Q3 2024 Beazer Homes USA Inc Earnings Call
Speaker Change: Thank you all for holding for today's conference. Please continue to stand by. We will be starting in approximately one minute. Again, please continue to stand by. Thank you.
Operator: Please stand by. We will be starting in approximately one minute. Again, please continue to stand by. Thank you.
Operator: Outro Music Good afternoon, and welcome to the Beazer Homes earnings conference call for the third quarter ended June 30, 2024. Today's call is being recorded, and a replay will be available on the company's website later today. In addition, PowerPoint slides intended to accompany this call are available in the investor relations section of the company's website at www.beazer.com. At this point, I will turn the call over to David Goldberg, Senior Vice President and Chief Financial Officer.
Speaker Change: Good afternoon and welcome to the Beazer Homes earnings conference call for the third quarter ended June 30, 2024. Today's call is being recorded and a replay will be available on the company's website later today.
Speaker Change: In addition, PowerPoint slides intended to accompany this call are available in the Investor Relations section of the company's website at www.beazer.com.
Speaker Change: At this point, I will turn the call over to David Goldberg, Senior Vice President and Chief Financial Officer.
David Goldberg: Thank you. Good afternoon, and welcome to the Beazer Homes conference call discussing our results for the third quarter of fiscal 2024. Such statements involve known and unknown risks, uncertainties, and other factors described in our SEC filings, which may cause actual results to differ materially from our projections. Therefore, any forward-looking statement speaks only as of the date the statement is made. We do not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise. A review of our land activity, followed by a quick discussion of our balance sheet and book value growth. We will conclude with a wrap-up by Alan. After our prepared remarks, we will take questions in the time remaining. I will now turn the call over to Alan.
Speaker Change: Thank you. Good afternoon and welcome to the Beezer Homes conference call discussing our results for the third quarter of fiscal 2024.
Speaker Change: Before we begin, you should be aware that during this call, we will be making four looking statements. Such statements involve known and unknown risks, uncertainties, and other factors described in our SEC filings, which may cause actual results to differ materially from our projections.
Speaker Change: Any forward-looking statement speaks only as the date the statement is made.
Speaker Change: We do not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise. New factors emerge from time to time, and it is simply not possible to predict all such factors.
Allan Merrill: Joining me today is Alan Merrill, our Chairman and Chief Executive Officer. On our call today, Alan will discuss highlights from our third quarter, the current environment for new home sales, our longer-term outlook on the market, and conclude with an overview of our progress towards our multi-year goals.
Speaker Change: I'll then provide details on our third quarter results, expectations for our fourth quarter and full year results,
Speaker Change: The basis for our confidence in profitability growth next year are a review of our land activity, followed by a quick discussion of our balance sheet and book value growth.
Alan: Thank you, Dave, and thank you for joining us on our call this afternoon. Our long-term confidence in the broader new home market, and Beazer's positioning in particular, remains very strong. In terms of third-quarter profitability, first, we substantially grew our total lot pipeline. We now have more than 28,000 lots, up 25 percent from last year, providing excellent visibility into our growing community. And second...
Allan Merrill: Our third quarter reflected profitability in line with our expectations and significant progress toward our multi-year goals.
Speaker Change: While our new home orders were softer than we had anticipated, reflecting both macro and market-specific factors that I'll address in a moment, our long-term confidence in the broader new home market, and Beazer's positioning in particular, remains very strong.
Speaker Change: First, we substantially grew our total lot pipeline.
Speaker Change: And second, we reached a major energy efficiency milestone this quarter, as we have now closed more homes to the DOE's single family, zero energy ready requirements than any other home builder in the country.
Speaker Change: Although we generated strong financial results in the quarter, the sales environment proved quite challenging. Our pace of 2.4 sales per community per month was below our expectations.
Allan Merrill: From a macro perspective, we had many prospective buyers struggle to qualify for a mortgage and others who chose to defer their purchase based on expectations of lower mortgage rates later this year.
Speaker Change: And weather events in Texas were quite disruptive.
Speaker Change: These dynamics impacted all builders to some extent, but for us, there were a couple of specific markets where additional factors played an even bigger role.
