Q1 2025 Lennar Corp Earnings Call

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[music].

Unknown Executive: by the conference will begin shortly. Again, please stand by.

Speaker Change: Please standby the conference will begin shortly again, please standby the conference will begin shortly thank you.

Speaker Change: [music].

Unknown Executive: Welcome to Lennar's first quarter. At this time, all participants are This is being recorded.

Speaker Change: Welcome to <unk> first quarter earnings conference call at this time, all participants are in a listen only mode. After the presentation. We will conduct a question and answer session. Today's conference is being recorded if you have any objections you may disconnect. At this time I will now turn the call over to David Collins for the reading of the forward looking statements.

David Collins: If you have any I'll now turn the call over to David Collins. Thank you and good morning, everyone.

Speaker Change: Thank you and good morning, everyone.

David Collins: Today's conference call may include forward-looking statements, including statements regarding Lennar's business, financial condition, results of operations, cash flows, strategies, and prospects. Forward-looking statements represent only Lennar's estimates on the date of this conference call and are not intended to give any assurance as to actual future results. Because forelooking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties. Many factors could affect future results and may cause Lennar's actual activities or results to differ materially from the activities and results anticipated in forward-looking statements.

Speaker Change: This conference call May include forward looking statements, including statements regarding <unk> business financial condition results of operations cash flows strategies and prospects forward looking statements represent only a minority of estimates on the date of this conference call and are not intended to give any assurance as to actual future results.

Speaker Change: Because forward looking statements relate to matters that have not yet occurred. These statements are inherently subject to risks and uncertainties.

Speaker Change: Many factors could affect future results and may cause <unk> actual results.

Speaker Change: Our results to differ materially from the activities and results anticipated in forward looking statements. These factors include those described in our earnings release, and our SEC filings, including those under the caption risk factors contained in <unk> annual report on Form 10-K, most recently filed with the SEC. Please.

David Collins: These factors include those described in our EARNS release and our SEC filings, including those under the caption risk factors contained in Lennar's annual report on Form 10-K, most recently filed with the SEC. Please note that Lennar assumes no obligation to update any forward-looking statements.

Speaker Change: <unk> assumes no obligation to update any forward looking statements.

Stuart Miller: Now I'd like to introduce your host, Mr. Stuart Miller. Very good. Good morning, everybody, and thanks for joining us today. I'm in Miami today together with Jon Jaffe, our Co-CEO and President, Diane Bessette, our Chief Financial Officer, David Collins, who you just heard from, our Controller and Vice President. and Fred Rothman, our Chief Operating Officer.

Speaker Change: I'd now like to introduce your host Mr. Stuart Miller Executive Chairman and.

Speaker Change: And co CEO, Sir you may begin.

Stuart Miller: Alright, good morning, everybody and thanks for joining us today.

Stuart Miller: And then Miami today, together with Jon Jaffe, our co CEO and President Diane Bessette, Our Chief Financial Officer, David Collins, who you just heard from our controller and Vice President.

Stuart Miller: And Fred Rothman, our Chief operating officer.

Stuart Miller: As usual, today I'm going to give a brief macro and strategic overview of the company. After my introductory remarks, John's going to give an operational overview, updating construction cost, cycle time, some of our other operating positions. As usual, Diane is going to give a detailed financial highlight along with some limited guidance for the second quarter of 2025. And then, of course, we'll have our question and answer period. And as usual, I'd like to ask you to please limit to one question and one follow-up so we can accommodate as many as possible.

Stuart Miller: As usual today im going to give a brief macro and strategic overview of the company. After my introductory remarks, John's going to give an operational overview update in construction cost and cycle time.

Stuart Miller: Some of our other operating position.

Speaker Change: As usual Diane is going to give a detailed financial highlights along with some limited guidance for the second quarter of 2025, and then of course, we will have our question and answer period and as usual I'd like to ask you to please limit to one question and one follow up so we can accommodate as many as possible.

Stuart Miller: So let me begin. As we noted in our press release last night, we're very pleased to review our 2025 first quarter results against the backdrop of a challenging economic environment for the housing market. We adhere to our strategy and focus on driving consistent volume and growth by matching sales and production base and using our margin as a circuit breaker. We completed our Melrose spinoff, distributing shares to our shareholders and supporting our transition to an asset-light, land-light model, and we completed our Rausch-Coleman acquisition using our asset-light model as we expand into new markets. While margin and earnings have been adjusting to movements in the overall housing market, we are confident that our focus on volume and even flow will position us very well for resilience, durability, and growth in the future.

Stuart Miller: So let me begin.

Stuart Miller: As we noted in our press release last night, we're very pleased to review our 2025 first quarter results against the backdrop of a challenging economic environment for the housing market.

Stuart Miller: We adhere to our strategy and focus on driving consistent volume and growth by matching sales and production base and using our margin as a circuit breaker.

We completed our Melrose spinoff distributing shares to our shareholders and supporting our transition to an asset light model.

Stuart Miller: We completed our Roche Coleman acquisition, using our asset light model.

Stuart Miller: As we expand into new markets.

Stuart Miller: Margin and earnings have been adjusting to movement from the overall housing market. We are confident that our focus on volume and even flow will position us very well for resilience durability and growth in the future.

Stuart Miller: Let me briefly discuss the overall housing Consistent with last quarter's earnings growth, the macroeconomy remains challenging as mortgage interest rates have remained higher for longer, which has left the overall housing market weaker for longer. Across the housing landscape, actionable demand has slowed materially. On a bad news is good news basis. All of this has led to the long-awaited environment where the costs of both homes, new and existing, and apartments start to come down. As we noted in our press release, our average sales price this quarter Net of incentives declined to $408,000, 1% lower than last year.

Stuart Miller: Let me briefly discuss the overall housing market.

Stuart Miller: Consistent with last quarter's earnings call. The macro economy remains challenging as mortgage interest rates have remained higher for longer which has left the overall housing market weaker for longer.

Stuart Miller: Across the housing landscape actionable demand has slowed materially.

Stuart Miller: On a bad news is good news basis.

Stuart Miller: All of this has led to the long awaited environment, where the cost of both.

Stuart Miller: New and existing and apartments start to come down.

Stuart Miller: As we noted in our press release and our average sales price this quarter.

Stuart Miller: Net of incentives declined to $408000, 1% lower than last year.

Stuart Miller: Evidence suggests that the time is now and the sticky and large housing component of inflation might soon contribute to curtail the last mile to the 2% target. While underlying demand for homes remains strong, actionable demand is limited by affordability and credit, which remain challenged by limited funds for down payments as well as income qualifications for mortgages. Most recently, even where household income indicates an approvable mortgage qualification, elevated personal debt levels have often presented as an additional impediment to already strained mortgage access. Additionally, until recently, consumers have been generally confident that they will remain employed and that their compensation is safe.

Stuart Miller: Evidence suggests that the time is now and the sticky and large housing component of inflation might soon contribute to curtail the last mile to the 2% target.

Stuart Miller: While underlying demand for homes remains strong actionable demand is limited by affordability and credit which remained challenged by limited funds for down payments as well as income qualifications for mortgage most.

Stuart Miller: Most recently, even warehouse halt income indicate an approvable mortgage qualification.

Stuart Miller: Elevated personal debt levels have often presented as an additional impediment to already strained mortgage access.

Stuart Miller: Additionally, until recently consumers have been generally confident that they will remain employed and that their compensation be safe.

Stuart Miller: But more recently, even that safety has been called into question. A somewhat confused consumer and wavering consumer confidence have challenged the consumer's desire and ability to transact. While there continues to be considerable traffic of customers looking for homes, the urgency to actually transact remains tepid. The overall supply of homes has also remained constrained by years of underproduction. Additional shortfalls in production will likely be triggered by now-muted demand, together with already existing restrictive land permitting and higher impact fees at local levels and higher construction costs across the housing landscape. Additionally, new approaches to both immigration and tariffs have potential limiting impacts, and John will discuss this further in just a few minutes.

Stuart Miller: But more recently, even that safety has been called into question.

Stuart Miller: Somewhat confused consumer and wavering consumer confidence have challenge, the consumer's desire and ability to transact. While there continues to be considerable traffic customers looking for on the urgency to actually transact remains tepid.

Stuart Miller: The overall supply of homes is also remain constrained by years of under production.

Stuart Miller: Additional shortfalls in production will likely be triggered by now music demand together with already existing restrictive land for augmenting and higher impact fees at local levels and higher construction costs across the housing landscape.

Stuart Miller: Additionally, new approaches to both immigration and tariffs have potential limiting impact and John will discuss this further in just a few minutes.

Stuart Miller: In summary, the housing market has softened as affordability and consumer confidence have limited actionable demand. Incentives have been increasing and net housing prices seem to be moderating. At very least, housing will not be contributing to inflationary pressures, and while demand is constrained, supply is equally limited.

Stuart Miller: In summary, the housing market has softened as affordability and consumer confidence have limited actionable demand. In fact, this has been increasing and net housing prices seem to be moderating at very least housing will not be contributing to inflationary pressures.

Stuart Miller: And while demand is constrained supply is equally limited.

Stuart Miller: Against this backdrop, let me turn to Lennar's operating strategy. Our strategy is, and has remained, very clear. That is, simplify our business by focusing on the two core tenets of our operating strategy. Operationally, build and deliver consistent volume to maximize efficiency. and financially, drive asset light, land light, focus to build cash flow. Now that we have completed our no-row spinoff, we have intensified our focus on... First, we focus on consistent volume by matching our production phase with our sales phase. This means that as market conditions change to the positive or to the negative, we focus on driving and delivering consistent volume at the division level and at the community level in order to maximize efficiencies in construction costs, in cycle time, in SG&A, and in all elements of marketing and sales.

Stuart Miller: Against this backdrop, let me turn to <unk> operating strategy.

Stuart Miller: Our strategy is and has remained very clear.

Stuart Miller: That is simplified our business by focusing on the two core tenants of our operating strategy.

Stuart Miller: Operationally build and deliver consistent volume to maximize efficiencies.

Stuart Miller: And financially drive asset light land light focus to build the cash flow.

Stuart Miller: Now that we have completed our no ROE spinoff, we have intensified our focus on each.

Stuart Miller: First we focus on consistent volume by matching our production pace with our sales base.

Stuart Miller: This means that as market conditions change to the positive or to the negative we focus on driving and delivering consistent volume at the division level and at the community level in order to maximize efficiencies and construction costs and cycle time, and SG&A and in all elements.

Stuart Miller: Marketing and sales.

Stuart Miller: We also strive to deliver consistent and even flow volume to our trade partners so they can be more efficient and deliver cost savings to us. Well, we are not there yet. We're getting better each quarter and we'll accelerate progress now that the spin is behind us. Our execution in the first quarter was materially better than in the fourth quarter last year when we missed our expectation on sales volume. This quarter, we did adjust and adapt to market conditions in real time as we adjusted incentives and pricing, we achieved expected sales volume, and we did not enable our inventory levels to spike.

Stuart Miller: We also strive to deliver consistent and even flow volume to our trade partners. So they can be more efficient and deliver cost savings to us.

While we are not there yet we're getting better each quarter and will accelerate progress now that the spin is behind us.

Stuart Miller: Our execution in the first quarter was materially better than the fourth quarter of last year, while we missed our expectation on sales volume.

Stuart Miller: This quarter, we did adjust and adapt to market conditions in real time, as we adjusted incentives and pricing we achieved <unk> of expected sales volume and we did not enable our inventory levels. Despite.

Stuart Miller: We are laser focused on keeping sales volume up in order to catch up pace and find even flow in each division and each community. By maintaining this discipline, we will not build up inventory in either built homes or in developed home sites, and we will efficiently convert production to cash. As I noted last quarter, the catching up comes at a cost, and that cost is additional pressure on marching. Accordingly, as we have looked ahead to the second quarter of 2025, we expect to sell between 22,500 and 23,500 homes and deliver between 19,500 and 20,500 homes.

Stuart Miller: We are laser focused on keeping sales volume up in order to catch up pace and find even flow in each division and each community.

