Q1 2025 Beazer Homes USA Inc Earnings Call
Speaker Change: Good afternoon and welcome to the Beezer Homes Earnings Conference Call for the first quarter and fiscal year ended December 31, 2024.
Speaker Change: At this point, I will turn the call over to David Goldberg, Senior Vice President and Chief Financial Officer.
Thank you.
Speaker Change: Good afternoon and welcome to the Beezer Homes conference call discussing our results for the first quarter of fiscal 2025.
Speaker Change: Before we begin, you should be aware that during this call, we will be making forward-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 this 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.
Speaker Change: Joining me today is Alan Merrill, our Chairman and Chief Executive Officer. On our call today, Alan will discuss highlights from our first quarter results.
Speaker Change: The recent environment for new home sales, actions we're taking to improve performance as it relates to our fiscal year 2025 outlook, and the significant progress we're making towards our multi-year goals.
Speaker Change: I will then provide detailed guidance for our second quarter results, an update on our outlook for the full fiscal year, and end with a discussion of our land position, liquidity, and our commitment to generating double-digit returns.
Speaker Change: Alan will conclude with a wrap-up, after which we will take any questions in the remaining time. I will now turn the call over to Alan.
Alan Merrill: Thanks, Dave, and thank you for joining us on our call this afternoon.
Alan Merrill: We had a profitable and productive first quarter that positions us to achieve both our full year outlook and our multi-year goals.
Alan Merrill: Despite experiencing an uneven sales environment and having to defer the closing of nearly 50 homes in backlog, there are three highlights from the quarter that demonstrate real progress toward our growth and profitability ambitions.
The base of our business is expanding.
Alan Merrill: We also grew our active lot position by about 10%, providing visibility into further community count growth, both this year and next.
Alan Merrill: Our balance sheet is more efficient, and liquidity is improving. 59% of our lot position is now controlled through options, up from 53% last year.
Alan Merrill: This growth in option lots leverages our investment in land, improving returns and mitigating risk.
Alan Merrill: On the funding side, subsequent to quarter end, we upsized our revolver by more than 20 percent, providing ample seasonal liquidity to accommodate more communities and more homes under production.
Alan Merrill: As our sales and closings have ramped up, we've reduced the cost to achieve the DOE standard by several thousand dollars per home.
Alan Merrill: Having noted the highlights, it's important we acknowledge that we missed both our sales and closings guidance for the quarter, something we're not accustomed to doing. I'll tell you what happened and what we're doing about it.
Alan Merrill: On the sales side, the strength we experienced in October, with paces up sharply over the prior year, softened in November and became materially weaker in December. As a result, we sold fewer homes and had to spend more on incentives for the sales we made.
Alan Merrill: While our first quarter is our lowest volume quarter of the year, it is also the most difficult to predict because it occurs during many other builders' year ends.
Alan Merrill: Unsurprisingly, the most challenging markets were in Texas and Florida, where higher inventory levels led to sluggish sales and more aggressive incentives. Our absorption rate in many other markets, including California, Nevada, and the Mid-Atlantic, held up much better.
Weaker-than-expected sales obviously played a role in our closings miss.
Alan Merrill: But separately, we had to push out 47 closings from the quarter as we dealt with some unique utility issues, labor availability in Houston and meter availability in California.
Alan Merrill: The ASPs and margins on these deferred closings would have really helped first quarter results. The good news is, we don't expect these issues to persist, and all of these homes are now scheduled to close this spring.
Alan Merrill: That's a summary of what happened. Now let's turn to what we're doing to improve results. I'll share four initiatives that are already well underway. First, we're activating more than 60 new communities before year-end. That's the largest nine-month community launch effort in our recent history.
Alan Merrill: Over the past three fiscal years, we've activated more than 150 communities, and we've gotten better at it over time.
Alan Merrill: Second, we're making mortgage financing for to-be-built homes more compelling. To-be-built homes let our buyers personalize their home, and they consistently carry higher margins.
