board approved an increase in the quarterly cash dividend to 25 cents per share, from 20 cents per share, and authorized to repurchase about $1 billion about standing common stock. We repurchased nearly $765,000 shares of a common stock, and an average price is $65.38 during the quarter. As Jeff mentioned, we intend to continue to repurchase shares and expect the pace, volume, and timing of share repurchases to be based on considerations of our cash flow. The liquidity outlook, land investment opportunities and needs, the market price of our shares, and the housing market in general economic environment.

Jeff: In April our board approved an increase in our quarterly cash dividend to <unk> 25 per share from <unk> 20 per share and authorized the repurchase of up to $1 billion of our outstanding common stock, we repurchased nearly 765000 shares of our common stock at an average price of $65 <unk>.

Jeff: Eight <unk> during the quarter.

Jeff J. Kaminski: As Jeff mentioned, we intend to continue to repurchase shares, and we expect the pace, volume, and timing of share repurchases to be based on considerations of our cash flow, liquidity outlook, land investment opportunities and needs, the market price of our shares, and the housing market in the general economic environment. At quarter end, our total liquidity was over $1.7 billion, including nearly $1.1 billion of available capacity under our unsecured revolving credit facility, with no cash borrowings outstanding and $644 million of cash.

Speaker Change: As Jeff mentioned, we intend to continue to repurchase shares and expect to pace volume and timing of share repurchases to be based on considerations of our cash flow liquidity outlook land investment opportunities and needs the market price of our shares in the housing market and general economic environment.

Unknown Executive: At quarter end, our total liquidity was over $1.7 billion, including nearly $1.1 billion of available capacity under our unsecured revolving credit facilities, with no cash borrowing outstanding, and 644 million dollars in cash.

Speaker Change: At quarter end, our total liquidity was over $1 7 billion, including nearly $1 1 billion.

Speaker Change: Of available capacity under our unsecured revolving credit facility with no cash borrowings outstanding and $644 million of cash.

Jeff J. Kaminski: In conclusion, we are very pleased with our solid second quarter financial performance and strong operational. We intend to sustain our focus on expanding our scale through land investments and new community openings, while also maintaining our balanced approach to capital allocation by returning cash to stockholders through common stock repurchases and quarterly dividends. We will now take your questions. John, please open the line.

Jeffrey Mezger: In conclusion, we are very pleased with our solid second quarter financial performance and strong operational execution. We intend to sustain our focus on expanding our scale through land investments in new community openings, while also maintaining our balanced approach to capital allocation, by returning cash to stockholders through common stock repurchases and quarterly dividends.

Speaker Change: In conclusion, we are very pleased with our solid second quarter financial performance and strong operational execution, we intend to sustain our focus on expanding our scale through land investments and new community openings, while also maintaining our balanced approach to capital allocation by returning cash to stockholders through common.

Speaker Change: Doc repurchases and quarterly dividends.

Unknown Executive: We will now take your questions. John, please open the lines.

Speaker Change: We will now take your questions John Please open the lines.

John: Thank you, sir. We will now be conducting the question. If you would like to ask a question, please press star 1 on your telephone. Confirmation. You may press star 2 to remove a question from the queue.

Unknown Executive: Thank you, sir.

Speaker Change: Thank you Sir we will now be conducting the question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the queue. You May press star two to remove a question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.

Unknown Executive: We will now be conducting the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the queue. You may press star 2 to remove a question from the queue. For participants, using speaker equipment, it may be necessary to pick up your hands up before pressing the star keys.

John: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Transcribed by https://otter.ai. The first question comes from the line of John Lovallo. Hi guys, thank you for taking my questions. The first one, just kind of trying to do this quickly, the back of the envelope math, it looks like the outlook would sort of imply that fourth quarter revenue of about $1.9 billion.

Speaker Change: We ask that you please limit yourself to one question and one follow up. Thank you one moment, please while we pull for questions.

Unknown Executive: We ask that you please limit yourself to one question and one follow-up.

Unknown Executive: Thank you. One moment, please. Only pull for questions.

John Lovallo: And the first question comes from the line of John Lavalo with UBS. Please proceed with your question.

Speaker Change: And the first question comes from the line of John Lovallo with UBS. Please proceed with your question.

John: So called, you know, 14 ish percent sequential step up from the third quarter. And it seems like gross margin will be relatively flat between the third quarter and the fourth quarter in the way you're thinking about it. So the first question is, are we thinking about that correctly? And you know, why would they not be a little bit more leverage on the gross margin from, you know, what are the kind of puts and takes there? Right. First of all, yes, you are thinking about that correctly. You did the math on the fly pretty accurately.

John Lovallo: Hi, guys. Thank you for taking my questions.

Unknown Executive: Hi, guys. Thank you for taking my questions.

Unknown Executive: The first one, just kind of trying to do this quickly, the back Leonardo of Math. It looks like the outlook would sort of imply that fourth quarter revenue of about $1.9 billion, so 14-percent sequential step up from the third quarter. And it seems like gross margin will be relatively flat third quarter of the fourth quarter in the way you're thinking about it. The first question is, are we thinking about that correctly, and why would there not be a little bit more leverage on the gross margin from where the kind of puts and takes there?

John Lovallo: First one just can you just kind of trying to do this quickly the back of the envelope math it looks like the outlook would sort of imply that fourth quarter revenue of about call. It $1 9 billion. So call. It 14 ish percent sequential step up from the third quarter.

John Lovallo: And it seems like gross margin will be relatively flat third quarter to fourth quarter in the way youre thinking about it so.

Speaker Change: First question is are we thinking about that correctly and.

Speaker Change: Why would there not be a little bit more leverage on the gross margin front what are the kind of the puts and takes there.

Unknown Executive: Right. First of all, yes, you are thinking about that correctly. We did the math on the fly pretty accurately. On the leverage, you know, we're facing a lot of things on the gross margin side.

Speaker Change: Right.

Speaker Change: First of all yes, you are thinking about that correctly you did the math on.

Speaker Change: On the fly pretty accurately.

Jeff J. Kaminski: On the leverage side, we're facing a lot of things on the gross margin side. As we talked about earlier in the year, most people had an expectation of rates actually coming down and being able to reduce some of the mortgage interest rate incentives that we've had out there that, unfortunately, has not happened as of this point. And that puts a little bit of pressure on the back end.

On the on the leverage we are facing a lot of things on the gross margin side as we talked about earlier in the year. We like most people had an expectation of rates actually coming down and being able to reduce some of the.

Unknown Executive: As we talked about earlier in the year, we, like most people, had an expectation of rates actually coming down and being able to reduce some of the mortgage interest rate incentives that we've had out there that, unfortunately, has not happened as of this point. And that put a little bit of pressure on the back end. Margins, we are seeing some mixed shift in deliveries in the back half of the year, but honestly, you know, we're pretty happy that we've been able to raise incrementally the four-year gross margin outlook for the company, despite some of those headwinds.

Speaker Change: Mortgage interest rate incentives that we've had out there that unfortunately has not happened as of this point and that put a little bit of pressure on the back end margins.

Jeff J. Kaminski: We are seeing some makeshift delays in deliveries in the back half of the year. But honestly, you know, we're pretty happy that we've been able to raise incrementally the full year gross margin outlook for the company despite some of those headwinds. And, you know, we're continuing to work on all the factors that go into it. Obviously, you know, pricing has been more difficult. But despite that, we've had some limited price increases in the majority of our communities during the quarter. And, you know, the largest headwind right now is on the mortgage rate side. But We've been powering through that pretty well.

Speaker Change: Seeing some mix shift in deliveries in the back half of the year.

Speaker Change: But.

Speaker Change: Honestly, we're pretty happy that we've been able to raise.

Speaker Change: Incrementally the full year gross margin outlook for the company.

Speaker Change: Despite some of those headwinds and we're continuing to work on all the all the factors that go into it obviously pricing has been more difficult, but despite that we've had.

Unknown Executive: And, you know, we're continuing to work on all the other factors that go into it. Obviously, you know, pricing has been more difficult, but despite that, we've had some limited pricing creases in the majority of our communities. During the quarter, and, you know, the largest headwind right now is a sentence mortgage rate side, but we've been parrying through that pretty well, and we're actually fairly pleased with the outlook for the second half of the year, and especially being able to incrementally raise some of those guidance points.

Speaker Change: Some limited price increases in the majority of our communities during the quarter.

Speaker Change: The largest headwind right now is a center mortgage rates side, but we've been powering through that pretty well.

Jeff J. Kaminski: We're actually fairly pleased with the outlook for the second half of the year and especially being able to incrementally raise some of those guidance points as we look towards the end of 2020. Yeah, makes sense. Okay.