Alan: In particular, weak sales in Houston and San Antonio weighed on our results. Excluding these markets, which represent about a quarter of our community count, our sales pace would have been around 2.8 sales per community per month, closer to both normal seasonal patterns and our expectations. But during the quarter, both markets saw particularly strong demand at price points well below our offering, and continuing employment and wage growth should underpin demand, and eventually... We expect lower rates to improve affordability for homebuyers.
Speaker Change: In particular, weak sales in Houston and San Antonio weighed on our results.
Allan Merrill: Excluding these markets, which represent about a quarter of our community count, our sales pace would have been around 2.8 sales per community per month, closer to both normal seasonal patterns and our expectations.
Speaker Change: Houston and San Antonio are among the most affordable housing markets we serve, which is why we remain confident in their near and long-term prospects. But during the quarter, both markets saw particularly strong demand at price points well below our offerings.
Speaker Change: While we might have achieved higher sales with more aggressive incentives, this quarter we chose not to chase volume in either market.
Speaker Change: That's because we believe it is important to demonstrate the value of our highly differentiated and newly introduced Ready Series homes.
Speaker Change: Given a short period to adapt, we believe these homes and our team can more than hold their own competitively, and we expect Houston and San Antonio to be among our most productive markets.
Speaker Change: And eventually, we expect lower rates to improve affordability for homebuyers.
Alan: With this positive, longer-term outlook, we remain fully committed to our three multi-year goals, which include expanding our community count, deleveraging our balance sheet, and delivering a demonstrably superior home. As it relates to deleveraging our balance sheet, we expect to end FY24 with a net debt to net cap ratio in the mid-30s, even as we invest in the growth of our business. Finally, as relates to our goal that 100% of our starts will be zero energy ready by the end of calendar 2025, we continue to make significant progress.
Speaker Change: With this positive longer-term outlook, we remain fully committed to our three multi-year goals, which include expanding our community count, deleveraging our balance sheet, and delivering a demonstrably superior home.
Speaker Change: And importantly, we're on track to achieve our target of having that debt-to-net cap below 30% by the end of FY26.
Alan: This rapid progress has simplified our construction process, so we can now focus on reducing our zero energy ready costs. On the sales side, I remain enthusiastic about our potential to drive value from a product position that is truly unique within our industry.
Speaker Change: This rapid progress has simplified our construction process, so we can now focus on reducing our zero energy ready costs.
Allan Merrill: Thanks, Alan.
Allan Merrill: For the third quarter of fiscal year 2024, we generated 1,070 new orders reflecting a pace of 2.4 sales per community per month as mentioned previously.
Allan Merrill: We close 1,167 homes, generating home building revenue of $589.6 million with an average sales price of about $505,000.
David Goldberg: Adjusted gross margin, excluding amortized interest, impairments, and abandonments, was 20.3%. Interest amortized as a percentage of home building revenue was 2.9%. We expect to close about 1,500 homes, up more than 20% compared to the prior year period. We expect a just gross margin roughly in line with the third quarter at approximately 20%, reflecting no change in sales incentives. Interest amortized as a percentage of home building revenue should be about 3%.
Allan Merrill: Adjusted gross margin, excluding amortized interest, impairments, and abandonments, was 20.3 percent. SG&A was 11.9 percent of total revenue as we prepare for near-term growth in community count.
Allan Merrill: Net income was $27.2 million, or $0.88 per share. Finally, during the quarter, we repurchased more than 450,000 shares, representing about 1.5% of the company, at an average price just above $28.
Allan Merrill: Our guidance for the fourth quarter contemplates no improvement in the macro or company-specific environment.
Allan Merrill: With this backdrop, we expect a sales pace similar to our third quarter, and ending community count above 155. This would lead to about 1,100 orders for the quarter, up versus the prior year.
Allan Merrill: Interest amortized as a percentage of home building revenue should be about 3%, and our effective tax rate should be about 12% as we continue to benefit from energy efficiency tax credits.
Allan Merrill: This should all lead to diluted earnings per share of about $1.35.