Alan Merrill: To address this challenge, we've worked with our lenders to offer one-way rate locks with an embedded permanent rate buy-down that provide protection from rising rates while allowing our buyers to benefit if rates happen to decline.
Alan Merrill: Combining long-term rate locks with buy downs is an important innovation for us and I think it'll help with to be built sales.
Third, we're improving the profitability of our specs.
Alan Merrill: During the quarter, specs represented nearly 70% of our closings, the highest level in over a decade. While we're working hard to drive that percentage down, we're also focused on improving spec profitability.
Alan Merrill: In fact, the margin profile on our spec should improve organically over the balance of the year as our prior series homes close out.
Alan Merrill: We've also updated feature levels to better align with market conditions.
Alan Merrill: We know we probably can't get spec margins to match to be built homes, but we do expect to narrow the gap.
And finally, we're reducing construction costs.
Alan Merrill: We've said many times that we expected to reduce the costs to deliver zero energy ready homes.
And we're now doing it.
But our cost reduction efforts are broader than that.
Alan Merrill: We're also capturing savings from a more focused SKU list with our national partners.
Alan Merrill: and using our sizable community count growth to re-bid local labor and material providers.
Alan Merrill: Since October 1st, we've been able to reduce build costs by about $3,000 so far, which will benefit to-be-built and spec homes that deliver later in the year.
Alan Merrill: We are committed to translating these efforts into better sales paces and better margins this year, which is why we still expect our full year performance to fall within the broad ranges we provided in November, even if market conditions and mortgage rates don't improve.
Alan Merrill: Beyond 2025, we continue to have a very positive longer-term outlook for new home sales. And we remain fully committed to achieving our three multi-year goals.
Alan Merrill: which include expanding our community count, deleveraging our balance sheet, and delivering a demonstrably superior home.
Alan Merrill: We ended the first quarter with 163 communities, up nearly 20% versus the prior year, and we remain on track to end the year with a community count around 180. Our total land position grew about 10%, giving us a clear path to achieving our goal of ending FY26 with more than 200 communities.
Alan Merrill: We also remain on track to have a net debt to net capitalization ratio below 30% by the end of fiscal 26.
Alan Merrill: While our leverage was relatively flat versus the prior year, as we continue to grow our land pipeline, the cumulative profitability and cash flow we anticipate over the next two years will allow us to reach this target.
Alan Merrill: Lastly, we continue to make significant progress towards qualifying 100% of our starts as zero energy ready by the end of the calendar year.
Alan Merrill: In the first quarter, 98% of our starts met the DOE standard. Over the balance of the year, we have fewer than 100 starts, remaining in four closeout communities related to our prior series.
Alan Merrill: I know many observers haven't realized how important zero energy ready is. Yet.
Alan Merrill: But as you may have noticed on the cover slide, we're leaning into this advantage. Our homes are different, and they're better, and we can prove it.
Alan Merrill: With that, I'll turn the call over to Dave. Thanks, Alan.
Dave: This afternoon, I will concentrate on providing some more specifics on our second quarter guidance and our outlook for the fiscal year. I will conclude my comments with a discussion of our balance sheet, land position, and our commitment to generating double-digit returns.
Dave: We have detailed our first quarter 2025 results in our presentation, our press release, and our 10-Q. And of course, we're happy to discuss them during the Q&A portion of this call. Let's start with our expectations for the second quarter.
Dave: We know that our outlook doesn't contemplate an improvement in market conditions.
Dave: We expect sales to be up about 10% versus the same period last year. As our average community count should be up about 15%. We expect to end the second quarter with around 160 communities.
Dave: Adjusted gross margin should be up a bit sequentially. Our gross margin won't benefit from the delayed closings from our first quarter, and the activities Alan described to improve our profitability.
Dave: SG&A as a percentage of revenue should be less than 13%. We expect our SG&A as a percentage of revenue to decline significantly in the back half of the year as our closings accelerate.
Dave: Last quarter, we provided a range of potential outcomes on community count, sales pace, and gross margin for the fiscal year.