Speaker Change: Were actually fairly pleased with.

Speaker Change: The outlook for the second half of the year, and especially being able to incrementally raise some of those guidance points.

Unknown Executive: You know, as we look towards the end of 2024.

As we as we look towards the end of 2024.

Unknown Executive: Yep, make sense, okay. And then, you know, on the landfront, the only and controlled lots, I think, you know, as of last quarter, you had what you needed to satisfy 2025 deliveries. And now you're talking about through the majority of 2026.

Jeff Mezger: And then, you know, on the land front, the owned and controlled lots, I think, you know, as of last quarter, you had what you needed to satisfy 2025 deliveries. And now you're talking about through the majority of 2026. You know, I guess the first part of that is, you know, how would you sort of frame your confidence in the near-term demand? Is that you're feeling better about that versus, you know, just kind of building the pipeline?

Yeah makes sense, Okay, and then on the land front, the owned and controlled lots I think.

Last quarter, you had what you needed to satisfy 2025 deliveries and now you're talking about to the majority of 2026.

Unknown Executive: You know, I guess the first part of that is, you know, how would you sort of frame your confidence in the near-term demand? Is that, you know, you're feeling better about that versus, you know, just kind of building the pipeline. And second, they're really, I mean, would we expect you to sort of take your foot off the gas at this point, or how are you thinking about future landspent?

Speaker Change: I guess first part of that is how would you sort of frame your confidence in the near term demand is that you're feeling better about that versus just kind of building the pipeline and secondarily I mean should we expect you to sort of take your foot off the gas at this point or how are you thinking about future land spend.

Jeff Mezger: And secondarily, I mean, should we expect you to sort of take your foot off the gas at this point? Or how are you thinking about future land purchases? John, good question. It's really a pedal and a brake.

John: John Good question.

Unknown Executive: John, good question. It's really a pedal in a break. The man remains very solid right now, as we shared in our prepared comments. There is sensitivity to affordability, and we are not straining from our underwriting approach, targeting the meeting incomes. What type of products in that submarket can allow us to accomplish that. So there's a healthy tension in that land isn't available readily available in all locations to achieve that type of strategy. So we're finding enough deal flow to expand our investments, and we are not looking at it right now as if we would slow that down.

Speaker Change: It's really a pedal and a break demand remains very solid right now as we shared in our prepared comments there is sensitivity to affordability and we are not straying from our underwriting approach targeting the median incomes what type of products in that sub market.

Jeff Mezger: Demand remains very solid right now, as we shared in our prepared comments. There is sensitivity to affordability, and we are not straying from our underwriting approach, targeting the median incomes, and what type of products in that sub-market can allow us to accomplish that. So there's a healthy tension between that land isn't readily available in all locations to achieve that type of strategy.

Speaker Change: And allow us to accomplish that so there's a healthy tension in net land isn't available readily available in all locations.

Jeff Mezger: So we're finding enough deal flow to expand our investments, and we are not looking at it right now as if we would slow that down. We are, however, remaining diligent in our standards.

Speaker Change: To achieve that type of strategy. So we're we're finding enough deal flow to expand our investments and we are not looking at it right. Now is if we would slow that down we are however remaining.

Unknown Executive: We are, however, remaining diligent in our standards.

Speaker Change: Diligent and our standards so.

Unknown Executive: So, for the year we think our landspent will be a pretty significant, we year over year, and we're comparable with the investments we're making in the returns we expect on this.

Speaker Change: For the year, we think our land spend will be up pretty significantly year over year and we're we're comfortable with the investments, we're making and the returns we expect on those.

Stephen Kim: Thank you, and our next question comes in the line of Stephen Kim with Evercore ISI. Please proceed with your question.

Speaker Change: Thank you and our next question comes from the line of Stephen Kim with Evercore ISI. Please proceed with your question.

Jeff Mezger: So for the year, we think our land spend will be up pretty significantly year over year, and we're comfortable with the investments we're making and the returns we expect. And our next question comes from the line of Evercore ISI.

Jeff Mezger: Please proceed with your question and take on the longer term outlook for growth. I think you sort of talked about what you're expecting either here in the next quarter or so, a quarter or two, but from a longer-term perspective, can you give us a sense for what kind of volume growth or revenue growth you are setting your land strategy up to be able to achieve? Steve, it's a ground-up build in every market.

Speaker Change: Okay.

Speaker Change: Okay.

Unknown Executive: Take on the longer-term outlook for growth. I think you sort of talked about what you're expecting in there here in the next quarter or so, a quarter or two, but from a longer term perspective, can you give us a sense for what kind of volume growth or revenue growth you are setting your land strategy up to be able to achieve. State is up, it's a ground up build in every market, and I shared the targets we have for the scale we want in every city, and we're working on adding; we're making inroads. More into the top five and more into the top three and several that have the opportunity possibly over the next year or two to be number one in their market.

Stephen Kim: Take on the longer term outlook.

Speaker Change: For growth.

Speaker Change: I think you sort of talked about what youre expecting in there here in the next quarter or so.

Speaker Change: There are two but from a longer term perspective can you give us a sense for what kind of volume growth.

Speaker Change: Revenue growth.

Speaker Change: You are setting your land strategy up to be able to achieve.

Jeff Mezger: And I shared the targets we have for the scale we want in every city, and we're working on that, and we're making inroads more into the top five and more into the top three, and several that have the opportunity, possibly, over the next year or two to be number one in their market. So it's more about the market share in each city. With our investment strategy and how we're allocating capital, we think we can fuel growth in the over 10% a year community count range around the system.

Steve: Steve It's up it's a ground up build in every market and I shared the targets we have.

Steve: For the scale, we want in every city and we're we're working on that and we're making inroads.

Steve: More into the top five in more into the top three in and several that have the opportunity possibly.

Steve: The next year or two to be number one in their market. So it's more about the market share in each city with our <unk>.

Unknown Executive: So, it's more about the market share in each city with our investment strategy and how we're allocating capital. We think we can fuel growth in over 10% of your community count range around the system. That probably means, on average, 14% to 20% revenue growth between a little bit of price and a continued community count growth. So if we do all that, you'll hit 10 to 20% revenue growth, and your bottom line growth would be a little higher.

Steve: Investment strategy.

Steve: How we're allocating capital we think we can fuel growth in.

Steve: Over 10% a year community count range around the system.

Jeff Mezger: That probably means on average 14% to 20% revenue growth between a little bit of price and the continued community count growth. So if we do all that, you'll hit 10% to 20% revenue growth, and your bottom line growth would be a little higher than that. But it's built from the ground up with a strategy in each.

Steve: That probably means on average 14% per <unk>.

Steve: 20% revenue growth between a little bit of pricing and the continued community count growth. So.

Steve: We do all of that Youll hit, 10% to 20% revenue growth and.

Steve: And your bottom line growth would be a little higher than that.

Unknown Executive: and that, but it's built ground up with a strategy in each market and we don't have limits on the divisions right now on what will invest, it's up to them, to go find the deals of pencil.

Steve: But it's built ground up with a strategy in each market and we don't have limits on the divisions right now on what will invest it's up to them to go find the deals that pencil.

Jeff Mezger: Market, and we don't have limits in the divisions right now on what we'll invest. It's up to them to go find the deals, the Yeah, got it. That's great. That's exactly what I was looking for.

Unknown Executive: Yeah, got that, that's correct, that's exactly what I was looking for, and so that kind of leads to a second question, which relates to absorption. I guess that those kind of numbers suggest that you expect of disruptions, you know, here it goes, reach it, and you find that that is an absorption, or a little above historical levels. That's very, very useful in the list of products, and that would be an absorption bulk, and whether or not we can expect as to why we can expect this to be kind of a new normal, or larger, during it, to some of the increased in absorption, or are there other things that we should be thinking about there?

Jeff Mezger: And so that kind of leads to my second question, which relates to absorptions. I guess that those numbers suggest that you expect absorptions, you know, here, reached out. You talked about the fact that abstractions, Just turn your view on the list and drop it.

Speaker Change: Yeah got it that's great that's exactly what I was looking for and so that kind of leads to my second question, which relates to absorptions I guess that those kind of numbers.

Speaker Change: We ask that you expect.

Speaker Change: <unk> here.

Speaker Change: Reached it.

Speaker Change: Okay.

Speaker Change: Are you talking about rapid absorption or a little above historical levels.

Speaker Change: Perfect.

Speaker Change: Just curious your view on what has been driving.

Speaker Change: The absorptions.

Jeff Mezger: And whether or not we can expect this to be kind of a new normal. A larger one. Entering into some of the increased absorptions, or are there other things that we should be thinking about? But Steve, as you know, it's a balance. And what we heard about 20% of your question, it was really a bad connection, but I'll take a shot at it. We were balancing things to optimize each asset.