By maintaining this discipline will not buildup inventory in either built homes or in developed home sites and we will efficiently convert production to cash.

Stuart Miller: As I noted last quarter, the catching up comes at a cost and that cost us additional pressure on margin.

Stuart Miller: Accordingly, we have looked ahead to the second quarter of 2025.

Stuart Miller: As we've looked ahead to the second quarter of 2025, we expect to sell between 22000 523500 homes and deliver between 19000 520500 homes.

Stuart Miller: We expect our margin to be approximately 18%, depending on market conditions, as we expect to continue to see margin pressure on deliveries that will be sold during the quarter. Nevertheless, we are focused on driving sales and closings and driving strong current cash flow, even at reduced profitability, while maintaining properly sized inventory levels so that as market conditions stabilize or improve, we will benefit from normalized margins across our growing volume. On a side note, our margins are actually quite strong, except for the approximately 13% incentive we are using to enable affordability. These are outsized for the moment, and normalized incentives should be around 5-6%, and that would track to a normalized margin, for a normalized margin to be in the mid-20s margin.

Stuart Miller: We expect our margin to be approximately 18% depending on market conditions as we expect to continue to see margin pressure on deliveries that will be sold during the quarter.

Stuart Miller: Nevertheless, we are focused on driving sales and closings and driving strong current cash flow even at reduced profitability, while maintaining properly sized inventory levels, so that as market conditions stabilize or improve we will benefit from normalized margins across.

Stuart Miller: <unk> are growing volume.

Stuart Miller: On a side note our margins are actually quite strong except for the approximately 13% incentives we are using to enable affordability.

Stuart Miller: These are outsized for the moment and normalized incentive should be around 5%, 6% and that would track to a normalized margin for our normalized margin to be in the mid 28%.

Stuart Miller: Mid <unk> percent.

Stuart Miller: <unk>.

Stuart Miller: We remain focused on consistent volume in current market conditions and we will be very well positioned as the market normalizes.

Stuart Miller: We remain focused on consistent volume in current market conditions, and we will be very well positioned as the market normalizes.

Stuart Miller: The second focus of our operating strategy is to refine our assets like configuration. We are much closer to the completion of the strategic rework of our operating platform from being a traditional home builder with sizable land assets to becoming a pure play, land light, asset light, manufacturing model home builder that benefits from just-in-time delivered, just-in-time finished home site delivery. The Millrose spin completed the backbone structure of that rework. Now we are and have the time to focus on refinement of that plan. With Millrose Operational, we now have a strong complement of land bank partners that enable the land and land development activity that enables the just-in-time delivery of fully developed home site sites as a manufacturer.

Stuart Miller: The second focus of our operating strategy is to refine our assets like configuration.

Stuart Miller: We are much closer to the completion of the strategic rework of our operating platform from being a traditional homebuilder with sizeable land assets.

Stuart Miller: To becoming a pure play land light asset light manufacturing model homebuilder that benefits from just in time delivered adjusted high finished homesite delivery.

Stuart Miller: The Melrose spend completed the backbone structure of that rework.

Stuart Miller: Now we are and have the time to focus on refinement of that platform.

Stuart Miller: With no realized operational we now have a strong complement of land bank partners that enabled the land and land development activity that enable them for just in time delivery of fully developed home sites.

Stuart Miller: As a manufacturer.

Stuart Miller: Of course, each of these valued partners operates a little differently and has a different cost structure. But with the diverse land trade partners, we will refine cost and execution over time. As with all of our trade partners, our land partners will benefit from our consistent and predictable volume, and our cost structure will benefit as a direct result. As we've noted before, once refined, we have conviction that our structured, asset-light, land-light model enables far more predictable volume and growth with a much lower asset base and lower risk profile.

Stuart Miller: Of course, each of these valued partners operates a little differently and has a different cost structure.

Stuart Miller: With the diverse.

Stuart Miller: <unk> trade partners, we will refine cost and execution over time as with all of our trade partners. Our land partners will benefit from our consistent and predictable volume and our cost structure will benefit as a direct result.

Stuart Miller: As we've noted before once refined we have conviction that our structured asset light land light model enables far more predictable volume and growth with a much lower asset base and lower risk profile.

Stuart Miller: We are confident that our operating strategies of consistent volume and an asset-light land light just-in-time delivery system of developed home sites will continue to enable our company to be best positioned to rationalize our cost structure and be best positioned with strong volume as margins normalize.

Stuart Miller: We are confident that our operating strategies of consistent volume and an asset light land light just in time delivery system of developed Homesites will continue to enable our company to be best positioned to rationalize our cost structure and the best position with strong volume as margins normalize.

Stuart Miller: Yes.

Stuart Miller: Let me turn back briefly to our first quarter 2025 results. As I noted earlier, we're quite pleased with the successes embedded in our first quarter results and accomplishments. In our first quarter, we started 17,651 homes, delivered 17,834 homes, and sold 18,355 homes. As mortgage interest rates remained higher for longer and consumer confidence searched for footing, we drove volume with starts while we incentivized sales to enable affordability. As a result, during the first quarter, sales incentives rose to approximately 13%, reducing our gross margin to 18.7%. Our SG&A came in at 8.5%, which produced a net margin of 10.2%, although we were able to maintain construction costs and reduce cycle time, as John will detail shortly.

Let me turn back briefly to our first quarter.

Stuart Miller: 2025 results.

Stuart Miller: As I noted earlier, we are quite pleased with the success is embedded in our first quarter results and accomplishments.

Stuart Miller: And our first quarter. We started 17651 owned delivered 17834 homes and sold 18355 pounds.

Stuart Miller: Mortgage interest rates remained higher for longer and consumer confidence searched for footing, we drove volume with starts while we incentivize sales to enable affordability.

Stuart Miller: As a result during the first quarter sales incentives rose approximately to approximately 13%, reducing our gross margin to 18, 7%.

Stuart Miller: Our SG&A came in at eight 5%, which produced a net margin of 10, 2%, although we were able to maintain construction cost and reduce cycle time as John will detail shortly.

Stuart Miller: We exceeded our sales and delivery expectations while we were able to grow our community count from 1,447 last quarter to 1,584 communities this quarter, including our Roush-Colvin acquisition, and we're better prepared, and we're now better prepared for the remainder of the year. We continue to expect to deliver between 86 and 88,000 homes in 2025.

Stuart Miller: We exceeded our set our sales and delivery expectations, while we were able to grow our community count from 40 547 last quarter to 584.

Stuart Miller: Communities this quarter, including our Rev. Coleman acquisition, and we are better prepared and.

Stuart Miller: And we are now better prepared for the remainder of the year.

Stuart Miller: We continue to expect to deliver between 86 and 88000 homes in 2025.

Stuart Miller: Yes.

Stuart Miller: Our results represent a consistent and strategic quarter of operating results in the context of a very difficult economic environment, all while completing a time-intensive mill-row spin and growing into new markets with the Rausch-Coleman Acquisition. We clearly were able to walk and chew gum at the same time. Additionally, on the positive side, we've driven our operating strategy to enable consistent cash flow, which has enabled us to strategically allocate capital. Our strategy has enabled us to repurchase another 5.2 million shares of stock for $703 million in the first quarter, while we continue to deliver a strong dividend.

Stuart Miller: Our.

Stuart Miller: Our results represent the consistent and strategic quarter of operating results in the context of a very difficult economic environment, all while completing a time intensive mill road spin and growing into new markets with the rush Goldman acquisition.

Stuart Miller: We clearly were able to walk and chew gum at the same time.

Stuart Miller: Additionally, on the positive side, we have driven our operating strategy to enable consistent cash flow, which has enabled us to strategically allocate capital.

Stuart Miller: Our strategy has enabled us to repurchase another five 2 million shares of stock for $703 million in the first quarter, while we continued to deliver strong dividend.

Stuart Miller: Additionally, we distributed as a dividend to Lennar shareholders, 80% of the shares of Millrose Property Corporation, and through that Millrose ownership, they will receive a regular dividend while providing the permanent capital, which will drive the future success of Lennar. As for the remaining 20% of the Millrose shares, Lennar will shortly dispose of that remaining 20% in either a further distribution of Millrose shares or, at Lennar's option, may execute a potential exchange for Lennar shares, which would basically effectuate a cashless buyback of Lennar shares. Just to say this again, the additional 20% interest will be retained for a relatively brief period of time and will either be distributed or exchanged for Lennar shares to effectuate a cashless stock buyback.

Stuart Miller: Additionally, we distributed as a dividend to renew our shareholders, 80% of the shares of Mill Road property Corporation and through that mill Rosa ownership, they will receive a regular dividend, while providing the permanent capital which will drive.

Stuart Miller: Drive the future success of <unk>.

Stuart Miller: As for the remaining 20% of the Mill Road shares Lenoir will shortly dispose of that remaining 20% in either a further distribution of mill road shares or at <unk> option may execute a potential exchange for Lazard shares, which would basically effectuate a cat.

Stuart Miller: Buyback of our shares.

Stuart Miller: Just to say this again the additional 20% interest will be retained for a relatively brief period of time and will either be distributed were exchanged for Linda our shares to effectuate the cashless stock buyback.

Stuart Miller: After our stock repurchases and dividends, we ended the quarter with $2.3 billion of cash on book and an 8.9% debt-to-total capital ratio. We are well positioned after the Mill Rose spin to be able to continue to return capital to shareholders as we continue to grow our business.

Stuart Miller: After our stock repurchases and dividends, we ended the quarter with $2 3 billion of cash on book and an eight 9% debt to total capital ratio.

Stuart Miller: Our well positioned after the mill road spent to be able to continue to return capital to shareholders. As we continue to grow our business. We are very well positioned from a balance sheet to operating strategy to be able to adjust and address.

Stuart Miller: We are very well positioned from balance sheet to operating strategy to be able to adjust and address as the market unfolds as we execute through the year. So let me conclude and say that while this has been a constructive quarter for Lennar and while the short-term road ahead might still seem a little choppy, we're very optimistic about the longer-term road ahead. This has been a very exciting quarter for Lennar, and we couldn't be prouder of the work and dedication of our extraordinary associates who've worked together to make it all happen. Let me also take a minute to welcome to the team the talented new members of Lennar, who have joined from our Rausch-Coleman combination.

As the market unfolds as we execute through the year.

Stuart Miller: So let me conclude and say that while this has been a constructive quarter for Lamar and while the short term road ahead, Mike still seem a little choppy, we're very optimistic about the longer term growth.

Stuart Miller: This has been a very exciting quarter for <unk>, and we couldnt be prouder of the work and dedication of our extraordinary associates who've worked together to make it all happen.

Stuart Miller: Let me also take a minute to welcome to the team the talented new members up.

Stuart Miller: Yes.

Stuart Miller: <unk>, who has joined us from our router Coleman combination.

Stuart Miller: We couldn't be prouder to now have us all working together as one. Together, we've expanded our platform as we have upgraded the financial and operating platforms of Lennar and as we will continue to drive production and sales. We've continued to drive production to meet the housing shortage that we know persists across the market. And as and when interest rates normalize, we believe that pent-up demand will be activated and our margin will quickly recover. As a company, we are well prepared with a strong and growing national footprint, growing community count, and growing volume. Perhaps most importantly, our strong balance sheet and even stronger land banking relations afford us flexibility and opportunity to consider and execute upon thoughtful growth for our future.

Speaker Change: We couldnt be prouder to now have us all working together as one.

Speaker Change: Together, we've expanded our platform as we have upgraded the financial and operating platforms outlet.

Speaker Change: And as we will continue to drive production and sales.

Speaker Change: We've continued to drive production to meet the housing shortage that we know persists across the market.

Speaker Change: And as interest rates normalize we believe that pent up demand will be activated at our margin walk quickly recover.

Speaker Change: As a company, we are well prepared with a strong and growing national footprint growing community count and growing volume.

Speaker Change: Perhaps most importantly, our strong balance sheet, and even stronger land banking relations afford us flexibility and the opportunity to consider and execute.

Speaker Change: Thoughtful growth for our future.