David Goldberg: Our Q4 guidance implies that we now expect full-year adjusted EBITDA of about $230 million. We note that this is down from our guidance last quarter, reflecting the impact of weaker sales. Let's start with the top line, revenue. First, as Alan laid out in his update to our multi-year goals, we expect to end 2024 with at least 15% community count growth, followed by another 15% growth in 2025. Any improvement will have a meaningful impact, given our expanding community.
Allan Merrill: Our Q4 guidance implies that we now expect full-year adjusted EBITDA of about $230 million. We note that this is down from our guidance last quarter, reflecting the impact of weaker sales.
Allan Merrill: Finding the right balance between volume and margin is always tricky, but in light of our differentiated product, our substantial growth in community count, and our positive longer-term view of the market, we believe not chasing volume is appropriate for now.
Allan Merrill: While conditions in fiscal 2024 have been even choppier than anticipated, we remain optimistic about our ability to grow profitability in fiscal 2025.
Speaker Change: Let's start with the top line, revenue.
Allan Merrill: We expect to generate full-year revenue growth of about 20% next fiscal year.
Allan Merrill: Now many of you will note that our fourth quarter guidance implies backlog entry in fiscal year 25 will be down year-over-year.
Allan Merrill: And it's true that in most years, backlog entry in the fiscal year is a pretty good signal for full year closings. This year, however, there are some other dynamics to consider.
Allan Merrill: First, as Alan laid out in his update to our multi-year goals, we expect to end 2024 with at least 15% community count growth, followed by another 15% growth in 2025.
Allan Merrill: To support this growth, our units under production are increasing faster than sales as we start homes in our newer communities.
Allan Merrill: So, regardless of our year-end backlog, we expect homes under production going into fiscal year 2025 will be up at least 10 percent over the 2,400 units under production we had to begin fiscal 2024.
Allan Merrill: Second, we've seen continuing cycle time improvement, which translates into additional weeks in the spring where we'll be able to start homes that can close within the fiscal year.
Allan Merrill: Any improvement will have a meaningful impact given our expanding community count.
Allan Merrill: Finally, we expect our average sales price to be about $520,000, consistent with our guidance for the fourth quarter of fiscal year 2024 and up year-over-year. Taken together, these factors should allow us to generate revenue growth of about 20%.
David Goldberg: And even without improvement in our operating margin, this growth should translate into robust profitability expansion. Importantly, the majority of our incremental lot growth came through options. As such, our option percentage was nearly 55% higher sequentially, and we expect to drive this percentage higher over time. For the full year, we are expecting a land spend of at least $750 million.
Allan Merrill: And even without improvement in our operating margin, this growth should translate into robust profitability expansion. Now let's talk about margins.
Allan Merrill: Our operating margin has been compressing over the last couple of years for two distinct reasons.
Allan Merrill: First, we've been investing in our product and supply chain to develop and establish a differentiated home.
Allan Merrill: It hasn't been easy, and it hasn't been inexpensive, but with 93% of our starts zero-energy ready, those costs are now built in. Now we have the near-term opportunity to reduce them.
Allan Merrill: Second, we've increased overheads to support our rapidly growing community count.
Allan Merrill: With these communities coming online, we expect to grow revenue faster than overheads next
Allan Merrill: Taking together, in fiscal year 2025, we're optimistic we can generate operating leverage from our revenue growth. Ultimately, any improvement in our operating margin would only enhance our profitability.
Allan Merrill: We realize that these comments don't amount to precise guidance, but we hope they help you understand our optimism for profitability growth next year.
Allan Merrill: Pivoting to our land, our investment in land, during the quarter we spent approximately $200 million as we grew our land position to greater than 28,000 lots, our highest total lot position in a decade.
Allan Merrill: Importantly, the majority of our incremental lot growth came through options. As such, our option percentage was nearly 55 percent, up sequentially, and we expect to drive this percentage higher over time. For the full year, we are expecting land spend of at least $750 million.
Allan Merrill: Now turning to the balance sheet.
Allan Merrill: At June 30, 2024, we had total liquidity of $328 million.
