Q1 2025 Lennar Corp Earnings Call
Yes.
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Please standby the conference will begin shortly again, please standby the conference will begin shortly thank you.
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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.
Speaker Change: Thank you and good morning, everyone.
Speaker Change: Today's conference call May include forward looking statements, including statements regarding <unk> business financial condition results of operations cash flows strategies and prospects.
Speaker Change: We're looking statements represent only the minority 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 forward.
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.
Speaker Change: Please note that minority <unk> no obligation to update any forward looking statements.
Stuart Miller: Now I'd like to introduce your host Mr. Stuart Miller Executive Chairman 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 im going to give a brief macro and strategic overview of the company.
Stuart Miller: After my introductory remarks, John's going to give an operational overview update and construction costs cycled.
Speaker Change: 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.
Speaker Change: So let me begin.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: We completed our Melrose spinoff distributing shares to our shareholders and supporting our transition to an asset light model and we completed our <unk> acquisition using our asset light model.
Speaker Change: As we expand into new markets.
Speaker Change: While margin and earnings have been adjusting to move away from the overall housing market.
Speaker Change: We are confident that our focus on volume and even flow will position us very well for resilience durability and growth in the future.
Speaker Change: Let me briefly discuss the overall housing market.
Speaker Change: Consistent with last quarter's earnings call the <unk>.
Speaker Change: Macro economy remains challenging as mortgage interest rates have remained higher for longer which has left the overall housing market weaker for longer okay.
Speaker Change: Cross the housing landscape actionable demand has slowed materially.
Speaker Change: On a bad news is good news basis.
Speaker Change: All of this has led to the long awaited environment, where the cost of both.
Speaker Change: New and existing and apartments start to come down.
Speaker Change: As we noted in our press release, our average sales price this quarter net.
Speaker Change: Net of incentives declined to $408000, 1% lower than last year ever.
Speaker Change: Evidence suggests that the time is now and the sticky and large housing component of inflation, Mike soon contribute to curtail the last mile to the 2% target.
Speaker Change: While underlying demand for homes remains strong.
Speaker Change: <unk> demand is limited by affordability and credit, which remain challenged by limited funds for down payments as well as income qualification for mortgage.
Speaker Change: Most recently, even warehouses halt income indicate an approvable mortgage qualification elevated personal debt levels have often presented as an additional impediment to already strained mortgage access.
Speaker Change: Additionally, until recently consumers have been generally confident that they will remain employed and that their compensation be safe.
Speaker Change: But more recently, even that safety has been called into question.
Speaker Change: 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 remained tepid.
Speaker Change: The overall supply of homes has also remained constrained by years of under production.
Speaker Change: Additional shortfall 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.
Speaker Change: Additionally, new approaches to both immigration and tariffs have potential limiting impact and John will discuss this further in just a few minutes.
Speaker Change: In summary, the housing market has softened as affordability and consumer confidence have limited actionable demand in fact has been increasing and net housing prices seem to be moderating at very least housing will not be contributing to inflationary pressures.
Speaker Change: And while demand is constrained supply is equally limited.
Speaker Change: Against this backdrop, let me turn to <unk> operating strategy.
Speaker Change: Our strategy is and has remained very clear.
Speaker Change: That is simplified our business by focusing on the two core tenets of our operating strategy.
Speaker Change: Operationally build and deliver consistent volume to maximize efficiencies.
Speaker Change: And financially drive asset light land light focus to build the cash flow.
Speaker Change: Now that we have completed our no roads spinoff, we have intensified our focus on each.
Speaker Change: First we focus on consistent volume by matching our production place with our sales base.
Speaker Change: 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 and cycle time, and SG&A and in all elements of.
Speaker Change: Marketing and sales.
Speaker Change: 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.
Speaker Change: While we are not there yet we're getting better each quarter and will accelerate progress now that the spin is behind us.