Stuart Miller: In that regard, we will focus on our manufacturing model and continue to use our land partnerships to grow with a focus on high returns, on capital, and on equity. We will also continue to focus our pure play business model and reduce exposure to non-core apps. We will continue to drive to just-in-time home site delivery and an asset-light balance sheet. And as we complete our asset-light transformation, we will continue to refine our platform and generate strong cash flow and return new capital to shareholders through dividend and stock buyback, while we also pursue strategic growth.

Speaker Change: In that regard, we will focus on our manufacturing factoring model and continue to use our land partnerships to grow with a focus on high return on capital and on equity.

Speaker Change: We will also continue to focus our pure play business model and reduce exposure to noncore assets. We will continue to drive to just in time, a home site delivery and then asset light balance sheet and as we complete our asset light transformation, we will continue to refine our platform and generate strong cash flow.

Speaker Change: <unk> and return capital to shareholders through dividend and stock buyback, while we also pursue strategic growth.

John Jaffe: With that, let me turn it over to John. Thank you, and good morning, everyone. Stuart has highlighted for you our strategy of being a consistent, high-volume home building manufacturer. I'll further review this as I discuss our performance on sales pace, cost reduction, and cycle time reduction, along with the execution of our asset-line demand strategy for the first quarter. As noted, our overall first quarter sales pace of 4.1 homes per community per month was right in line with our start pace of 4.0. This was accomplished with consistent starts and accurate cycle times, which determine the sales pace needed at each community.

Speaker Change: With that let me turn it over to John.

John: Thank you and good morning, everyone.

John: <unk> highlighted for you our strategy of being a consistent high volume homebuilding manufacturer. A further review this as I discuss our performance on sales pace cost reduction and cycle time reduction along with the execution of our asset light land strategy for the first quarter.

John: As noted our overall first quarter sales pace of $4 one homes per community per month was wider lines with our stock case of four point out. This was accomplished with consistent starts and accurate cycle times, which determined that sales pace needed at each community.

John Jaffe: Knowing the output of this production, our marketing and sales teams engage Lennar Machine to turn digital leads into appointments, and then convert appointments into sales. Throughout each week, we evaluate leads, appointments, and sales activity to measure if we are on track to achieve the needed pace. We continuously adjust to ensure we end the week not only with a targeted number of sales, but with sales of the right homes. If a community falls short on pace in any given week, there's clear focus on taking action to course correct and get back on pace. To drive the needed level of quality appointments, we focus on improving the experience for our customers to achieve higher conversion rates versus the alternative of chasing more top-of-the-funnel leads, which increases marketing spend.

John: Knowing the output of this production our marketing and sales teams engaged lenoir machine to turn digital needs until appointments and then convert appointment as the sales.

John: Throughout each week, we evaluate lease appointments and sales activity to measure if we're on track to achieve the needed pace, we continuously adjust to ensure we end the week not only with the targeted number of sales of the <unk>.

John: Sales of the iPhone.

John: If a community falls short on pace in any given week. There is a clear focus on taking action to course, correct and get back on pace.

John: To drive the needed level quality appointments, we focus on improving the experience for our customers to achieve higher conversion rates versus the alternative of chasing more top of funnel leads which increases marketing spend we believe our approach produces more qualified and motivated customer appointments, which we can convert into sales at higher <unk>.

John Jaffe: We believe our approach produces more qualified and motivated customer appointments, which we can convert into sales at higher conversion rates. During the quarter, as we move past the beginning of February, we do not see the seasonal pickup typically associated with the beginning of the spring selling. So we continue to lean into our machine, focusing on converting leads and appointments and adjusting incentives as needed to maintain sales pace. These adjustments came in the form of mortgage rate buy-downs, price reductions, and closing costs as well. In general, homebuyers in Florida and Texas, our two highest volume states, needed more help than most other markets around the country.

John: <unk> rates.

John: During the quarter as we move past the beginning of February we do not see the seasonal pickup typically associated with the beginning of the spring selling season. So we continue to lean into our machine focusing on converting leads that appointment and adjusting incentives as needed to maintain sales pace.

John: Adjustments came in the form of mortgage rate buy downs price reductions and closing cost assistance.

John: In general Homebuyers in Florida, and Texas, our two highest volume states.

More help than most other markets around the country, we needed more incentives.

John Jaffe: We needed more incentives in the Florida and Texas markets to assist buyers to achieve mortgage payments they can afford, as well as to offset both a slowing immigration environment and increased inventory. All markets around the country required incentives to assist buyers in the current homebuying environment. In this challenge macro environment, we utilized what our machine along with our dynamic pricing model to identify unsold homes nearing completion. Fundments are set for those homes and prices are established to achieve sales, preventing the buildup of inventory. Accordingly, we ended the quarter with an average of about two unsold completed homes per community.

John: And Texas markets to assist borrowers achieve mortgage payments they can afford as well as the offset built a slowing in migration environment and increased inventory.

John: All markets around the country to required incentives to assist buyers in the current homebuilding environment.

John: In this challenging macro environment, we utilized our machine along with our dynamic pricing model to identify unsold homes, Gary completion deployments.

John: If I Miss are set for those homes and prices are established to achieve sales preventing the buildup of inventory. Accordingly. We ended we ended the quarter with an average of about two unsold completed homes per community.

John Jaffe: Our production team continued its stride of being an ever more highly efficient home builder. The disciplines of planning for and delivering consistent construction starts, designing efficient to build floor plans, deploying digitally enabled scheduling and quality control processes, and a well-trained construction management team all allow for the development of meaningful strategic partnerships with our entire supply chain. Continuous improvement of these strategic relationships with our trade partners is the core of how we drive down both construction costs and cycle time quarter after quarter. In the first quarter, our construction costs were lowered by 1% from Q4 and decreased on a year-over-year basis by 2.5% to our lowest direct construction cost since Q3 of 2021.

John: Our production team continued its drive of being an ever more highly efficient homebuilder the disciplines of planning for and delivering consistent construction start designing efficient to build floor plans deploying digitally enabled scheduling and quality control processes and a well trained construction management team all allow for the development.

John: A meaningful strategic partnerships with our entire supply chain.

John: The continuous improvement of these strategic relationships with our trade partners is the core of how we drive down both construction costs and cycle times quarter after quarter for the <unk>.

John: First quarter, our construction costs were lower by 1% from Q4 and decreased on a year over year basis by two 5% to a lowest direct construction cost since Q3 of 2021, we expect this trend to continue for our second quarter and into the year.

John Jaffe: We expect this trend to continue for our second quarter and into the year. Also in our first quarter, cycle time decreased on average by one day sequentially from Q4 down to 137 calendar days on average for single-family detached homes. This is a 17-day or 11% decrease year-over-year. We also expect continued improvement in cycle time reduction for our second quarter. As Stuart discussed, the execution of our strategy of matching our sales pace to our production pace required sales incentives of 13% in the quarter, about 700 basis points above normal. Our trade partners know that we are doing this to maintain production levels which they greatly benefit from.

John: Also in our first quarter <unk> decreased on average by one day sequentially from Q4 down to 137 calendar days on average for a single family detached homes. This is a 17 day or 11% decrease year over year. We also expect continued improvement in cycle time reduction for our second quarter.

Speaker Change: As Stuart discussed the execution of our strategy of matching our sales pace to a production pace required sales incentives of 13% in the quarter about 700 basis points above normal or.

Speaker Change: Our trade partners know that we are doing this to maintain production levels, which they greatly benefit from them.

John Jaffe: Our trade partners work with us to reduce their operating costs and when needed to lower their margins. This is critical to our execution of reducing construction costs in each quarter.

Speaker Change: Our trade partners work with us to reduce their operating costs and we needed to lower their margins. This is critical to our execution of reducing construction costs in each quarter.

John Jaffe: Let me address tariffs. We've been in discussions regarding the potential impact of tariffs with our supply chain. These discussions all start with a review of margin reductions Lennar has already taken. This leads to a constructive effort to identify alternative sourcing and material strategies. Additionally, we prepare our trade partners to absorb potential increases to their supply chain costs in the event of tariffs. To date, we have had no impact to our costs from tariffs, and we will work closely with all our trade partners if further tariffs present themselves to mitigate and offset cost impacts. Similarly, with respect to potential labor disruptions that could derive from immigration policy enforcement, our consistent high volume makes our construction a priority for our trade partners.

Speaker Change: Let me address tariffs we've been in discussions regarding the potential impact of tariffs with our supply chain and these discussions all start with a review of margin reductions Lamar has already chicken.

Speaker Change: This leads to a construction constructive effort to identify alternative sourcing materials strategies. Additionally, we prepare our trade partners to absorb potential increases to their supply chain costs and incentive tariffs to date.

Speaker Change: We have no impact to date, we have had no impact to our costs from tariffs and we'll work closely with all of our trade partners that further tariffs present themselves to mitigate offset cost impacts.

Speaker Change: With respect to potential labor disruptions that could derived from immigration policy enforcement are consistent high volume makes our construction our priority for our trade partners to date, there has been no shortage of labor or impact the cycle time.

John Jaffe: To date, there's been no shortage of labor or impact to cycle time. Again, our strategic trade partners appreciate the financial impact to our margins of maintaining our consistent high volume, and we expect to be as well-positioned as possible should any disruptions present themselves.

Speaker Change: Our strategic trade partners appreciate the financial impact to our margins and maintaining our consistent high volume and we expect to be as well positioned as possible should any disruptions present themselves.

John Jaffe: As Stuart addressed, and as Diane will provide further details, we have further executed on our Afterlife strategy with the Mill Road Spend. Post-Mill Road, we ended the quarter with our supply of owned homesites improving to 0.2 years, down from 1.3 years, and controlled homesite percentage increasing to 98% from 77% a year ago. During the quarter, land banks acquired, on our behalf, about 29,000 home sites for about $1.8 billion in a commitment of about $1.1 billion in land development. We purchased during the quarter from our various land banks. Land bank partners almost 15,000 home sites for about $1.6 billion.

Speaker Change: As Stuart address that Diana will provide further details we have further executed on our asset light strategy with the mill has been.

Speaker Change: Post <unk>, we ended the quarter with our supply of owned Homesites improvements of 0.2 years down from one three years and control homesite percentage, increasing to 98% from 77% a year ago.

Speaker Change: During the quarter land bank acquired on our behalf without 29000 home sites for about $1 8 billion.

And a commitment of about $1 1 billion in land development.

Speaker Change: We purchased during the quarter from our various land banks.

Speaker Change: Partners, almost 15000 Homesites for about $1 6 billion.

John Jaffe: Operationally, our production-first discipline of even flow starts allows for the planning and consistency of takedowns from land banks, providing for efficiency in the operations of land management by both our land bank partners and ourselves. As we move forward, we are focusing on refining the efficiency in and around the coordination of just-in-time land acquisitions by our land partners and us with the commencement of land development and or home construction. These improvements in the execution of all of our operating strategies enable capital and production efficiencies, leading to an improving inventory churn, which now stands at 1.7 versus 1.5 last year, a 13% increase.

Operationally our production first discipline of even flow starts allows for the planning and consistency of takedowns from land base, providing for efficiencies in the operations of land management by both of our land Bank partners and ourselves.

Speaker Change: As we move forward, we are focusing our refining of the efficiencies in and around the coordination of just in time land acquisitions by our OEM partners and with.

Speaker Change: With the commencement of land development and home construction.

Speaker Change: These improvements in the execution of all of our operating strategies enable capital and production efficiencies, leading to improving inventory churns, which now stands at one seven versus $1 five last year, a 13% increase.

John Jaffe: Our second quarter, we will continue to refine the execution of our marketing and sales machine, our even flow, high volume production, and all land acquisition and development activities to be even more operationally and capital efficient.

Speaker Change: In our second quarter, we will continue to refine the execution of our marketing and sales machine or even flow high volume production and all land acquisition and development activities to be even more operationally and capital efficient.

John Jaffe: I also want to extend a welcome to our Rausch-Coleman Associates, the Lennar family, and thank all of our Lennar Associates for their hard work, focus, and dedication.

