Q2 2025 Lennar Corp Earnings Call

June 17, 2025

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 statement.

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 forward looking statements represent only Illinois to estimates on the date of this conference call and are not intended to give any assurance as to actual future results because.

Speaker Change: Forward looking statements relate to matters that have not yet occurred these statements are.

Speaker Change: Certainties.

Speaker Change: Many factors could affect future results and may cause <unk> actual activities or 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 one of ours annual report on Form 10-K.

[music].

Speaker Change: Most recently filed with the SEC.

Speaker Change: Please note that no obligation to update any forward looking statements.

Speaker Change: I would now like to introduce your host Mr. Stuart Miller Executive Chairman and co CEO, Sir you may begin.

Good morning, everybody and thank you for joining us today.

Speaker Change: I'm in Miami today, together with Jon Jaffe, co CEO and President Diane Bessette, our Chief Financial Officer.

Speaker Change: David Collins, who you just heard from our controller and Vice President Fred Rothman, Our Chief operating Officer, Bruce gross our CEO of <unk> financial services, Mark savanna, our general counsel.

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

And a few others as well.

Speaker Change: As usual I'm going to give a macro and strategic overview of the company. After my introductory remarks, John is going to give an operational overview update in construction costs and cycle time and some other items.

Thanks.

[music].

And as usual Diane is going to give a detailed financial highlights along with some guidance for our third quarter of 2025.

And then of course, we'll take questions and answers.

Speaker Change: <unk> answer period as usual I'd like to ask that you. Please limit yourself to one question and one follow up so that we can accommodate as many as possible.

Speaker Change: So let me begin.

Speaker Change: We're very pleased to review our 2025 second quarter results against the continuing backdrop of a challenging economic environment for the housing market in.

Speaker Change: In the second quarter, we remained focused on our stated strategy by driving volume and growth matching production and sales pace using margin reduction to enable affordability and sell and deliver homes to avoid building excess inventory.

Sure.

Okay.

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

Speaker Change: While our margin and earnings have been adjusting and of course falling in order to accommodate the realities of the housing market conditions, we remain focused on volume and even flow production to enable re rationalized cost structure and overhead in order to find a floor and rebuild margins.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Welcome to our second 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 statement.

Speaker Change: Even as the overall housing market continues to soften.

Speaker Change: We expected that the new normal of higher interest rates for longer would mean lower margins for longer.

Speaker Change: As we drove affordability.

Speaker Change: We knew that we and the industry were initially going to have to bring down the price of homes, we build to incentives and mortgage by down to meet affordability and normalize the supply and demand balance.

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 forward looking statements represent only one large estimates on the date of this conference call and are not intended to give any assurance as to actual future results.

Speaker Change: We also knew.

Speaker Change: That you rationalized margin from a lower average sales prices would only be a we would only be able to rebuild margin from a more efficient cost base.

Speaker Change: Forward looking statements relate to matters that have not yet occurred these statements.

Speaker Change: We believe that we have gotten ahead of these market realities and we are building, what what will become a stronger margin driving platform by using volume to enable us to drive costs down across our platform.

Speaker Change: And uncertainties, many factors could affect future results and may cause <unk> actual activities or 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>.

Speaker Change: We know this takes time.

Speaker Change: But we also know it will help build healthier housing market.

Speaker Change: <unk> positioned <unk> for bottom line growth, even as the market remains soft.

Speaker Change: <unk> annual report on Form 10-K, most recently filed with the SEC.

Speaker Change: Admittedly, we haven't gotten there yet, but we believe that we're getting very close to the bottom and the time when we will build back margin from a lower cost structure and I'll explain that in more detail shortly.

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

Stuart Miller: I would now like to introduce your host Mr. Stuart Miller Executive Chairman and co CEO, Sir you may begin.

Stuart Miller: Good morning, everybody and thank you for joining us today and in Miami today, together with Jon Jaffe co CEO and President Diane Bessette, Our Chief Financial Officer, David Collins, who you just heard from our controller and Vice President Fred Rothman, Our Chief operating Officer, Bruce gross our.

Speaker Change: First I'll discuss the market environment, then we'll review our strategy then relate strategy to our reported numbers and expectations for the near future.

Speaker Change: Let me start with a macro view of the housing market.

Speaker Change: Consistent with last quarter's earnings call. The macro economy remains challenging as mortgage interest rates have remained higher while consumer confidence has been challenged by a wide range of uncertainties, both domestic and globally.

Stuart Miller: CEO of Lin, our financial services, Mark savanna, our general counsel.

Stuart Miller: And a few others as well.

Speaker Change: As usual I'm going to give a macro and strategic overview of the company. After my introductory remarks, John is going to give an operational overview update and construction cost cycle time and some other items.

Speaker Change: Across the housing landscape actionable demand has been diminished by both affordability and consumer confidence and therefore has continued to soften.

Speaker Change: As usual Diane is going to give a detailed financial highlight along with some guidance for our third quarter of 2025.

Speaker Change: At the same time supply remains constrained by years of under production.

Speaker Change: And then of course, we will take questions.

Speaker Change: New construction has slowed as builders have pulled back on production due to mixed demand signals exacerbating the product supply shortage that derived from the great recession and its aftermath.

Speaker Change: Question and answer period as usual I'd like to ask that you. Please limit yourself to one question and one follow up so that we can accommodate as many as possible.

Speaker Change: So let me begin.

Speaker Change: Additionally, restrictive land permitting along with higher impact fees remained supply constraints, while labor and material costs Lumbers particular, there's a particular M&A.

Speaker Change: We're very pleased to review our 2025 second quarter results against the continuing backdrop of a challenging economic environment for the housing market.

Speaker Change: Are generally increasing.

Speaker Change: Accordingly, given short supply home prices remain high with medium sales hovering around $400000 in many markets.

Speaker Change: Demand, however is still high as people want and need homes melendy.

Speaker Change: Millennials are hitting prime the prime buying age and are realizing the benefit and perhaps imperative of homeownership.

Speaker Change: But affordability and waning confidence around buying now are sending confusing signals.

Speaker Change: I certainly don't want to overstate the negative as the market is definitely not crashing but it just continues.

Speaker Change: Even as the overall housing market continues to soften.

Speaker Change: We expected that the new normal of higher interest rates for longer would mean lower margins for longer.

Speaker Change: Continues to cool.

Speaker Change: Inventory is up slightly from last year's lower levels, but still relatively limited.

Speaker Change: As we drove affordability.

Speaker Change: It's just that the housing market right now is driven by supply and demand that can't be properly aligned.

Speaker Change: We knew that we and the industry were initially going to have to bring down the price of homes, we build through incentives and mortgage buy downs to meet affordability and normalize the supply and demand balance.

Speaker Change: This is a difficult cycle as low supply fuels high prices and high prices lockout, many of our buyers.

Speaker Change: We also knew.

Speaker Change: That you rationalized margin from a lower average sales prices would only be eight we would only be able to rebuild margin from a more efficient cost base.

Speaker Change: Mayors and governors around the country continue to decry the housing shortage and point to affordability for attain ability.

Speaker Change: Alrighty concern.

Speaker Change: As a case in point I and many other homebuilding leaders last week heard from Governor Cox of Utah.

Speaker Change: Blame that Theres, a significant housing shortage in his state and they simply need more supply.

Speaker Change: We know this takes time, but we also note it will help build healthier housing market and position Lamar for Bottomline growth, even as the market remains soft.

Speaker Change: In fact, they are running a need more supply publicity campaign in the state.

Speaker Change: He noted that the American Dream is homeownership and his state has a 350000 home deficit that is maintaining prices at an unaffordably high level.

Speaker Change: He emphatically argued that they need more starter homes in the state that are affordable for those who are just beginning their careers and their families.

Speaker Change: First I will discuss the market environment. They will review our strategy then relate strategy to our reported numbers and expectations for the near future.

Speaker Change: He describes how he and his state are making noteworthy effort to eliminate or modify restrictions and zoning and timeliness in order to attract more supply, which will help narrow the supply gap and help align supply and demand.

Speaker Change: Let me start with the macro view of the housing market.

Speaker Change: This is a common refrain.

Speaker Change: The post pandemic days of strong actionable demand driven by low interest rates are behind us.

Speaker Change: Across the housing landscape actionable demand has been diminished by both affordability and consumer confidence and therefore has continued to soften.

Speaker Change: Initially many of the housing market held onto the hope that the higher the higher interest rates were temporary expecting inflation to subside and rates to drift back to lower levels.

Speaker Change: At the same time supply remains constrained by years of under production.

Speaker Change: However, this expectation has not materialized.

Speaker Change: Looking ahead, there is little evidence to support expectations of materially low lower interest rates in the near term.

Speaker Change: As a result elevated interest rates has solidified as the new normal.

Speaker Change: Additionally, restrictive land permitting along with higher impact fees remained supply constraints, while labor and material costs Lumbers particular, as a particular MSA.

Speaker Change: The environment is about recognizing that short supply is keeping prices higher and that only lower prices enabled by lower cost structures will define affordability.

Speaker Change: Are generally increasing.

Speaker Change: Accordingly, given short supply home prices remain high with medium sales hovering around $400000 in many markets.

Speaker Change: This trend has started with reducing margins and using incentives to enable affordability, but looking ahead. It is much more about transitioning to lower cost structures.

Speaker Change: Demand, however is still high as people want and need homes.

Speaker Change: Against this backdrop, let me turn to <unk> operating strategy.

Speaker Change: Millennials are hitting prime the prime buying age and are realizing the benefit and perhaps imperative of homeownership.

Speaker Change: Our strategy is and has remained very clear.

Speaker Change: But affordability and waning confidence around buying now are sending confusing signals.

Speaker Change: First operationally, we are building and delivering consistent volume by meeting the market at affordability and using volume.

Speaker Change: We certainly don't want to overstate the negative as the market is definitely not crashing.

Speaker Change: And using volume, we push efficiencies through our platform.

Speaker Change: It just continues to cool.

Speaker Change: And second financially we are focused on driving an efficient asset light land like balance sheet to effectively hold and develop our land assets and to build cash flow.

Speaker Change: Inventory is up slightly from last year's lower levels, but still relatively limited.

Speaker Change: It's just that the housing market right now is driven by supply and demand that can't be properly aligned.

Speaker Change: As I said earlier, we are not there yet, but we are certain that we are finding a floor with margin and getting close to building it back even in a softer housing market environment.

Speaker Change: This is a difficult cycle as low supply fuels high prices and high prices lockout, many of our buyers.

Speaker Change: Mayors and governors around the country continue to decry the housing shortage and point to affordability for obtain ability as a priority concern.

Speaker Change: As the current market softness softness unfolded, we focused on consistent volume by matching our production pace with our sales pace.

Speaker Change: As a case in point high and many other homebuilding leaders last week heard from Governor Cox of Utah explain that there is a significant housing shortage in his state and they simply need more supply.

Speaker Change: Although some have questioned why we have maintained volume rather than protects our margin.

Speaker Change: We are very clear and steadfast on our strategy.

Speaker Change: Historically, we protected margin as market conditions stalled and we generally lead the way and protecting short term profitability.

Speaker Change: In fact, they are running a need more supply publicity campaign in the state.

Speaker Change: He noted that the American Dream is homeownership and his state has a 350000 home deficit that is maintaining prices at an unaffordably high level.

Speaker Change: But we learned through those times.

Speaker Change: But once we step backwards and lose momentum it becomes increasingly more and more difficult to restart and recapture volume the.

Speaker Change: Key emphatically argued that they need more starter homes in the state that are affordable for those who are just beginning their careers and their families.

Speaker Change: The machine slows and does not restart easily.

Speaker Change: We have concluded that by maintaining volume, we can create new efficiencies and new solutions that are durable for the future and will result in meaningful long term efficiencies in our cost structure.

Speaker Change: He describes how he and his state are making noteworthy efforts to eliminate or modify restrictions and zoning and timeliness in order to attract more supply, which will help narrow the supply gap and help align supply and demand.

Speaker Change: When we stopped and pulled back the restart is difficult and expensive, but even worse, we ended up coming back as the exact same company, we were before with no significant changes for the future.

Speaker Change: This is a common refrain.

Speaker Change: The post pandemic days of strong actionable demand driven by low interest rates are behind us.

Speaker Change: Today at <unk>, we are laser focused on injecting technology assisted solutions into our platform with the expectation that we become meaningfully different and decidedly better.

Speaker Change: Initially many of the housing market held onto the hope that the higher <unk>.

Speaker Change: Higher interest rates were temporary expecting inflation to subside and rates to drift back to lower levels.

Speaker Change: We believe.

Speaker Change: That with volume, we can design and engage real change that will produce significant recurring returns for years to come.

Speaker Change: However, this expectation.

Speaker Change: Patients has not materialized.

Speaker Change: Looking ahead, there is little evidence to support expectations of materially low lower interest rates in the near term as a result elevated interest rates has solidified as the new normal.

Speaker Change: It really comes down to using hard times to push to force and accomplished hard things and this is exactly what we're doing.

Speaker Change: As many know we have spent considerable time working with investing in and exploring technology.

Speaker Change: The environment is about recognizing that short supply is keeping prices higher and that only lower prices enabled by lower cost structures will define affordability.