Speaker Change: Our execution in the first quarter was materially better than the fourth quarter of last year, while we missed our expectation on sales volume.
Speaker Change: 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 volumes and we did not enable our inventory levels. Despite.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: As I noted last quarter, the catching up comes at a cost and that cost us additional pressure on margin.
Speaker Change: Accordingly, we have looked ahead to the second quarter of 2025.
Speaker Change: As we've looked ahead to the second quarter of 2025, we expect to sell between 22000 523500 homes and deliver between 19520 500 homes reached.
Speaker Change: 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.
Speaker Change: Our growing volume.
Speaker Change: On a side note our margins are actually quite strong except for the approximately 13% incentives we are using to enable affordability.
Speaker Change: These are outsized for the moment and normalized incentive should be around 5% to 6% and that would track to a normalized margin for our normalized margin to be in the mid 28 at the mid Twenty's percent.
Speaker Change: Margin.
Speaker Change: We remain focused on consistent volume and current market conditions, and we will be very well positioned as the market normalizes.
The second focus of our operating strategy is to refine our asset light configuration.
Speaker Change: We are much closer to the completion of the strategic rework of our operating platform from being a traditional homebuilder with sizeable land assets to.
Speaker Change: To becoming a pure play land light asset light manufacturing model homebuilder that benefits from just in time delivered adjusted high finished homesite delivery.
Speaker Change: The Melrose spend completed the backbone structure of that rework.
Speaker Change: Now we are and have the time to focus on refinement of that platform.
With no realized operational we now have a strong complement of land bank partners that enabled the land and land development activity that enabled for just in time delivery of fully developed home sites.
Speaker Change: As a manufacturer.
Speaker Change: Of course, each of these valued partners operates a little differently and has a different cost structure.
Speaker Change: But with the diverse.
Speaker Change: Land trade partners, we will refine cost and execution over time.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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 be best positioned with strong volume as margins.
Speaker Change: Normalized.
Speaker Change: Let me turn back briefly to our first quarter.
Speaker Change: 2025 results.
Speaker Change: As I noted earlier, we are quite pleased with the success is embedded in our first quarter results and accomplishments.
Speaker Change: And our first quarter, we started 17651 owned delivered 17834 homes and sold $18355.
Speaker Change: As mortgage interest rates remained higher for longer and consumer confidence search for footing, we drove volume with starts while we incentivize sales to enable affordability.
Speaker Change: As a result during the first quarter sales incentives rose approximately to approximately 13%, reducing our gross margin to 18, 7%.
Speaker Change: Our SG&A came in at eight 5%, which produced a net margin of 10, 2%.
Speaker Change: Though we were able to maintain construction cost and reduce cycle time as John will detail shortly.
Speaker Change: We exceeded our set our sales and delivery expectation, while we were able to grow our community count from 40 547 last quarter to 584.
Speaker Change: <unk> this quarter, including our Rev. Coleman acquisition, and we are better prepared.
Speaker Change: And we are now better prepared for the remainder of the year.
Speaker Change: We continue to expect to deliver between 86 and 88000 homes in 2025.
Speaker Change: Yes.
Speaker Change: Our.
Speaker Change: 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 road spin and growing into new markets with the <unk> acquisition.
Speaker Change: We clearly were able to walk and chew gum at the same time.
Speaker Change: Additionally, on the positive side, we've driven our operating strategy to enable consistent cash flow, which has enabled us to strategically allocate capital.
Speaker Change: 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.
Speaker Change: Additionally, we distributed as a dividend to 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.
Speaker Change: Drive the future success of Lamar.
Speaker Change: As for the remaining 20% of the Mill Road shares Lenoir will shortly dispose of that remaining 20% in either a further distribution of no road shares or <unk> option may execute a potential exchange for Lamar shares, which would basically effectuate a.
Speaker Change: Cashless buyback of our shares.