Allan Merrill: We expect to end the year with a net debt-to-net cap in the mid-30s, relatively flat versus the prior year, with nothing drawn on the revolver. This will support our growth aspirations and give us flexibility to adjust to future market conditions.
Alan: This will support our growth aspirations and give us flexibility to adjust to future market conditions. On the equity side, based on the earnings guidance we gave, we expect book value per share to be around $40 by the end of the fiscal year, with further growth expected in fiscal year 25. We've made enormous progress in growing our shareholders' equity, having more than doubled our book value since fiscal year 2020, but we note that we still trade at a discount to book. We remain confident that our focus on delivering both earnings growth and deleveraging will close this gap. With that, I'll turn the call back over to Alan. Thank you, Dave. And I apologize for my cold.
Allan Merrill: And as a reminder, we have no maturities until fiscal 2027.
Allan Merrill: On the equity side, based on the earnings guidance we gave, we expect book value per share to be around $40 by the end of the fiscal year, with further growth expected in fiscal year 25.
Allan Merrill: We've made enormous progress in growing our shareholders' equity, having more than doubled our book value since fiscal year 2020. But note that we still traded at discount to book.
Allan Merrill: We remain confident that our focus on delivering both earnings growth and deleveraging will close this gap.
Allan Merrill: With that, I'll turn the call back over to Alan. Thank you, Dave. And I apologize for my cold.
Alan: Despite the challenges posed by affordability and consumer sentiment, we delivered solid third-quarter financial results. Just as importantly, we continue to make progress toward our multi-year goals. As we prepare for fiscal 25, I'm encouraged by our position.
Allan Merrill: Despite the challenges posed by affordability and consumer sentiment, we delivered solid third quarter financial results. Just as importantly, we continued to make progress toward our multi-year goals.
Allan Merrill: As we prepare for Fiscal 25, I'm encouraged by our position. We have the strategy, the land, the financial resources, and most importantly, the team, to create significant value in the year ahead. With that, I'll turn the call over to the operator to take us into Q&A.
Speaker Change: Thank you. We will now begin the question and answer session. To ask a question, please press star followed by 1.
Speaker Change: And our first question is from Alan Ratner with Zellman & Associates. You may go ahead.
Jay Mccanless: Hey guys, good afternoon. Thanks for the comments and details so far. I appreciate it.
Alan Ratner: Hey guys, good afternoon. Thanks for the comments and details so far. Appreciate it.
Jay Mccanless: I'd love to first drill in a little bit to the pace and price kind of decisions that I'm sure are ongoing here. So, you know, last quarter, you did kind of signal some temporary pressure on margins because you made a decision to kind of burn through some of the legacy products and some spec inventory. And, you know, we saw that in 3Q and the margin. And I think, you know, at the time, you expected it to be temporary.
Speaker Change: You know, last quarter, you did kind of signal some temporary pressure on margins because you made a decision to kind of burn through some of the legacy product and some spec inventory. And, you know, we saw that in 3Q and the margin.
Jay Mccanless: The fourth quarter guidance seems to imply pretty steady margins at these levels. So I'm curious, you know, if you did have to increase incentives even to generate these types of sales in the quarter. And, you know, because your comments seem to imply that you're not going too hard on the incentives right now. But I guess, more broadly, at what point does it make sense to get more aggressive? Is there a certain absorption target that you're thinking about? Or, you know, is it more just a timing thing, that it doesn't make sense to do that during a seasonally softer period, and you would wait more for the spring to do that?
Speaker Change: And I think, you know, at the time you expected it to be temporary. The fourth quarter guidance seems to imply pretty steady margins at these levels. So I'm curious, you know, if you did have to increase incentives even to generate these types of sales in the quarter.
Speaker Change: You know, because your comments seem to imply that you're not going too hard on the incentives right now, but I guess more broadly, at what point does it make sense to get more aggressive? Is there a certain absorption target that you're thinking about or, you know, is it more just a timing thing?
Allan Merrill: Hey Alan, and I apologize again for hacking a little bit. I'm fighting through a summer cold here.
Allan Merrill: A couple of responses, I mean there's a lot to that question.