Speaker Change: And the general business community is consumed with the possibilities and opportunities enabled by modern technology.

Speaker Change: This trend has started with reducing margins and using incentives to enable affordability, but looking ahead. It is much more about transitioning to lower cost structures.

Speaker Change: We think about the extraordinary companies.

Speaker Change: That re made their business by incorporating technology solutions into an older platform like Walmart or home depot.

Speaker Change: They invested heavily in their technology enabled solutions and cemented themselves as industry leaders.

Speaker Change: Against this backdrop, let me turn to <unk> operating strategy.

Speaker Change: Our strategy is and has remained very clear.

Speaker Change: We believe in the virtues of technology solutions, and the value and efficiency it can bring.

Speaker Change: First operationally, we are building and delivering consistent volume by meeting the market at affordability and using volume and.

Speaker Change: We clearly believe that technology properly configured can enhance productivity.

Speaker Change: And using volume, we push efficiencies through our platform.

Speaker Change: Today's technologies can and will combine with extraordinary management team to bring efficiencies that have never been seen before.

Speaker Change: And second financially we are focused on driving an efficient asset light land like balance sheet to effectively hold and develop our land assets and to build cash flow.

Speaker Change: We believe that productivity and efficiencies can be enhanced by orders of magnitude when technology assistant solutions intersect with company wide adoption.

Speaker Change: As I said earlier, we are.

Speaker Change: Not there yet, but we are certain that we are finding a floor with margin and getting close to building it back even in a softer housing market environment.

Speaker Change: We have learned that modern technology is not plug and play in.

Speaker Change: In order to get excellent product development and achieved adoption. It requires substantial monetary investment management time and widespread engagement. Additionally.

Speaker Change: As the current market softness softness unfolded, we focused on consistent volume by matching our production pace with our sales pace.

Speaker Change: Additionally, it needs a lot of volume to run through the system for development and for AB testing.

Speaker Change: Although some have questioned why we have maintained volume rather than protect our margin.

Speaker Change: These solutions are very hard to create and he and even harder to incorporate into an organization that is accustomed to old ways and old habits.

Speaker Change: We are very clear and steadfast on our strategy.

Speaker Change: Historically, we protected margin as market conditions stalled and we generally lead the way and protecting short term profitability.

Speaker Change: But we are certain that the returns on investment will be significant in both cost savings and efficiency in the way that we acquire and interact with our customer.

Speaker Change: We learned through those times.

Speaker Change: But once we step backwards and lose momentum it becomes increasingly more and more difficult to restart and recapture volume.

Speaker Change: This is why we are driving volume and focused on using that volume to enable unique Lin our technology enabled solutions I'll review some examples shortly.

Speaker Change: The machine slows and does not restart easily.

Speaker Change: But first let me briefly reflect on our second core strategy of driving an efficient asset light land balance sheet to efficiently hold and develop our land assets and build cash flow.

Speaker Change: As I noted last quarter the mill ROE spin was a critical part of our asset light land light strategy, but there's more to accomplish the land strategy also benefits from our volume as greater predictable volume enables greater certainty for the capital markets and will help build a more cash.

Speaker Change: Today at <unk>, we are laser focused on injecting technology assisted solutions into our platform with the expectation that wed become meaningfully different and decidedly better.

Speaker Change: Capital efficient market for this very important part of our business.

Speaker Change: We're continuing to drive certainty with volume for our land Bank partners and this will help ensure stability and dependability.

Speaker Change: We believe.

Speaker Change: That with volume, we can design and engage real change that will produce significant recurring returns for years to come.

Speaker Change: In turn that dependability will translate into certainty and predictability for Lamar.

Speaker Change: It really comes down to using hard times to push the force and accomplish hard things and this is exactly what we're doing.

Speaker Change: Additionally, this part of our strategy also benefits from our technology enabled solutions work as a technology based administration system will enable efficient efficiency at many level level and I will further address this shortly as well.

Speaker Change: As many know we have spent considerable time working with investing in and exploring technology.

Speaker Change: And the general business community is consumed with the possibilities and opportunities enabled by modern technology.

Speaker Change: So now let me turn to our results.

Speaker Change: <unk>.

Speaker Change: As I noted earlier, we're quite pleased with the success embedded in our second quarter results and accomplishments.

Speaker Change: We think about the extraordinary companies.

Speaker Change: That re made their business by incorporating technology solutions into an older platform like Walmart or home depot.

Speaker Change: And very complicated market conditions, when our associates have been executing our strategy well learning and developing new technologies for our future.

Speaker Change: They invested heavily in their technology enabled solutions and cemented themselves as industry leaders.

Speaker Change: We believe in the virtues of technology solutions, and the value and efficiency it can bring.

Speaker Change: This hard work.

Speaker Change: This is hard work and I, thank them all for their amazing contributions to that future.

Speaker Change: We clearly believe that technology properly configured can enhance productivity.

Speaker Change: In our second quarter, we started over 24000 homes, making up for last quarter shortfall we.

Speaker Change: Today's technologies can and will combined with extraordinary management teams to bring efficiencies that have never been seen before.

Speaker Change: We delivered over 20000 homes and sold 22000 and 601 homes.

Speaker Change: As mortgage interest rates moved higher for longer and consumer confidence declined we continued to drive volume with our starts while we incentivize sales to enable affordability.

Speaker Change: We believe that productivity and efficiencies can be enhanced by orders of magnitude when technology assistant solutions intersect with company wide adoption.

Speaker Change: As a result during the second quarter sales incentives rose again to 13, 3%, reducing our gross margin to 18% excluding purchase accounting as expected.

Speaker Change: We have learned that modern technology is not plug and play in order to get excellent product development and achieved adoption. It requires substantial monetary investment management time and widespread engagement.

Speaker Change: On our lower than expected average sales price of 389000.

Speaker Change: Additionally, it needs a lot of volume to run through the system for development and for AB testing.

Speaker Change: Our SG&A came in at eight 8%, which produced a net margin of nine 2% again, excluding purchase accounting.

Speaker Change: These solutions are very hard to create and heat and even harder to incorporate into an organization that is accustomed to old ways and old habits.

Speaker Change: Our sales and delivery and delivery.

Speaker Change: Came within expectations.

Speaker Change: But we are certain that the returns on investment will be significant in both cost savings and efficiency in the way that we acquire and interact with our customer.

Speaker Change: While we were able to grow our community count to 1617, this quarter and we continue to be better proposition for the remainder of the year.

Speaker Change: This is why we are driving volume and focused on using that volume to enable unique Lin our technology enabled solutions I'll review some examples shortly.

Speaker Change: We expect to deliver at the low end of our previously stated range of 86 to 88000 homes in 2025.

Speaker Change: Looking ahead I noted earlier, we believe that we are starting to see a bottom in the free fall in our margin that started with the spike in interest rates beginning in 2022.

Speaker Change: We are expecting our margin to begin to stabilize as we have used volume to work with our trade partners to reduce costs and build efficiencies and afford as affordability requires additional incentives.

Speaker Change: As I noted last quarter. The mill road spend was a critical part of our asset light land light strategy, but there is more to accomplish the land strategy also benefits from our volume as greater predictable volume enables greater certainty for the capital markets and will help build a more.

Speaker Change: We have provided consistent volume to deliver consistent and even flow production to our trade partners. So they can drive their own efficiencies drive down their costs and deliver cost savings to us.

Speaker Change: Our capital efficient market for this very important part of our business.

Speaker Change: We are continuing to drive certainty with volume for our land Bank partners and this will help ensure stability and dependability in turn that dependability will translate into certainty and predictability for Lamar.

Speaker Change: Accordingly, our construction costs has actually decreased over the past two and a half years.

Speaker Change: As the market has gotten even more difficult.

Speaker Change: And given the continued deterioration in market conditions, we have put increasing pressure on our trade partners to force costs down further to push greater efficiencies and to reduce their margins as well.

Speaker Change: Additionally, this part of our strategy also benefits from our technology enabled solutions work as a technology based administration system will enable efficient efficiency at many levels levels and I will further address this shortly as well.

Speaker Change: Every participant in our construction cost ecosystem is benefiting from our volume commitments and is either working as a part of our strategy to find ways to build permanent models of efficiency or they'll just need to move on.

Speaker Change: So now let me turn to our results.

Speaker Change: Sure.

Speaker Change: As I noted earlier, we are quite pleased with the success embedded in our second quarter results and accomplishments.

Speaker Change: We are concurrently using the consistent volume embedded in our program to work dynamically with our horizontal trade partners as well and by that I mean, the partners, who put in the roads water and sewer on these attractive land that we developed.

Speaker Change: Very complicated market conditions, when our associates have been executing our strategy, while learning and developing new technologies for our future.

Speaker Change: This hard work this is hard work and I. Thank them all for their amazing contribution to that future.

Speaker Change: They too are dependent on consistent volume to ensure that their investment in heavy equipment is continuously working idle equipment cost money with no income our focus on volume enables us to have conversations and build relationships that were impossible when the market was heated and strong.

Speaker Change: In our second quarter, we started over 24000 homes, making up for last quarter shortfall.

Speaker Change: We delivered over 20000 homes and sold 22601 homes at.

Speaker Change: Yeah.

Speaker Change: Given those initiatives. We look ahead to the third quarter of 2025, we expect that our margin will come in at approximately 18% of course, depending on market condition.

Speaker Change: As a result during the second quarter sales incentives rose again to 13, 3%, reducing our gross margin to 18% excluding purchase accounting as expected.

Speaker Change: We expect to sell between 22000, 23000 homes and deliver between 22 and 23000 homes.

Speaker Change: We expect our average sales price between to be between 380 and 385000 as we expect to continue to see pricing pressure on homes that will be sold during the quarter.

Speaker Change: On our lower than expected average sales price.

Speaker Change: Nevertheless, we are focused on driving sales and closings and driving strong current cash flow even at reduced profitability.

Speaker Change: We are focused on maintaining properly sized inventory within our two homes completed unsold for community level per month.

Speaker Change: No.

Speaker Change: Overall, so that if market conditions stabilize or improve we will benefit and if the market conditions soften we are prepared.

Speaker Change: We expect our overhead in the third quarter to continue to run on the high side at between eight and eight 2% as we continue to invest in and evolve various Lenoir Tech technology assisted solutions that will define our future.

Speaker Change: These initiatives have been and will continue to add SG&A as well as corporate G&A for some time to come as they represent a significant investment in our differentiated future.

Speaker Change: Let me give you some examples.

Speaker Change: You might remember the program that we once described as Lou and our machine.

Speaker Change: The machine, which is overseen by or a client, Jeff Moses and Ben Locke, and they do an amazing job.

Speaker Change: Is.

Speaker Change: It was and still is our primary digital marketing and customer acquisition product and it has become central to our overall marketing and sales efforts.

Speaker Change: It operates on a sales force backbone, which ingest data from across the Lamar sales landscape.

Speaker Change: The machines components have become native to the Lenoir way of selling.

Speaker Change: We have invested heavily in the future of this high technology program, which is designed to reduce our customer acquisition costs, both internal and external and manage the dynamic pricing of our homes.

Speaker Change: Perhaps most importantly, we are working closely with executives at Salesforce as well as our advisors at Mackenzie to evolve and design a lot of our agent force that will be able to quickly engage with customers in coordination with our sales team as well as <unk>.

Speaker Change: Independently in off hours.

Speaker Change: Our development of this tool requires significant data flow and there's another reason that we maintained our volume to continue to build our digital marketing and customer acquisition program.

Volume enables us to have conversations and build relationships that were impossible when the market was heated and strong.

Given those initiatives. We look ahead to the third quarter of 2025, we expect that our margin will come in at approximately 18% of course, depending on market conditions.

Speaker Change: Another example is in the land arena.

Speaker Change: We are at the front end of developing a technology driven land management system in cooperation with the team at talent here.

Speaker Change: Our lenoir interface with talented is Yang Lu who is driving that innovation.

We expect to sell between 22000, 23000 homes and deliver between 22 and 23000 homes.

Speaker Change: As we developed our essential housing and Millrose business engagement, we can do that asset light and land light wasn't enough.

We expect our average sales price between to be between 380 and 385000 as we expect to continue to see pricing pressure on homes that will be sold during the quarter.

Speaker Change: Off balance sheet acquired land with just in time delivery of Homesites can potentially harbor inefficiencies.

Nevertheless, we are focused on driving sales and closings and driving strong current cash flow even at reduced profitability.

Speaker Change: The day to day administration from purchasing land.

Speaker Change: The development of that land and to the delivery of developed homesite is being crafted with our state of the art high technology enabled program.

We are focused on maintaining properly sized inventory within our two homes completed unsold for community level [noise] per month.

Speaker Change: This system will help manage every part of the land and land capital relationship in Germany.

Got it.

Overall.

That if market conditions stabilize or improve we will benefit and if the market conditions soften we are prepared.

Speaker Change: Of course in order to execute it requires money.

Speaker Change: Overhead executive management time, and attention and substantial volume running through the system that will enable this system to properly evolve.

We expect our overhead in the third quarter to continue to run on the high side at between eight and eight 2% as we continue to invest in and evolve various when our tech technology assisted solutions that will define our future.