Speaker Change: Just to say this again the additional 20% interest will be retained for a relatively brief period of time and we will either be distributed were exchanged for Linda our shares to effectuate, a cashless stock buyback.
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.
Speaker Change: We are 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.
Speaker Change: As the market unfolds as we execute through the year.
Speaker Change: So let me conclude and say that while this has been a constructive quarter for Lamar and while the short term road ahead might still seem a little choppy, we're very optimistic about the longer term growth.
Speaker Change: This has been a very exciting quarter for Illinois, and we couldnt be prouder of the work and dedication of our extraordinary associates who've worked together to make it all happen.
Speaker Change: Let me also take a minute to welcome to the team the talented new members up.
Speaker Change: Lennart, who have joined us from our round Coleman combination.
Speaker Change: We couldnt be prouder to now have a solid working together as one.
Speaker Change: Together, we've expanded our platform as we have upgraded the financial and operating platform Dublin.
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 persist across the market.
Speaker Change: And as interest rates normalize, we believe that pent up demand will be activated and 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.
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: Upon thoughtful growth for our future.
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 onsite delivery and then asset like balance sheet and as we complete our asset light transformation, we will continue to refine our platform and generate strong cash.
Speaker Change: Cash flow and returned capital to shareholders through dividend and stock buyback, while we also pursue strategic growth.
Speaker Change: With that let me turn it over to John.
John: And good morning, everyone.
John: It has highlighted for you our strategy of being a consistent high volume homebuilding manufacture.
John: 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 with wider aligns with our star case of four point out. This was accomplished with consistent starts and accurate cycle time, which determined that sales pace needed at each community.
John: The output of this production, our marketing and sales teams engaged on our machine the term digital needs and two appointments and then convert appointment is for sales.
John: 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, but the sales are the right homes.
John: If a community fall 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 alternatives of chasing more top of funnel leads which increased marketing spend we believe our approach produces more qualified and motivated customer appointments, which we can convert into.
John: Penta sales at higher conversion rates.
During the quarter as we move past the beginning of February we do not see the seasonal pick up typically associated with the beginning of the spring selling season. So we continue to lean into our machine focusing on converting leads at appointments and adjusting incentives as needed to maintain sales pace.
John: These 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 with even more incentives.
John: BARDA and Texas markets to assist borrowers achieve mortgage payments they can afford as well as the offset both a slowing in migration environment and increased inventory.
John: It gets around the country as required incentives to assist buyers in the current homebuilding environment.
John: In this challenging macro environment, we utilize all of our machine along with our dynamic pricing model to identify unsold homes very completion.
John: Those are set for those homes and prices are established to achieve sales preventing the buildup of inventory. Accordingly, we entered we ended the quarter with an average of about two unsold completed homes per community.
John: Our production team continued its drive of being an ever more highly efficient homebuilder.
John: Disciplined planning for and delivering consistent construction starts designing efficient to build four plans.
John: <unk> 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.
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.
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 costs. Since Q3 of 2021, we expect this trend to continue for our second quarter and into the year.
John: Also in our first quarter <unk> 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.
John: As Stuart discussed the execution of our strategy of matching our sales pace to our production pace required sales incentives over 13% in the quarter about 700 basis points above normal or.
John: Our trade partners know that we are doing this to maintain production levels, which they greatly benefit from them.
John: 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: 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.
John: 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.
John: 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.
John: 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: 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.
As Stuart address Diane will provide further details we have further executed on our asset light strategy, but the mill has been.
John: 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.
John: During the quarter land bank acquired on our behalf without 29000 home sites for about $1 8 billion.
John: And a commitment of about $1 1 billion in land development.
John: We purchased during the quarter from our various land banks.
John: Partners, almost 15000 Homesites for about $1 6 billion.
John: Operationally our production first discipline of even flow starts allows for the planning and consistency of takedowns from land banks, providing for efficiencies in the operations of land management by both of our land Bank partners and ourselves.