Diane: I also want to extend a welcome to our <unk> <unk> associate through lower family and thank all of our associates for their hard work focus and dedication and now I will turn it over to Diane.

Diane Bessette: And now I'll turn it over to Diane. Thank you, John. Good morning, everyone. So, Stuart and John have provided a great deal of color regarding our operating performance.

Diane: Thank you John and good morning, everyone and Stuart.

Speaker Change: Stuart and Jon has provided a great deal of color regarding our operations.

Diane Bessette: So, therefore, I'm going to spend a few minutes summarizing balance sheet highlights and then provide estimates for the second quarter. So, starting with the balance sheet. This quarter, once again, we were highly focused on turning our inventory and generating cash by pricing homes to market conditions. The result of these actions was that we ended the quarter with $2.3 billion of cash and no borrowings on our $3 billion revolving credit facility. This provided total liquidity of approximately $5.3 billion. As noted, during our first quarter, we completed the distribution of shares of Millrose Properties to our shareholders.

Diane: So therefore I.

Speaker Change: A few minutes summarizing balance sheet highlights and then provide estimates for the second quarter. So starting with the balance sheet. This quarter. Once again, we were highly focused on training, our inventory and generating cash by pricing homes to market condition. The result of these actions was that we ended the quarter with Q3.

Diane: $1 of cash and no borrowings on our $3 billion.

Diane: Having credit facility, that's provided total liquidity of approximately $5 3 billion.

Diane: As noted during our first quarter, we completed the distribution of shares of numerous properties to our shareholders. As a result, we spun off from our balance sheet $5 6 billion of land, representing 87000, Homesites and $1 billion of cash with this strategic transaction we completed.

Diane Bessette: As a result, we spun off from our balance sheet $5.6 billion of land representing 87,000 home sites and $1 billion of cash.

Diane Bessette: With this strategic transaction, we completed the next milestone in our journey of becoming a land-like, just-in-time manufacturer of homes and established a provider of recyclable cash for the future. In addition, we also completed the acquisition of the home building operations of Rauch, Kohn & Homes, which extended our footprint into both new and existing markets. As a result of the Millroads and Roush transactions, we ended the quarter owning 13,000 homesites and controlling 533,000 homesites for a total of 546,000 homesites. As John noted, this translated into our years-owned supply improving to 0.2 years and our home sites controlled increasing to 98 percent, our lowest years-owned and highest controlled percentage in our history.

Diane: <unk> the next milestone in our journey of becoming a land light just in time manufacturer of home and establish a provider of recyclable cash for the future in.

Diane: In addition, we also completed the acquisition of the homebuilding operations of garage, Conant homes, which extended our footprint into both new and existing markets.

Diane: As a result of the mill runs and Ralphs transaction. We ended the quarter only 13000, Homesites and controlling <unk> 533000 home sites for a total of 546000 home sites.

Diane: As John noted this translated into our year's own supply.

Diane: By improving two points two years, and our homesites controlled increasing to 98% our lowest years owned and highest controlled percentage in our history.

Diane Bessette: We believe this portfolio of homesites provides us with a strong competitive position to continue to grow market share and scale in a capital efficient way. As we look at ratios, our inventory turn was 1.7 times and our return on inventory was almost 30%. During the quarter, we started approximately 17,700 homes and ended the quarter with approximately 38,300 homes in inventory.

Diane: We believe this portfolio of Homesites provides us with a strong competitive position to continue to grow market share and scale in a capital efficient way as we look at ratios our inventory churn was one seven times and our return on inventory was almost 30%.

Diane: During the quarter, we started approximately 17701 and ended the quarter with approximately 38300 homes in inventory at <unk>.

Diane Bessette: This inventory number includes approximately 3,100 homes that were completed unsold, which is about two homes per community, well within our target historical range. Turning to our debt position, we had no redemptions or repurchases of senior notes this quarter. Our next debt maturity of $500 million is not until May 2025. Our home building debt to total capital was 8.9%, including the impact of the Millwright Center. Consistent with our commitment to increasing total shareholder returns, we repurchased $5.2 million of our outstanding shares for $703 million, and we paid dividends totaling $132 million. This was, of course, in a distribution to the Milrose Share.

Diane: Turning number includes approximately 3100 homes that were completed unsold, which is about two homes per community well within our target historical range.

Diane: Turning to our debt position, we had no redemption or repurchases of senior notes this quarter, our net debt maturity of $500 million is not until May 25.

Diane: Homebuilding debt to total capital was eight 9%, including the impact of the neurotoxin.

Diane: Consistent with our commitment to increasing total shareholder returns, we repurchased five 2 million of our outstanding shares for $703 million and we paid dividends totaling $132 million. This was of course in the distribution to the neighborhoods shares.

Diane Bessette: Our stockholders' equity was just under $23 billion, and our book value per share was about $86.

Diane: Our stockholders' equity was just under $23 billion and our book value per share was about $86 <unk>.

Diane Bessette: In summary, the strength of our balance sheet provides us with significant confidence and financial flexibility as we progress through 2025.

Diane: In summary, the strength of our balance sheet provides us with significant confidence and financial flexibility as we progress through 2025.

Diane Bessette: So with that brief overview, I'd like to turn to Q2 and provide some guidance as. Starting with new orders. We expect Q2 new orders to be in the range of 22,500 to 23,500 homes as we match sales and production pace. We anticipate our Q2 deliveries to be in the range of 19,500 to 20,500 homes, with a continued focus on turning inventory into cash. Our Q2 average sales price on those deliveries should be about $390,000 to $400,000 as we continue to price to market to meet affordability. We expect our gross margins to be approximately 18 percent, which excludes purchase accounting, depending on market conditions.

Diane: That brief overview I'd like to turn to Q2 and provide some guidance estimate.

Diane: Starting with new orders, we expect Q2, new orders to be in the range of 22000 523500 homes as we match sales and production paces, we anticipate our Q2 deliveries to be in the range of 19500 to 2500.

Diane: With a continued focus on training inventory into cash our Q2 average sales price on those delivery should be about 390 to 400000 as we.

Diane: <unk> price to market to meet affordability.

We expect our gross margin to be approximately 18%, which excludes purchase accounting depending on market condition. Martin is impacted by our use of incentives as a bridge to customers and affordably priced homes.

Diane Bessette: Margin is impacted by our use of incentives as a bridge to customers and affordably priced homes. Our SG&A percentage should be in the range of 8 to 8.2% to maintain sales activity.

Diane: Our SG&A percentage should be in the range of eight to eight 2% to maintain sales activity.

Diane Bessette: So the combined home building, joint venture, land sales, and other categories, we expect a loss of about $15 million. We anticipate our financial services earnings to be in the range of $135 to $145 million. For our multi-family segment, we expect to be about break-even for the quarter. Then turning to Lennar Others, we expect a loss of between $25 to $30 million, excluding the impact of any potential mark-to-market adjustments for our public technology investment. Our Q2 corporate G&A should be about 2% of total revenue, and our foundation contribution will be based on $1,000 per home delivered.

Combined homebuilding joint venture land sales and other category, we expect a loss of about $15 million, we anticipate our financial services earnings to be in the range of $135 million to $145 million.

Diane: For our multifamily segment, we expect to be about breakeven for the quarter.

Diane: And then turning to and are out there, we expect a loss of between $25 million to $30 million, excluding the impact of any potential mark to market adjustments for our.

Diane: Public technology investments.

Diane: Our Q2 corporate G&A should be about 2% of total revenue and our foundation contribution will be based on $1000 per home delivered we expect our Q2 tax rate to be approximately 25, 3% and a weighted average share count should be approximately 261 million shares.

Diane Bessette: We expect our Q2 tax rate to be approximately 25.3%, and the weighted average share count should be approximately 261 million shares.

Diane Bessette: And so on a combined basis, these estimates should produce an EPS range of approximately $1.80 to $2.00 per share for the quarter.

Diane: And so on a combined basis. These estimates should produce an EPS range of approximately $1 80 to $2 per share for the quarter and with that let me turn it over to the operator.

Unknown Executive: With that, let me turn it over to the operator. Thank you.

Unknown Executive: We will now begin the question and answer session of today's conference. We ask that you limit your questions to one question and one follow-up until all the questions have been answered. If you would like to ask a question, please unmute your phone, press star 1, and record your name clearly.

Speaker Change: Thank you we will now begin the question and answer session of today's conference call. We ask that you had a few questions to one question and one follow up until all the questions have been answered maybe you would like to ask a question. Please on mute your phone press star one and record your name clearly when prompted if you need to withdraw your question.

Unknown Executive: withdraw your question. Again, that is star one to ask a question.

Speaker Change: Again that is star one to ask a question. Our first question comes from Stephen Kim from Evercore ISI. Please go ahead.

Stephen Kim: Our first question comes from Stephen Kim from Evercore ISI. Please go ahead. Yeah, thanks a lot, guys. Appreciate all the color. And I guess my first question relates to the long term, whatever the normalized margin that you referred to, I think you, Stuart, you're referring to the gross margin of the you know, kind of the mid 20s. And I was wondering if you could give us a sense for you know, what the operating margin might be, you know, after corporate expense, I assume corporate expense, you're thinking maybe longer term, like one and a half percent or something like that.

Stephen Kim: Yes, Thanks, a lot guys I appreciate all the color.

Speaker Change: And.

Speaker Change: I guess my first question relates to the long term whatever the normalized margin that you referred to I think you Stuart Youre, referring to the gross margin of kind of the mid twenties.

Speaker Change: And I was wondering if you could give us a sense for what the operating margin might be after corporate expense I assume corporate expense youre thinking maybe longer term like one 5% or something like that but it'd be helpful to understand what do you think the normalized.

Stuart Miller: But be helpful to understand what you think the normalized you know, operating margin would be. And what what do you think the path looks like to get your SG&A and corporate combined, you know, down from its current elevated level? You know, I think that across the board, Steve, that you're really looking at efficiencies that are being brought to all elements of the business, especially in the wake of having Spud Melrose and some of the activity that just had to take place as we went through what was a time-intensive program. I think that all parts of our business are being re-looked at and re-rationalized.

Speaker Change: Operating margin would be.

Speaker Change: And what is what do you think the path looks like to get your SG&A and corporate combined down from its current elevated level.

Speaker Change: I think that across the board Steve.

Speaker Change: You're really looking at efficiencies.

Speaker Change: That are being brought to all elements of the business.

Speaker Change: Especially in the wake of.

Speaker Change: Having spun Melrose and some of the.

Speaker Change: Some of the activity that Jim.

Speaker Change: Had to take place as we went through what was a time intensive program I think that all parts of our business are being re looked at Andrew.

Speaker Change: And we rationalized.

Stuart Miller: The simple math that I did was basically around the abnormally high level of incentives that are out there in the market right now to get to the volumes that enable us to realize on the efficiencies that we think will ultimately get. So I've figured out what I think that normalized bottom line operating margin is going to be, but it's significantly higher than where we are right now where we're basically having to incentivize affordability at a very elevated level. Okay, but it's fair to say, though, that you don't think that, you know, a 10 to 11% combined SG&A and corporate rate is sort of the normalized level going forward, right?

Speaker Change: The simple math that I did was basically around.

Speaker Change: The abnormally high level of incentives that are out there in the market right now to get to get to the volumes that enable us to realize on the efficiencies that we think will ultimately get.

Speaker Change: So I hadn't.

Speaker Change: Figured out what I think that normalized bottomline operating.

Speaker Change: Margin is going to be but it's significantly higher than where we are right now where we're basically having to incentivize affordability at a very elevated level.

Speaker Change: Okay, but it's fair to say that you don't think that attended.

Speaker Change: <unk>.

Speaker Change: 10% to 11% combined SG&A and corporate rate is sort of the normalized level going forward right.

Diane Bessette: We do not. We actually think that as we get more and more focused on the new version of the way that we're configured, every part of our business will come under efficiency focus. And it starts with elements of the land side of our business, the land acquisition side of our business, the operating side that we've talked about, the corporate side. Everything becomes simpler as we move forward. It's just going to take some time to embed. Yes, Stephen, I guess I would just say, you know, if you go back to kind of like 2023, you know, our SG&A was probably around 7% versus 8% now.