Speaker Change: Finally.

Speaker Change: In July we will execute wish US luck, the two year transition of our ERP system to JD Edwards E. One system.

These initiatives have been and will continue to add SG&A as well as corporate G&A for some time to come as they represent a significant investment in our differentiated future.

Speaker Change: This has been a massive undertaking by the extraordinary Linda our professionals.

Speaker Change: Excuse me.

Speaker Change: Professional in our I T group that was led by Scott Spradley until his retirement, a few weeks ago and to be transitioned by his leadership ship.

Speaker Change: Let me give you some examples.

Speaker Change: You might remember the program that we once described at all on our machine.

Speaker Change: The machine, which is overseen by or a client, Jeff Moses and Ben Locke, and they do an amazing job.

Speaker Change: Thor Lee and Jason you guys know, who you are who are ready to compete complete this rather complex feet.

Speaker Change: Is.

Speaker Change: It was and still is our primary digital marketing and customer acquisition product and it has become central to our overall marketing and sales efforts.

Speaker Change: Through that although this is really considered just a technical transition it will enable our combined team of the leadership group and Diane Bessette, our Chief financial officer to begin on modernization of our entire financial platform from the main ore.

Speaker Change: It operates on a sales force backbone, which ingest data from across the Lenore sales landscape.

Speaker Change: The machines components have become native to the Lenoir way of selling.

Speaker Change: Office to the field.

Speaker Change: Many of you might have noticed that we are yet prepared fairly quickly to report earnings. The reality is that we close our books within three days of quarter end, we have a full numbers package three days later and we have a complete forecast three days after that.

Speaker Change: Perhaps most importantly, we are working closely with executives at Salesforce as well as our advisors at Mackenzie.

Speaker Change: The good news is that we could report earnings on the 10th day after the quarter in.

Speaker Change: The bad news is that this extraordinary timeframe is handled with limited automation that has been limited by our old School ERP.

Speaker Change: To evolve and design a lennart agent force that will be able to quickly engage with customers in coordination with our sales team as well as independently in off hours.

Speaker Change: David Collins really leads this effort our financial team does an exceptional job, but they will be truly supercharge and capable of much more as we get these processes automated and we will.

Speaker Change: Our development of this tool requires significant data flow.

Speaker Change: And it's another reason that we maintained our volume to continue to build our digital marketing and customer acquisition program.

Speaker Change: Yeah.

Speaker Change: So in conclusion.

Speaker Change: Another example is in the land arena.

Speaker Change: Let me say that while this has been a constructive quarter for Illinois, and while the short term road ahead might seen choppy, we are very optimistic about our future.

Speaker Change: We are at the front end of developing a technology driven land management system in cooperation with the team at Collins here.

Stuart Miller: Our manure interface with talented is Yang Lu who is driving that innovation.

Speaker Change: We are well aware that our numbers this quarter aren't where we would like them to be but neither is the market and this is a tough time to be spending heavily on innovation, but we are.

Stuart Miller: We as we developed our essential housing and Millrose business engagement, we can do that asset light and landlord.

Speaker Change: This has been an important quarter for us and our and we couldn't.

Speaker Change: And we couldnt be prouder of the work and dedication of our extraordinary associates, who work together to make it all happen together.

Speaker Change: Together, we have upgraded the financial and operating platforms as we drove production and fail.

Speaker Change: We are well prepared with a strong and growing national footprint growing community count and growing volume. We have continued to drive production to meet the housing shortage that we all know persist across our markets and we have driven growth production and volume.

Speaker Change: And Whit in volume, we have positioned our company to evolve and create efficiencies and technologies that will make us a better company and built for the future.

Unknown Executive: Today's conference is being recorded. If you have any objections, you may disconnect at this time.

Running through the system that will enable this system to properly evolve.

Finally.

Unknown Executive: Thank you and good morning everyone. Today's conference call may include forward-looking statements, including statements regarding Lennar's business, financial condition, results of operations, cash flows, strategies, and processes. 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 forward-looking statements relate to matters that have not yet occurred, these statements are a subject for discussion.

Speaker Change: Perhaps most importantly, our strong balance sheet and even stronger land banking relations and soon our technology enabled solution will afford us flexibility and advantage the opportunity to consider and execute on strategic growth for our future as well.

In July we will execute wish US luck, the two year transition of our ERP system to JD Edwards E. One system.

This has been a massive undertaking by the extraordinary Lin our professionals.

Excuse me.

Speaker Change: 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 equity.

<unk> in our I T group that was led by Scott Spradley until his retirement a few weeks ago.

And to be transitioned by his leadership ship.

Unknown Executive: Many factors could affect future results and may cause Lennar's actual activities or results to differ maturely from the activities and results anticipated in the forwarding statements. These factors include those described in our earnings 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.

Speaker Change: <unk> is extremely well positioned for the future and we look forward to keeping you up to date on our progress.

Thor Lee and Jason you guys know, who you are who are ready to compete and complete this rather complex feet.

John: And with that let me turn it over to John.

John: Good morning, everyone sort of described in detail the why and how you heard our strategy of being a consistently high volume technology enabled homebuilders manufacturer, but our commitment to execute that strategy. We strongly believe this strategy will produce greater efficiencies and drive down costs throughout our platform.

Through that although this is really considered just a technical transition it will enable our combined team of the leadership group and Diane Bessette, our Chief financial officer to begin on modernization of our entire financial platform from the main off.

Unknown Executive: Please note that Lennar has no obligation to update any public.

Stuart Miller: I would now like to introduce your host, Mr. Stuart Miller, Executive Chairman and Co-CEO, Sir Yancey. Good morning, everybody, and thank you 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, Fred Rothman, our chief operating officer, Bruce Gross, our CEO of Lennar Financial Services, Mark Sestana, our general counsel, and a few others as well.

John: A further view this as I discuss our performance on sales pace cost and cycle time reductions and the execution of our asset light land strategy for the second quarter.

To the field.

Many of you might have noticed that we are yet prepared fairly quickly to report earnings. The reality is that we close our books within three days of quarter end, we have a full numbers package three days later and we have a complete forecast three days after that.

Speaker Change: Our sales pace for the second quarter was $4 seven homes per community per month, one of our sales plan.

Speaker Change: The well documented softness of the spring selling season.

Speaker Change: So the impact of affordability challenges driven by higher interest rates and elevated home prices along with the uncertainty associated with the macro environment as.

The good news is that we could report earnings on the 10th day after the quarter end.

Speaker Change: The bad news is that this extraordinary timeframe is handled with limited automation that has been limited by our old School ERP, David Collins really leads this effort our financial team does an exceptional job, but they will be truly supercharge and Cape.

Speaker Change: As the market softened, we leaned into our people and processes to find market and maintain sales pace. This.

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

Speaker Change: This involves the rigor of a daily review of marketing and sales at our to make the needed adjustments based on a real time analysis of traffic sales sales pace and inventory.

Speaker Change: We'll have much more as we get these processes automated and we will.

Speaker Change: Make no adjustments to prices increased incentives where decrease incentives.

Stuart: This is powered by some of the technology that Stuart referenced.

Speaker Change: So in conclusion.

Stuart: Our new automated pricing capabilities to Lenoir machine.

Speaker Change: Let me say that while this has been a constructive quarter for Linda Moore and while the short term road ahead might seen choppy, we are very optimistic about our future.

Stuart: This particular technology analyzes all of the marketing and sales data and provides pricing recommendations. It is in its early stages, but we're encouraged thus far.

Stuart Miller: So let me begin. We're very pleased to review our 2025 second quarter results against the continuing backdrop of a challenging economic environment for the housing market. In the second quarter, we remained focused on our stated strategy by driving volume and growth, matching production and sales base, using margin reduction to enable affordability, and sell and deliver homes to avoid building excess inventory. While our margin and earnings have been adjusting, and of course falling, in order to accommodate the realities of the housing market conditions, we remain focused on volume and even flow production to enable re-rationalized cost structure and overhead in order to find a floor and rebuild margin, even as the overall housing market continues to soften.

Speaker Change: We are well aware that our numbers this quarter arent, where we would like them to be but neither is the market and this is a tough time to be spending heavily on innovation, but we are.

Stuart: We continuously make pricing adjustments with the goal of ending the week with both the targeted number of sales.

Stuart: Focus on selling our completed or suits related inventory.

Stuart: If you do fall short of musical and it gives them a week analysis of the data provides us with course correcting actions.

Speaker Change: This has been an important quarter for <unk> and we couldn't.

Speaker Change: And we couldn't be prouder of the work and dedication of our extraordinary associates, who work together to make it all happen.

Stuart: But hearing to this discipline, we ended the quarter well positioned with an average of under two uncompleted to unsold completed homes per community.

Speaker Change: Together, we have upgraded the financial and operating platforms as we drove production and sales.

Stuart: All of the markets, we operate in experienced some level of softness even though at our strongest performing markets buyers needed the assistance of incentives.

Stuart: Incentives will vary across the different markets were primarily in the form of assistance with mortgage rate buy downs.

Stuart: The markets have experienced more challenging conditions during the quarter for the Pacific northwest markets of Seattle and Portland.

Stuart Miller: We expected that the new normal of higher interest rates for longer would mean lower margins for longer as we drove affordability. We knew that we, and the industry, were initially going to have to bring down the price of homes we build through incentives and mortgage buy-downs to meet affordability and normalize the supply and demand balance. We also knew that to rationalize margin from a lower average sales price, we would only be able to rebuild margin from a more efficient cost. We believe that we have gotten ahead of these market realities, and we are building what will become a stronger margin-driving platform by using volume to enable us to drive costs down across our platform.

Stuart: Oregon, California markets of the Bay area in Sacramento, the southwestern markets of Phoenix, Las Vegas, and Colorado, and some eastern markets, such as Raleigh, Atlanta and Jacksonville.

Speaker Change: And in volume, we have positioned our company to evolve and create efficiencies and technologies that will make us a better company and built for the future.

Stuart: These markets experienced sensitivity to higher home prices and or the macro impact on the technology and workforce.

Speaker Change: Perhaps most importantly, our strong balance sheet and even stronger land banking relations and soon our technology enabled solutions will afford us flexibility and advantage the opportunity to consider and execute on strategic growth for our future as well.

Stuart: Turning to the production side of operations as Stuart highlighted achieving construction efficiencies with the goal of our production first strategy.

Stuart: Start pace in the second quarter was $5 one homes per community per month, providing meaningful volumes of the supply chain, which is critical to accomplishing our mission of lowering costs and cycle times.

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 equity.

Stuart: Assuming these goals as measured by reducing cost across our entire platform.

Stuart: The proper execution of this strategy will deliver savings and direct construction land development land acquisition indirect cost and SG&A.

Stuart Miller: <unk> is extremely well positioned for the future and we look forward to keeping you up to date on our progress.

Stuart Miller: We know this takes time, but we also know it will help build a healthier housing market and position Lennar for bottom line growth even as the market remains soft.

Stuart: Volume and importantly, consistent even flow volume along with efficient to build plans and digitally enabled scheduling and quality control processes all drive cost savings.

John: And with that let me turn it over to John.

Speaker Change: Good morning, everyone sort of described in detail, the why and how behind our strategy of being a consistently high volume technology enabled homebuilders manufacturer and our commitment to execute that strategy. We strongly believe this strategy will produce greater efficiencies and drive down costs throughout our platform.

Stuart: Our commitment to this consistent volumes of trades can drive down their own cost structure as well as work successfully at lower margins, allowing us to stabilize and ultimately grow on.

Stuart Miller: Admittedly, we haven't gotten there yet, but we believe that we're getting very close to the bottom and the time when we will build back margin from a lower cost structure, and I'll explain that in more detail shortly.

Stuart: Cost reduction discussions with our supply chain are grounded in both the recognition that our consistent volume and market conditions require a recalibration of cost.

Speaker Change: Further we view this as I discuss our performance on sales pace cost and cycle time reductions and the execution of our asset light land strategy for the second quarter.

Stuart Miller: First, I'll discuss the market environment, then review our strategy, then relate strategy to our reported numbers and expectations for the near future. Let me start with a macro view of the housing market. Consistent with last quarter's earnings call, the macroeconomy remains challenging as mortgage interest rates have remained higher, while consumer confidence has been challenged by a wide range of uncertainties, both domestic and global. Across the housing landscape, actionable demand has been diminished by both affordability and consumer confidence, and therefore has continued to soften. At the same time, supply remains constrained by years of underproduction. New construction has slowed as builders have pulled back on production due to mixed demand signals, exacerbating the product supply shortage that derived from the Great Recession and its aftermath.

Stuart: Direct construction costs in the second quarter were lower sequentially by one 5% from Q1.

Speaker Change: Our sales pace for the second quarter was $4 seven homes per community per month in line with our sales plan.

Stuart: On a year over year basis by three 5% to a lowest direct construction costs since Q3 of 2021.

Speaker Change: The well documented softness of the spring selling season.

Speaker Change: Showed the impact of affordability challenges driven by higher interest rates and elevated home prices along with the uncertainty associated with the macro environment.

Stuart: This trend will continue into our third and fourth quarters.