John: 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.
John: With the commencement of land development and home construction.
John: These improvements in the execution of all of our operating strategies enable capital and production efficiencies, leading to an improving inventory churns, which now stands at one seven versus $1 five last year, a 13% increase.
John: 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: I also want to extend a welcome to our <unk> <unk> associated with our family and thank all of our associates for their hard work focus and dedication.
I will turn it over to Diane.
Diane Bessette: Thank you John and good morning, everyone and.
Speaker Change: Stuart and Jon has provided a great deal of color regarding our operations.
Speaker Change: So therefore I assume.
Diane Bessette: Minutes.
Diane Bessette: <unk> balance sheet highlights and then provide estimates for the second quarter.
Diane Bessette: 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.
Diane Bessette: Out 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. That's provided total liquidity of approximately $5 3 billion.
Diane Bessette: 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.
Diane Bessette: $5 6 billion of land, representing 87000, Homesites and $1 billion of cash with this strategic transaction. We completed the next milestone in our journey of becoming a land light just in time manufacturer of home and established a provider of recyclable catch.
Diane Bessette: For the future.
Diane Bessette: In addition, we also completed the acquisition of the homebuilding operations of Rosh Conant homes, which extended our footprint into both new and existing market. As a result of the mill runs and Ralphs transaction. We ended the quarter only 13000, homesites and controlling 533000 home sites for <unk>.
Diane Bessette: A total of 546000 home sites at.
Speaker Change: As John noted this translated into our year's own supply improving two points two years, and our homesites controlled increasing to 98% our lowest years owned and highest controlled percentage in our history.
Speaker Change: We believe this portfolio of home site 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%.
Speaker Change: During the quarter, we started approximately 17701 and ended the quarter with approximately 38300 homes in inventory inventory number includes approximately 3100 homes that were completed unsold, which is about two homes per community well within <unk>.
Speaker Change: Our target historical range.
Speaker Change: 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.
Speaker Change: Building debt to total capital was eight 9%, including the impact of the mirror.
Speaker Change: With our commitment to increasing total shareholder return, we repurchase $5 2 million of our outstanding shares for $703 million and we paid dividends totaling $132 million. This was of course and the distribution to the Netherlands shares.
Speaker Change: Our stockholders' equity was just under $23 million and our book value per share was about $86.
Speaker Change: In summary, the strength of our balance sheet provides us with significant confidence and financial flexibility as we progress through 2025.
Speaker Change: And with that brief overview I'd like to turn to Q2 and provide some guidance estimate.
Speaker Change: Starting with new orders.
Speaker Change: Q2, new orders to be in the range of 22000 523500 homes as we match sales and production paces.
Speaker Change: Anticipate our Q2 deliveries to be in the range of 19500 to 2500.
Speaker Change: With a continued focus on training inventory into cash.
Speaker Change: Q2 average sales price on those delivery should be about 390 to 400000, as we continued to price to market to meet affordability.
Speaker Change: 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.
Speaker Change: Our SG&A percentage should be in the range of eight to eight 2% to maintain sales activity.
Speaker Change: Combined homebuilding 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 million to $145 million.
Speaker Change: For our multifamily segment, we expect to be about breakeven for the quarter.
Speaker Change: 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.
Speaker Change: Public technology investments our.
Speaker Change: 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.
Speaker Change: And so on a combined basis. These estimates should produce an EPS range of approximately $1 80 to $2 per share for the quarter with that let me turn it over to the operator.
Speaker Change: Thank you we will now begin the question and answer session of today's conference call. We ask that you have 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.
Speaker Change: To withdraw your 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: 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 Stuart you are 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.
Speaker Change: 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.
Speaker Change: What do you think the normalized.
Speaker Change: Operating margin would be.
Speaker Change: And what is what do you think the path looks like to get your SG&A.
Speaker Change: 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: <unk> 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.
Speaker Change: And re rationalized.