Dave: First quarter results put some pressure on our full year outlook and as such will likely perform toward the lower end of our pace and margin ranges.
Dave: Our year-end community count should be around 180, up about 10% versus the prior year. Our average community count for the year should be up between 18 and 22 communities, reflecting 12.5 to 15% growth.
Dave: Despite the slower sales pace in the first quarter, we remain committed to achieving a sales pace between 2.5 and 3 sales per community per month for the full year, more in line with our historical norms.
Dave: While we expect our sales pace to be off a little in the first half of the year, we expect substantial improvement in the back half. In part, this pickup is off of easier comparisons, but it also is related to the fact that we have so many new community openings.
Dave: As it relates to our ASP and SG&A, our backlog ASP is currently about $540,000, up about 4% versus the prior year, and supporting our outlook that our full year ASP should approach $530,000. Further...
Dave: While we're still investing heavily for growth, our higher community count should lead to revenue growing faster than our overheads in fiscal 25, driving down our SG&A percentage to about 11%.
Dave: Even at the low end of each of the ranges, we expect to generate adjusted EBITDA that would represent another year of double-digit return on capital employed.
Dave: Since we pivoted to growth in fiscal 2020, our total land position has grown nearly 50% from fewer than 19,000 lots to more than 28,000 lots today. And we've done that exclusively through increase in our option lots, which have gone from 29% of our total to 59%.
Dave: Our balance sheet remains healthy, with total liquidity exceeding $335 million at the end of the quarter, no maturities until October 2027, and more than enough liquidity to fuel our growth plans.
Dave: We expect to end fiscal 2025 with a net debt-to-net cap in the mid-30s, and we're on a path to reduce our net debt-to-net cap below 30% by the end of fiscal 2026, as our improving profitability, cash generation, and balance sheet management will sustain our deleveraging.
Dave: Over the past five years, we've grown book value per share by about 19% on average.
Dave: We're focused on consistently generating double-digit returns on capital employed and equity. While growth remains our primary priority for capital allocation, we consistently consider strategies that would contribute to sustaining double-digit returns.
Dave: With that, I'll now turn the call back over to Allen. Thank you, Dave.
Dave: Well, the first quarter challenged us. We're positioned to drive significant top-line growth and generate double-digit returns again this year, even as we invest heavily for the coming years.
Dave: We're also well on our way to achieving each of our multi-year goals.
Dave: I'm confident we have the team, the resources, and the strategy to create growing and durable value for our stakeholders in the years ahead. And with that, I'll ask the operator to take us into Q&A.
Speaker Change: Thank you. If you would like to ask a question, press star 1. Unmute your phone and record your name clearly.
Dave: If you need to withdraw your question, press star 2. Again, to ask a question, please press star 1. It will take a few moments for the questions to come through. Please stand by.
Thank you.
Speaker Change: Our first question comes from Tyler Battori of Oppenheimer. Your line is open.
Speaker Change: Good afternoon, thank you. First one for me, just on the demand.
Speaker Change: A lot of things so far in Q2 and in January. Just talk a little bit more about, you know, what you're seeing in the fields. I'm not sure any anecdotes or any green shoots in terms of demand out there in your markets.
Speaker Change: Yeah, I've been traveling a fair bit already this year and I would say, first of all, online traffic stayed pretty strong through December even as sales were more challenging.
Speaker Change: January feels okay. It's not a blowout, it's not gangbusters, but it has not taken another step down and arguably, for seasonal reasons at a minimum, it's a little better than December.
Okay great. In terms of incentive levels
Speaker Change: Can you talk a little bit more about where you were on incentives in Q1, how that compared with Q4, and then talk a little bit more about your expectations for incentive activity the rest of this fiscal year?
Speaker Change: and they're kind of in different places. So there's a closing cost amount. There are restrictions in loan programs against maxes that you can do there. There are discounts that may be in the form of design center credits or price reductions.