Speaker Change: But we do not.

Speaker Change: We actually think that.

Speaker Change: As we get more and more focused on the new version of the way we're configured.

Speaker Change: Part of our business will come under.

Speaker Change: Efficiency focus.

Speaker Change: It starts with elements of the land side of our business.

Speaker Change: And acquisition side of our business the operating side that you've talked about.

Speaker Change: Corporate side everything becomes simpler as we move forward, it's just going to take some time to embed that yes.

Stephen Kim: Yes, Stephen I guess I would just say you know if you go back to kind of like 2023.

Stephen Kim: G&A was probably around 7% versus 8%.

Diane Bessette: So I think that gives you a little bit of a framework. And our corporate G&A was about one and a half versus two. The only thing I'd say there is that we do continue to invest in technology. We see that being a very important component. So, you know, that one's a little tougher to call, but, you know, I agree with Stuart. I think that we're in a more elevated mode now than we will be. Yeah, that's encouraging.

Stephen Kim: Now so I think that gives you a little bit of the framework and our corporate G&A. It was about one five versus two the only thing I would say the areas that we do continue to invest in technology, we see that being a very important component.

Stephen Kim: So that one's a little tougher to call but.

I agree with Stewart and I think that we're in a more elevated mode and we will be in the future.

Stephen Kim: Yes, no that's encouraging.

Stephen Kim: I guess my second question is a broader one. And it relates to, you know, how you've determined what the sales pace is that you want to build your platform to deliver. Obviously, demand's been running below that pace, hence the incentives and all. But you've expressed the view that demand is ultimately going to normalize higher and that your margins will normalize once that happens. But an alternative view might be that this is the normal level of demand. You know, and it's, it's been kind of a while now that the demand has been a little disappointing. And so I'm curious is how long is Lennar going to tolerate, you know, subpar margins before you begin to question if maybe the machines built to maybe it ought to be built to a lower level of volume than what you chose to build it, let's say, you know, a year or two ago?

Stephen Kim: I guess my my second question is a broader one and it relates to how you've determined.

Stephen Kim: What the sales pace is that true you wanted to you want to build your platform to deliver.

Stephen Kim: Obviously demand has been running below that pace.

Stephen Kim: The incentives and all but you've expressed the view that demand is ultimately going to normalize higher and that your margins will normalize once that happens, but an alternative view might be that this is at a normal level of demand.

Stephen Kim: Yes.

Stephen Kim: It's been kind of a while now that the demand has been a little disappointing and so I'm curious is how long is.

Stephen Kim: Glenn are going to tolerate subpar margins before you begin to question if maybe the machines built too maybe it ought to be built to a lower level of volume than what you chose to build it let's say a year or two ago.

Stuart Miller: Well, you know, interesting question. I think that we clearly live in a dynamic world, in the housing world. The question of what normalized demand is, is something that we're going to reassess as we move forward. As we're looking at things right now, it's really very much at the community level. And for the communities that we have, we think we're looking, or we know we're looking at an absorption rate that we think over time is a normalized absorption rate. Will that change? We'll have to wait and see. But if we think through the math of where the housing market is, keep going back to the fact that we've been underproducing any notion of normalized production for the past 10 to 15 years.

Stephen Kim: Yeah.

Stephen Kim: Well.

Stephen Kim: Yes interesting question.

Stephen Kim: I think that.

Stephen Kim: We clearly live in a dynamic world and the <unk>.

Stephen Kim: Housing World.

Stephen Kim: A question of what normalized demand is.

Stephen Kim: Is something that we're going to.

Stephen Kim: Reassess.

Stephen Kim: As we move forward.

Stephen Kim: As we're looking at things right now, it's really very much at the community level.

Stephen Kim: And for the communities that we have we think we are looking or we know we're looking at an absorption rate that we think over time is a normalized absorption rate will that change will have to wait and see.

Stephen Kim: <unk>.

Stephen Kim: But if we think through the math of where.

Stephen Kim: The housing market is we keep going back to the fact that we've been under producing any notion of normalized production.

Stephen Kim: For the past 10 to 15 years.

Stuart Miller: And so we think that the underlying demand relative to the population and relative to where production has been leaves us in a supply shortage. And so it's our belief that right now with interest rates where they are, with affordability and inflation having affected affordability, we think that the market is undersupplied and that the demand level and the embedded demand levels are much higher than what is actionable right now. And so that's what we're solving. Might we change our mind as we go forward, as the market evolves, as immigration questions come up, and other questions come up?

Stephen Kim: And so we think that the under wind demand.

Stephen Kim: Relative to the population and relative to where production has been.

Stephen Kim: And the supply shortage.

Stephen Kim: And so it's our belief that right now with interest rates, where they are with affordability and inflation, having infected affected affordability.

Stephen Kim: We think that the.

Stephen Kim: The market is under supplied.

Stephen Kim: And that the demand levels and the <unk>.

Stephen Kim: Embedded demand levels are much higher than what is actionable right now.

Stephen Kim: And so that's what we're solving to Mike.

Stephen Kim: We change our mind as we go forward as the market evolves.

Stephen Kim: As immigration questions come up the other questions come up we will have to wait and see.

John Jaffe: We'll have to wait and see. I would just add to Stuart's comments that as each new normal presents itself in the future, our machine is very clear and we have the ability to focus on adjusting it rather quickly throughout the platform. Okay, so you actually if you do change your mind, it's something you're saying you could do relatively quickly, John. Okay, so that's encouraging. Would you put that in, like within a few quarters that you could adjust? Or is it something that you could do even quicker than that to clarify? I think how quickly we'll move will depend upon what's happening, you know, relative to a new normal and how severe it might be.

Stephen Kim: I would just add.

Stuart Miller: Stuart's comments as each new normal presents itself in the future. Our machine is very clear and we have the ability to focus on adjusting it.

Stuart Miller: Rather quickly throughout the platform.

Stuart Miller: Okay.

Speaker Change: So you actually if you do change your mind Thats, something Youre, saying you could do relatively quickly John Okay. So that's encouraging.

Speaker Change: Would you put that in like within a few quarters that you could adjust or is it something that you could do even quicker than that just to clarify.

Speaker Change: I think how quickly will move will depend upon what's.

Speaker Change: What's happening relative to a new normal in <unk> it might be.

John Jaffe: In most cycles, it's a much more gradual process, and the adjustment is over several quarters. If we find ourselves in a place where we need to move faster, I feel comfortable we could do so. I think the bottom line answer to the question is we can adjust our production levels and therefore our sales base pretty quickly. That would probably take a quarter or two. So we can make those adjustments pretty nimbly, and I think that we're getting better and better at being able to tweak up or tweak down.

Speaker Change: And most cycles, it's a much more gradual process and the adjustment is over several quarters.

Speaker Change: We find ourselves in a place where we need to move faster.

Speaker Change: All we can do so.

Speaker Change: I think I think the Bottomline answer to the question is we can adjust.

Speaker Change: Our production levels and therefore, our sales base.

Speaker Change: Pretty quickly.

Speaker Change: That would probably take a quarter or two.

Speaker Change: So we can make those adjustments pretty nimbly, and I think that we're getting better and better at being able to tweak up or tweak down.

Stephen Kim: Okay, great. Thank you very much.

Speaker Change: Okay, great. Thank you very much guys.

Speaker Change: Okay.

Alan Ratner: Next we'll go to the line of Alan Ratner from Zellman & Associates, please go ahead. Hey guys, good morning. Thanks for all the detail so far and congrats on all the exciting moves during the quarter. I know it was a busy time for you guys. So, nice job getting all of it to the finish line. So, you know, Stuart, I think you walk through the normalized margin conversation well. I'd like to drill in a little bit more there. So, you know, obviously, if incentives go back to normal tomorrow, yeah, your margins are going back to the mid-20s.

Speaker Change: Next we will go to the line of Alan Ratner from Zelman <unk> Associates. Please go ahead.

Speaker Change: Hey, guys. Good morning, Thanks for all the detail so far and congrats on all the exciting news during the quarter I know it was and it was a busy time for you guys. So.

Nice job getting all of it to the finish line.

Speaker Change: Stuart I think you walked through the normalized margin conversation.

Speaker Change: Like to drill in a little bit more there. So obviously if incentives go back to normal tomorrow, Yes. Your margins are going back to the mid twenties, but yes.

Alan Ratner: But, you know, I think one of the advantages of your strategy and your model today is you are turning through your inventory a lot quicker than other builders. And a lot of that inventory was underwritten in a different environment when incentives were much lower. So, I guess my question is, you guys are out there buying land every day, buying a lot of land or tying up a lot of land. The land you're tying up today, is it being underwritten to, you know, an incentive level closer to today's level? And if so, can you get back to a gross margin north of 20% even if incentives don't necessarily get back down to that 5%, 6% level over the next few years?

Stephen Kim: I think one of the advantages of your strategy and your model today as you are turning three or inventory a lot quicker than other builders and a lot of that inventory was underwritten in a different environment. When incentives were much lower so I guess my question is.

Stephen Kim: We're out there buying land every day, you're buying a lot of land are tying up a lot of land the land you're tying up today is it being underwritten to.

Stephen Kim: Incentive level closer to today's level and if so can you get back to a gross margin north of 20%, even if incentives don't necessarily get back down to that five 6% level over the next few years or is it really going to require that type of return to normal to get that margin back up.

Alan Ratner: Or is it really going to require that type of return to normal to get that margin lift back up?

Stuart Miller: You know, Alan, we probably haven't told that part of the story well enough yet. You know, the way we've looked at our land reconfiguration is we're focused on turning that land inventory for exactly that reason. As we as we run through production levels where they are We are basically selling the land that was underwritten in a different level. And we are redeploying at current levels.

Alan Ratner: Alan we probably haven't told that part of the story well enough yet.

Stephen Kim: Sure.

Stephen Kim: The way we've looked at our.

Stephen Kim: Land reconfiguration is we're focused on turning that land inventory for exactly that reason.

Stephen Kim: As we.

Stephen Kim: As we.

Stephen Kim: Run through.

Stephen Kim: Production levels, where they are we are basically.

Stephen Kim: Selling the land that was underwritten at a different level and we are redeploying at current levels.

Stuart Miller: So in just a second, and the aspread to weigh in on this, because Fred's kind of front and centre and a lot of it. But But the whole focus is, let's Let's run through the land and the inventory that was bought yesterday. And constantly, it is a constantly refreshing group of assets, both the home inventory and the land inventory, and particularly in a difficult market as we're in, you know, yesterday's land acquisition isn't going to get better with time, so let's replace it with the next one.

Speaker Change: So in just second I'm going to ask Fred to weigh in on this because spreads kind of front and center and a lot of it but.

Stephen Kim: But the whole focus is.

Stephen Kim: Yes.

Stephen Kim: Let's run through the land and the inventory that was bought yesterday and constantly it is a constantly refreshing.

Stephen Kim: Group of assets, both the home inventory and the land inventory and particularly in a difficult market as we're in.

Stephen Kim: <unk>.

Stephen Kim: Yesterday's land acquisition isn't going to get better with time, so let's replace it with is excellent.

Fred Rothman: Fred, why don't you weigh in? Sure. So we're very strategic right now in how we're approaching land acquisition. We're being patient, but we're also underwriting the current information and incentives and gearing to higher margins. But we're going to watch to see. Land tends to be trailing some of the other aspects of our business in moving down, and we're now finally starting to see land sellers, site development contractors, realize what's happening in the market, and we're going to take advantage of that over time. Got it. Okay, that's encouraging to hear because it's obviously a big, a big part of the strategy to be able to constantly refresh that that cost basis.

Stephen Kim: Once we're sure sure very strategic right now and how we're approaching land acquisition, we're being patient, but we're also underwriting the current information and incentives and gearing to higher margins, but we're going to watch to see land tends to be trailing some of the other aspects of our business and moving down.