Stuart: Another benchmark of efficiency is our cycle time.

Speaker Change: <unk> quarter cycle time decreased by five days sequentially from Q1 down to 132 calendar days on average for single family detached homes. This is an 18 day or 12% decrease year over year and is lower than Prepays every pre pandemic cycles warnings.

Speaker Change: As the market softened, we leaned into our people and processes to find market and maintain sales pace.

Speaker Change: This involves the rigor of a daily review of marketing and sales data to make needed adjustments based on a real time analysis of traffic sales sales pace and inventory, we will make no adjustments to prices increase incentives were decrease incentives.

Speaker Change: We expect to see continued improvement in cycle time as well.

Speaker Change: Throughout our third and fourth quarters.

Speaker Change: Our operating strategy is also resulting in reductions in land development costs and restructuring land acquisitions.

Stuart Miller: This is powered by some of the technology that Stuart referenced.

Stuart: Stuart noted are consistent volume comes into play as it provides.

Speaker Change: Our new automated pricing capabilities to Lenoir machine.

Speaker Change: Predictable work for land development contractors, who depend on utilization of heavy equipment.

Speaker Change: This particular technology analyzes all of this marketing and sales data and provides pricing recommendations. It is in its early stages, but we are encouraged thus far.

Stuart Miller: Additionally, restrictive land permitting, along with higher impact fees, remain supply constraints, while labor and material costs, lumber is a particular headache, are generally increased. Accordingly, given short supply, home prices remain high, with median sales hovering around $400,000 in many markets. Demand, however, is still high as people want and need homes. Millennials are hitting the prime buying age and are realizing the benefit and perhaps imperative of home ownership. But affordability and waning confidence around buying now are sending confusing signals. I certainly don't want to overstate the negative, as the market is definitely not crashing, but it just continues to cool.

Speaker Change: Similarly, but consistent and dependable picked out of land and a slowing macro environment allows for the proper alignment of timing of when clothing and a recalibration of the purchase price of one.

Speaker Change: We continuously make pricing adjustments with the goal of ending the week with both the targeted number of sales and with a focus on selling our completed or Susan related inventory.

Speaker Change: With respect to the question regarding tariffs consistent with our commentary last quarter. We have had no impact today to our costs from tariffs. We worked closely with our supply chain to prepare for alternative sourcing if it becomes necessary as well as the expectation of our trade partners will work with us to mitigate and offset cost effects should they present themselves.

Speaker Change: And then where do you fall short of Us gold and it gives them a week analysis of the data provides us a course correcting actions.

Speaker Change: By adhering to this discipline, we ended the quarter well positioned with an average of under two uncompleted to unsold completed homes per community.

Speaker Change: Assorted dresses will provide further details we continue to execute on our asset light strategy. We ended the quarter with our supply of Homesites to prove it is 0.1 years now for two years, a year ago and controlled homesites percentage, increasing to 98% from 79% a year ago.

Speaker Change: All of the markets, we operate in experienced some level of softening even in our strongest performing markets buyers needed the assistance of incentives.

Speaker Change: Ventas will vary across the different markets were primarily in the form of assistance with mortgage rate buy downs.

Speaker Change: The markets have experienced more challenging conditions during the quarter for the Pacific Northwest markets of Seattle, and Portland, Northern California markets of the Bay area in Sacramento, the southwestern markets of Phoenix, Las Vegas, and Colorado, and some eastern markets, such as Raleigh, Atlanta and Jacksonville. These.

Speaker Change: During the quarter land banks required on our behalf about 17000 homesites for about $1 4 billion.

Stuart Miller: Inventory is up slightly from last year's lower levels, but still relatively limited. It's just that the housing market right now is driven by supply and demand that can't be properly aligned. This is a difficult cycle, as low supply fuels high prices, and high prices lock out many of our buyers. Mayors and governors around the country continue to decry the housing shortage and point to affordability or attainability as a priority concern. As a case in point, I, and many other home building leaders, last week heard from Governor Cox of Utah, explain that there is a significant housing shortage in his state, and they simply need more supplies.

Speaker Change: Commitment of about $2 1 billion in land development.

Speaker Change: We purchased during the quarter from a very big partners was 22000 and finished homesites for about $2 $7 billion.

Speaker Change: These markets experienced sensitivity to higher home prices and or the macro impact on the technology and workforce.

Speaker Change: The cost and processes in and around where banking provided another area for efficiencies as Stuart discussed.

Speaker Change: Turning to the production side of operations as Stuart highlighted achieving construction efficiencies with the goal of our production first strategy.

Speaker Change: Our focus on the coordination between land sellers and land banks.

Speaker Change: Just in time land acquisitions with the commencement of land development.

Speaker Change: Start pace in the second quarter was $5 one homes per community per month, providing meaningful volume into the supply chain, which is critical to accomplishing our mission of lowering costs and cycle times.

Speaker Change: Our consistent volume provides the opportunity for processes and technologies that will lead to cost reductions.

Speaker Change: These improvements in execution of all of our operating strategy enable capital and production efficiencies leading to improved inventory churn, which now stands at one eight versus $1 six last year, a 13% improvement.

Speaker Change: Given these goals as measured by reducing cost across our entire platform.

Speaker Change: The proper execution of this strategy will deliver savings and direct construction land development land acquisition indirect costs and SG&A.

Speaker Change: And our third quarter, we will continue to focus on the beauty of our planned sales pace, while intensifying our efforts to reduce costs and maximize efficiencies across our operating platform.

Stuart Miller: In fact, they are running a need more supply publicity campaign in the state. He noted that the American dream is home ownership, and his state has a $350,000 home deficit that is maintaining prices at an unaffordably high level. He emphatically argued that they need more starter homes in the state that are affordable to those who are just beginning their careers and their families. He describes how he and his state are making noteworthy efforts to eliminate or modify restrictions in zoning and timeliness in order to attract more supply, which will help narrow the supply gap and help align supply and demand.

Speaker Change: Volume and importantly, consistent even flow volume along with efficient to build plans and digitally enabled scheduling and quality control processes all drive cost savings.

Diane Bessette: I want to thank all of our <unk> associates for their hard work focus and dedication for the work accomplished in our second quarter and for the hard work that lies in front of us and now I'll turn it over to Diane.

Speaker Change: Our commitment to this consistent volume either trades can drive down their own cost structure as well as worked successfully on lower margins, allowing us to stabilize and ultimately grow our margins.

Diane Bessette: Thank you John and good morning, everyone Stuart and Jon has provided a great deal of color regarding our operating performance. So therefore, I'm going to spend a few minutes on the results of our financial services operation.

Speaker Change: The cost reduction discussions with our supply chain are grounded in both the recognition that our consistent volume and market conditions require a recalibration of cost.

Speaker Change: Direct construction costs in the second quarter were lower sequentially by one 5% from Q1 and on a year over year basis by three 5% to our lowest direct construction costs since Q3 of 2021.

Diane Bessette: Our balance sheet highlights and then provide estimates for the third quarter.

Speaker Change: Starting with financial services for the second quarter, our financial services team had operating earnings of $157 million.

Speaker Change: <unk> will continue into our third and fourth quarters.

Diane Bessette: Strong earnings were primarily from our mortgage business and were driven by a higher profit per loan as a result of higher secondary margins and also to a higher capture rate.

Stuart Miller: This is a common refrain. The post pandemic days of strong, actionable demand driven by low interest rates are behind us. Initially, many in the housing market held on to the hope that higher interest rates were temporary, expecting inflation to subside and rates to drift back to lower levels. However, this expectation has not materialized. Looking ahead, there is little evidence to support expectations of materially lower interest rates in the near future. As a result, elevated interest rates have solidified as the new normal.

Speaker Change: Another benchmark of efficiency is our cycle time.

Speaker Change: Our second quarter cycle time decreased by five days sequentially from Q1 down to 132 calendar days on average for single family detached homes. This is an 18 day or 12% decrease year over year.

Diane Bessette: Our financial services team is intensely dedicated to providing a great customer experience for each home buyer and has created a true partnership with our homebuilding team to best accomplish that falls are LFS teams together with our homebuilding divisions are truly one arm.

Speaker Change: There is lower than pre pandemic pre pandemic cycle times we.

Speaker Change: We expect to see continued improvement in cycle time as well.

Speaker Change: Throughout our third and fourth quarters.

Speaker Change: Our operating strategy is also resulting in reductions in land development costs and restructuring land acquisitions.

Diane Bessette: Turning to our balance sheet. This quarter. Once again, we were highly focused on generating cash by pricing homes to market condition.

Speaker Change: Jordan noted are consistent volume comes into play is to provide consistent.

Speaker Change: Sales of these actions was that we ended the quarter with $1 2 billion of cash and $5 4 billion of total liquidity.

Speaker Change: Predictable work the land development contractors, who depend on the utilization of heavy equipment.

Speaker Change: Really the consistent dependable takedown of land and a slowing macro environment allows for the proper alignment of timing of when closings and a recalibration of the purchase price of land.

John: We're now positioned as a land light stocks lower risk manufacturing homebuilder or he is supply of homes Homesites with 0.1 years as John noted and our Homesites control percentage was 98%.

Stuart Miller: The environment is about recognizing that short supply is keeping prices higher and that only lower prices enabled by lower cost structures will define affordability. This trend has started with reducing margins and using incentives to enable affordability, but looking ahead, it is much more about transitioning to lower cost structures.

Speaker Change: With respect to the question regarding tariffs consistent with our commentary last quarter, we've had no impact to date to our costs from tariffs we work closely with our supply chain to prepare for alternative sourcing if it becomes necessary as well as the expectation of our trade partners will work with us to mitigate and offset cost impacts should they present themselves.

John: We ended the quarter owning 12000, Homesites and controlling 520000 home sites for a total of 532000 homesites.

Speaker Change: We believe this portfolio of home sites to provide us with a strong competitive position to continue to grow market share and scale in a capital efficient way.

Stuart Miller: Against this backdrop, let me turn to Lennar's operating strategy. Our strategy is and has remained very clear. First, operationally, we are building and delivering consistent volume by meeting the market at affordability, and using volume, we push efficiencies through our platform. And second, financially, we are focused on driving an efficient, asset-light, land-light balance sheet to effectively hold and develop our land assets and to build cash flow. As I said earlier, we are not there yet, but we are certain that we are finding a floor with margin and getting close to building it back, even in a softer housing market environment.

Stuart Miller: Stuart address.

Stuart Miller: Providing further details we continue to execute on our asset light strategy. We ended the quarter with our supply of Homesites improvements 0.1 years now for two years, a year ago and controlled homesites percentage, increasing to 98% from 79% a year ago.

Diane Bessette: With our focus on returns we are pleased that our inventory turns increased to one eight times with a solid return on inventory of 27%.

Speaker Change: As we stated in the past, we balance margin and asset turnover as both contribute to higher returns.

Speaker Change: During the quarter land banks acquired on our behalf about 17000 Homesites for about $1 4 billion.

Diane Bessette: During the quarter, we started approximately 24200 homes and ended the quarter with approximately 42400 homes in inventory.

Speaker Change: And a commitment of about $2 1 billion in land development.

Speaker Change: Purchased during the quarter from our various land Bank partners, almost 22000 and finished homesites for about $2 $7 billion.

Diane Bessette: This inventory number includes 2900 homes that were completed unsold, which has noted is under two homes per community and continues to be within our historical range.

Speaker Change: Cost and processes around land banking provided another area for efficiencies as Stuart discussed.

Speaker Change: Turning to our debt position, we Opportunistically raised 700 million in senior notes at five 2% due in July 2013, we primarily use the proceeds to pay off 500 million of senior notes that matured in may as a result, our homebuilding debt to total capital was 11% at quarter end.

Speaker Change: Our focus on the coordination between land sellers and land banks of just in time land acquisitions with a commencement of land development.

Stuart Miller: As the current market softness unfolded, we focused on consistent volume by matching our production pace with our sales. Although some have questioned why we have maintained volume rather than protect our margin We are very clear and steadfast on our strategy. Historically, we protected margin as market conditions stalled, and we generally led the way in protecting short-term profitability. But we learned through those times that once we step backwards and lose momentum, it becomes increasingly more difficult to restart and recapture volume. The machine slows and does not restart easily. We have concluded that by maintaining volume, we can create new efficiencies and new solutions that are durable for the future and will result in meaningful long-term efficiency in our cost structure.

Speaker Change: Our consistent volume provides the opportunity for processes and technologies that will lead to cost reductions.

Speaker Change: These improvements in execution of all of our operating strategies enable capital and production efficiencies leading to improved inventory churn, which now stands at one eight versus $1 six last year, a 13% improvement.

Speaker Change: Our next debt maturity of $400 million is not due until June of 2020.

Speaker Change: Consistent with our commitment to increasing shareholder returns, we repurchased $4 7 million of our outstanding.

Speaker Change: And our third quarter, we will continue to focus on meeting our planned sales pace, while intensifying our efforts to reduce costs and maximize efficiencies across our operating platform.

Speaker Change: Outstanding shares for $517 million, and we paid dividends totaling $134 million. Our stockholders' equity was just under $23 billion and our book value per share was about $87 in summary, the strength of our balance sheet provides us with confidence and financial flexibility as we pray.