Speaker Change: And it differed of course by market, but I would tell you it took a point or two out of sales that we sold and closed just between the middle of November and the end of December.
Speaker Change: We have not extended that into January. That was kind of keeping up with the Joneses.
It wasn't huge, but there was some effect there.
Speaker Change: Now, you know, I take all that together. It's hard for me to give you an exact percentage because we're constantly changing base prices and included features. And then, of course, you've got the closing cost.
Speaker Change: to call it four months that has developed. You know, as rates have started to move up, being part of it, and then that year-end selling that a lot of our peers were doing in their fourth quarter, a combination of those two things I would put roughly in that bucket of about a point.
Speaker Change: You know, frankly, Tyler, just to add to that, we talked about last quarter being 19.5% to 20.5% on the gross margin. We talked about this quarter being closer to that 19.5% number, and that's kind of what Alan's talking about. That's the impact of it, in part also by the new communities coming online. But you can kind of see there's a lot of moving pieces.
Speaker Change: I don't know if I made it better or worse, Tyler, but... No, no, that was very good. Very good detail. Very good detail. I appreciate that.
Speaker Change: Maybe a segue to my last question, just on the gross margin.
Speaker Change: and you know, it implies a pretty significant ramp, I think in the back half of the year. So let me talk a little bit first about.
Speaker Change: Let's drive into sequential progression into Q2 and then talk a little bit more about just the inflection, if you will, in the second half of the year too.
Cheerful day.
a lower percentage.
Speaker Change: and we're starting to see just the very first homes closing with lower construction costs. So you're going to get little bits from all four of those, which is why we expect sequentially a little bit of improvement.
Speaker Change: About the $3,000 we've been able to take out of our direct so far, our plans are larger than that and a larger share of our homes as we move through the year will get the benefit.
Okay, that's all for me. Thank you.
Thanks, Alec.
Speaker Change: Thank you. Our next question comes from Allen Ratner of Zellman and Associates. Your line is open.
Allen Ratner: Hey guys, good afternoon. Thanks for all the detail as always.
Allen Ratner: What transpired there? You know as you look at kind of results in the back half of the quarter obviously December wasn't a great month but
Allen Ratner: Is there something you could put your finger on, specifically, that you feel like really contributed to that shortfall, at least in your results? Like, was it your competitors got more aggressive than you did on incentives? Were there specific markets that really drove that shortfall? Any color you can kind of give there would be helpful.
Allen Ratner: So, you don't really know what that means. It was really in December where we saw, particularly in Texas, and a little bit in Florida, although our business there is pretty small, but we really saw what I would call shocking off on pricing and incentives.
Allen Ratner: And, you know, we participated to some extent, but maybe not fully.
Allen Ratner: It's always a challenge to decide how much of that to engage in, but you know, you're aware of where the inventory numbers are in all of the markets in Texas that we participate. And I think we were, I was surprised, I won't blame anybody else, I think I was surprised by how deep folks went to move finished inventory.
And here's the thing.
Allen Ratner: They may advertise, call it a 299 rate, and that rate applies to these three homes that can close within this time period.
Allen Ratner: But that rate is now in the market, so everybody they see, everybody we see says, gosh, that would be a great rate. Well, there's no path, you know, necessarily for every home to that rate, and so what do those buyers do?
Allen Ratner: They hold out. They say, well, we'll check back with you in January. Now, I will say, I think a lot of folks could have made great deals in December that are finding it generally more difficult to make those deals in January. But there was definitely a promotion that spiked up. And for us, particularly in Texas, is where I observed it.
Allen Ratner: Got it. Now that that's a helpful additional color there. So thank you
Second question.
David Goldberg, CFP®, Financial Planner & Investment Advisor
Speaker Change: The short answer is we're full steam ahead and I'd like to take just another minute or two.
Speaker Change: When we committed to Energy Star in 2011, which coincided with me having this opportunity, it was not about tax arbitrage.
Speaker Change: Five years ago we committed to zero energy ready, and to date we are the only ones that have. We made that commitment.