Speaker Change: And whether or not we can expect as to why we can expect this to be kind of a new normal or larger.

Speaker Change: Factoring into some of the increase in absorptions.

Speaker Change: Or are there other things that we should be thinking about there.

Speaker Change: But Steve as you know, it's a balance and we heard about 20% of your question. It was really a bad connection, but I'll take a shot at it we were balancing things to optimize each asset and we've been talking that way for quite a while and our margins are higher now.

Jeff Mezger: And we've been talking that way for quite a while, and our margins are higher now. And we have a nice profit equation working, and in areas where the land is easily replaceable, we'll go for more absorption than the five and a half. If it's an infill location in California, we'll go for the best margin we can because you can't replace it, and you take your time to optimize profits. But as we build our strategy of growth with the community count we're targeting, we'll assume current absorption rates. And if our margins were to move a little higher because there was no inventory, which I think they could over time, if our margins moved higher, you'd see a higher absorption rate along with it. Thank you.

Unknown Executive: But, Steve, as you know, it's a balance, and what we heard about 20% of your question, it was really a bad connection, but I'll take a shot at it. We're balancing things to optimize each asset, and we've been talking that way for quite a while, and our margins are higher now, and we have a nice, profitee equation working. In areas where the land is easily replaceable, we'll go for more absorption than the five and a half; if it's an infill location in California, we'll go for the best margin we can, because you can't replace it. And you take your time to optimize profits, but as we build our strategy of growth with the community count, we're targeting Wilson current absorption rates, and if our margins were to move a little higher, because there's no inventory, which I think they could over time, our margins moved higher, you'd see a higher absorption rate along with it. But at the same time, we've kind of got a floor on our run rates at around four, four and a half per community, and so you can do the math and toggle between community count growth and any unit growth we get, but it'll always be to optimize the asset.

Speaker Change: We have a nice property equation working in areas, where the land is easily replaceable will go for more absorption than the five and a half if it's.

Speaker Change: An infill location in California will go for the best margin, we can because you can't replace it and you take your time.

Speaker Change: To optimize profit, but as we build our strategy of growth with the community count we're targeting will assume current absorption rates and if our margins were to move a little higher because there is no inventory, which I think they could over time, our margins moved higher.

Speaker Change: You'd see a higher absorption rate along with it but.

Speaker Change: At the same time, we've kind of got a floor on our run rates at around 445 per community and so you can do the math and toggle between community count growth in any unit growth, we get but it will always be to optimize the asset.

Jeff Mezger: And our next question comes from the line of Michael Rehaut. Great. Thanks, everyone. Thanks for taking my questions. Good afternoon.

Speaker Change: Thank you and our next question comes from the line of Michael Rehaut with Jpmorgan. Please proceed with your question.

Michael Jason Rehaut: Thank you, and our next question comes in the line of Michael Rehart with JP Morgan.

Unknown Executive: Please first see with your question.

Jeff Mezger: Wanted to, you know, first kind of zero in a little bit on how you felt demand progressed throughout the quarter and even so far into the third quarter. Rates, obviously, rates, came up a bit throughout the first month, month and a half, have come down a little bit more recently. Has this impacted, as you kind of alluded to earlier, maybe incentives being elevated a little bit more in terms of mortgage concessions or other areas of closing costs, perhaps?

Michael Jason Rehaut: Great. Thanks, everyone. Thanks for taking my questions good afternoon.

Unknown Executive: Great, thanks everyone. Thanks for taking my questions. Good afternoon. Wanted to first kind of zero in a little bit on how you felt demand has progressed throughout the quarter, and even so far into the third quarter. Rates obviously came up a bit throughout the first month, month and a half, has come down a little bit more recently. Has this impacted, you kind of alluded to earlier, maybe incentives being elevated a little bit more in terms of mortgage concessions or other areas of closing costs perhaps? Just wanted to get a sense for how demand and pricing has progressed, and any take on the last several weeks with the smooth, we've had loopen rates for Michael. I'll ask Rob to answer that question relative to the rhythm and the demand, but just to clarify one thing, it's not that concessions are off; they've held steady.

Michael Jason Rehaut: Wanted to first kind of zero in a little bit on.

How you felt.

Demand has progressed throughout the quarter and even so far into <unk>.

Michael Jason Rehaut: The third quarter.

Michael Jason Rehaut: Rates, obviously rates came up a bit throughout the first month month, and a half have come down a little bit more recently.

Speaker Change: Has this impacted you kind of alluded to earlier, maybe incentives being elevated a little bit more in terms of mortgage concessions or other areas of closing cost perhaps.

Jeff Mezger: I just wanted to get a sense for, you know, how demand and pricing have changed. Rehaut, Jeff Kaminski, Alan Ratner, Jeffrey Mezger, Robert McGibney, Joseph Ahlersmeyer, Mike, I'll ask Rob to answer that question relative to the rhythm and the demand, but just to clarify one thing, it's not that concessions are up; they've held steady.

Speaker Change: Just wanted to get a sense for how demand and pricing has.

Speaker Change: Progressed.

Speaker Change: And any take on the last several weeks with the with the most recent move in rates.

Jeff Mezger: We expect that they may go down a little bit as the year unfolds because of the stronger conditions we saw in March and early April before the rates came up at about the time of our last call. So we're not seeing concessions go up this time. They're just not going down the way we thought they would.

Speaker Change: Sure.

Speaker Change: Mike I'll ask Rob to answer that question relative to the the rhythm and the demand, but just to clarify one thing it's not that concessions are up they have held steady we expect that they may go down a little bit as the year unfolded because of the stronger conditions. We saw in March and early April before the rates.

Unknown Executive: We expect that they may go down a little bit as the year unfolded because of the stronger conditions we saw in March, nearly April, before the rates came up at about the time of our last call.

Speaker Change: Off at about the time of our last call. So we're not seeing concessions go up. This time. They are just not going down the way we thought they would Rob you want to give some commentary on the the demand through the quarter.

Unknown Executive: So what we're not seeing concessions go up this time, they're not going down the way they thought they would.

Robert V. McGibney: Rob, do you want to give some commentary on the demand through the quarter? Sure. In terms of second quarter sales, I would say the business performed very well on a portfolio basis. We mentioned we hit five and a half net orders per month per community. But in addition to that, each one of our regions on an individual basis achieved five orders a month or more every single month of the quarter.

Rob McGibney: Rob, you want to give some commentary on the demand through the quarter.

Speaker Change: Sure.

Robert V. McGibney: In terms of the second quarter sales I would say the business performed very well on a portfolio basis. We mentioned, we had $5 five net orders per month per community, but in addition to that each one of our regions on an individual basis achieved.

Robert V. McGibney: A month or more every single month of the quarter and we really didn't see much change we do expect to see things slow down as it always does seasonally as we move into the summer here, but demand really across our footprint and from month to month was fairly consistent and as Jeff mentioned not really a change in the incentives that we had to offer.

Robert V. McGibney: And we really didn't see much change. We do expect to see things slow down, as it always does seasonally as we move into the summer here. But demand really across our footprint and from month to month was fairly consistent. And as Jeff mentioned, you know, not really a change in the incentives that we had to offer to drive that. It's just we didn't get the mortgage rate pullback that we thought we might, and they have remained relatively flat over the last couple of quarters. Okay, I know that that's very helpful.

Robert V. McGibney: Offer to drive that it's just.

Speaker Change: We didn't get the mortgage rate pullback that we thought we might and they've remained relatively flat over the last couple of quarters.

Jeff J. Kaminski: I appreciate that. Um, secondly, we'd love to just get your thoughts on, you know, how to think about gross margins, maybe a little bit longer term. And, you know, when you look at what you did, from, you know, 2013 to 2018, 2019, you averaged about 17 or 18%. What's changed in your view that's kind of allowed you to hold on to this higher level? And, you know, I don't want to put words in your mouth, so two factors would come to mind.

Speaker Change: Okay.

Speaker Change: That's very helpful. I appreciate that.

Speaker Change: I guess secondly, we'd love to just get your thoughts on.

Speaker Change: How to think about gross margins, maybe a little bit longer term.

Speaker Change: You look at what you did.

Speaker Change: Tom.

Speaker Change: 2013 to 2018 2019, you averaged about 17, 18%.

Speaker Change: We've kind of been more consistent in the last year year, and a half around 21% mid 'twenty one.

Speaker Change: What's changed in your view, that's kind of allowed you to hold on to this higher level.

Speaker Change: And.

Speaker Change: Yes.

Speaker Change: I don't want to put words in your mouth. So.