Speaker Change: Thank you John and good morning, everyone Stuart and Jon has provided a great deal of color regarding our operating performance. So therefore, I'm going to spend a few minutes on the results of our financial services operations.

Speaker Change: Through the balance of 2025.

Speaker Change: With that brief overview I'd like to turn to Q3 and provide some guidance estimates.

Speaker Change: With new orders.

Speaker Change: Our balance sheet highlights and then provide estimates for the third quarter.

Speaker Change: Q3, new orders to be in the range of 22000 23000 homes as we match production and sales pace. We anticipate our Q3 deliveries to also be in the range of 22000 to 23000 homes with a continued focus on training inventory into cash.

Speaker Change: Starting with financial services for the <unk>.

Stuart Miller: When we stop and pull back, the restart is difficult and expensive, but even worse, we end up coming back as the exact same company we were before, with no significant changes for the future. Today at Lennar, we are laser-focused on injecting technology-assisted solutions into our platform with the expectation that we become meaningfully different and decidedly better. We believe that with volume, we can design and engage real change that will produce significant recurring returns for years to come.

Speaker Change: Second quarter, our financial services team had operating earnings of 157 million. The strong earnings were primarily from our mortgage business and were driven by a higher profit per loan as a result of higher secondary margins and also due to a higher capture rate.

Speaker Change: Our Q3 average sales price on those deliveries should be about 380 to 385000 gross margin should be approximately 18% as we continue to price to market and use incentives to enable our customers to a teen affordable homes.

Speaker Change: Our financial services team is intensely dedicated to providing a great customer experience for each of whom buyer and has created a true partnership with our homebuilding team to best accomplish that phone our NSS teams together with our homebuilding divisions are truly one arm.

Speaker Change: Our SG&A percentage in the range of eight to eight 2% impacted by our continued investment in technology solutions.

Speaker Change: Turning to our balance sheet. This quarter. Once again, we were highly focused on generating cash by pricing homes to market conditions.

Stuart Miller: It really comes down to using hard times to push, to force, and to accomplish hard things. And this is exactly what we're doing.

Speaker Change: All of these metrics of course are dependent on market condition.

Speaker Change: Sales of these actions was that we ended the quarter with $1 2 billion of cash and $5 $4 billion in total liquidity.

Speaker Change: For the combined homebuilding joint venture land sales and other categories, we expect a loss of about 25 million.

Stuart Miller: As many know, we have spent considerable time working with, investing in, and exploring technology. and the general business community is consumed with the possibilities and opportunities enabled by modern technology. We think about the extraordinary companies that remade their business by incorporating technology solutions into an older platform like Walmart or Home Depot. They invested heavily in their technology-enabled solutions and cemented themselves as industry leaders. We believe in the virtues of technology solutions and the value and efficiency it can bring. We clearly believe that technology, properly configured, can enhance productivity. Today's technologies can and will combine with extraordinary management teams to bring efficiencies that have never been seen before.

Speaker Change: We're now positioned as a land light, thus lower with manufacturing homebuilder or he is supply of phones home sites with 0.1 years as John noted in our Homesites controlled percentage was 98%.

Speaker Change: We anticipate our financial services earnings should be approximately $175 million to $180 million.

Speaker Change: For our multifamily business, we expect a loss of about $40 million as we continued to strategically monetize assets to generate higher returns.

Speaker Change: We ended the quarter owning 12000, Homesites and controlling 520000 home sites for a total of 532000 homesites.

Speaker Change: Now turning to our other we expect a loss of $35 million, excluding the impact of potential mark to market adjustment to our public technology investments.

Speaker Change: We believe this portfolio of home sites provide us with a strong competitive position to continue to grow market share and scale in a capital efficient way.

Speaker Change: Q3, corporate G&A should be about one 8% of total revenue and our foundation contribution should be based on $1000 per home delivery.

Speaker Change: With our focus on returns we are pleased that our inventory turns increased to one eight times with a solid return on inventory of 27%.

Speaker Change: First our Q3 tax rate to be approximately 25, 3% and a weighted average share count should be approximately 257 million shares and so on a combined basis. These estimates should produce an EPS range of approximately $2 to $2 20 per share for the quarter.

Speaker Change: As we stated in the past, we balance margin and asset turnover as both contribute to higher returns.

Speaker Change: During the quarter, we started approximately 24200 homes and ended the quarter with approximately 42000.

Stuart Miller: We believe that productivity and efficiency can be enhanced by orders of magnitude when technology-assisted solutions intersect with company-wide adoption.

Speaker Change: In conclusion, I like Stuart and Jon I would like to say, thank you to the financial team in our division and in our corporate office you bring an incredible amount of dedication to the table each and every day and it is greatly appreciate it.

Speaker Change: 400 homes in inventory.

Speaker Change: Inventory number includes 2900 homes that were completed unsold, which has noted in under two homes per community and continues to be within our historical range.

Stuart Miller: We have learned that modern technology is not plug-and-play. In order to get excellent product development and achieve adoption, it requires substantial monetary investment, management time, and widespread engagement. Additionally, it needs a lot of volume to run through the system for development and for A-B testing. These solutions are very hard to create and even harder to incorporate into an organization that is accustomed to old ways and old habits. But we are certain that the returns on investment will be significant in both cost savings and efficiency in the way that we acquire and interact with our customers.

Speaker Change: Let me turn it over to the operator.

Speaker Change: Yeah.

Speaker Change: Turning to our debt position, we opportunistically raised $700 million in senior notes at five 2% in July 2030.

Speaker Change: Thank you we will now begin the question and answer session of today's conference call. We ask that you limit your questions to one question and one follow up question until all questions have been answered if you would like to ask a question. Please on your phone press star one and record your name clearly when prompted if you need to withdraw. Your question. You May you start to again that is star one to ask a question in our <unk>.

Speaker Change: Primarily use the proceeds to pay off 500 million of senior notes that matured in may as a result of homebuilding debt to total capital was 11% at quarter end. Our next debt maturity of $400 million is not due until June of 2020.

Alan Ratner: First question will come from Alan Ratner from Zelman <unk> Associates. Please go ahead.

Alan Ratner: Hey, good morning, Thank you for all the detail so far very very helpful.

Speaker Change: Consistent with our commitment to increasing shareholder returns, we repurchased $4 7 million of our.

Speaker Change: Lot to touch on here, but I think first maybe if we could just chat a little bit about the consumer and what you're seeing there I know Stuart you you went into a lot of detail about the overall demand environment, but we've been getting a lot of questions here and a lot of concerns reading headlines about just the overall quality of the consumer today and you know some.

Speaker Change: Outstanding shares for $517 million, and we paid dividends totaling $134 million. Our stockholders' equity was just under $28 billion and our book value per share was about $87 in summary, the strength of our balance sheet provides us with confidence and financial flexibility as we pre.

Stuart Miller: This is why we are driving volume and focused on using that volume to enable unique Lennar technology enabled solutions.

Speaker Change: It's about student loans for example, that's beginning to impact some some credit scores and just overall kind of stretched.

Stuart Miller: I'll review some examples shortly.

Speaker Change: Through the balance of 2025.

Stuart Miller: But first, let me briefly reflect on our second core strategy of driving an efficient asset-light, land-light balance sheet to efficiently hold and develop our land assets and build cash flow. As I noted last quarter, the Mill Row spin was a critical part of our asset-light, land-light strategy, but there is more to accomplish. The LAM strategy also benefits from our volume, as greater predictable volume enables greater certainty for the capital market and will help build a more capital efficient market for this very important part of our business. We're continuing to drive certainty with volume for our land bank partners and this will help ensure stability and dependability.

Speaker Change: With that brief overview I'd like to turn to Q3 and provide some guidance estimates.

Speaker Change: No kind of quality there. So have you seen any dramatic shifts I would you know year to date in terms of credit quality or just the overall ability for consumers to purchase homes or just been kind of just a slow steady grind over the last few years given affordability constraints.

Speaker Change: Starting with new orders.

Bruce: Look I'm, just going to say generally I'm only going to turn it over to Bruce for a second.

Bruce: But just generally speaking the market has definitely softened.

Speaker Change: Our Q3 average sales price on those deliveries should be about 380 to 385000 in gross margin should be approximately 18% as we continued to price to market and used incentives to enable our customers to obtain affordable homes.

Bruce: We're continuing to soften a new normal interest rates are higher but more importantly, consumer confidence and start to wane a little bit in our last earnings call I did talk about the fact that.

Speaker Change: SG&A percentage should be in the range of eight to eight 2% impacted by our continued investment in technology solutions. All of these metrics of course are dependent on market condition.

Stuart Miller: In turn, that dependability will translate into certainty and predictability for Lennar. Additionally, this part of our strategy also benefits from our technology-enabled solutions work as a technology-based administration system will enable efficiency at many levels. And I will further address this shortly as well.

Bruce: But we are seeing a higher debt levels and some of our loan application.

Bruce: And that too was starting to weigh in on the market Bruce maybe you could give some more color.

Diane Bessette: For the combined homebuilding joint venture land sales and other categories. We expect a loss of about $25 million, we anticipate our financial services earnings should be approximately $175 million to $180 million.

Bruce: Sure.

Bruce: From a credit perspective, if you're thinking about credit scores, it's been very consistent.

Bruce: What we are seeing though is a little bit of a shift to more government loans, which helps with the ratios for some people that don't qualify so our government loans dropped from 40.

Speaker Change: Our multifamily business, we expect a loss of about $40 million as we continue to strategically monetize assets to generate higher returns.

Stuart Miller: So now let me turn to our results. As I noted earlier, we're quite pleased with the success embedded in our second quarter results and accomplishments. In very complicated market conditions, Lennar Associates have been executing our strategy while learning and developing new technologies for our future. This hard work, this is hard work, and I thank them all for their amazing contribution to this. In our second quarter, we started over 24,000 homes, making up for last quarter's shortfall. We delivered over 20,000 homes and sold 22,601 homes. As mortgage interest rates moved higher for longer and consumer confidence declined, we continue to drive volume with our starts while we incentivize sales to enable affordability.

Bruce: Little last year to about 48% in the second quarter of this year. So that that's the one noticeable difference you also brought up student loans.

Speaker Change: Turning to our other we expect a loss of $35 million, excluding the impact of potential mark to market adjustments to our public technology investments.

Bruce: People do have to qualify assuming the student debt. So we haven't really seen any shift there with any changes with student loans at this point.

Speaker Change: Our Q3 corporate G&A should be about one 8% of total revenues and our foundation contribution should be based on a $1000 per home delivered.

Speaker Change: We expect our Q3 tax rate to be approximately 25, 3% and a weighted average share count should be approximately 257 million shares.

Bruce Hope: Great and it was great to hear your voice Bruce Hope I Hope you have been doing well.

Speaker Change: Second question on the just overall I guess price elasticity in the market you know Stuart obviously with the machine and your ability to flex incentives to maintain a targeted sales pace.

Speaker Change: So on a combined basis. These estimates should produce an EPS range of approximately $2 to 2020.

Speaker Change: <unk> for the quarter.

Speaker Change: Impressive results there I'm just curious across your portfolio do you feel like there are any markets right now that they don't really have the elasticity in demand meeting.

Speaker Change: In conclusion, I like Stuart and Jon I would like to say, thank you to the financial teams in our division and in our corporate office you bring an incredible amount of dedication to the table each and every day and it is greatly appreciate it and with that let me turn it over to the operator.

Speaker Change: Incentives it doesn't really matter how high you take them you're struggling to achieve a certain targeted.

Stuart Miller: As a result, during the second quarter, sales incentives rose again to 13.3%, reducing our gross margin to 18%, excluding purchase accounting, as expected, on a lower-than-expected average sales price of $389,000. Our SG&A came in at 8.8%, which produced a net margin of 9.2%, again, excluding purchase accounting. Our sales and delivery came within expectation. while we were able to grow our community count to 1,617 this quarter and we continue to be better positioned for the remainder of the year. We expect to deliver at the low end of our previously stated range of 86,000 to 88,000 homes in 2025.

Speaker Change: Targeted pace and as a result, you dialed back the production or would you say across the board. There is a market clearing price. It's just a matter of finding what that level is to achieve the targeted absorption.

Speaker Change: So I'll, just say quickly and then turn it over to John.

Speaker Change: You know you should as you as you know well and we are on top of these numbers are divisions our region.

Speaker Change: To withdraw your question you May you start to again that is star one to ask a question and our first question will come from Alan Ratner from Zelman <unk> Associates. Please go ahead.

Speaker Change: Every day.

Speaker Change: And I would I would say that.

Alan Ratner: Hey, good morning, Thank you for all the detail so far very very helpful.

Speaker Change: You do see somewhat of a rotation.

Speaker Change: Where are you.

Speaker Change: You know one week, it's one market and one where it gets another where the question of the elasticity is is is raised and challenged and it's a real ebb and flow market out there that moves around John.

Speaker Change: I would completely agree with that store to it. It's nothing you can point to already say this market is behaving consistently and in a different direction.

Speaker Change: It's about student loans for example, that's beginning to impact some some credit scores and just overall kind of stretched.