And we're now finally, starting to see land sellers site development contractors realize what's happening in the market and we're going to take advantage of that over time.

Speaker Change: Got it okay, that's encouraging to hear because it's obviously a big number.

Speaker Change: Big part of the strategy to be able to constantly refresh that that cost basis. So I appreciate the thoughts there.

Alan Ratner: So appreciate the thoughts there.

Alan Ratner: The second question, you know, also on margin, but more near term. I know you're not guiding for the remainder of the year, but if you, you know, it looks like you're closing guidance, which you're maintaining implies a pretty solid rampant revenue in the back half of the year. You know, typically there's decent seasonality in your gross margin, you have about 150 basis point lift in margins over time in the back half of the year, just on higher revenue number. Recognizing all the moving pieces here, you've got purchase accounting, you've got mill rows, you know, the cost, the higher costs going through there, although that's probably more a 26 and beyond story.

Speaker Change: The second question also on margin, but more near term I know youre not guiding for the remainder of the year, but if you.

Speaker Change: It looks like your closing guidance, which are maintaining implied a pretty solid ramp in revenue in the back half of the year.

Speaker Change: Typically there is decent seasonality in your gross margin you have about 150 basis point lift in margins over time in the back half of the year just on higher revenue number recognizing all the moving pieces here, you've got purchase accounting you've got millrose.

Speaker Change: The higher cost flowing through there, although that's probably more a 26 and beyond story.

Stuart Miller: You've got the Roush Coleman just mix issue. Should we expect all else equal a similar seasonal trend in your margin this year, or are those headwinds going to offset the typical seasonality? Well, that is definitely a backdoor to asking for some guidance on how to market. We're decidedly staying away from that. I think that the market is is still defining itself as we look ahead. There are all kinds of movements in the market that are political and social and economic. I think that we're going to just leave things where they are. We're going to wait and see how the market evolves.

Speaker Change: The router calm in just mix issue should we expect all else equal a similar seasonal trend in your margin this year or are those headwinds going to offset the typical seasonality.

Speaker Change: Well that is definitely a back door to asking for some guidance on our margin.

Speaker Change: We are decidedly staying away from that and I think that.

Speaker Change: The market is.

Is still defining itself as we look ahead, there are all kinds of movements in the market that our political.

Speaker Change: Political and social and economic I think that we're going to just leave things where they are we're going to wait and see how the market evolves.

Stuart Miller: I think that going back to your first question, though, Alan, is this is a time where, you know, turning assets to cash and then redeploying with a new view of market conditions is a real strategic advantage. It's what we're doing every day. Right now, we're going through our ops reviews. We've been in a number of our divisions, we're midway through, and the focus is on exactly that spinning of land, continuing to keep the sales base up, and we might take a lower margin, but we're generating cash and we're redeploying at a new understanding of where the market is and potentially where it's going.

Alan Ratner: Going back to your first question, though Alan is this is a time where.

Alan Ratner: Turning assets to cash and then redeploying with a new view of market conditions as a real strategic advantage. It's what we're doing every day right now we're going through our ops reviews.

Alan Ratner: We've been in a number of our divisions were midway through and the focus is on exactly that spending of land.

Alan Ratner: <unk> to keep the sales space up and we might take a lower margin, but we're generating cash and we're redeploying at a new understanding of where the market is and potentially where it's going I think it's going to work to our benefit.

Alan Ratner: I think it's going to work to our benefit. Appreciate it. Thanks a lot.

Alan Ratner: I.

Alan Ratner: Thanks, a lot.

John Lovallo: go to the line of John Lovallo from UBS, please go ahead. Good morning, guys. Thank you for taking my questions as well.

John Lovallo: Next we will go to the line of John Lovallo from UBS. Please go ahead.

John Lovallo: Good morning, guys. Thank you for taking my questions as well, maybe just to parse out.

John Lovallo: Maybe just to parse out the second quarter gross margin or the walk from the 18.7 to the 18, it sounds like that's excluding the purchase accounting. So, Diane, I guess I'm curious, what is the expected purchase accounting agreement? And then maybe to Alan's question, I mean, Milrose, the impact from that seems like it might be more longer dated, but there's probably some impact, maybe 10 to 30 bips from that. And then along the same lines, are you guys currently selling homes at sub 18% margins right now? I was about 10 basis points in Q1, and I think it will probably be in the range of about 20 basis points in Q2, as we have a full quarter of activity from Russia.

John Lovallo: The second quarter gross margin or the walk from the $18 seven to the <unk>. It sounds like that's excluding the purchase accounting so Dan I guess I'm curious what is the expected purchase accounting agreement and then maybe to Alan's question I mean Melrose.

Impacts from that seems like it might be more longer dated but there's probably some impact maybe 10% to 30 bps from that and then along the same lines are you guys currently selling homes at subs sub 18% margins.

John Lovallo: Right now.

John Lovallo: Until the purchase accounting gain thats about 10 basis points in Q1, and I think that'll primarily be in the range of about 20 basis points in Q2.

John Lovallo: We have a full quarter.

John Lovallo: <unk>.

John Lovallo: Activity from Roche.

Diane Bessette: And the second part of the question. Sorry, Jim, what was that again? What are we selling at? The second part was mail rows, and sorry, what are you currently selling at now? Yeah, I mean, what we're selling, you know, we're the margin that guidance that we gave for Q2 was in part because there will be a lot of sell and close activity. And we're probably, you know, in that zone with our current sales sales and closings in the current quarter.

John Lovallo: And the second part of your.

John Lovallo: Question.

John Lovallo: What was that again, what are we selling at.

John Lovallo: Part was Melrose and sorry, then what are you currently selling.

John Lovallo: Yes, I mean, what we're selling.

John Lovallo: The margin guidance advocate for Q2 was in part because there will be a lot of scale and client activity and we're probably in that zone.

John Lovallo: With our current films sales and closings in the current quarter.

Stuart Miller: Okay, understood. And then, you know, curious to get just how you guys would respond to sort of the bear argument that we hear quite often. But I mean, I personally understand that, you know, the benefits of the even flow strategy over time. But I think there is a perception out there that you've sort of increased the cyclicality in the results, most prominently the margin. And that there's been, you know, this is sort of a divergence in the discipline that the industry has worked so hard to get credit for over the past decade. How do you guys kind of respond to that?

Speaker Change: Okay understood and then curious to just how you guys sort of respond to sort of the bear argument that we hear quite often.

John Lovallo: Look I mean.

John Lovallo: I personally understand the benefits of the even flow strategy over time, but I think there is a perception out there that sort of increase the cyclicality and the results most most prominently the margin.

John Lovallo: And Thats just been just as sort of a divergence and the discipline that the industry has worked so hard to get credit for over the past decade, how do you guys kind of respond to that.

John Lovallo: Yeah.

John Lovallo: Okay.

Stuart Miller: I'm not sure that I'm fully following the... We've been through these times before, and if we're building homes, and as we're building homes, we're quite sure that whether it's the land underneath it, or whether it's the home itself, in a market that is defining itself to the negative side, the home doesn't get more valuable, nor does the land get more valuable with time. We've kept our land assets far more short term, and therefore, to be able to move through the land assets, and ultimately to build homes, tomorrow's pricing is not likely to be a lot better than today's.

John Lovallo: I'm not sure the fully following the.

John Lovallo: The question, but.

John Lovallo: But.

John Lovallo: Look we've been through these times before.

John Lovallo: And if we have a.

John Lovallo: We are building homes and as we're building homes.

John Lovallo: We're quite sure that whether its the land underneath it or whether it's the home itself.

John Lovallo: In a market that is defining itself to the negative side the home doesn't get more valuable nor does the land get more valuable with time, we've kept our land assets far more short term and therefore to be able to move through the land assets and ultimately to develop the builds.

John Lovallo: Hello.

John Lovallo: Tomorrow's pricing is not likely to be a lot better than today.

John Lovallo: So that's how we're thinking about it, and that's certainly how we've been executing. If we need to tap back on production, that's a decision we'll make as market conditions present themselves. Okay, thank you guys.

John Lovallo: So that's how we're thinking about it.

John Lovallo: And that's certainly how we've been executing.

John Lovallo: If we need to tap back on production, that's a decision we'll make as market conditions present themselves.

John Lovallo: Okay. Thank you guys.

Unknown Executive: Blah.

John Lovallo: Okay.

Michael Rehaut: Next we'll go to the line of Michael Rehaut from J.P. Morgan, please go ahead. Thanks. Good morning, everyone. Thanks for all the details always.

Speaker Change: Next we will go to the line of Michael Rehaut from Jpmorgan. Please go ahead.

John Lovallo: Thanks.

Michael Rehaut: Good morning, everyone. Thanks for all the details as always.

John Lovallo: Yes.

Michael Rehaut: First, I wanted to zero in a little bit on some of the mechanics and how to think about, you know, the interactivity with Mill Rose going forward from two aspects. One, obviously, you've already had a significant portion of your land under option to begin with, but now you're taking it up by about another 20 points or so. So, I was just wondering, relative to perhaps, let's say, fiscal 24, what the full or annualized gross margin impact might be from pushing that additional 20% of your land base through options where, theoretically, it might be a little bit of a lower gross margin, all else equal.

John Lovallo: First I wanted to zero in a little bit on some of the mechanics and how to think about.

John Lovallo: The interactivity with mill Roes going forward from two aspects one.

John Lovallo: Obviously, you've already had a significant portion of your land under option.

John Lovallo: To begin with but now you're taking it up by about another 20 points or so so I'm just wondering relative to perhaps let's say fiscal 'twenty four.

John Lovallo: The full or annualized gross margin impact might be from pushing that additional 20.

John Lovallo: Percentage of your.

John Lovallo: Land base through options, where theoretically it might be a little bit of a lower.

John Lovallo: Our gross margin all else equal.

Michael Rehaut: And secondly, on the Mill Rose side, with, you know, tougher sales backdrop, was wondering if there's any element of walking away from some options that, you know, I'm sure with the 18% average, there's something at one of the tail ends of that curve, and if there would be any kind of option walkaways or things that we should anticipate over the next couple of quarters. Um, go. Relative to the margin and the impact of mill rows and to the land banking approach, the migration that we've made to an asset-led program, we've generally seen over time where It's a little bit, a little less mixed in with some of the other movements of market conditions.

John Lovallo: Secondly on the mill road side with.

John Lovallo: Tougher.

John Lovallo: Sales backdrop.

John Lovallo: Was wondering if there's any element of walking away from some options that I'm sure with the 18% average theres something at one of the tail end of that curve.

John Lovallo: And if there would be any kind of obviously walkaways are things that we should anticipate over the next couple of quarters.

John Lovallo:

John Lovallo: So.

John Lovallo: Relative to the margin and the impact of Melrose and to land banking approach. The migration that we've made to an asset light program, we've generally seen over time.

John Lovallo: Where we're at.

John Lovallo: It's a little bit less mixed in with some of the other movements of market conditions that the impact is generally above 100 basis points.

Stuart Miller: But the impact is generally about 100 basis points. That's what we've kind of calculated as we've gone through the migration over the past years. Of course, if we look at the current situation, it's a little bit more difficult to kind of ferret out exactly what the impact is. But it is, it does represent about 20% of our business, so you can kind of extrapolate from there in what is kind of a messy calculation right now.

John Lovallo: That's what we've kind of calculated as we've gone through the migration over the past years of course.

John Lovallo: If we look at the current situation, it's a little bit more difficult to kind of ferret out exactly what the impact is.

But it does represent about 20% of our business.

John Lovallo: You can kind of extrapolate from there and what is kind of a messy calculation right now.

Stuart Miller: You know, in terms of Deposit walkaways, we're not thinking about very many, if any, deposit walkaways. The cost of walking away is probably higher than just working through the assets at a lower margin. We've been inclined to work through assets at lower margins, and so we're not injecting any deposit walkaways in our numbers. We actually think, as we've looked back at past downturns, including the Great Recession, that the best execution with shorter-term, fully-developed positions is almost invariably to work through the assets and turn the land asset to cash and redeploy the cash, rather than a position of walking through, taking a hit relative to deposit money, and ending up not covering your overhead and moving forward.