Speaker Change: Two factors that come to mind, but.

Jeff J. Kaminski: But, you know, what are your thoughts on, you know, the sustainability of the current margins? And, you know, if you decide to continue to shift perhaps a little bit more to option lots, which sometimes carry a lower gross margin, if that, any potential strategy shift might impact that going forward. Sure.

Speaker Change: What your thoughts on the sustainability of the current margins then.

Speaker Change: If you decide to continue to shift, perhaps a little bit more.

Speaker Change: Option long.

Speaker Change: Which sometimes carry eight or.

Speaker Change: Our lower gross margin that any potential strategy shift might impact that.

Speaker Change: Going forward.

Jeff J. Kaminski: So yeah, just a few comments on the margins. So when you look at the company, scale helps a lot. Not only on leveraging some of the fixed costs that are included in margin, but particularly on the supplier side, materials, labor, etc. in the market.

Speaker Change: Sure. So yes, just a few comments on the margins. So when you look at the company scale helps a lot.

Speaker Change: Not only on leveraging some of the fixed costs that are included in margin, but particularly on the <unk>.

Jeff J. Kaminski: So that's why there's such a focus within the company within the company's divisions on achieving a large scale in each first serve market. So that's been a very favorable factor for the company. Number two, as you know, Mike, we've done a tremendous amount of work on our capital structure over the years, and particularly back to the period that you mentioned, our interest amortization is way down compared to prior, and that's a direct improvement in margin that just went right to the margin line. And that is very sustainable. And in fact, you know, some future potential there as well as our inventory balance continues to grow. Meanwhile, our debt levels stay either constant or slightly decreasing.

Speaker Change: On the supplier side materials labor et cetera in the market. So thats why there is such a focus within the company within the company's divisions on achieving a large scale in each of our served markets. So thats been a very favorable factors that company number two as you know Mike we've done a tremendous amount of work on our capital structure over the years and.

Speaker Change: Particularly back to the period that you mentioned are interest amortization is way down.

Speaker Change: Compared to prior to that.

Speaker Change: Direct.

Speaker Change: Improvement in margin that just went right to the margin line and that is very sustainable and in fact some.

Speaker Change: Future potential there as well as our inventory balance continues to grow our debt level stay either constant or slightly decreasing and we have a really nice capital structure now and now with our new.

Jeff J. Kaminski: And you know, we have a really nice capital structure now. And now with our new BA-1 status with Moody's and the recent upgrade that we also received. We're in really good shape on the capital side of things and the interest side of things, so that's good. As far as sustainability goes, you know, if you look at 21%... Low 20s, let's call it, margins, I think they're very sustainable, and, in fact, things that we can build upon as we achieve higher levels of scale in our served markets, as we grow the total company top line, and as we move So we'll see as we go. But I think that the single largest tailwind that we could experience is just a reduction in incentives. As you know, we're not really an incentive-based company.

Speaker Change: <unk>.

Speaker Change: <unk>.

Speaker Change: Status with Moody's recent upgrade.

Speaker Change: We also received.

Speaker Change: We're in really good shape on the capital side of things and the interest side of things. So thats. Good so as far as sustainability goes if you look at 21% low <unk>. So let's call. It margins I think they are very sustainable and in fact things that we can build upon as we achieve higher levels of scale in our <unk>.

Speaker Change: Served markets as we grow the total company.

Speaker Change: Topline and as we move forward with some of our supplier and cost strategies I, certainly think margins are sustainable and could even expand from here. So we'll see as we go I think the single largest tailwind that we could experience is just reduction of incentives.

Speaker Change: You know, we're not really an incentive based company.

Jeff J. Kaminski: We've been playing that game for a while in the face of these higher interest rates in order to generate affordability for our buyers, but we, along with most people, don't think these rates are here to stay for the long term, and although they may not reach the low levels that they once were at, there's a fairly sizable margin pickup that could be gained just from seeing that go away. So those are, I guess, my high-level thoughts on that margin question.

Speaker Change: <unk> been playing that game for a while in the face of these higher interest rates in order to to generate affordability for our buyers but.

Speaker Change: US along with most people don't think these rates are here to stay for the long term and although we may not reach the low levels.

Once we are at.

Speaker Change: There's a fairly sizable margin pickup that can be gained.

Speaker Change: Just from seeing that go away. So those are the.

Speaker Change: Yes, my high level thoughts on on that margin question as far as option lot strategy.

Jeff J. Kaminski: As far as option lot strategy is concerned, we're not seeing much change internally from a margin point of view on that side of things. We'll take the option lots if they're out there and available. If they're not, we're pretty focused on just expanding the community count and developing our own lots as we go. So we'll see how that shakes out.

Speaker Change: We're not seeing much change internally from a margin point of view on that side of things.

Speaker Change: We will take the option lots of throw out there and available if theyre not.

Speaker Change: We're pretty focused on just expanding community count and developing our own lots as we go so we'll see how that shakes out, but overall pretty pleased with margins very pleased with the expansion.

Robert V. McGibney: But overall, pretty pleased with margins, very pleased with the expansion. The Sustained, a higher level that we've been experiencing the last few years, and hopefully, we can build upon that. And the next question comes from the line of Matthew Bouley with Barclays; please proceed with your. Good evening, you have Anika Dlakyan for Matt today. Thanks for taking my questions. So first off, I think you said that build times are now at around five months, which is within your target historic four to five range. Just wondering if this is still the target range, or maybe if there's further to push on this, and then what levers you're taking to get there.

Speaker Change: Sustained higher level that we've been experiencing the last few years and hopefully we can build upon those in the future.

Matthew Bouley: And the next question comes from the line of Matthew Bouley with Barclays. Please proceed with your question.

Speaker Change: And the next question comes from the line of Matthew Bouley with Barclays. Please proceed with your question.

Unknown Executive: Good evening. You have an eco-blockion for Matt today. Thanks for taking my questions. So first off, I think you said that bill times are now at around five months, which is within your target historic fortified range. Just wondering if this is still the target range or maybe if there's further to push on this. And then what levers you're taking to get there? Thanks.

Matthew Bouley: Good evening, you of any Covid lockdown for Matt today, Thanks for taking my questions.

Speaker Change: First off I think you said that Bill times are now at around five months, which is within your target Historic 45 range. Just wondering if this is still the target range or maybe if there's further push on this and then what levers you're taking to get there.

Unknown Executive: So yeah, we're at five months. Not satisfied with five months. We've been faster than that in the past. We've talked about a range of four to five months. We've had many businesses that have built in faster than four months. So we're not going to take our foot off the gas on that. I think there are still opportunities out there. We have some divisions that are performing much better than others. So that's an opportunity to kind of get the underperforming divisions aligned with the better performing ones, but also proactive things that we're doing. We've been talking about for several quarters, like simplifying our product and building, indicating, driving costs.

Matthew Bouley: Rob.

Robert V. McGibney: Thanks. So yeah, we're at five months. We're not satisfied with five months. We've been faster than that in the past. You know, we've talked about a range of four to five months. We have had many businesses that have built in faster than four months. So we're not going to take our foot off the gas on that.

Speaker Change: So yes, we're at five months not satisfied with five months, we've been faster than that in the past we've talked about a range of four to five months and that many businesses are built and faster than four months. So we're not going to take our foot off the gas on that.

Robert V. McGibney: You know, I think there are still opportunities out there. We have some divisions that are performing much better than others. So that's an opportunity to kind of get the underperforming divisions aligned with the better performing ones, but also proactive things that we're doing. And we've been talking about for several quarters, like simplifying our product and, you know, building in a cadence, driving costs out, just an overall simpler formula that combined with really, you know, things getting back in rhythm with the supply chain now being much more stable.

Speaker Change: I think there are still opportunities out there we have some divisions that are performing much better than others. So that's an opportunity to kind of get the underperforming divisions aligned with the better performing ones, but also proactive things that we're doing and we've been talking about for several quarters like simplifying our product and building and a cadence drive drive.

Speaker Change: Costco just an overall simple of a formula that combined with really things getting back in rhythm with the supply chain now being much more stable.

Unknown Executive: I've just an overall simpler formula. That combined with really, you know, things getting back in rhythm with the supply chain now being much more stable. The systems, the processes that we've used for years are working as they should. And I think that's going to create additional opportunities for us to keep driving, driving build times down and reap the benefits that that provides for our business.

Robert V. McGibney: The systems, and the processes that we've used for years are working as they should, and I think that's going to create additional opportunities for us to keep driving build times down and reap the benefits that that provides for our business.

Speaker Change: Systems the processes that we've used for years are working as they should and I think thats going to create additional opportunities for us to keep driving driving build times down in <unk>.

The benefits that provides for our business.