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 haven't figured out what I think that normalized bottomline operating <unk>.
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.
Speaker Change: 10 to 10% to 11% combined SG&A and corporate rate is sort of the normalized level going forward right.
Speaker Change: 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 that we're configured every part of our business will come under.
Speaker Change: Efficiency focus.
Speaker Change: And then it starts with elements of the land side of our business.
Speaker Change: The land acquisition side of our business the operating side that we've talked about the core.
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%.
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.
Speaker Change: I agree with Stewart and I think that we're in a more elevated mode. Now then we will be in the future.
Stephen Kim: Yeah, no that's encouraging.
Speaker Change: I guess my my second question is a broader one and it relates to how you've determined.
Speaker Change: What the sales pace is that you you wanted to you want to build your platform to deliver.
Speaker Change: Obviously demand has been running below that pace.
Speaker Change: 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 a normal level of demand.
Speaker Change: Yes.
Speaker Change: 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.
Speaker Change: <unk> 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.
Speaker Change: Yeah.
Speaker Change: Well.
Speaker Change: Yes interesting question.
Speaker Change: I think that.
Speaker Change: We clearly live in a dynamic world and the housing world.
Speaker Change: Question of what normalized demand is.
Speaker Change: Is something that we're going to.
Speaker Change: Reassess as.
Speaker Change: As we move forward.
Speaker Change: We're looking at things right now, it's really very much at the community level.
Speaker Change: 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.
But if we think through the math of where.
Speaker Change: The housing market is we keep going back to the fact that we've been under producing any notion of normalized production.
Speaker Change: For the past 10 to 15 years.
Speaker Change: And so we think that the under wind demand.
Speaker Change: Relative to the population and relative to where production has been.
Speaker Change: Leaves us in a supply shortage and so it's our belief.
Speaker Change: Right now with interest rates, where they are with affordability and inflation, having infected affected affordability.
Speaker Change: We think that the market is under supplied and that the demand levels and the embedded demand levels are much higher than what is actionable right now.
Speaker Change: So that's what we're solving too.
Speaker Change: Might we change our mind as we go forward as the market evolves.
Speaker Change: As immigration questions come up the other questions come up we'll have to wait and see.
Speaker Change: 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.
Speaker Change: Rather quickly throughout the platform.
Stuart Miller: Okay.
Speaker Change: So you actually if you do change your mind, it's something you are saying you can 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 oil dependent.
Speaker Change: What's happening.
Speaker Change: <unk> to a new normal and helps us or it might be.
Speaker Change: And load cycles, it's a much more gradual process and the adjustment is over several quarters.
Speaker Change: We find ourselves in a place where you need to move faster.
Speaker Change: All we can do so I think I think the bottom line answer. The question is we can adjust.
Speaker Change: Our production levels and therefore, our sales base 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.
Speaker Change: Okay, great. Thank you very much guys.
Speaker Change: Okay.
Speaker Change: Next we'll go to the line of Alan Ratner from Zelman and Associates. Please go ahead.
Alan Ratner: 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 it was a busy time for you guys. So.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: They are 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.
Speaker Change: 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.
Speaker Change: And we probably haven't told that part of the story well enough yet.
Speaker Change: <unk>.
Speaker Change: The way we've looked at our.
Speaker Change: Land reconfiguration is we're focused on turning that land inventory for exactly that reason.
Speaker Change: As we.
Speaker Change: As we.
Speaker Change: Run through.
Speaker Change: Production levels, where they are we are basically.
Speaker Change: Selling the land that was underwritten to a different level and we are redeploying at current levels.
Speaker Change: So in just a 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.
Speaker Change: But the whole focus is.
Speaker Change: Yes.
Let's run through the land and the inventory that was bought yesterday and constantly it is a constantly refreshing.
Speaker Change: Group of assets, both the home inventory and the land inventory and particularly in a difficult market as we're in.