Speaker Change: What's really different from 90 days ago, we were intentional about moving through non-ready series specs. What decision we made in the June quarter was in some of the communities, specifically in Houston, where we have introduced zero energy ready.
Alan: Specifically, in Houston, where we introduced Zero Energy Ready. And we saw a fairly significant shift in demand to that $300,000-ish price band. It just didn't feel like the time to say, okay, we want to get back to our 2 12, 3, or 3-ish.
Allan Merrill: And we saw a fairly significant shift in demand to that $300,000-ish price band.
Allan Merrill: It just didn't feel like the time to say, OK, we want to get back to our two and a half, three, or three-ish.
Allan Merrill: absorption rates.
Allan Merrill: And it really was, in Houston for us, a mixed issue between zero energy ready...
Allan Merrill: and prior series, it was these are new communities, new product.
Allan Merrill: And that's kind of where we were. And we decided not to try and bend that curve.
Allan Merrill: I don't think that's forever. I'm probably not going to give it more than six months before we start pulling levers in different ways.
Allan Merrill: but for, really, a set of conscious decisions in Houston and San Antonio. I don't want to whine about weather, but I will say, and I haven't read all of the transcripts from all of our peers,
Jay Mccanless: Got it. No, I appreciate that. And, and, you know, certainly can understand the challenges there with the weather.
Allan Merrill: being more constrained and more and more anecdotes about softening on the edges among consumers and in the job market as we saw in the data today.
Speaker Change: You know, you guys are in a fairly unique position because you're opening up a lot of communities over the next 18 months and I'm sure to a large extent, you know at least the near-term openings are kind of fully baked as far as product offerings and things like that, but
Speaker Change: Given kind of what you're seeing on the consumer front, is there any thought or ability, you know, to maybe flex some of the product or floor plans or, you know, product types?
Speaker Change: to cater more towards that kind of high $300, low $400,000 price point if that's kind of where the depth of demand seems to be today?
Speaker Change: Yeah, and again, every market's a little bit different, but let's stay in Houston for a minute. I think you pull up our website and see we have a bunch of communities that have base prices in the high threes. So we're not that far removed from where there was real enthusiasm in this quarter.
Speaker Change: Our deliveries in the quarter were down 80 square feet, about 3% year-over-year. So we have had a little bit of a twist, if you will, in the portfolio, Alan, where we've...
Alan: Focusing on slightly smaller plans is one of the many strategies to deal with this affordability challenge. But we are selling a different home, and that's the thing that whether it's 2,100 square feet or 2,200 square feet or some other number on either side of that, we've chosen to stand out by offering a home that others can or won't build. And I think we need to just keep pushing that into the market.
Alan Ratner: on slightly smaller floor plans is one of the many strategies
Alan Ratner: But we are selling a different home, and that's the thing that whether it's 2,100 square feet or 2,200 square feet or some other number on either side of that, we've chosen to take on standing out.
Alan: And it's with consumers, it's with realtors. I'm really optimistic when people see it, when they understand it. It's kind of like a, "How could I live without this?" But if they're doing a screen on a price per square foot basis, I don't think there's anything we can do that's going to flip our product, that's going to drop us down into that tier where what I would call the price-oriented builders are really competing. And I'm kind of glad about that because I don't think that even if we wanted to do that, we'd be terribly well equipped to do so.
Jay Mccanless: understood. Appreciate the thoughts. Thanks a lot.
Alan Ratner: Understood. Appreciate the thoughts. Thanks a lot.
Speaker Change: Thanks. Hey, good afternoon, Alan and David.
Speaker Change: You guys talked a little bit about Texas and the weakness you saw there. Can you maybe give us a quick State of the Union on what you're seeing in your other geographic markets at the moment?
Alan: Yeah, I will tell you that outside of those two markets, as I said, kind of 2.8, there was strength bi-coastally. I felt pretty good about our mid-Atlantic business.