John Lovallo: In terms of.

John Lovallo: In terms of.

John Lovallo: Deposit walkaways.

John Lovallo: We're not thinking about.

John Lovallo: Very many if any deposit walkaways the cost of walking away.

John Lovallo: Is probably higher than.

And then just working through the assets at a lower margin we've been inclined to work through assets at lower margins and so we're not injecting any.

John Lovallo: Deposit Walkaways and our numbers, we actually think as we've looked back.

John Lovallo: At current.

John Lovallo: At past downturns, including the great recession that the best execution with shorter term fully developed positions is almost invariably to work through the assets and turn the land assets to cash and redeployed the cash rather than.

John Lovallo: A position of walking through taking it.

John Lovallo: Relative to deposit money.

John Lovallo: Ending up.

John Lovallo: Not covering your overhead and moving forward.

Stuart Miller: So we think that the way we've configured our program actually incentivizes us, and others for that matter, to execute the better economic solution, take a lower margin, work through the asset, redeploy the cash.

John Lovallo: So we think that the way we've configured our program actually incentivizes us and others for that matter to do the better economic execute the better economic solution take a lower margin work through the asset redeploy the cash.

Stuart Miller: Great. No, thank you for that, Stuart.

John Lovallo: Great no. Thank you for that.

Michael Rehaut: Secondly, I'd love to just shift a second to the balance sheet and cash flows. And now with obviously the Millrose transaction, still pretty close in the rear view mirror, but nonetheless, you know, if you have any updated thoughts around, you know, capital leverage, you know, free cash flow. And, you know, I believe earlier there'd been talk perhaps of trying to use You know, just, you know, net income being, you know, more or less equivalent to free cash flow and presumably a significant, if not, you know, You know, a large portion of that would be towards share repurchase.

John Lovallo: Secondly, I'd love to just hit the second quarter with a balance sheet and cash flows and.

John Lovallo: Now with with obviously the Morris transaction.

John Lovallo: So still pretty close in the rearview mirror, but nonetheless.

John Lovallo: If you have any updated thoughts.

John Lovallo: Around.

John Lovallo: No.

John Lovallo: Cap leverage.

John Lovallo: Free cash flow and.

John Lovallo: I believe.

John Lovallo: Earlier, there had been part perhaps applying to us.

John Lovallo: Net income being.

John Lovallo: More or less equivalent to free cash flow.

Presumably a significant if not.

John Lovallo: <unk>.

John Lovallo: A large portion of that would be towards that share repurchase.

Diane Bessette: So any updated thoughts around there and maybe even what, you know, any guardrails around share repurchase for 2025? Well, look, we've daylighted this repeatedly on prior earnings calls where we've expressed, explained that the cash flow reconciliation over the next year or so is going to be complicated business. There are a lot of inflows and outflows. Millroads was anomalous in that we were actually spending a large number of assets that ultimately would **Silence** Uh, kind of configuration, as we're taking assets off book and then bringing them back on book over time. Now, that rotation, We're going to have to let that work through a little bit, but we do have, as kind of a North Star and where we're headed, a distinct focus on the fact that as this cash flow anomaly kind of works its way through, we think that we will be generating cash approximately equal to earnings.

John Lovallo: Any updated thoughts around there and maybe even what.

John Lovallo: No.

John Lovallo: Any guardrails around share repurchase for 2025.

John Lovallo: Well look.

John Lovallo: We delighted this repeatedly on prior earnings calls where we.

Expressed explained that the cash flow reconciliation over the next year or so is going to be complicated business.

Speaker Change: There are a lot of inflows and outflows.

Speaker Change: Millrose was anomalous and that we were actually spending a large number of assets that ultimately would.

Speaker Change: Kind of flip back around into a cash flow negative.

Speaker Change: Configuration as we're taking assets off book, and then bringing them back on book over time.

Speaker Change: That rotation.

Speaker Change: We're going to have to let that work through a little bit.

Speaker Change: But we do have as kind of a north star and where we're headed.

Speaker Change: Synced to focus on the fact that as this cash flow.

Speaker Change: Anomaly kind of works that way its way through we think that we will be generating cash approximately equal to earnings.

Diane Bessette: And we do expect to reignite a stock buyback, a cash stock buyback program, that will be rather robust as that cycling kind of works its way through over the next year. Diane? Yeah, I was going to say, Mike, I agree with that. The way I think about it is 2025 is a little bit of a year in transition. There's a lot that changed with Mill Road and just the whole reconfiguration of our balance sheet. But I think, as you know, we're always long-term focused, and we strongly believe that the asset light, capital light model that we've developed is going to be really advantageous in the future and will meet all of the goals that we've established, which is generate cash and really make sure that we're increasing total shareholder return.

Speaker Change: And we do expect to reignite a stock buyback.

Speaker Change: Cash stock buyback program.

Speaker Change: Will be rapid robust as that.

Speaker Change: That cycling kind of works its way through over the next year, Diane who say, Mike I agree with the way I think about it is 2020 side, it's a little bit of a year of transition, there's a lot that change with milgram and.

Speaker Change: Yes, just to hold we can take configuration of our balance sheet, but I think as you know we're always long term focus and we strongly believe that the asset light.

Speaker Change: Capital Light model that we've developed is going to be really advantageous in the future and will meet all of the goals that we've established which is generate cash and make sure that we're increasing total shareholder returns.

Diane Bessette: Perfect. Thanks so much, guys.

Speaker Change: Perfect. Thanks, so much guys.

Susan Maklari: Next, we'll go to line of Susan Maklari from Goldman Sachs, please go ahead. Thank you. Good morning, everyone. Good morning Susan. Good morning. My first question is just sticking with thoughts on the cash generation of the business. You know, one of the things that you mentioned is that now that the spin is done, you can accelerate the progress in terms of the even flow production side and standardizing your product and those efforts in there.

Speaker Change: Next we will go to the line of Susan Mcclary from Goldman Sachs. Please go ahead.

Susan Mcclary: Thank you good morning, everyone.

Speaker Change: Good morning, Susan.

Speaker Change: Good morning. My first question is just sticking Ross.

Speaker Change: It's on the cash generation of the business.

Speaker Change: The things that you mentioned is that now that the spin is done you can accelerate our progress in terms of the even flow production side and standardizing your products.

Susan Maklari: Can you talk about where you are within that and how we should think about the progress that can come through over the next couple of quarters and what that will mean for your ability to sustain cash generation, even in a more volatile or weaker demand environment? So I would say that we're pretty early stage in terms of some of the cost rationalization and efficiencies that we know are going to come from the way that we're configured. These last few quarters have really been juggling a number of items to get to the completion of the no-row spin and the combination with Roush, which, I'll say parenthetically, is just, it's working out to be...

Speaker Change: Athletes in there can you talk about where you are within that and how we should think about the progress that can come through over the next couple of quarters and what that will mean still believe.

Speaker Change: <unk> cash generation, even in a more <unk>.

Speaker Change: Volatile or a weaker demand environment.

So I would say that we are.

Speaker Change: Pretty early stage in terms of some of the cost rationalization and efficiencies that we know are going to come from the way that we're configured.

Speaker Change: These last few quarters.

Speaker Change: Yes.

Speaker Change: Really been juggling, a number of items to get to the completion of the nodes then.

Speaker Change: And the combination with Roush.

Speaker Change: I would say parenthetically is just.

Speaker Change: Working out to be.

Speaker Change: Exactly as expected.

Stuart Miller: And I think that the asset-led approach has worked out very well also. But the more we're now able to focus on a simplified business model, and we're seeing this in our current Ops meetings, the ability to focus attention on the component parts that make this a simpler model is I think going to generate a lot of benefits as we go forward. As it relates to cash generation. I think that the relationships that we now have established and that we are continuing to create on the land side of the business, where we have a very carefully crafted dance.

Speaker Change: And I think that the asset light approach has worked out very well also.

Speaker Change: But.

Speaker Change: But the more we're now able to focus on a simplified business model and we're seeing this in our current ops meetings.

Speaker Change: The ability to focus attention on the component parts that make this a simpler model.

Speaker Change: As I think going to generate.

Speaker Change: A lot of benefits as we go forward as it relates to cash generation.

Speaker Change: Sure.

Speaker Change: I think that the relationships that we now have established and that we are continuing to create on the land side of the business, where we have a very carefully crafted dance, it's a lot like appliances or other materials that we put into the home.

Stuart Miller: It's a lot like appliances or other materials that we put into the home. We have a just-in-time delivery system that's getting more and more efficient and effective. I think that not only will that kind of rotation or dance of buying land, developing land, providing just-in-time delivered home sites on time, as expected, it'll look a lot more like the production cycle that we see in the building of a home. I think the efficiencies embedded in that will be strong, and the cash flow that will be defined by a pure production machine will be very realistic, because we've developed and spent the time to make sure that those land programs are durable, they're systemic, and just like other materials that are delivered for the building of a home, we're able to rationalize the cost and the delivery.

We have a just in time delivery system, that's getting more and more efficient and effective and I think that not only will.

Speaker Change: Is that kind of rotation or dance.

Speaker Change: Buying land developing land, providing just in time delivered homesites on time as expected. It will look a lot like a lot more like the production cycle that we see in the building of a home and I think the efficiencies embedded in that will be strong and the cash flow that we.

Speaker Change: We'll be defined by a pure production machine.

Speaker Change: We'll be very realistic.

Speaker Change: <unk> developed and spent the time to make sure that those land programs are durable they're systemic.

Speaker Change: And just like other materials that are delivered for the building of a home, we're able to rationalize the cost and the delivery system.

Speaker Change: Yes, I would just add to that really enthusiastic.

Stuart Miller: We're really enthusiastic, as Stuart said, of really turning land into more of a production commodity to allow us, we think, to achieve the kind of efficiencies that we've achieved on the production vertical side of our business with land and land development. And we think that there's a world of opportunity to become more efficient, which will translate into our cash flow and into our bottom line. Yeah, but just on the land side, we're being pretty religious right now about making sure that we're not pulling land back on our books, we're not accumulating developed home sites as additional inventory, and those efficiencies are going to define your question on cash flow.

Speaker Change: But as Stuart said of really turning land into more of the production commodity to allow us we think to achieve the kind of efficiencies that we've achieved on the production vertical side of our business with land and land development and we think that there is a world of opportunity to become more efficient which will trail.

Speaker Change: Played into our cash flows into our bottom line.

Speaker Change: But just on the land side.

Speaker Change: We're being pretty religious right now about making sure that we're not pulling land back on our books, we're not accumulating developed home sites as additional inventory and those efficiencies are going to define your question on cash flow, how do we get cash flow to equal actual earnings we think thats going to be.

Stuart Miller: How do we get cash flow to equal actual earnings? We think that's going to be exactly where we end up. Okay, that's helpful color.

Speaker Change: Exactly where we ended up.

Speaker Change: Okay. That's helpful color.

Stuart Miller: And then thinking about the forward growth of the business, post the spin, does that change how you consider acquisitions? And can you talk about the kinds of deals that you might be interested in and what you're seeing in terms of the M&A pipeline and perhaps the health of small some of these smaller private builders, given what's going on in the market? So we've had a, you know, over the past years, we've actually had a, you know, This is a component of our growth that has been defined. by combinations with smaller builders, either fortifying positions in communities that we're already operating in, less so relative to growth into new markets.

Speaker Change: Then.

Speaker Change: Thank you about the forward growth.

Speaker Change: Yes.

Speaker Change: The span.

Speaker Change: Does that change how you consider acquisitions and can you talk about the kinds of deals that you might be interested and what youre seeing in terms of the M&A pipeline and perhaps the health of small some of these smaller private builders given what's going on in the market.

Speaker Change: So.

Speaker Change: We've had a.

Speaker Change: Over the past.

Speaker Change: Years, we've actually had a.

Speaker Change: Component of our growth that has been defined.

Speaker Change: By combinations with smaller builders.

Speaker Change: Either fortifying positions in.