Speaker Change: Yesterday's land acquisition isn't going to get better with time, so less replace it with the next one.
Speaker Change: Much with share a sewer 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.
Speaker Change: And we are now finally, starting to see land sellers site development contractors realize what's happening in the market and we think took advantage of that over time.
Speaker Change: Got it okay, that's encouraging to hear because it's obviously a big.
Speaker Change: Big part of the strategy to be able to constantly refresh that that cost basis. So I appreciate the thoughts there.
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 overtime in the back half of the year just on higher revenue number.
Speaker Change: <unk> all the moving pieces here, you've got purchase accounting you've got Millrose.
Speaker Change: The higher cost flowing through there, although thats, probably more 26 and beyond story.
Speaker Change: Got the Rouse call mean, 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 the.
The market is.
Speaker Change: 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.
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 pace 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.
Alan Ratner: Thanks, a lot.
Operator: 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: The second quarter gross margin or the walk from the $18 seven to the <unk> It sounds like Thats, 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 millrose.
John Lovallo: The impact 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.
Speaker Change: And along the same lines are you guys currently selling homes at subs sub 18% margins.
John Lovallo: Right now.
John Lovallo: And so the purchase accounting again, Thats about 10 basis points in Q1, and I think that it'll probably in the range of about 20 basis points in Q2.
John Lovallo: As we have a full quarter.
John Lovallo: Activity from from Roche.
John Lovallo: Now the second part of the.
John Lovallo: What was that again, what are we selling in.
John Lovallo: Second part was Melrose and sorry.
John Lovallo: What are you currently still yet not yet.
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 selling activity and we're probably in that zone.
John Lovallo: Our current sales and closings in the current quarter.
John Lovallo: 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: 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 and that Theres been this is sort of a divergence and the discipline that the industry has worked so hard to get credit for over the past.
Speaker Change: Decade, how do you guys kind of respond to that.
John Lovallo: Okay.
John Lovallo: I'm not sure the fully following the.
John Lovallo: The question.
John Lovallo: But.
John Lovallo: But.
John Lovallo: Look we've been through these times before.
John Lovallo: 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.
John Lovallo: We have kept our land assets far more short term and therefore to be able to move through the land assets and ultimately to be built homes.
John Lovallo: Tomorrow's pricing is not likely to be a lot better than today's.
John Lovallo: So that's how we're thinking about it.
John Lovallo: That's certainly how we've been executing if.
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.
John Lovallo: But.
Speaker Change: Next we will go to the line of Michael Rehaut from Jpmorgan. Please go ahead.
John Lovallo: Thanks.
John Lovallo: Everyone. Thanks for all the details as always.
Speaker Change: First I wanted to zero in a little bit on some of the mechanics and how to think about.
Speaker Change: The interactivity with mill Roes going forward from two aspects one.
Speaker Change: Obviously, you already had a significant portion of your land under option.
Speaker Change: 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.
Speaker Change: The full or annualized gross margin impact might be from pushing that additional 20 person.
Speaker Change: Percent of your.
Speaker Change: Land base through options, where theoretically it might be a little bit of a lower.
Speaker Change: Our gross margin all else equal.
Speaker Change: Secondly on the Mill road side.
Speaker Change: Tougher.
Speaker Change: Sales backdrop.
Speaker Change: 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.
Speaker Change: And if there would be any kind of option walkaways are things that we should anticipate over the next couple of quarters.
Speaker Change:
Speaker Change: So.
Speaker Change: 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.
Speaker Change: We're.
Speaker Change: 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.
And that's what we've kind of calculated as we've gone through the migration over the past years of course.
Speaker Change: We look at the current situation, it's a little bit more difficult to kind of ferret out exactly what the impact is.
Speaker Change: But it does represent about 20% of our business. So you can kind of extrapolate from there and what is kind of a messy calculation right now.
In terms of in terms of.
Speaker Change: Deposit walkaways.