Stuart Miller: Looking ahead, I noted earlier, we believe that we are starting to see a bottom in the freefall in our margin that started with the spike in interest rates beginning in 2022. We are expecting our margin to begin to stabilize as we have used volume to work with our trade partners to reduce costs and build efficiency as affordability requires additional incentives. We have provided consistent volume to deliver consistent and even flow production to our trade partners so they can drive their own efficiencies, drive down their costs, and deliver cost savings to us. Accordingly, our construction costs have actually decreased over the past two and a half years.

Speaker Change: Highlighted some of the markets at.

Speaker Change: Are harder to find that pace there as I said, it's in part driven by perhaps where pricing is and particularly type workers, who are foreign type workers just the uncertainty around that.

Speaker Change: Kind of quality there. So have you seen any dramatic shifts year to date in terms of credit quality or just the overall ability for consumers to purchase homes or has this been kind of just a slow steady grind over the last few years given affordability constraints.

Speaker Change: Combination you tend to see a bigger impact, but that also tends to be very community specific.

Speaker Change: Look I'm, just going to say generally I'm only going to turn it over to Bruce for a second.

Speaker Change: And we make the adjustments.

Speaker Change: Yeah.

Speaker Change: Great. Thanks for the all of you talked about I appreciate it.

Speaker Change: But.

Speaker Change: Generally speaking the market has definitely softened.

Speaker Change: You bet.

Stephen Kim: Next we'll go to the line of Stephen Kim from Evercore ISI. Please go ahead.

Speaker Change: We're continued to soften.

Stephen Kim: Yeah. Thanks, very much guys I appreciate all the color as always I guess last quarter. We discussed your view that long term normalized operating margins before corporate expense were like in the mid to high teens and that you could be nimble and adjusting your operations to a lower level of volume if you needed to.

Speaker Change: Normal interest rates are higher but more importantly, consumer confidence is starting to wane a little bit in our last earnings call I did talk about the fact that.

Stuart Miller: As the market has gotten even more difficult, and given the continued deterioration in market conditions, we have put increasing pressure on our trade partners to force costs down further, to push greater efficiencies, and to reduce their margins as well. Every participant in our construction cost ecosystem is benefiting from our volume commitments and is either working as a part of our strategy to find ways to build permanent models of efficiency or they'll just need to move on. We are concurrently using the consistent volume embedded in our program to work dynamically with our horizontal trade partners as well.

Speaker Change: <unk>.

Speaker Change: We are seeing a higher debt levels and some of our loan application.

Speaker Change: And that too is starting to weigh in on the market Bruce maybe you could give some more color.

Stephen Kim: You made clear today again, you definitely committed to driving volume based efficiencies, but based on the third quarter Order guide. It looks like maybe you are tweaking down volume a little bit and your comments there just in response to Alan you know it sounds like maybe some markets, where there's an elasticity of demand you know you you're sort of not may be tweaking volume down.

Speaker Change: Sure.

Speaker Change: From a credit perspective, if you're thinking about credit scores, it's been very consistent.

Speaker Change: What we are seeing though is a little bit of a shift to more government loans, which helps with the ratios for some people that don't qualify so our government loans dropped from 40.

Stephen Kim: So I'm just wondering first of all just to make sure that I heard that correctly I also notice you Didnt really give I didn't hear it at least a full year volume guide. So my question basically is could you talk a little bit about how you see the overall level of volume for on an annualized basis as it has it changed in the law.

Speaker Change: Last year to about 48% in second quarter of this year.

Speaker Change: That's the one noticeable difference you also brought up student loans.

Speaker Change: But people do have to qualify assuming the student debt. So we haven't really seen any shift there with any changes with student loans at this point.

Stuart Miller: By that I mean the partners who put in the roads, water, and sewer on each tract of land that we develop. They too are dependent on consistent volume to ensure that their investment in heavy equipment is continuously working. Idle equipment costs money with no income. Our focus on volume enables us to have conversations and build relationships that were impossible when the market was heated and strong.

Stephen Kim: Last few months and are is there some sort of a metaphorical line in the sand.

Stephen Kim: For either volume or margins that is worth talking about you know in addition to the sort of the that's sort of a long term normalized levels or like a bottom line or our bottom bar floor level, that's worth talking about.

Speaker Change: Great and it's great to hear your voice Russo who have you been doing well.

Stephen Kim: So.

Stephen Kim: That's a number of questions in one but let's.

Stephen Kim: Let me clear up is that in.

Stephen Kim: In my comments I did say that we are still expecting a.

Stuart Miller: Given those initiatives, we look ahead to the third quarter of 2025. We expect that our margin will come in at approximately 18 percent, of course, depending on market conditions. We expect to sell between 22,000 and 23,000 homes and deliver between 22,000 and 23,000 homes. We expect our average sales price to be between $380,000 and $385,000 as we expect to continue to see pricing pressure on homes that will be sold during the quarter. Nevertheless, we are focused on driving sales and closing and driving strong current cash flow even at reduced profitability. We are focused on maintaining properly sized inventory within our two homes completed, unsold, per community level, per month, no, overall, so that if market conditions stabilize or improve, we will benefit, and if the market conditions soften, we are prepared.

Speaker Change: Impressive results there I'm just curious across your portfolio do you feel like there are any markets right now that they don't really have elasticity in demand meeting.

Stephen Kim: For the full year to hit the bottom of the range that we previously articulated of 86 to 88000 homes. So.

Speaker Change: <unk> it doesn't really matter how high you take them you're struggling to achieve a certain.

Stephen Kim: We did detail that.

Speaker Change: Targeted pace and as a result.

Stephen Kim: You know.

Stephen Kim: I think that we're remaining consistent and where we're focusing on driving volume, but we're not trying to break anything.

Speaker Change: <unk> back the production or would you say across the board there is a market clearing price. It's just a matter of finding what that level is to achieve the targeted absorption.

Speaker Change: So I'll, just say quickly and then turn it over to John.

Stephen Kim: You know this is a day by day kind of program of working with market conditions.

Speaker Change:

Speaker Change: As you know and we are on top of these numbers are divisions our regions.

Stephen Kim: And what we're doing is adjusting pricing using incentives to meet the market at affordability and at the same time, we were working with cost structure to say, okay. The market is going to be able to afford to act now we've got to be able to build something.

Speaker Change: Every day.

Speaker Change: And I would I would say that you do see somewhat of a rotation.

Speaker Change: Where.

Speaker Change: One week, it's one market and when we get to another where the question of the elasticity is.

Speaker Change: Is is raised and challenged and.

Stephen Kim: That is market.

Stephen Kim: Desirable.

Speaker Change: It's a real ebb and flow market out there that moves around John.

Stephen Kim: At a cost structure that enables us to.

Stephen Kim: Make a responsible margin.

Speaker Change: Completely agree with that store.

Stephen Kim: Is there a breaking point I'm not I don't think so Steve I think that we're.

Speaker Change: Nothing you can point to I would just say this market is behaving consistently.

Stuart Miller: We expect our overhead in the third quarter to continue to run on the high side at between 8% and 8.2% as we continue to invest in and evolve various Lennar technology-assisted solutions that will define our future. These initiatives have been and will continue to add SG&A as well as corporate G&A for some time to come as they represent a significant investment in our differentiated future.

Speaker Change: A different direction.

Stephen Kim: Really focused on saying the market is going to be where it's going to be and that interest rates are.

Speaker Change: It highlighted some of the markets that.

Speaker Change: Are harder to find that pace.

Stephen Kim: The interest rate as part of the affordability program, we're gonna have to find a way the challenge for the industry is going to be to find a way to build at cost structure and take inefficiencies out of our system build that cost structure.

Speaker Change: As I said, it's in part driven by perhaps where pricing is and particularly tech workers, who are foreign check workers just the uncertainty around that.

Speaker Change: Combination you tend to see a bigger impact.

Speaker Change: Also tends to be very community specific.

Speaker Change: And we make the adjustments.

Stephen Kim: Housing that the market can afford at the end of the day.

Speaker Change: Great. Thanks for the all of you talk about I appreciate it.

Stuart Miller: Let me give you some examples. You might remember the program that we once described at the Lennar machine. The machine, which is overseen by Ori Klein, Jeff Moses, and Ben Lott, and they do an amazing job. is it was and still is our primary digital marketing and customer acquisition product and it has become central to our overall marketing and sales effort. It operates on a Salesforce backbone, which ingests data from across the Lennar sales landscape. The machine's components have become native to the Lennar way of selling. We have invested heavily in the future of this high-technology program, which is designed to reduce our customer acquisition costs, both internal and external, and manage the dynamic pricing of our homes.

Speaker Change: Got it.

Stephen Kim: This conundrum that you've got a supply shortage.

Stephen Kim: Next we'll go to the line of Stephen Kim from Evercore ISI. Please go ahead.

Stephen Kim: And demand challenged at the affordability level.

Stephen Kim: Yeah. Thanks, very much guys I appreciate all the color as always.

Stephen Kim: I tried to really highlight that it's not something that we've really seen before and so the market need supply.

Stephen Kim: Last quarter, we discussed your view that long term normalized operating margins before corporate expense were like in the mid to high teens and that you can be nimble and adjusting your operations to a lower level of volume if you needed to.

Stephen Kim: It means supply at a cost structure, where we can make a margin and where the customer can afford and that's what we're driving towards with everything that we're doing.

Speaker Change: I think you said, it really well sorted out.

Speaker Change: As I highlighted in those markets that have some more challenges fees.

Stephen Kim: In your comments there just in response to Alan you know it sounds like maybe some markets, where there is an elasticity of demand.

Speaker Change: <unk>.

Speaker Change: Exactly as Stuart said, we're finding our way to a recalibrate our cost structure to meet that demand, but demand is there. It is just challenge as we all know so it's up to us to do the hard work to figure out how to provide pricing.

Stephen Kim: You sort of.

Stephen Kim: Be tweaking volume down a bit so I'm just wondering first of all just to make sure that I heard that correctly.

Stephen Kim: I also noticed you didn't really give I didn't hear it at least a full year volume guide. So my question basically is could you talk a little bit about how you see the overall level of volume for on an annualized basis has it changed in the last few months and is there some sort of a metaphorical line in the <unk>.

Speaker Change: Our home et cetera is actionable for those consumers.

Stuart Miller: Perhaps most importantly, we are working closely with executives at Salesforce, as well as our advisors at McKinsey, to evolve and design a Lennar agent force that will be able to quickly engage with customers in coordination with our sales team, as well as independently in off hours. Our development of this tool requires significant data flow and is another reason that we maintained our volume to continue to build our digital marketing and customer acquisition program.

Speaker Change: Yeah, and obviously a lot of that is just good old blocking and tackling and making sure you're you're you're sharing the pain with all of your partners who are benefiting from your volume, but you also talked a intriguingly Stewart at length about our technology and the pro major productivity gains you anticipate from technology and you made.

Stephen Kim: <unk>.

Stephen Kim: For either volume or margins that is worth talking about.

Stephen Kim: Does that sort of the that's sort of a long term normalized levels sort of like bottom line or our bottom bar floor level, that's worth talking about.

Speaker Change: But you felt like you werent quite there yet and so what I wanted to clarify is is the gap is it one of Knowhow and time or do you think that you actually need to have a higher level of volume than you have today in order to capture and optimize those productivity gains.

Stephen Kim: So.

Stephen Kim: That's a number of questions in one but let's let.

Stephen Kim: Let me clear up Steve and.

Stephen Kim: In my comments I did say that we are still expecting for.

Stuart Miller: Another example is in the Lambda region. We are at the front end of developing a technology-driven land management system in cooperation with the team at Palantir. Our Lennar interface with Palantir is Yen Liu, who is driving that innovation. As we developed our essential housing and Mill Road's business engagement, we knew that asset light and land light wasn't enough. Off-balance sheet acquired land with just-in-time delivery of home sites can potentially harbor inefficiencies. The day-to-day administration from purchasing land to the development of that land and to the delivery of developed home sites is being crafted with a state-of-the-art, high-technology-enabled program.

Stephen Kim: For the full year to hit the bottom of the range that we previously articulated of 86 to 88000 homes. So.

Speaker Change: It's really important question.

Speaker Change: Let me first say I I don't think I think that we need volume, but I think that we have volume so I'm not I'm not making the argument that we need more volume in order to run through I think that we have that high level of volume that will enable us to learn but.

Stephen Kim: We did detail that.

Stephen Kim: <unk>.

Stephen Kim: You know.

Stephen Kim: I think that we're remaining consistent.

Stephen Kim: And where we're focusing on driving volume, but we're not trying to break anything.

Speaker Change: What I did try to work, particularly is.

Stephen Kim: This is a day by day.

Speaker Change: I don't care, if you look at the.

Stephen Kim: Kind of program of working with market conditions.

Speaker Change: Technology companies that are self made as technology companies like Amazon like meta like like Google like if if you look at those companies the amount of money.

Speaker Change: That they invested to become what they were and before they ever saw a dollar of profit was enormous.

Stuart Miller: This system will help manage every part of the land and land capital relationship and journey. Of course, in order to execute, it requires money, overhead, executive management time and attention, and substantial volume running through the system that will enable this system to properly evolve.