Speaker Change: More than a year, I think two years after we committed to zero energy ready. So I have to tell you that it was nice, it's appropriate, it certainly provides some financial incentive, but our reason for doing it was different.
Speaker Change: I don't know anyone on any side of the political aisles that would say they should pay more for energy than they have to.
Speaker Change: and we build a home that you can pay a lot less. I don't know anyone who doesn't want a home that is comfortable in every room and still is super inexpensive to operate. And for many people, most importantly,
Speaker Change: I don't know anyone who doesn't want the cleanest possible indoor air.
Speaker Change: that we are able to provide, I can't imagine going backwards.
Speaker Change: were parts of the 45L code preceded the IRA, so I don't know if they're going to leave it in place or not.
Speaker Change: I can tell you I don't think our industry is going to move backwards.
Speaker Change: I like the competitive advantage that we have. You don't have to talk to very many buyers about those three things to realize it makes a difference. And I'm frankly excited to be able to be the leader in that category.
Speaker Change: Can you give us any framework to think about impairment risk or abandonment risk on any land deals or markets where the margins might be thinner than company average?
Speaker Change: Hey Alan, it's Dave. A couple things. You know, one, we give a pretty fulsome discussion
Speaker Change: of our impairment evaluation process in the queue. It's on page 11 of the queue. You'll note, you've been reading our queues for a long time, nothing's changed in many, many years, so the methodology is exactly the same.
Speaker Change: I'd tell you a couple other things. We don't disclose a watch list number, but I can tell you, you know, from what we see, we really don't have any expectations for material changes. Still room and still feel real comfortable with where the land position is.
Speaker Change: You know, look, I think what we're paying for land is very much in line with what our competitors are paying. We're very much in the fair way of where land prices are.
Speaker Change: And, yeah, margins are under a little bit of pressure right now. We expect some improvement as we go through the year, but really don't think we overpaid for land, quite frankly. And then the last thing I'll tell you is we get kind of a check on this on a pretty regular basis, right? If we have a community that's not really performing or maybe the way we underwrote it, the fees change a little bit and we go out and sell land, we have a pretty good idea of what we paid versus where the market is, and we feel we're right on the market. So, you know, I can't go too much further into detail than, you know, I don't have any
is where we are now, given current market conditions.
Speaker Change: Well, Alan, I'm not going to rebut anything Dave said, that would be silly, but I want to add something.
I think a growing company.
will have.
abandonment charges as a part of the regular diligence.
Speaker Change: And ironically, I think one of the things that was most challenging for us as a company as we pivoted to growing community count, something we didn't do for a decade.
was...
Speaker Change: I mean, we went a decade without taking impairments on things that we bought. You know, there were some previous land-held assets that got impaired. But honestly, I don't want to take abandonment charges, but part of being in the market, that is a part of doing business.
Speaker Change: I do think about that as being very modest and infrequent and completely differently from impairments. But because you said abandonments, I didn't want to leave you with a misimpression. I think it is a healthy part of growing a business that there will, from time to time, be modest abandonment charges.
Understood. All right guys, I appreciate the thoughts.
Speaker Change: Thank you. As a reminder if you would like to ask a question please press star 1 on your phone. Again please make sure that your phone is unmuted and state your name clearly when prompted.
Speaker Change: Our next question comes from Julio Romero of Sidoti and Company. Your line is open.
Julio
Julio Romero: Sorry, I was on mute there. Good afternoon, guys. I guess maybe starting on... Can you maybe expand on the two...
Speaker Change: factors that kind of led to a little bit of sales softness in the first quarter. I think you talked about in the prepared remarks about labor availability in Texas and meter availability in California. If you could give a little more context on those two issues and then also what kind of gives you the comfort that those issues kind of won't persist.
Right, so that related between them to 47 homes.
Speaker Change: which happened to be pretty high ASP and pretty good margins. And that related to closings, not sales. Those were homes in backlog that, sitting in mid-November, we had every anticipation that they were going to close in the first quarter, and they didn't.