Speaker Change: We're not thinking about.
Speaker Change: Many if any deposit walkaways the cost of walking away.
Speaker Change: Is probably higher than.
Speaker Change: 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.
Speaker Change: Deposit Walkaways and our numbers, we actually think as we've looked back.
Speaker Change: At current at at.
Speaker Change: At past downturns, including the great recession that the best execution with shorter term fully developed positions.
Speaker Change: <unk> almost invariably to work through the assets and turn the land assets to cash and redeploy the cash rather than.
Speaker Change: A position of walking through taking <unk>.
Speaker Change: Relative to deposit money.
Speaker Change: Ending up.
Speaker Change: Not covering your overhead and moving forward.
Speaker Change: 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.
Speaker Change: Great no. Thank you for that.
Speaker Change: Secondly, I'd love to just hit the second quarter with the balance sheet and cash flows and.
Speaker Change: Now with with obviously the Morris transaction.
Speaker Change: So felt pretty close in the rearview mirror, but nonetheless.
Speaker Change: If you have any updated thoughts.
Speaker Change: Around.
Speaker Change: Cap leverage.
Speaker Change: Free cash flow and.
Speaker Change: <unk> I believe.
Speaker Change: Earlier, there had been talk perhaps applying to us.
Speaker Change: Net income being.
Speaker Change: More or less equivalent to free cash flow.
Speaker Change: Presumably a significant if not.
Speaker Change: <unk>.
Speaker Change: A large portion of that would be towards share repurchases.
Speaker Change: Any updated thoughts around there and maybe even what.
Speaker Change: Any guardrails around share repurchase for 2025.
Speaker Change: Well look.
Speaker Change: Yes.
Speaker Change: Daylighting this repeatedly on prior earnings calls where we've.
Speaker Change: Express 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: Bill Rhodes 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: Kind of configuration.
Speaker Change: We are 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.
Speaker Change: And we do expect to reignite a stock buyback.
Speaker Change: Cash stock buyback program.
Speaker Change: It will be rapid robust as that.
Speaker Change: As that cycling kind of works its way through over the next year.
Speaker Change: Hey, Mike I agree with the way I think about it is 2020 side, it's a little bit of a year of transition.
Speaker Change: 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.
Speaker Change: The asset light.
Speaker Change: Capital Light model that we've developed is going to be really advantageous in the future and will need all of the goals that we've established which is generate cash and make sure that we're increasing total shareholder returns.
Speaker Change: Perfect. Thanks, so much guys.
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: My first question is just sticking with thoughts on the cash generation of the business. One of 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.
Speaker Change: And 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 ability to sustain cash generation, even in a more volatile or a weaker demand environment.
Speaker Change: 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 Melrose then.
Speaker Change: And the combination with Roche, which.
Speaker Change: I'd say parenthetically is just.
Speaker Change: It's working out to be.
Speaker Change: Exactly as expected.
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: Lot of benefits as we go forward as it relates to cash generation.
Speaker Change: <unk>.
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.
Speaker Change: 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: So that kind of rotation or dance.
Speaker Change: Buying land developing land, providing just in time delivery 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.
Speaker Change: We'll be defined by a pure production machine.
Speaker Change: We'll be very realistic.
Speaker Change: We've 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.
Speaker Change: Enthusiastic as Stuart said of early trading 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 war.
Speaker Change: There are opportunities to become more efficient, which will translate into our cash flows into our bottom line.
Speaker Change: 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.
Speaker Change: <unk>.
Speaker Change: Factory, where we ended up.
Speaker Change: Okay. That's helpful color and then thank you.
Speaker Change: How about the forward growth.
Speaker Change: And 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 we.
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 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.
Speaker Change: A more sizable transaction with the strategic operating team there.
Speaker Change: <unk>.
Speaker Change: Is able to and I think is looking forward to working within one of our systems.