Speaker Change: If you then back up and look at the companies like home depot and Walmart.

Stephen Kim: That is market.

Stephen Kim: Desirable.

Stephen Kim: At a cost structure that enables us to.

Speaker Change: On an old chassis, they put a brand new engine to enable them.

Stephen Kim: Responsible margin.

Stephen Kim: Is there a breaking point.

Speaker Change: And then to be prepared for a digital future.

Speaker Change: I don't think so Steve I think that we are.

Speaker Change: The dollars that were invested by those companies was not just the numbers of dollars, but it was management time. It was a general overhead was focus and attention.

Speaker Change: Really focused on saying the market is going to be where it's going to be and that interest rates.

Stuart Miller: Finally, In July, we will execute, wish us luck, the two-year transition of our ERP system to J.D. Edwards E1 system. This has been a massive undertaking by the extraordinary Lennar professionals in our IT group that was led by Scott Spradley until his retirement a few weeks ago, and to be transitioned by his leadership. Thor, Lee, and Jason, you guys know who you are, who are ready to complete this rather complex feat. Although this is really considered just a technical transition, it will enable our combined team of the IT leadership group and Diane Bessette, our Chief Financial Officer, to begin on modernization of our entire financial platform from the main office to the field.

Speaker Change: The interest rate was part of the affordability program, we're going to have to find a way the challenge for the industry is going to be to find a way to build at cost structure and take inefficiencies out of our system build that cost structure.

Speaker Change: I'm not sure that any of these companies did what they did in the context of a softening market and so the coincidence of.

Speaker Change: Housing that the market can afford at the end of the day.

Speaker Change: We didn't start what we're doing in a softer market, but we're traversing a softer market.

Speaker Change: This conundrum that you've got a supply shortage.

Speaker Change: As we are building. These these components that we think position our company to be very unusual within the industry.

Speaker Change: And demand challenged at the affordability level.

Speaker Change: I tried to really highlight that it's not something that we've really seen before.

Speaker Change: And it just takes time it takes attention it takes overhead.

Speaker Change: So the market need supply it.

Speaker Change: Get the programs working well, but if I look back at the time that I said.

Speaker Change: It need supply at a cost structure, where we can make a margin and where the customer can afford and thats what were driving towards with everything that we're doing.

Speaker Change: We are developing the machine and you should all come here and see what we're doing to today the advances have been breathtaking.

Speaker Change: I think you said it really well story.

Speaker Change: As I highlighted those markets that have some more challenges fees.

Speaker Change: And they are critically important.

Speaker Change: Problem is in the descending market, it's hard to see what we're actually doing but our grasp on the numbers moment by moment day by day of what's coming through our system and how we're set up for sale and how marketing is driving the sales component that we're looking at it.

Speaker Change: <unk>.

Stuart Miller: Many of you might have noticed that we at Lennar get prepared fairly quickly to report earnings. The reality is that we close our books within three days of quarter end, we have a full numbers package three days later, and we have a complete forecast three days after that. The good news is that we could report earnings on the 10th day after the quarter ends. The bad news is that this extraordinary time frame is handled with limited automation that has been limited by our old school ERP. David Collins really leads this effort. Our financial team does an exceptional job, but they will be truly supercharged and capable of much more as we get these processes automated, and we will.

Speaker Change: Exactly as Stuart said, we are finding our way to a recalibrated cost structure to meet that demand. The demand is there. It is just challenge as we all know so it's up to us to do the hard work to figure out how to provide pricing with our home et cetera is actionable for those consumers.

Alan Ratner: Yeah, and obviously a lot of that is just good old blocking and tackling and making sure you're you're you're sharing the pain with all of your partners who are benefiting from your volume, but you also talked intriguingly Stewart at length about technology and the major productivity gains you anticipate from technology and you made clear.

Speaker Change: Think about the response time and the quality of engagement with our digital customers. These things are.

Speaker Change: I'm going to say revolutionary in terms of what we're used to as a company and we're learning every day so.

Speaker Change: We're pretty we're pretty enthusiastic about what we're doing in these spaces.

Speaker Change: That you felt like you werent quite there yet and so what I wanted to clarify is is the gap is it one of Knowhow and time or do you think that you actually need to have a higher level of volume than you have today in order to capture and optimize those productivity gains.

Speaker Change: And we are engaging top flight professionals to work with us so that we are learning.

Speaker Change: We don't know what we don't know we're learning what we don't know as we migrate forward. It takes time, we're not there yet and we probably will never be there, but we're getting closer and where we're adding efficiencies to our program even as we build the systems.

Stuart Miller: So, in conclusion... Let me say that while this has been a constructive quarter for Lennar, and while the short-term road ahead might seem choppy, we are very optimistic about our future. We are well aware that our numbers this quarter aren't where we would like them to be, but neither is the market. And this is a tough time to be spending heavily on innovation, but we are. This has been an important quarter for Lennar, and we couldn't... And we couldn't be prouder of the work and dedication of our extraordinary associates who worked together to make it all happen.

Speaker Change: It's really important question.

Speaker Change: Let me first say I.

Speaker Change: I don't think I think that we need volume, but I think that we have volume.

Speaker Change: So I'm not I'm, not making an argument that we need more volume in order to run through I think that we have that high level of volume that will enable us to learn but what I did try to work, particularly is.

Steve: Sorry for the long winded answer no that's great I appreciate all the color guys best of luck, Okay. Thanks, Steve.

Speaker Change: Next we'll go to the line of John Lovallo from UBS. Please go ahead.

John Lovallo: Good morning, guys. Thanks for taking my questions. So the first one is I guess I understand that you guys are working through some some older land assets and you guys talked about the land management systems today that you're developing.

Speaker Change: I don't care, if you look at the.

Speaker Change: Technology companies that are self made as technology companies like Amazon like meta like.

Stuart Miller: Together, we have upgraded the financial and operating platforms as we drove production and sales. We are well prepared with a strong and growing national footprint, growing community count, and growing volume. We have continued to drive production to meet the housing shortage that we all know persists across our market. And we have driven growth, production, and volume. We have positioned our company to evolve and create efficiencies and technologies that will make us a better company and built for the future. Perhaps most importantly, our strong balance sheet and even stronger land banking relations, and soon our technology-enabled solutions, will afford us flexibility and advantaged opportunity to consider and execute on strategic growth for our future as well.

Speaker Change: <unk> also been very clear about what you believe to be the benefits of the even flow model, but I guess, what I'm curious about is what margins and returns are you putting capital to work out today.

Speaker Change: Like Google like if you look at those companies the amount of money.

Speaker Change: That they invested to become what they were and before they ever saw a dollar of profit was enormous.

Speaker Change: Well interesting question.

Speaker Change: You then backup and look at the companies like home depot and Wal Mart.

Speaker Change: Look anything that we're buying today is going to come through the system, maybe a year or two years from now.

Speaker Change: <unk>.

Speaker Change: On an old chassis, they put a brand new engine to enable them to be prepared for a digital future.

Stephen Kim: We are working through some older land assets, but even as we work through those land assets, we are reworking and focusing on the horizontal development cost associated with that and that can be as expensive as the land asset itself.

Speaker Change: <unk>.

Speaker Change: The dollars that were invested by those companies.

Speaker Change: Was not just numbers of dollars, but it was management time it was.

Stephen Kim: As we look to put assets to work today, just remember that in the declining market, what we might underwrite today might still move around John how would you handle that.

Speaker Change: General overhead was focus and attention.

Speaker Change: I'm not sure.

Speaker Change: Any of these companies did what they did in the context of a softening market and so the coincidence of we didn't start what we're doing in a softer market, but we're traversing a softer market as we are building. These.

Stephen Kim: Well it will vary by market, obviously, but I'd say, we're trying to adhere to a five year old way too.

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 equity. Lennar is extremely well positioned for the future, and we look forward to keeping you up to date on our progress.

Stephen Kim: On the 20% gross margin as we do our underwriting with the expectation that you've heard from sort of myself of recalibrating driving down our cost structure.

Speaker Change: These components that we think position our company to be very unusual within the industry.

Stephen Kim: As a buffer against the market conditions, but just remember that because of our land assets are generally much shorter term than they ever were historically.

Jonathan Jaffe: And with that, let me turn it over to John. Thank you. Good morning, everyone. Stuart has described in detail the why and how behind our strategy of being a consistent, high-volume, technology-enabled, home-building manufacturer, and our commitment to execute that strategy. We strongly believe this strategy will produce greater efficiencies and drive down costs throughout our platform. I'll further review this as I discuss our performance on sales page, cost and cycle time reductions, and the execution of our asset light land strategy for the second quarter. Our sales pace for the second quarter was 4.7 homes per community per month, aligned with our sales...

Speaker Change: And it just takes time it takes attention it takes overhead to get the program is working well, but if I look back at the time that I said.

Stephen Kim: We are running through <unk>.

Stephen Kim: Over shorter periods of time, those land assets and reloading with newly configured land assets on a regular basis.

Speaker Change: We are developing the machine and you should all come here and see what we're doing to today the advances have been breathtaking.

Stephen Kim: And that rotation.

Stephen Kim: Means that we might suffer from some lower margins for a period of time, but over time, there will be a turnaround.

Speaker Change: And they are critically important the problem is in the descending market, it's hard to see what we're actually doing but our grasp on the numbers moment by moment day by day.

Stephen Kim: Home prices, presumably we will start to migrate up and that notion will turn on itself where margins will be improved Fred do you want to add to that at all I figure I'll show exhibiting quite a bit of patience as we look at deals today and be very selective as we fine tune, our negotiating skills again and bring back the lessons that we've learned over the many.

Speaker Change: What's coming through our system and how we're set up for sale and how marketing is driving the sales component that we're looking at if I think about the response time and the quality of engagement with our digital customers. These things are.

Jonathan Jaffe: The well-documented softness of the spring selling season showed the impact of affordability challenges driven by higher interest rates and elevated home prices, along with the uncertainty associated with the macro environment. As the market softened, we leaned into our people and processes to find market and maintain sales pace. This involved the rigor of a daily review of marketing and sales data to make needed adjustments. Based on a real-time analysis of traffic, sales, sales pace, and inventory, we will either make no adjustments to prices, increase incentives, or decrease incentives. This is powered by some of the technology that Stuart referenced, as we have added new automated pricing capabilities to the Lennar machine.

Stephen Kim: Years.

Stephen Kim: Our two borrowing and at the right price and most importantly, right now on the right terms.

Speaker Change: I'm going to say revolutionary in terms of what we're used to as a company and we're learning every day so.

Stephen Kim: So we're not taking down large tracks were buying just in time and we're being very selective on what market we're pursuing.

Speaker Change: We're pretty we're pretty enthusiastic about what we're doing in these spaces and we are engaging top flight professionals to work with us so that we are learning.

Stephen Kim: Great point, because we've spent a lot of time with US you know when you go from strong market conditions, and maybe even overheated market conditions, the ability to negotiate and to Oh.

Stephen Kim: And to really make sure that the terms conditions and pricing right.

Stephen Kim: It really becomes almost impossible. When you then migrate to slower conditions that we're in right now we have to reeducate ourselves and start incorporating some of those old skills that are critically important and that's exactly what we've been doing.

Jonathan Jaffe: This particular technology analyzes all of this marketing and sales data and provides pricing recommendations. It is in its early stages, but we're encouraged thus far. We continuously make pricing adjustments with the goal of ending the week with both a targeted number of sales and with a focus on selling our completed or soon-to-be-completed inventory. If any community falls short of these goals at any given week, the analysis of the data provides us with course-correcting action. By adhering to this discipline, we ended the quarter well-positioned with an average of under two unsold completed homes per community. All of the markets we operate in experience some level of softening.

Speaker Change: Sorry for the long winded answer no that's great I appreciate all the color guys best of luck, Okay. Thanks, Steve.

Stephen Kim: That's why I mentioned in my comments are sort of the shorter term, but also at a high volume.

Speaker Change: Next we'll go to the line of John Lovallo from UBS. Please go ahead.

Stephen Kim: We generate cash flow for where the sellers in a market that the macro conditions are slowing down and so it's a very different environment today than what we came through for the past few years.

John Lovallo: Good morning, guys. Thanks for taking my questions. The first one is I guess I understand that you guys are working through some some older land assets and you guys talked about the land management systems today that you're developing.

Speaker Change: Okay, Yeah, that's helpful color.

Speaker Change: And it looks like you know homebuilding cash flow from ops was about $1 billion outflow in the second quarter in what's typically a positive quarter could you can you provide any color around the moving pieces there.

John Lovallo: <unk> also been very clear about what you believe to be the benefits of the even flow model, but I guess, what I'm curious about is what margins and returns are you putting capital to work out today.

Jonathan Jaffe: Even in our strongest performing markets, buyers needed the assistance of incentives. Incentives, while varied across the different markets, were primarily in the form of assistance with mortgage rate buy-down. The markets that experienced more challenging conditions during the quarter were the Pacific Northwest markets of Seattle and Portland, the Northern California markets of the Bay Area and Sacramento, the Southwestern markets of Phoenix, Las Vegas, and Colorado, and some Eastern markets such as Raleigh, Atlanta, and Jacksonville. These markets experienced sensitivity to higher home prices and or the macro impact on the technology workforce.