Speaker Change: Yeah, I will tell you that outside of those two markets as I said kind of 2.8. There was there was strength
Alan: Virginia in particular showed some strength. Southern Cal and Las Vegas were pretty strong, too. Nashville, in the middle of the country, or not on either coast, was pretty strong. So I wouldn't say that there wasn't a theme that I could really say strength versus weakness other than what we really saw was a fairly significant shift in the total number of transactions in that sub-$300,000 price point in those two Texas markets, which differed, frankly, from what we had seen in prior quarters.
Speaker Change: which differed, frankly, from what we had seen in prior quarters.
Speaker Change: Got it. That's helpful.
Speaker Change: You know, I kind of, uh...
Speaker Change: The fourth quarter ASP guidance is a nice step up from prior quarters. Is that just, you know, a mix? Is that... Yeah, you're starting to see some zero-energy homes start to come through, and those were sold as to-be-builts.
Jay Mccanless: Yep, yep. And then, um, did you guys mention your, uh, your land spend year to date and what you're expecting for the year?
Speaker Change: Did you guys mention your land spend year-to-date and what you're expecting for the year?
Speaker Change: Okay, perfect.
Operator: Thank you. And as a reminder, if you would like to ask a question, please press Star 1.
Speaker Change: Thank you. And as a reminder, if you would like to ask a question, please press star 1. Our next question is from Alex Barron with Housing Research Center. You may go ahead.
Jay Mccanless: Yeah, thanks guys. I heard you talk about some weather issues in Texas, but what happened in the southeast? The orders seem to be a bit low there.
Alex Barron: Yeah, thanks guys. So I heard you talk about some weather issues in Texas, but what happened in the southeast? The orders seem to be a bit low there.
Speaker Change: Yeah, we, uh, it's funny.
Speaker Change: We found ourselves in one of our bigger markets, Atlanta, between community count. We had a dip in community count. We closed out earlier in the year. We weren't able to pull forward the activations of the new communities. We had kind of a troughing in community count that was among the bigger factors.
Speaker Change: Got it. Yeah, because we surveyed your community count and it looked like it jumped up, so maybe it's just recent openings, I guess.
Alan: Yeah, there's always a timing thing, like, within a quarter, it can be a little bit misleading. If you are open on, you know, I'll just pick random dates, if you're open April 1st, but you're sold out by April 15th, well, you had it at the beginning. If your next community opens the last week of June, you have it, but you lose, you know,
Speaker Change: Yeah, there's always a timing thing like the
Speaker Change: Within a quarter, it can be a little bit misleading. If you are open on, you know, I'll just pick random dates. If you're open April 1st, but you're sold out by April 15th, well, you had it at the beginning. If your next community opens the last week of June , you have, but you lost, you know.
Speaker Change: There is not a demand pattern or a positioning issue. I'm pretty comfortable with our sales paces.
Speaker Change: And this community count is broad-based that is coming what we've already had and what's in front of us. It's really distributed across our footprint. So I mean, there'll be quarterly anomalies in the data, but there really isn't a southeast message, I don't believe.
Speaker Change: Assuming the Fed does start to lower interest rates...
Jay Mccanless: soon, and that will lead to lower mortgage rates. Do you guys anticipate just kind of sticking with your same incentives or decreasing them, or do you know what sort of the thought process will be as rates start to come down?
Speaker Change: soon and that leads to lower mortgage rates. Do you guys anticipate just kind of sticking with your same incentives or decreasing them or what's sort of the thought process as rates start to come down?
Alan: Well, the thing about incentives is the market really tells us where they need to be. And what is the market? Well, the market is buyers. But it's also buyers who are influenced by what other people do, right? We don't exist in a vacuum.
Speaker Change: Well, the thing about incentives is the market really tells us where they need to be. And what's the market? Well, the market's buyers, but it's also buyers who are influenced by what other people do, right? We don't exist in a vacuum. So...
Speaker Change: I am hopeful that lower rates could lead to an environment where we'd see lower incentives, and I think that seems pretty likely.
Speaker Change: I can't predict.
Speaker Change: What everybody else is going to do, and kind of back to my questioning with Alan at the beginning, we're not going to sit back and not compete for sales.
Speaker Change: Right? Be too proud to incent. So we will always compete. It's just sometimes you've got to pick your windows. We made that choice. I think if rates start to come down, you know, we and other builders will definitely benefit.