Unknown Executive: Oh, that's super helpful. Thanks.

Jeff Mezger: And then my second question, you guys talked about resilience and buyer demand. I guess more specifically, what trends are you maybe seeing in consumers utilizing the design studio and around options and upgrades? Any thoughts on that would be helpful. Thanks.

Speaker Change: Got it Super helpful. Thanks, and then my second question.

Unknown Executive: And then my second question: you guys talked about the resiliency and buyer demand.

Speaker Change: Guys talks about the resiliency in buyer demand I guess more specifically what trends are you may be seeing and consumers utilizing the design studio and like around the options and upgrades.

Unknown Executive: I guess more specifically what trends are you may be seeing in consumer utilizing the design studio and like around options and upgrades. And these thoughts and that would be helpful. Thanks. It's very interesting. And it's why we always like to share the credit profile of the buyers. When you think we're 50% first time in the average income is over 130. And they're putting $77,000 down with a high pico. It's a very well-ealed first time buyer.

Speaker Change: Your thoughts on that would be helpful. Thanks.

Jeff Mezger: It's, it's very interesting. And that's why we always like to share the credit profile of the buyers. When you think we're 50% first time, and the average income is over 130.

Speaker Change: It's very interesting and that's why we always like to share the credit profile of the buyers. When you think we're 50% first time and the average income is over 130, and theyre, putting $77000 down with a high FICO, it's a very well heeled first time buyer.

Jeff Mezger: And they're putting $77,000 down with a high FICO. It's a very well-yielding first time buyer. Having said that, the size of the homes has not moved much for many quarters, and the studio spend has been very consistent. But what they're selecting in the studio can move around.

Unknown Executive: Having said that, the size of the homes has not moved much for many quarters. And the studio spend has been very consistent. What they're selecting in the studio can move around some. But the dollars that they're spending in the studio has been pretty consistent for the last eight to twelve quarters. So not seeing really any change in consumer preference even with the higher prices that we've been offering now.

Speaker Change: Having said that the size of the homes has not moved much for many quarters and the studio spend has been very consistent what they are selecting and the studio can move around some.

Jeff Mezger: But the dollars that they're spending in the studio have been pretty consistent for the last 8 to 12 quarters. So I'm not really seeing any change in consumer preference, even with the higher prices that we've been offering. Thank you.

Speaker Change: But the dollars that their spend in the studio has been pretty consistent for the last.

Speaker Change: Eight to 12 quarters, so not seeing really any change in consumer.

Speaker Change: Preference, even with the higher prices that we've been operating it.

Unknown Executive: Thank you.

Speaker Change: Thank you. Our next question comes from the line of Alan Ratner with Zelman and Associates. Please proceed with your question.

Jeff Mezger: Our next question comes from the line of Alan Ratner with Zellman: Hey, guys, good afternoon. Nice quarter. And thanks for all the details so far.

Alan Ratner: Our next question comes from the line of Alan Ratner with Zellman and Associates. Please proceed with your question.

Unknown Executive: Hey guys, good afternoon. Nice quarter. And thanks for all the details so far. First question, maybe this is taking in a little bit for the regional trends a bit. But we have seen; you mentioned, obviously, rates have stayed higher for longer than expected. I think probably the one other macro development that may or may not be surprising is we have seen resale inventories moving higher in certain markets at a pretty decent rate. I'll be it off of incredibly low level. And if I look at your order performance by region, the Southeast kind of stands out a little bit.

Robert V. McGibney: First question, you know, maybe this is digging in a little bit to the regional trends a bit. But, you know, we have seen, as you mentioned, obviously, rates have stayed higher for longer than expected. I think probably the one other macro development that may or may not surprise you is we have seen resale inventories moving higher in certain markets at a pretty decent rate, albeit off of incredibly low levels. And if I look at your order performance by region, the southeast kind of stands out a little bit, you know, roughly flat sequential orders.

Speaker Change: Hey, guys good afternoon.

Alan Ratner: Nice quarter and thanks for all the detail so far.

Alan Ratner: First question and maybe this is digging in a little bit to the regional trends a bit but we have seen you mentioned, obviously rates have stayed higher for longer than expected I think probably the one other.

Alan Ratner: Macro development that may or may not be surprising as we have seen resale inventories moving higher in certain markets that are at a pretty decent rate, albeit off of incredibly low levels and if I look at your order performance by region.

Robert V. McGibney: And normally, you would see a 20 to 30% sequential uptick in your second quarter. And that also kind of overlaps where we've seen some pretty decent increases in resale inventory. So we're just hoping you can kind of discuss a little bit what you're seeing on the resale front. Do you feel like you are seeing more competition in certain markets? And if so, what are you doing to respond to that?

Alan Ratner: The southeast kind of stands out a little bit.

Robert McGibney: Roughly flaps sequentially orders, and normally you would see a 20 to 30% sequential uptake in your second quarter. And that also overlaps where we've seen some pretty decent increases in resale inventory. So we just hope you can kind of discuss a little bit what you're seeing on the resale front. Do you feel like you are seeing more competition in certain markets? And so what are you doing to respond to that?

Alan Ratner: Our roughly flat sequentially orders and normally you would see.

Alan Ratner: 1% to 30% sequential uptick in your second quarter.

Alan Ratner: And that also kind of overlaps where we've seen some some pretty decent increases in resell inventory so.

Speaker Change: I was just hoping you can kind of discuss a little bit what youre seeing on the retail front do you feel like you are seeing more competition in certain markets and if so what are you doing to respond to that.

Robert McGibney: Robert, do you want to take that? Sure. It's a good question. You know, resale; it's always our biggest competitor. So we're always focused on it. We've got to stay tethered to resale pricing. We have to have a reasonable premium, but I don't think we've really seen any big changes in demand yet related to resale levels coming up. I mean, you talk about Florida and the headline is going to be something like, you know, resale inventory levels have exploded. They're double year over year. But when you dig into the market, it's like I was specifically looking at Tampa earlier today.

Robert V. McGibney: Rob, you want to take that? Sure. It's a good question. You know, resale is always our biggest competitor. So we're always focused on it. We've got to stay tethered to resale pricing; we have to have a reasonable premium. But I don't think we've really seen any big changes in demand yet related to resale levels coming up. I mean, you talk about Florida, and the headline is going to be something like resale, inventory levels have exploded, they're double year over year.

Speaker Change: Rob you want to take that.

Robert V. McGibney: But when you dig into the markets, like I was specifically looking at Tampa earlier today, we're talking about going from, I think, 1.8 months of supply to 3.6 months of supply. So while it has increased, and it has become more of a formidable competitor than it was when the supply was less than two months, it's still well below the historical norms.

Speaker Change: Sure.

Robert V. McGibney: Good question retail is always our biggest competitors. So we're always focused on it we've got to stay tether to resale pricing, we have to have a reasonable premium, but I don't think we've really seen any big changes in demand yet related to resale levels coming up I mean, you talked about Florida, and the headline is going to be something like <unk>.

Robert V. McGibney: Inventory levels have exploded their double year over year, but when you dig into the markets I was specifically looking at Tampa earlier today, we're talking about going from I think one eight months of supply to three six months of supply so while it has increased and.

Robert McGibney: We're talking about going from, I think, 1.8 months of supply to 3.6 months of supply. So, while it has increased and it has become more of a formidable competitor than it was when the supply was less than two months, it's still well below the historical norms. I think historical norms close to six months of supply. That would be considered imbalance. So definitely keeping an eye on it. You know, probably some impact. Back to our sales in Florida and the quarter. But as I mentioned earlier, you know, all of our all of our regions perform well.

Robert V. McGibney: I think historical norms close to six months of supply would be considered imbalanced. So definitely keeping an eye on it, you know, probably some impact on our sales in Florida in the quarter. But as I mentioned earlier, all of our regions perform well, every one of them with sales per month per community above five for each month of the quarter. So I wouldn't say that we're seeing a big impact from that yet. It's just something that we will certainly stay tuned into and adjust as needed, though.

Robert V. McGibney: It has become more of a formidable competitor than it was when.

The supply was less than two months, it's still well below the historical norms I think historical.

Robert V. McGibney: Historical norms close to six months of supply that would be considered imbalance. So.

Robert V. McGibney: Definitely keeping an eye on it and probably some impact to our sales in Florida in the quarter, but as I mentioned earlier all of our all of our regions performed well every one of them with sales per month per community above five each month of the quarter. So I wouldn't say that we're seeing a big impact from that yet it's just something that we will.

Unknown Executive: Every one of them with sales per month per community above five each month of the quarter. So I wouldn't say that we're seeing a big impact from that yet. It's just something that we will certainly stay tuned into and adjust as needed, though.