Speaker Change: I would say a good reason, and that is that the utility companies
new builds.
Speaker Change: And in October and November, there were a number of storms that led to dislocation of power in a particular part of the greater Houston metro area, and that's the power company, frankly.
Speaker Change: reallocated their resources for hooking up existing customers and repairing lines rather than doing new build work.
Speaker Change: It's disadvantageous for those buyers in backlog and for us, but temporarily.
Speaker Change: So, you know, that was a unique circumstance with the reallocation of labor in one part of Houston.
Speaker Change: where they looked at us in the early part of December and said yeah we're not getting any more before the end of December and we said well fellas we've been working on this and you know with ordinary course and they said yeah we'll see in January with the meters.
Speaker Change: It was a little random, but that's what happened that related to the 47 homes.
Gotcha. Very helpful context. So I guess, no...
Speaker Change: That was not what you would call a happy daily double.
Speaker Change: Understood. And then, you know, it sounds like you're very much on track for your community count goals this year. You said you're activating more than 60.
Speaker Change: new communities before year-end. Can you maybe just touch on how does the cadence of
Closed Outs kind of affect your expectations for the year.
Speaker Change: Well, sure. I mean, if you just simple math, we're about 160. We're going to end up around 180. So if we're adding 60 plus, we're going to drop 40.
Speaker Change: Right, that's the math. The net ads will be about 20.
Speaker Change: Well, it's a lot more than that, but it's six, seven a month.
Speaker Change: So that's kind of the cadence of the startups now and we've got that well controlled like most of them will be March, April, May, June.
Speaker Change: because we really have the benefit of capturing, you know, the stronger part of the so-called selling season. The closeouts will happen based on the pace of sales in those communities, so they probably happen on a somewhat less easily programmed cadence.
Speaker Change: Very helpful. And then the last one for me is just taking a broader view, you know, obviously affordability is going to be a big challenge in fiscal 25, but maybe looking at a little broader than that, you know, just talk about your ability, you know, how you're positioned to improve margin and profitability, you know, once the broader market would improve.
Speaker Change: I think all industry participants would benefit enormously from a reduction in rates. I think we're all spending a very large share of our incentives to get to a monthly payment for the buyers that are out there.
Speaker Change: But the things that we're uniquely doing, I mean, we've absorbed all of the costs.
Speaker Change: to build a home that is fundamentally different from everybody else's.
Speaker Change: We're excited about that, and honestly, our ability to explain that, get paid for that, that is where I think we have an alpha opportunity that literally none of our competitors have. Now, you know, we start gaining traction in markets or in communities, I know they're going to come for us.
Speaker Change: So, we've got ideas about where we need to go next, but I can tell you for the next several years, we have a significant head start.
Speaker Change: Anyone with health issues, anyone with utility bill phobia, anyone who really is into advanced construction science, we are their builder. They may not know it yet and our job is to make sure they come to know that before they buy their next home, but that's our opportunity.
Very helpful. Thanks very much.
Thank you, sir.
Jay McCandless: Thank you. Our next question comes from Jay McCandless of Wedbush. Your line is open.
Jay McCandless: Hey everyone, thanks for taking my questions. I've got a few of them, so we'll just go rattle them off as quick as I can. I guess the first one, on the deportation, the immigration issues, are y'all seeing any impact of that in the field yet or hearing any impact on that from your subs?
Speaker Change: Jay, honestly I have not, and we check in regularly, we've got a hotline set up internally to sort of anything, and I have not heard any news on that. I won't be surprised if there is some in markets that we do business and in the industry, but so far I have not heard of any.
Speaker Change: Thanks. And then could you talk about where your gross margins are on the average spec right now versus where it starts?
Speaker Change: Yeah, I mean the differential is between 3 and 5 points depending on the market. So, you know, they're with a 2 in the dirts and they're 3 to 5 points below that on the specs.
Speaker Change: So 70% of the lower number is what is leading to the current margin profile. I mean, it's just the weighted average of those two numbers.