Speaker Change: Got it. And I should ask one more. I was happy to see you're starting to buy back shares. Is that more of an opportunistic thing or do you think it's more of an ongoing?
Alan: Shift, a slight shift in strategy.
Speaker Change: and we have a very consistent model we use for capital allocation and we look at excess capital in the business, returns and risk.
Alan: Share repurchases, debt repurchases, and incremental land spend. We did, as you mentioned, buy back 1.5% of the company about that in the quarter, and we'll always be good capital allocators and focus on our models. Again, the model hasn't changed, so not much more to say than that, but it's a consistent model for excess capital.
Speaker Change: Amongst.
Speaker Change: Share repurchases, debt repurchases, and incremental land spend. We did, as you mentioned, buy back 1.5% of the company, about that in the quarter. And we'll always be good capital allocators and focus on our models. Again, the model hasn't changed, so not much more to say than that, but it's a consistent model for excess capital.
Speaker Change: All right. Best of luck, guys. Thanks. Thank you.
Speaker Change: Thank you. Our next question is from Jay McCanless with Wedbush. You may go ahead.
Jay Mccanless: Hey guys, thanks for taking my questions. So I'm just trying to catch up and figure out what you gave on Absorptions Day because if you're going from 146 communities at the end of 3Q to over 155,
Jay Mccanless: Hey guys, thanks for taking my questions. So I'm just trying to catch up and figure out what you gave on Absorptions Day because if you're going from 146 communities at the end of 3Q to over 155
Speaker Change: I mean, are all those back half-weighted, or is there some timing issues as to why, just through the numbers getting bigger, that you wouldn't see a little bit higher absorption, especially with what Alan was talking about, Atlanta, and some timing issues there?
Speaker Change: Well, I would tell you, Jay, we've assumed the absorption pace in the environment really doesn't change much quarter to quarter. I'm happy to take it offline on a map with you, but we've kind of assumed things look pretty similar to the way they look throughout the third quarter and the fourth quarter.
Speaker Change: Okay.
Jay: I'm not sure if there's a map you want to kind of go through, but we can do it offline if you'd like.
Jay Mccanless: No, I mean, if you were going to hit that 155 in the last month of the quarter or something like that, that would make sense in terms of not getting any better absorption.
Speaker Change: That's right. I mean, the communities come online, as you would imagine, throughout the quarter, and there is some coming on in the latter part of the quarter. Yeah, we will definitely have some September activations, and so the average community count will... I don't know if it'll be the exact arithmetic average at the beginning of the period and the end of the period. If anything, it might be slightly weighted to the back half.
Jay: You take a number in the middle and use the same absorption rate, and that's kind of where our sales guide came from.
Jay: You know Jay, I think when we start to see some rate cutting, I'd like us to do, and I'm hopeful we're planning to do better. But honestly, from a guide perspective, we want it to be pretty direct about it. If nothing changed in the environment, here's what the math is. And that's where the 1100 came from.
Speaker Change: So...
Speaker Change: Is it too much of a stretch to assume that sales activity from June to July didn't get much better or any color you could give us on what happened in July ?
Jay: Yeah, the first part of July looked a lot like...
Speaker Change: But I would definitely tell you the last week in particular has felt quite a bit better. But, you know, try not to get too enthused about one week or, you know, too discouraged by one week. But I would say the back half of July has trended better than the front half.
Alan: I think your assessment's right, Jay. I wouldn't say blow through, but certainly there's some, you know, end of the year, especially on non-zero energy ready specs, which we talked about last quarter. We don't want to end the year with too many QMIs, so I'd quit moving home.
Jay: I think your assessment is right, Jay. Your assessment is correct. Jay, I wouldn't say blow through, but certainly there's some, you know, end of year, especially on non-zero energy ready specs, which we talked about last quarter. We don't want to end the year with too many QMI's, so a quick move in home.
Jay Mccanless: Great. I saw that. Thanks.
Speaker Change: Thank you. And that was our last question. I will turn it back to the speakers for any closing remarks.