Robert V. McGibney: Certainly stay tuned into and adjust as needed though.

Unknown Executive: Perfect. I appreciate that detail.

Speaker Change: Perfect I appreciate that detail.

Jeff Mezger: I appreciate that detail. Second question on the land front. So your total lot count increased 18% sequentially, and I have got to go back to the second quarter of 2004 to find a quarter where your lot count rose by such a meaningful rate. And I know when we've talked about this in the past, one of the things you always highlight is, You know, a lot of these deals are either in due diligence or have been kind of tied up or locked in a way before it shows up as an increase in your lock count.

Unknown Executive: Second question on the land front. So you're telling me.

Speaker Change: Second question on the land front.

Speaker Change: <unk>.

Speaker Change: So your total lot count increased 18% sequentially and I got to go back to second quarter of 2004 to find the quarter, where your lot count rose by by such a meaningful rate.

Unknown Executive: I told a lot count increased 18% sequentially, and I got to go back to second quarter of 2004 to find a quarter where your lot count rose by such a meaningful rate. And I know when we've talked about this in the past, one of the things you always highlight is. You know, a lot of these deals are either in due diligence or have been kind of tied up or locked in way before it shows up as an increase in your lot count. So I'm not assuming you went out and. And all the sudden contracted for you know 10,000 lost this quarter.

Speaker Change: I know when we've talked about this in the past one of the things you always highlight is.

Speaker Change: Lot of these deals are either in due diligence or kind of being kind of tied up or locked in way before it shows up as an increase in your lot count. So im not assuming you went out and all of a sudden contracted for 10000 lots this quarter, but I was hoping you can give us a little color in terms of.

Jeff Mezger: So I'm not assuming you went out and all of a sudden contracted for, you know, 10,000 lots this quarter. But I was hoping you could give us a little color in terms of... Where are these lots centered?

Unknown Executive: But I was hoping you can give us a little color in terms of, you know, where are these lot centered, what, you know, type of negotiation or pricing, what that has been given the fact that it seems like this growth has all come through option lots, opposed to owned, because it is a pretty, pretty significant one quarter increase compared to what we've seen historically. A lot of it, Allen, is the timing of when it's secured. To your point, we could be working on a purchase agreement for three, four, or five months sometimes, with sellers hammering out the details before you put the money up and control is an entitled or whatever you need to do.

Jeff Mezger: What type of negotiation or pricing? What that has been given the fact that it seems like this growth has all come through option lots as opposed to owned because it is a pretty significant one-quarter increase compared to what we've seen historically. A lot of it, Alan, is the timing of when it's secured.

Speaker Change: Where are these lots center.

Speaker Change: Type of negotiation or pricing.

Speaker Change: What that has been given the fact that it seems like this growth is all come through option lots as opposed to.

Speaker Change: Owned.

Speaker Change: It is a pretty pretty significant one quarter increase compared to what we've seen historically.

Jeff Mezger: To your point, we could be working on a purchase agreement for three, four, or five months sometimes with sellers hammering out the details before you put the money up and control it and then entitlement or whatever you need to do. We've intentionally staffed up our land teams and are working with the division pretty intensively to grow our community count. And we've had fits and starts ever since COVID.

A lot of it Alan is the timing of.

When it's secured to your point, we could be.

Speaker Change: Working on.

Speaker Change: Purchase agreement for 345 months, sometimes with sellers hammering out the details before you put the money up.

Jeff Mezger: There's been interest rate rises, COVID demand, no demand, and we pulled some chips off the table a few times to keep the dry powder and let's see where the market's headed. And that did impact our community count over the last couple of years. But we're past that now.

Speaker Change: And control it and then entitled or whatever you need to do.

Unknown Executive: We've intentionally staffed up our land teams and are working with the division pretty intensively to grow our community count, and we've had fits and starts. Over ever since COVID, there's been interest rate rises, COVID demand, no demand, and we pulled some chips off the table a few times to keep the dry powder and let's see where the markets had it. And that did impact our community count over the last couple of years. We're past that now, and we see many markets where the dynamics are no inventory and the lots have value. You know, as I shared, we're continuing to be diligent in our underwriting standards, but we're finding adequate deal flow, and it's the healthy tension that I've already mentioned of holding divisions accountable to our standards in underwriting and product and geography and encouraging them to go tie up deals, and the deals have to hit our return.

Speaker Change: Intentionally staffed up our land teams and are working with the division pretty intensively to grow our community count and we've had fits and starts over the ever since Covid. There's been interest rate rises COVID-19 demand no demand and we pulled some chips off the table.

Speaker Change: A few times.

To keep the dry powder, and let's see where the market's headed and that did impact our community count over the last couple of years, we're past that now we see many markets where the dynamics are no inventory in the lots have value.

Jeff Mezger: We see many markets where the dynamics are no inventory, and the lots have value. You know, as I shared, we're continuing to be diligent in our underwriting standards, but we're finding adequate deal flow. And it's the healthy tension that I've already mentioned of holding divisions accountable to our standards in underwriting, product, and geography and encouraging them to go tie up deals, but the deals then have to hit our return. So we were successful in the quarter, and it's not one or two large deals; it's many, many 100 or 150 lot deals that we've secured around the system, and we're seeing growth in all of our markets right now in our lot zone and control. So we like the portfolio and the strategy, and it's setting up a pretty nice trajectory for 25 and 26. Our next question comes from the line of Susan Maklari with Gold. Thank you. Good afternoon,

As I shared we're continuing to be diligent in our underwriting standards, but we're finding adequate deal flow and it's the healthy tension that I've already mentioned.

Speaker Change: <unk> holding divisions accountable to our standards and underwriting and product and geography and encourage them to go tie up deals and the deals that have to hit our return so.

Unknown Executive: So we were successful in the quarter, and it's not one or two large deals, as many, many hundred or 150 lot deals that we secured around the system, and we were seeing growth in all of our markets right now in our lives owned and controlled.

Speaker Change: We were successful in the quarter.

Speaker Change: In.

It's not one or two large deals. It's many many 100 or 150 lot deals that we've secured around the system and we are seeing growth in all of our markets right now and our lots owned and controlled so we like the portfolio and the strategy and set them up.

Unknown Executive: So we like the portfolio and the strategy that's setting up a pretty nice trajectory for 25 and 26.

Speaker Change: A pretty nice trajectory for $25 26.

Unknown Executive: Thank you.

Speaker Change: Thank you. Our next question comes from the line of Susan Mcclary with Goldman Sachs. Please proceed with your question.

Susan Maklari: Our next question comes from the line of Susan and Maklari with Goldman Sachs. Please proceed with your question. Thank you. Good afternoon. Thanks for taking the questions.

Jeff J. Kaminski: Thanks for taking the question. My first question is, I want to go back a bit to the gross margin. You made a comment that you have seen a lot of premiums and upgrades that are benefiting the profitability of the business. Can you quantify that? And then can you also talk about the potential upside from there as you think about rates coming down and your buyers perhaps having a bit more purchasing power, where that could go over time and how it could benefit profitability? Sure, Susan, we can. I'll take the second part of that first and then come back on lot premiums in the studio.

Speaker Change: Thank you good afternoon, thanks for taking my questions.

Unknown Executive: My first question is I want to go back a bit to the gross margin. You made a comment that you have seen lot premiums and upgrades that are benefiting the profitability of the business. Can you quantify that? And then can you also talk to the potential upside from there as you think about rates coming down and your buyers perhaps having a bit more purchasing power, where that could go over time and how it could benefit profitability? Sure, Susan. You know, I'll take the second part of that first and then come back on lot premiums in the studios.

Susan Maklari: My first question is I wanted to go back a bit to the gross margin you made a comment that you have seen a lot premiums and upgrades that are benefiting the profitability of the business can you quantify that and then can you talk to the potential upside from there as you think about rates coming down and your buyers.

Susan Maklari: Having a bit more purchasing power where that could go over time and how it could benefit profitability.

Speaker Change: Sure So I'll.

Speaker Change: I'll take the second part of that first and then come back on lot premiums in the studios.

Jeff J. Kaminski: You know, like I mentioned before, we're at an unusually high level of incentives out there in this mortgage interest rate. And if we can eliminate that, it's, you know, a full percentage basis margin improvement for the company off all else being equal. So if we hold costs equal, assuming land values stay equal, et cetera, it's a pretty significant upside for us. So, you know, that factor alone, I think, gives me some, you know, some really good feelings about the future potential for gross margin.