Speaker Change: So, you know, the math for us is simple, change the spec percentage to be a lower percentage and improve the margins on our specs. And I think they're good reasons for us to believe we can do both of those things.
Jay McCandless: What do you think the long-term goal should be for that, Alan?
Jay McCandless: It's a great question. It's a little different, honestly, Jay, than I would have told you four or five years ago. I think it's a little bit higher to the spec side. If you had asked me five years ago, I would have told you 7032B built felt really comfortable. I think it's probably more like 6040, and in some of our markets it may be 5050.
Jay McCandless: But I would like to see us get back to, and I think we can, being a majority to be built, versus spec.
Jay McCandless: and actually could you touch on that for a second because I guess
for my Cost Differential or Gross Margin Differential.
Jay McCandless: Are you giving up some of that advantage in the 2B bill by using that longer-term rate lock and I guess I don't even know if y'all have even done this yet But like what would the gross margin differential be versus a spec that closes in two months versus a 2B bill That closes at seven months using that rate lock?
Jay McCandless: The way I think about it is we are allocating incentive dollars that we generally provide to to-be-built homes in a different way.
Jay McCandless: Instead of more dollars in a design center, we can use a larger share on this new structured program.
Jay McCandless: We have multiple lenders making those offers available. There is nothing that keeps the pencil sharp and the wits alert or pricing competitive than having multiple lenders competing for that buyer's business.
Jay McCandless: So I think we've mitigated kind of the economic cost of that, but what we're really doing, frankly, is allocating incentive dollars to rates, and that's what spec homes have been doing for the last year or two, is directing their incentive dollars toward rate, and we now have a way to do that on 2B builds.
Jay McCandless: Okay, thanks for that. And then on the fiscal 25 guide, it looks like it's the same as what y'all had in the fourth quarter slides.
Jay McCandless: except you guys are pointing to the low end of the gross margin range. I think that's the only real change I heard in the prepared comments. That's right. That's right, Jay. We talked about the potential that the pace would be a little bit closer to the lower side, but, yeah, the gross margin is really only the difference towards the 19.5.
Thank you.
Speaker Change: which, based on what you said about Texas, would imply, I think, that California, Arizona, etc. probably were up 30-40% in orders and then Texas was down. I guess, do you have the community count coming online in California and Arizona to keep that up?
Speaker Change: Should we expect the West to slow down a little bit after such a robust quarter? Yeah, I would expect that because what's really going on is it has been outside of California
Speaker Change: It's easier to activate communities in the West than in many of our Eastern or Midwestern markets, either because land development is simpler, the entitlement process is a little bit faster.
Speaker Change: So our community count has been able to grow in that west segment a bit faster and that's been one of the things that has driven that. But of course having strong sales in California and Nevada in particular was helpful. And I don't see reasons to think that that's going to change anytime soon.
Speaker Change: But I do think our non-Western markets are likely to grow community count here over the next 12 months faster than our Western markets.
Speaker Change: I think 2J, you know, we've talked about a pace between two and a half and three sales
Speaker Change: That is not in any way an elevated pace for us, right? That's kind of below what we've done historically. The business tends to run between 2.8 and 3.2, so, you know, when you think about longer-term pace, I don't think we're really in danger of getting to the point where we see a big fall-off to your question.
Speaker Change: And thanks for that, guys. And the last one I had, just, you know, knowing that you called out the $3,000 savings there, I guess. Did you talk about what that $3,000 represents as a percentage of the average build, the build cost on a home?
Speaker Change: Yeah, I mean, it's about a point. It's a little over a point, actually. I mean, it's 60 basis points against our ASP, and so, you know, it's a little bit more than 1% of the build cost of the home.
Okay, great. That's all I have. Thanks, guys.
All right. Thanks, Jay.
Thank you. At this time we have no further questions.
Speaker Change: I want to thank everybody for joining us on our call this quarter, and we look forward to talking to you on our second quarter call. This concludes today's call. Thank you.