Speaker Change: The coordination that happens there is facilitated by our land.
Speaker Change: Programming.
Speaker Change: Zinc is 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 kind 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.
Speaker Change: The use of Millrose Coleman acquisition or exiting.
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 finally operational side. So it's a nice fit but we will continue.
Speaker Change: Turning to look at.
Speaker Change: At other opportunities.
Okay. Thank you all for the color good luck with everything.
Speaker Change: Okay. Thank you Susan and why don't we.
Speaker Change: Take one more question.
Speaker Change: Thank you. Our final question comes from Ken Zinger from Seaport Research Partners. Please go ahead.
Ken Zinger: Afternoon all.
Speaker Change: Thank you Ed.
Ken Zinger: Hello, if you could expand.
Speaker Change: I know you guys are saying and again again thats being missed by investors could you expand on your decision.
Ken Zinger: Let's start at home.
Ken Zinger: On the incremental cash flow basis.
Ken Zinger: Where land is increasingly that's not a variable cost.
Ken Zinger: And what you think that means for your cash flow per unit.
Ken Zinger: So I think Thats what is the disconnect between where your models failing and the.
Ken Zinger: Kind of the focus on the more margin centric response.
Ken Zinger: Because thats, how the industry traditionally looks at it.
Ken Zinger: Yes.
Ken Zinger: Kevin I would just be repeating what we said I mean I think that.
Ken Zinger: We think theres a lot of efficiencies by maintaining the production.
Ken Zinger: 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 I think.
Ken Zinger: 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.
Ken Zinger: Permanent is pretty important as well as covering overhead and those types of things so.
Ken Zinger: You're right land is definitely increasing but in our view when you look at it from a much higher and learn.
Speaker Change: The efficiencies really supersede that I'm not sure I.
Speaker Change: I guess question.
Ken Zinger: I wanted to clarify.
Speaker Change: Are you asking about the decision to build each home.
Speaker Change: Yes, because what people think if you have it 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. It is your earnings I think people are still kind of missing.
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.
Speaker Change: Well listen.
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 and and the reality is that land you might have to be developed.
Speaker Change: <unk>.
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 books. We have we have been a participant in making the decision on that piece of land, which we basically.
Speaker Change: Sign and absorption rate to it might be three homes per month four homes per month, but we are making that decision.
Speaker Change: Real benefit of where we are is that we're constantly refreshing with keeping those land obligations is much shorter and as they mature to develop homesite, we're taking them down.
Speaker Change: We're 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 and commitment that we have but we are looking at building a model that says we're.
Speaker Change: 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 overwrite high the dependability on that absorption rate will enable them to bring the cost of capital.
Speaker Change: Dow and re rationalize the actual cost of our inputs relative to the home so.
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.
Speaker Change: <unk>.
Speaker Change: 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 at land and determine an absorption pace of say four months, where at that time lay out a timeline for development to get to that finished homesites to a disk.
Speaker Change: 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 world is making the decision of starting of where we're going to start homes and the pace and sequence that we're going to stick to.
Speaker Change: Very good I guess my second question would simply be.
Speaker Change: If you guys could quantify the spread between what you saw in backlog.
Speaker Change: Intra quarter order closings in <unk> comment on the <unk> spread if it exists or not.
Diane Bessette: If your share count guidance Diane for two Q.
Diane Bessette: What that effect would be if your exchange.
Diane Bessette: Fully executed thank you very much.
Diane Bessette: But.
Diane Bessette: If I look at the second quarter, just some high level.
Speaker Change: 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: Third point, we don't have a lobbyist.
Data behind us much.
Diane Bessette: Just a couple of weeks to the extent that the increases or decreases our margins will be impacted if there is no.
Diane Bessette: All of these are lessons that were closed in the same quarter, but right now everything hovering around the margin guidance that we gave.
Diane Bessette: Excellent okay. Thanks.
Diane Bessette: 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.
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.