Unknown Executive: You know, the like I mentioned before, you know, we're to unusually high level of incentives out there on this mortgage interest rate. And if we can eliminate that, it's, you know, full percentage basis margin improvement for the company, all else being equal. So we all cost equal, assuming land values, they go, etc. It's a pretty significant upside for us. So, you know, that factor alone, I think gives me some, you know, some really good feelings about the future potential gross margins.

And like I mentioned before.

Speaker Change: Unusually high level of incentives out there in this mortgage interest rate and if we can eliminate that it's full percentage basis margin improvement for the company of all else being equal so we hold costs equal assuming land values stay equal et cetera.

Speaker Change: Pretty significant upside for us so that factor alone I think gives me some some really good feelings about the future potential for gross margins. When you start looking at things like lot premiums and studio.

Unknown Executive: When you start looking at things like lot premiums and studio, the good news on the studio side is the spend. And, you know, even as ASPs have gone up. And as, you know, affordability, there's been a lot of headlines on affordability. We're still seeing buyers coming to the studio and user studio process. And as we've talked often in the past, we use our studio mainly at the differentiator on the sales side and to pull more buyers in. We do believe that's part of the reason why we see very high absorption pace for community relative to the peers.

Jeff J. Kaminski: When you start looking at things like lot premiums in studio, the good news on the studio side is that spend. And, you know, even as ASPs have gone up, and as, you know, affordability, there's been a lot of headlines on affordability, we're still seeing buyers come into the studio and use their studio process. And as we've talked often in the past, we use our studio mainly as a differentiator on the sales side and to pull in more buyers.

Speaker Change: Good news on the studio side as the spend and even as Asps have gone up and as.

Speaker Change: Affordability theres been a lot of headlines on affordability, we are still seeing buyers come into the studio and user studio process and as we talked often in the past we use our studio mainly.

Jeff J. Kaminski: We do believe that's part of the reason why we see a very high absorption pace per community relative to the peers. But despite that, we still do have an incrementally higher margin on studio sales than our base house margins. But it's not an area where we really focus to kind of cream it and add big dollars on that side of it. We'll take it where it comes in.

Speaker Change: As a differentiator on the sales side and pull more buyers and we do believe that's part of the reason why we see.

Speaker Change: Very high absorption pace per community relative to the peers.

Unknown Executive: But despite that, we still do have incrementally higher margin on studio sales and our base house margins, but it's not an area where we really focused to kind of cream it and add big dollars on that side of it. We'll take it where it's, where it comes in. We try to keep our options pretty close to market and go from there.

Peers.

Speaker Change: But despite that we still do have incrementally higher margin on studio sales in our base house margins, but it's not an area, where we really focus to kind of cream it.

Speaker Change: Add big dollars on that side of it we'll take it.

Where it comes in we try to keep.

Speaker Change: Our options are pretty close to market.

Speaker Change: And go from there lot premiums is always a focus area I think it's a focus area of all builders. It's almost if you think about a pure profit.

Unknown Executive: Lot premiums is always a focus area. I think it's a focus area of all builders. It's almost as if you think about a pure profit. There's no incremental cost to one lot versus another lot that develop community. But, to the extent you can get lot premiums on those lots, it's incrementally positive to gross margins. So that's really how we look at it on those two factors and. You know, again, on the incentive thing, we're looking forward to getting back to our base business model, how we like to operate the business, which is more or less every day low pricing without offering huge incentives out there, without discounting our homes and offering the buyer's choice and personalization in order to drive an above average absorption pace for community.

Jeff J. Kaminski: We try to keep our options pretty close to market and go from there. Lot premiums are always a focus area. I think it's a focus area of all builders. It's almost, if you think about it, pure profit.

Speaker Change: No incremental cost to one lot versus another lot of develop community but.

Speaker Change: To the extent you can get lot premiums on those lots, it's incrementally positive to gross margin. So that's really how we look at it on those two factors in.

Jeff J. Kaminski: There's no incremental cost to one lot versus another lot in a developed community, but to the extent you can get lot premiums on those lots, it's incrementally positive for gross margins. So that's really how we look at it on those two factors. You know, again, on the incentive thing, we're looking forward to getting back to our base business model and how we like to operate the business, which is more or less everyday low pricing without offering huge incentives out there without discounting our homes and offering the buyer's choice and personalization in order to drive an above average absorption pace per community. Yeah, okay, that's a helpful color.

Again on the incentive thing were looking forward to getting back to our base business model and how we like to operate the business, which is more or less everyday low pricing without offering huge incentives out there without discounting our homes and offering to buyers' choice and personalization.

Speaker Change: Order to drive.

Speaker Change: Above average absorption pace per community.

Unknown Executive: Yeah, okay, that's hopeful color, and then maybe thinking about the consumer at a higher level, there's been a lot of. Different data points that have come through and comments from various companies across the consumer landscape in the last couple of months or so, and even your competitor this morning made some comments about consumers perhaps being under more financial stress, which seems like that's in contrast to the steps that you gave around your buyer in your prepared comments.

Jeff Mezger: And then maybe thinking about the consumer at a higher level. There's been a lot of different data points that have come through and comments from various companies across the consumer landscape in the last couple of months or so. And even your competitor this morning made some comments about consumers perhaps being under more financial stress, which seems like that's in contrast to the stats that you gave about your buyer in your prepared comments.

Yeah. Okay. That's helpful color and then maybe thinking about the consumer at a higher level, there's been a lot of different.

Different data points that have come through and comments from various companies.

Speaker Change: Across the consumer landscape in the last couple of months or so and even your competitor. This morning made some comments about consumers, perhaps being under more financial stress, but can you break that in contrast to the stats that you gave around your buyer in your prepared comments I guess when you step back how do you think about the health of the consumer.

Jeff Mezger: I guess when you step back, how do you think about the health of the consumer and the buyer that's coming through today? And has that changed at all? Are you seeing anything different in there? And how do you think about the profile of the businesses as perhaps rates start to come down and we expand that pool of demand? I think you touched on it, Susan. We quote, Rob quoted in his script, the income levels, the FICO score, and how much they're putting down. And I observed that it's a well-heeled first time buyer.

Unknown Executive: I guess when you step back, how do you think about the health of the consumer and the buyer that's coming through today, and has that changed at all? Are you seeing anything different in there, and how do you think about the profile of the business as perhaps we start to come down and we expand that pool of demand? I think you touched on it, Susan. I was, we quote, you know, Rob quoted in his script, the income levels, the pico score, and how much they're putting down it. I observed it's a well healed first time buyer, but, but they're that loads our up.

Jeff Mezger: But their debt loads are up. You see it in all the statistics, credit card balances are higher, car loans, you know, whatever it is, there's a lot of pressure on their cost of living outside of home ownership. So we are very sensitive and in tune to doing what we can to help improve. Unknown Executive, Buck Horne, Joseph Ahlersmeyer, Jeff Kaminski, Alan Ratner, Jeffrey Mezger, operate your business pretty successfully with this higher credit profile customer, but I think we would also say that they're a little more credit challenged and there's a little more debt burden than there was a couple of years ago. Thank you, and our final question comes from the line of Jay McCanless. Jay, your line is live. Thanks for taking my questions.

Speaker Change: The buyer that's coming through the day and has that changed at all.

Speaker Change: Being different in there and how do you think about the profile of the business is perhaps rates start to come down and we expand that pool of demand.

Speaker Change: But I think you touched on it so it was I was.

Speaker Change: We quote to Rob quoted in his script.

Speaker Change: The income levels, the FICO score and how much they are putting down.

Speaker Change: Observed as well.

Speaker Change: Well heeled first time buyer, but but their debt loads are up you see it in all of those statistics credit card balances are higher.

Unknown Executive: You see it in all the statistics: credit card balances are higher, card loans, you know, whatever it is. There's a lot of pressure in their cost of living outside of homeownership. So we are very sensitive and in tune to doing what we can to help improve affordability. And I think if rates came down, it would help a lot of things, but we don't assume rates are going to come down anytime soon. So you have to navigate through it, and where we're benefiting is the buyer demand is strong enough that you're able to operate your business pretty successfully with this.

Speaker Change: Card loans whatever it is there's a lot of.

Speaker Change: Pressure in there and their cost of living outside of homeownership. So we are very sensitive and in tune to doing what we can to help improve affordability and I think if rates came down.

Speaker Change: Would help a lot of things, but we don't assume rates are going to come down anytime soon so you have to navigate through it.

Speaker Change: We're we're benefiting as the the buyer demand is strong enough that you are able to.

Speaker Change: Operate your business pretty successfully.

Speaker Change: With this.

Unknown Executive: So, you know, higher credit profile customer, but I think we would say too that they're a little more credit challenge, and there's a little more debt burden than there was a couple of years ago. Thank you.

Speaker Change: Higher credit profile customer, but I think we would say to that they are a little more credit challenged and there is a little more debt burden than there was a couple of years ago.