Speaker Change: Communities that we're already operating in.

Speaker Change: Less so relative to growth into new markets, I think that the Roche Poland transaction.

Fred Rothman: I think that the Roush-Coleman transaction is a more sizable transaction with a strategic operating team that is able to and I think is looking forward to working within the Lennar system. I think the coordination that happens there is facilitated by our land programming that I think is going to work very well with the Rausch-Coleman program. And that does define the opportunity to think a little bit differently about how we grow. The more standard kind of M&A deals that we've done in the past have been more along the lines of finding land assets and new community count.

Speaker Change: A more sizable transaction with a strategic operating team that.

Speaker Change: Is able to and I think is looking forward to working within one of our systems.

Speaker Change: I think the coordination that happens there is facilitated by our land.

Speaker Change: Programming.

Speaker Change: I think it's going to work very well with the Rush Coleman program.

Speaker Change: And that does define the opportunity to think a little bit differently about how we grow the more standard.

Speaker Change: End of M&A deals that we've done in the past have been more along the lines of.

Speaker Change: Finding land assets and new community Count I think that we'll be able to enter actually new markets in a more strategic way and using an asset light approach really facilitates the ability to do it in a capital efficient way Brent would you add to that.

Fred Rothman: I think that we'll be able to enter actually new markets in a more strategic way and using an asset-led approach really facilitates the ability to do it in a capital-efficient way. Brent, would you add to that? Yeah, I think, you know, the use of Millrose and the Ralph Coleman acquisition was a prime example of where M&A could become available, but we're very selective and we're out there looking, but we're going to be very strategic in this as well and continue to use our Millrose and potentially others to be the source of the capital for the land and let's find the operational side.

The use of Millrose coma and acquisition.

Speaker Change: Prime example, where M&A could become available, but we're very selective and we're out there looking but we're going to be very strategic in this as well and continue to use our melrose and potentially others to be the source of the capital for the land and was finding operational side. So it's a nice fit but were continuing.

Susan Maklari: So it's a nice fit, but we're continuing to look at other options. Okay, thank you all for the color. Good luck with Okay, thank you, Susan.

Speaker Change: To look at other opportunities.

Speaker Change: Okay. Thank you all for the color and good luck with everything.

Speaker Change: Okay. Thank you Susan and why don't we take.

Ken: And why don't we take one more question?

Speaker Change: Take one more question.

Ken: Our final question comes from Ken...

Speaker Change: Thank you. Our final question comes from Ken <unk> from Seaport Research Partners. Please go ahead.

Ken: Page 1 Page 1 Afternoon, all. If you could, hello, if you could expand this, I know you guys are saying it again and again, but it's being missed by investors. Could you expand on your decision?

Speaker Change: Afternoon all.

Speaker Change: Thank you.

Speaker Change: Hello, if you could expand.

Speaker Change: I know you guys are saying it again and again thats being missed by investors could you expand on your decision.

Ken: Start a Home. on an incremental cash flow basis. where land is increasingly, if not a variable cost. and what you think that means for your cash flow per unit. So I think that's what is the disconnect between where your model is going and the kind of the, you know, the focus on a more margin centric response. Because that's how the industry traditionally looks at it.

Speaker Change: Let's start at home.

Speaker Change: On the incremental cash flow basis.

Speaker Change: Where land is increasingly that's not a variable cost.

Speaker Change: And what you think that means for your cash flow per unit.

Speaker Change: So I think Thats what is the disconnect between where your models going in.

Speaker Change: The kind.

Speaker Change: Kind of the focus on the more margin centric response.

Speaker Change: Because that's how the industry traditionally looks at it.

Diane Bessette: Diane? Yeah, I guess, can I just be repeating what we've said? I mean, I think that we think there's a lot of efficiencies by maintaining the production that offsets that you might be thinking about. I think, you know, if you listen to John, for example, talk about the cost reductions, you know, in an inflationary environment, I think those cost reductions that we've seen on the direct construction side are pretty incredible. And the ability to have third party capital available for the land component is pretty important as well as covering overhead and those types of things.

Speaker Change: Yes.

Speaker Change: Kevin I would just be repeating what we said I mean, I think that we.

Speaker Change: We think theres a lot of efficiencies by maintaining the production.

Speaker Change: That offsets that you might be thinking about I think as you listen to Jon for example will talk about the cost reductions and in an inflationary environment and I think those.

Speaker Change: Cost reductions that we've seen on the construction side are pretty practical and the ability to have third party capital for example for the land component is pretty important as well as covering overhead and those types of things.

Diane Bessette: So, you know, you're right, land is definitely increasing. But in our view, when you look at it from a much higher lens, the efficiency is really to perceive that.

Speaker Change: You're right land is definitely increasing but in our view when you look at it from a much higher Len.

Speaker Change: The efficiencies really supersede that I'm not sure.

Speaker Change: I guess.

Speaker Change: I wanted to clarify.

Ken: Are you asking about the decision to build each home? Yes, because what people think if you have a 10, let's call it a 10% EBIT margin, right? People think that'd be a 10% cash flow. No, it's not. Because traditional model, each unit you sell, you need to go out and, right, acquire a raw lot that you need to develop where that's turned into a variable cost, i.e. cash flow is your earnings. I think people are still kind of missing That, because it seems to me that's how you're making your choices as opposed, absent the need to buy land, which outside the margin side is your cash flow draft, historically.

Speaker Change: Are you asking about the decision.

Speaker Change: Build each home.

Speaker Change: Yes, because what people think if you have a 10, let's call. It a 10% EBIT margin right people think that'd be a 10% cash flow no its not because traditional model.

Speaker Change: Each unit you sell you need to go out and acquire a wrong a lot that you need to develop where that's turned into a variable cost I E. Cash flow is your earnings I think people are still kind of missing.

Speaker Change: That because it seems to me that's how you are making your choice as opposed absent the need to buy land, which outside the margin side does your cash flow drag historically.

Stuart Miller: Well, listen, you know, I don't think it's quite that linear. You know, the fact is that we're going out and we're looking for a piece of land, and the reality is that land might have to be developed. And it might take a year, year and a half for the land to actually mature to a developed home site. And while it isn't situated on our books, we have been a participant in making the decision on that piece of land, which we basically... sign an absorption rate to. It might be three homes per month, four homes per month, but we are making that decision.

Speaker Change: Well listen.

Speaker Change: No.

Speaker Change: I don't think its quite that linear.

Speaker Change: Factors that were going out we're looking for a piece of land.

Speaker Change: And the reality is that <unk> might have to be developed.

Speaker Change: And it might take a year year and a half for the land to actually mature to a developed homesite and while it isn't situated on our book we have.

Speaker Change: We have been a participant in making the decision on that piece of land, which we basically assign and absorption rate to it might be three homes per month four homes per month, but we are making that decision.

Stuart Miller: The real benefit of where we are is that we're constantly refreshing. We're keeping those land obligations much shorter, and as they mature to develop homesites, we're taking them down. We're committing to an absorption rate, and that commitment is limited in its scope or in its risk by the amount of deposit and commitment that we have, but we are looking at building a model that says where we make a commitment to a takedown schedule, we're going to do our very best to execute on that in order to work through that land, and that's how the land bank becomes a lot more efficient over time.

Speaker Change: The real benefit of where we are is that we're constantly refreshing.

Speaker Change: Think those land obligations is much shorter.

Speaker Change: And as they mature to develop homesite, we're taking them down.

Speaker Change: We're committing to a and absorption rate.

Speaker Change: And that commitment is limited in its scope or in its risk by the amount of deposit.

Speaker Change: And commitment that we have but we are looking at building a model that says where we make a commitment to a takedown schedule, we're going to do our very best to execute on that in order to work through that land and Thats, how the land bank becomes a lot more efficient.

Speaker Change: Hi, this is <unk>.

Stuart Miller: The dependability on that absorption rate will enable them to bring the cost of capital down and re-rationalize the actual cost of our input relative to the home. So, I wouldn't think of it as a homesite by optionality that just flows through, but on the other hand, you are running through land. on a more cash flow basis and redeploying that cash into better land over a shorter period of time. I think very much to your point, Stuart, Kenneth, that as Stuart described, we're underwriting this land and determining an absorption pace of, say, four months. We're at that time laying out a timeline for development to get to that finished home site Stuart described, and then a timeline of start sequences at that four-month that's going to match.

Speaker Change: <unk> ability on that absorption rate.

Speaker Change: Enable them to bring their cost of capital down and we rationalized the actual cost of our inputs relative to the home so.

Speaker Change: <unk>.

Speaker Change: I wouldn't think of that as a homesite by homesite apps Optionality that just flows through but on the other hand, you are running through land.

Stuart Miller: On a more cash flow basis, and redeploy that cash into better land over a shorter period of time I think very much to your point Stuart kind of is that sort of described to underwrite as land and determine an absorption pace of say four months, where at that time laying out a timeline for development to get.

Stuart Miller: So that finished homesite Stuart described and then a timeline of start sequences at that four months, that's going to map. So it's really at the time of underwriting where all of us making the decision of starting of where we're going to start homes and with the pace and sequence that we're going to stick to.

John Jaffe: So it's really at that time of underwriting, we're almost making the decision of when we're going to start homes and the pace and sequence that we're going to stick to.

Ken: Very good.

Speaker Change: Very good I guess my second question would simply be.

Diane Bessette: I guess my second question would simply be if you guys can quantify the spread between what you saw in backlog and what became inter-quarter order closings in one queue, comment on the two-queue spread, if it exists or not. And if your share count guidance, Diane, for two-queue, what that effect would be if your exchange was fully executed. Thank you very much. Well, if I look at the second quarter, just from high level, what's in backlog is pretty close to that 18% and what we expect to sell and close is close to that as well, or what we've experienced so far.

Stuart Miller: If you guys could quantify the spread between what you saw on backlog.

Stuart Miller: Intra quarter order closings in <unk> comment on the <unk> spread if it exists or not and if you're.

Stuart Miller: Share count guidance Diane for two Q.

Stuart Miller: What that effect would be if your exchange.

Stuart Miller: Once fully executed thank you very much.

Stuart Miller: But.

Stuart Miller: As I look at the second quarter, just some high level.

Stuart Miller: What's in backlog and it's pretty close to that 18% in what we expect to sell and close to that as well what we've experienced so far so that's why as Stuart mentioned the margin will really be dependent on that sell and close this week.

Diane Bessette: So that's why, as Stuart mentioned, the margin will really be dependent on that sell and close as we go forward. We don't have a lot of data behind us, right, since March 1st, just a couple of weeks, to the extent that increases or decreases, our margin will be impacted because there is always a lot to sell and close in the same quarter. But right now, everything's hovering around the margin guidance that we gave.

Speaker Change: You don't have a lobbyist.

Speaker Change: Data behind us much.

Speaker Change: Just a couple of weeks to the extent that the increases or decreases our margins will be impacted.

Speaker Change: All of these are lots of different clubs in the same quarter, but right now everything hovering around the margin guidance that we gave.

Ken: Excellent. Okay. Thanks, Ken.

Speaker Change: Excellent okay. Thanks.

Stuart Miller: And let's end it there. I want to thank everyone for joining us. These are tricky times as we look at the housing industry. You can always count on getting a straight shot from Lennar. We're going to tell you where the market is and how we're addressing it, and look forward to keeping you updated as we go forward through 2025. Thank you, everyone.

Speaker Change: Thanks, Ken and let's let's end it there.

Speaker Change: I want to thank everyone for joining us.

Speaker Change: These are tricky times as we look at the housing industry.

Speaker Change: You can always count on getting a straight shot from R&R, we're going to tell you where the market is and how we're addressing it and look forward to keeping you updated as we go forward.

Speaker Change: Through 2025, thank you everyone.

Unknown Executive: That concludes Lennar's first quarter earnings conference call. Thank you all for participating.

Speaker Change: That concludes <unk> first quarter earnings conference call. Thank you all for participating you may disconnect at this time and please enjoy the rest of your day.

Unknown Executive: You may disconnect at this time, and please enjoy the rest.