Speaker Change: Thank you and our final question comes from the line of Jay Mccanless with Wedbush Securities. Please proceed with your question.

Jay Mccanless: And our final question comes in the line of Jay McCann list with lead boost securities. Please proceed with your question. Jay, your line is live. Thanks for taking my questions. I guess, Rob, could you talk more about what was going on in the Southeast and also in the West region during the quarter? I know you said absorptions were pretty solid relative to the overall average, but the orders were down there. Is that a function of communities, and do you expect to catch up on the community side in those regions later this year? Part of it is a little bit driven by a community count in Florida, and I do expect that to catch up.

Speaker Change: Jay Your line is live.

Robert V. McGibney: Um, I guess, Rob, could you talk more about what was going on in the southeast and also in the west region during the quarter? I know you said absorption was pretty solid relative to the overall average, but orders were down there. Is that a function of communities? And do you expect to catch up on the community side in those regions later this year? Part of it is a little bit driven by the community count in Florida.

Jay McCanless: Alright, thanks for taking my questions.

Jay: I guess, Rob could you talk more about what was going on in the southeast and also in the West region. During the quarter. I know you said absorptions were pretty solid relative to the overall average but that.

Jay: Orders were down there is that a function of communities and do you expect to catch up on the community side in those regions later this year.

Robert V. McGibney: And I do expect that to catch up. We've had, you know, just some general delays in getting communities open. There are not communities that are going away, but they just get pushed out a little bit.

Speaker Change: Part of it is a little bit driven by community count in Florida, and I do expect that to catch up we've had just some general delays in getting communities open theres not communities that are going away, but just get pushed out a little bit. So I don't know if <unk> got the specific stat, but I think it was community count was down sequentially.

Robert McGibney: We've had just some general delays in getting communities open. There's not communities that are going away, but just get pushed out a little bit.

Robert V. McGibney: So, I don't know, JK, if you've got the specific stat, but I think it was community count was down sequentially there a little bit. But overall, you know, demand in both regions remained relatively strong. When we talk about the southwest, Las Vegas continued to have the highest sales rate we've had in the community, and Let Empire did really well in the west, all the California really. Texas performed very well. Those businesses are back in sync. The normalized can rate actually lower than normal. The drove a better net sales result. So outside of the uptick in inventory in Florida that we've been reading about, which I think is still well below the historical norms, I don't really see any storm clouds out there for us. But as I mentioned before, it will continue to monitor and watch it.

Robert V. McGibney: So I don't know, JK, if you've got the specific stat, but I think the community count was down sequentially there a little bit. But overall, you know, demand in both regions remained relatively strong. And we talked about the Southwest. Las Vegas continued to have the highest sales rate we've had in the community. Inland Empire did really well in the West, all of California, really.

Speaker Change: They are a little bit, but overall demand in.

Speaker Change: Both regions remain relatively strong and we talked about the southwest Las Vegas continued to have the highest sales rate. We've had in the community inland Empire did really well in the west all of California really.

Robert V. McGibney: Texas performed very, very well. Those businesses are back in sync, the normalized can rate is actually lower than normal, and that drove a better net sales result. So outside of the uptick in inventory in Florida that we've been reading about, which I think is still well below the historical norms, I don't really see any storm clouds out there for us. But, as I mentioned before, we will continue to monitor and watch it. I got it.

Speaker Change: Texas performed very well those businesses are back in sync normalized can rate actually lower than normal that drove a better net sales result, so outside of the uptick in inventory.

Speaker Change: Florida that we've been reading about which I think is still well below the historical norms I don't really see any storm clouds out there for us, but as I mentioned before it will continue to monitor and watch it.

Speaker Change: Got it.

Jay Mccanless: And then just on gross margin, it sounds like you're getting a decent amount of pricing, not big pricing, but enough to cover mortgage concessions. It also sounds like you might get a positive product shift with more California in the fourth quarter.

Jeff J. Kaminski: And then just on gross margin, it sounds like you're getting a decent amount of pricing, not high pricing, but enough to cover mortgage concessions. It also sounds like you might get a positive product shift with more California in the fourth quarter. I guess. Why not be a little more aggressive on the gross margin guide, especially for the full year? What's holding you back there?

Speaker Change: And then just on gross margin.

Speaker Change: It sounds like Youre, getting a decent amount of pricing not big pricing, but enough to cover mortgage concessions. It also sounds like you might get a positive product shift with more California in the fourth quarter I guess why not be a little more aggressive on the gross margin guide, especially for the full year, what's holding you back there.

Unknown Executive: I guess, why not be a little more aggressive on the gross margin guide, especially for the full year. What's holding you back there? Jay, we, we forecast gross margins based on our backlog, you know, and it's one of the advantages of a BTO business. We have a lot of visibility into the future. And for the sales, particularly in the spring song season, which will mainly deliver out in the fourth quarter, the bix of business and the mix of sales and the mix between the divisions that we see, basically, you know, we roll them all up and we're talking to what we're seeing right now in our backlog numbers and what we anticipate selling through moving ready homes in the third and fourth quarter that deliver out the poor, the end of the year.

Jeff J. Kaminski: Jay, we forecast gross margins based on our backlog, you know, and it's one of the advantages of a BTO business; we have a lot of visibility into the future. And for the sales, particularly in the spring selling season, which will mainly deliver in the fourth quarter, the mix of business and the mix of sales and the mix between the divisions that we see, basically, you know, we rolled them all up, and we're talking about what we're seeing right now in our backlog numbers and what we anticipate selling through move-in ready homes in the third and fourth quarters that will deliver before the end of the year. So there's not tons of guesswork involved.

Speaker Change: Jay.

Speaker Change: Forecast gross margins based on our backlog.

Speaker Change #100: One of the advantages of a bto business, we have a lot of visibility into the future.

Speaker Change #101: And for the sales, particularly in the spring selling season, which will mainly delivered out in the fourth quarter <unk>.

Speaker Change #102: The mix of business and the mix of sales and the mix between the divisions that we see.

Speaker Change #102: Basically.

Speaker Change #102: We wrote them all up and we're telling you what we're seeing right now in our backlog numbers and what we anticipate selling.

Speaker Change #102: Through move in ready homes in the third and fourth quarter that deliver off before the end of the year. So there's not tons of guesswork there we've been pretty consistent in gross margin in our estimates.

Jeff J. Kaminski: We've been pretty consistent in gross margin in our estimates and really have been coming in close to the high end of our ranges now for the past several quarters. And we're pleased with the consistency in the business and what we're seeing and how things are progressing, and we'll keep you guys updated as we go. So, you know, we lifted the full-year range up very incrementally right now, and we'll continue to monitor it.

Unknown Executive: So there's not tons of guesswork there. We've been pretty consistent in gross margin and our estimates, and really have been coming in close to the high end of our ranges now for the past several quarters. And we're pleased with the consistency in the business and what we're seeing and how things are progressing. And we'll keep you guys updated as we go. So, you know, we lifted the full year range up very incrementally right now, and we'll continue to monitor it.

Speaker Change #102: Really it's been coming in closer to the high end of our range is now for the past several quarters.

Speaker Change #102: Pleased with the consistency in the business and what we're seeing and how things are progressing and we will keep you guys updated as we go so we lifted the full year range up very incrementally right now and we'll continue to monitor it we did expect at the beginning of the year.

Unknown Executive: We did expect at the beginning of the year to see a similar pattern of what we're seeing now, but for different reasons. We thought we'd get a little more help on the interest rate side and be able to do things with as in pricing that we have not been able to do because of macro, but we've been able to offset that through other initiatives within the company. We're pleased with that.

Jeff J. Kaminski: We did expect at the beginning of the year to see a similar pattern to what we're seeing now, but for different reasons. We thought we'd get a little more help on the interest rate side and be able to do things with incentives and pricing that we have not been able to do because of macro, but we've been able to offset that through other initiatives within the company, and we're pleased. Ladies and gentlemen, that does conclude today's teleconference. We thank you for your participation. You may now disconnect.

Speaker Change #102: To see a similar pattern to what we're seeing now but for different reasons, we thought we'd get a little more help on the interest rate side and be able to do things with incentives and pricing that we have not been able to do because of macro but we've been able to offset that through other initiatives within the company. We're pleased with that.

Speaker Change #102: Yeah.

Unknown Executive: And ladies and gentlemen, that does conclude today's teleconference. We thank you for your participation. You may now disconnect your lines. You

Speaker Change #103: And ladies and gentlemen that does conclude today's teleconference. We thank you for your participation you may now disconnect your lines.

Speaker Change #103: Okay.

Speaker Change #103: [music].