Speaker Change: Yeah sure I think what you're seeing down is just the impact of the.

John Lovallo: Well.

John Lovallo: Interesting question.

John Lovallo: Look anything that we're buying today is going to come through the system, maybe a year or two years from now.

Stephen Kim: Lower average sales price for a variety of reasons and also just some lingering remnants of the spin off so the cash flow is really most dependent on them.

Speaker Change: We are working through some older land assets, but even as we work through those land assets, we are reworking and focusing on the horizontal development costs associated with that and that can be as expensive as the land asset itself.

Stephen Kim: And the margin.

Stephen Kim: <unk> margin and you know what we've seen is that with adult challenge in the second quarter.

Stephen Kim: In the context of our no real spinoff, which is still fresh.

Speaker Change: As we look to put assets to work today, just remember that in a declining market, what we might underwrite today might still move around John how would you handle that.

Jonathan Jaffe: For more information visit www.FEMA.gov Turning to the production side of operations, as Stuart highlighted, achieving construction efficiencies is the goal of our production first strategy. Our start pace in the second quarter was 5.1 homes per community per month, providing meaningful volume to the supply chain, which is critical to accomplishing our mission of lowering costs and cycle. Achieving these goals is measured by reducing costs across our entire platform. The proper execution of this strategy will deliver savings in direct construction, land development, land acquisition, indirect costs and SG&A, volume and importantly consistent even flow volume along with efficient to build plans and digitally enabled scheduling and quality control processes all drive cost savings.

Stephen Kim: And some of the ins and outs that derived from that.

Stephen Kim: We're still we're still going through some of those reconciliation and you're seeing our numbers move around it'll probably be another quarter of that but we're.

Speaker Change: It will vary by market, obviously, but.

Speaker Change: So we are trying to adhere to them.

Stephen Kim: We're really migrating to a strong cash flow environment, yeah continuous cash. So I think that's really important as we're turning yeah. That's right. That's one of the most important components of cash flow.

Speaker Change: Finally, our way too.

Stuart Miller: 20% gross margin as we do our underwriting with the expectation that you've heard from Stuart and myself of Recalibrating driving down our cost structure.

Stephen Kim: Nominal amount moves around a little bit, but consistent cash flow is definitely uncle.

Speaker Change: As a buffer against the market conditions, but just remember that because of our land assets are generally much shorter term than they ever were historically.

Speaker Change: Okay. Thank you guys.

Stephen Kim: Thank you.

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

Speaker Change: We are running through <unk>.

Susan Mcclary: Thank you and good morning, everyone or good afternoon, now I guess I should say.

Speaker Change: Over shorter periods of time, those land assets and reloading with newly configured land assets on a regular basis.

Jonathan Jaffe: Our commitment to this consistent volume means our trades can drive down their own cost structure as well as work successfully on lower margins, allowing us to stabilize and ultimately grow on board. The cost reduction discussions with our supply chain are grounded in both the recognition that our consistent volume and market conditions require a recalibration of costs. Direct construction costs in the second quarter were lowered sequentially by 1.5% from Q1 and on a year-over-year basis by 3.5% to our lowest direct construction costs since Q3 of 2021. This term will continue into our third and fourth quarter.

Susan Mcclary: My question is on the core product can you talk a bit about where you are in terms of integrating that into the business how that perhaps benefited the improvement in inventory turns that you saw this quarter and how we should think about the path to you really sort of fully integrating that into the strategy.

Speaker Change: And that rotation.

Speaker Change: Means that we might suffer from some lower margins for a period of time, but over time, there will be a turnaround.

Speaker Change: Home prices, presumably we will start to migrate up and that notion will turn on itself where margins will be improved Fred do you want to add to that at all.

Speaker Change: So susan or charter or core product continues to be rolled out across our divisions.

Susan Mcclary: <unk> now represents about a third of our starts and <unk>.

Speaker Change: Offshore exhibiting quite a bit of patience as we look at deals today and be very selective as we fine tune, our negotiating skills again and bring back to the lessons that we've learned over the many years that we know.

Susan Mcclary: So way of example, it is more efficient from a cost and cycle time perspective. So.

Jonathan Jaffe: Another benchmark of efficiency is our cycle time. Our second quarter cycle time decreased by five days sequentially from Q1 down to 132 calendar days on average for single family detached homes. This is an 18 day or 12% decrease year over year, and is lower than pre-pandemic cycle We expect to see continued improvement in cycle time as well throughout our third and fourth quarters. Our operating strategy is also resulting in reductions in land development costs and in restructuring land acquisitions. As Stuart noted, our consistent volume comes into play as it provides consistent, predictable work for land development contractors who depend on the utilization of heavy equipment.

Susan Mcclary: We expect the so actually about a almost a 20 day improvement in cycle time between non core to core products.

Speaker Change: To buy land at the right price and most importantly, right now on the right terms.

Speaker Change: So we're not taking down large tracts were buying just in time and we're being very selective on what market we're pursuing.

Susan Mcclary: It is designed and engineered to maximize efficiency.

Susan Mcclary: Both the build process and the.

Speaker Change: Great point, because we've spent a lot of time with us when you go from strong market conditions, and maybe even overheated market conditions, the ability to negotiate and to.

Susan Mcclary: The cost to build them and.

Susan Mcclary: So we're seeing continued improvement there just.

Susan Mcclary: You know it takes some time to roll it out across all of our product portfolio. We started at a more entry level price sensitive products, knowing how important it is to deal with price sensitivity there.

Speaker Change: And to really make sure that the terms conditions and pricing right.

Speaker Change: It really becomes almost impossible. When you then migrate to slower conditions that we're in right now we have to reeducate ourselves and start incorporating some of those old skills that are critically important and.

Susan Mcclary: We are in the midst of it.

Speaker Change: Are there any product or rolling out for our move up product and the patch part of Mike Holmes.

Jonathan Jaffe: Similarly, the consistent and dependable takedown of land in a slowing macro environment allows for the proper alignment of timing of land closings and a recalibration of the purchase price of land. With respect to the question regarding tariffs, consistent with our commentary last quarter, we have had no impact to date to our costs from tariffs. We work closely with the supply chain to prepare for alternative sourcing if it becomes necessary, as well as the expectation that our trade partners will work with us to mitigate and offset cost impacts should they present themselves. Stuart Rehaut, Jonathan Jaffe, Diane Bessette, Bruce Gross, Alan Ratner, Truman Patterson, We end the quarter with our supply on home sites improving 0.1 years, down from 1.2 years a year ago, and control home site percentage increasing to 98% from 79% a year ago.

Speaker Change: Okay.

Speaker Change: And then maybe looking out further with that do you think you can eventually get to three times inventory turns or where can you get with the times and what kind of an environment would you need to see that and how does not work into the cash generation of the business over time.

Speaker Change: And that's exactly what we've been doing.

Speaker Change: So that's why I mentioned in my comments are you start that shorter term, but also at a high volume week.

Speaker Change: Generate cash flow forward with sellers in a market that is the macro conditions are slowing down and so it's a very different environment today than what we came through for the past few years.

Susan Mcclary: You know.

Susan Mcclary: It's a it's interesting that you're bringing this up we didn't spend a lot of time on core product today, but it is a core focus.

Speaker Change: Okay, Yeah, that's helpful color.

Speaker Change: And it looks like homebuilding cash flow from ops was about $1 billion outflow in the second quarter in what's typically a positive quarter can you can you provide any color around the moving pieces there.

Susan Mcclary: And that's exactly where are our focus becomes now it's going to take us a little bit of time, but we're definitely looking at a three times kind of termed as a north star for the company and maybe beyond that.

Speaker Change: Yeah sure I think what you are seeing down is just see.

Speaker Change: Patch of the.

Susan Mcclary: We think that there are still a lot of levers to pull our core product focus something again is a drumbeat on a regular basis through our division and it will make a meaningful impact in our ability to improve our inventory turns.

Speaker Change: Lower average sales price for a variety of reasons and also system lingering remnants.

Jonathan Jaffe: During the quarter, land banks acquired on our behalf about 17,000 homesites for about $1.4 billion and a commitment of about $2.1 billion in land development. We purchased during the quarter from our various land-bank partners almost 22,000 finished homesites for about $2.7 billion. The cost and processes in and around land banking provide another area for efficiencies as Stuart discussed. Our focus on the coordination between land sellers and land banks of just-in-time land acquisitions with the commencement of land development. Our consistent volume provides the opportunity for processes and technologies that will lead to cost reduction. These improvements and execution of all of our operating strategies enable capital and production efficiencies leading to an improved inventory churn, which now stands at 1.8 versus 1.6 last year, a 13% improvement.

Speaker Change: Spin off so the cash flow is really most dependent on <unk>.

Speaker Change: And the margin bottom line margin you've seen that that was adult challenged in the second quarter.

Susan Mcclary: So we kind of adjusted our discussion today towards some other things and it's a lot like the machine that we brought back up today two years ago, we were talking about it pretty regularly.

Speaker Change: Look in the context of our Bill Rhodes spinoff, which is still fresh.

Speaker Change: And some of the ins and outs that derived from that.

Susan Mcclary: We just went.

Susan Mcclary: Hi, quiet with it the same thing with core it is happening every day in the company, but it's not something that we need to talk about you'll hear more about it over time.

Speaker Change: We're still we're still going through some of those reconciliation and youre seeing our numbers move around it'll probably be another quarter of that but.

Speaker Change: We're really migrating to a strong cash flow environment, yeah continuous cash. So I think that's really important as we're turning the assets right. That's one of the most important components of cash flow.

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

Susan Mcclary: Okay you bet.

Speaker Change: Do we take our last question.

Speaker Change: And for the last question will go to the line of Michael Rehaut from JP Morgan. Please go ahead.

Speaker Change: Not only will the mountain moves around a little bit, but consistent cash flow is definitely.

Michael Rehaut: Hi, Thanks, I appreciate it I guess good afternoon now everyone. Thank you might wanted to first dive in a little bit to the SG&A. You know you you've kind of highlighted different drivers of the SG&A move them, you know year over year quarter to quarter.

Speaker Change: Joel.

Jonathan Jaffe: In our third quarter, we will continue to focus on meeting our planned sales pace, while intensifying our efforts to reduce costs and maximize efficiencies across our operating platform.

Speaker Change: Okay. Thank you guys.

Speaker Change: Thank you.

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

Speaker Change: Thank you good morning, everyone or good afternoon, now I guess I should say.

Jonathan Jaffe: I want to thank all of our Lennar associates for their hard work, focus, and dedication for the work accomplished in our second quarter, and for the hard work that lies in front of us.

Michael Rehaut: And even in the press release you.

Stephen Kim: You know initially in the press release earlier on.

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

Stephen Kim: The rise in SG&A was tied to a further investment and then and engagement in future efficiencies, but later on in the press release, you said that the the rise was primarily due to less leverage due to lower revenues and an increase in marketing and selling expenses. So just wanted to dive in a little bit to that line.

Diane Bessette: So therefore, I'm going to spend a few minutes on the results of our financial services operations, summarize our balance sheet highlights, and then provide estimates for the third quarter. So starting with financial services. For the second quarter, our financial services team had operating earnings of $157 million. The strong earnings were primarily from our mortgage business and were driven by a higher profit per loan as a result of higher secondary margins and also due to a higher capture rate. The financial services team is intensely dedicated to providing a great customer experience for each home buyer and has created true partnerships with our home building team to best accomplish that goal.

Speaker Change: This is in our chart our core product continues to be rolled out across our divisions.

Speaker Change: It's now represents about a third of our starts.

Stephen Kim: Item and understand you know when you talk about you know low eights and about up 100 hundred and 50 basis points roughly over the first half of this year versus last year.

Speaker Change: And I.

Speaker Change: So way of example, it is.

Speaker Change: More efficient from a cost and cycle time perspective so.

Speaker Change: We expect the.

Stephen Kim: Is it more of the investments.

Speaker Change: So actually about a almost a 20 day improvement in cycle time between non core to core product.

Stephen Kim: That we're talking about or is it more due to the increase in marketing and selling and sales commissions and other marketing you know market related housing market related drivers.

Speaker Change: As it is designed and engineered to maximize efficiency.

Speaker Change: Both the build process and the.

Speaker Change: The cost to build.

Stephen Kim: So Mike.

Speaker Change: And so we're seeing continued improvement in adjusted.

Diane Bessette: Our LSS teams together with our home building divisions are truly one Lennar.

Stephen Kim: You're right on it it's really all of the above.

Speaker Change: It takes some time to roll it out across all of our product portfolio, we started at.

Diane Bessette: Turning to our balance sheet, this quarter, once again, we were highly focused on generating cash by pricing homes to market conditions. The result of these actions was that we ended the quarter with $1.2 billion of cash and $5.4 billion of total liquidity. We are now positioned as a land-light, thus lower-risk manufacturing homebuilder. Our year's supply of homesites was 0.1 years, as John noted, and our homesites control percentage was 98%. We ended the quarter owning 12,000 homesites and controlling 520,000 homesites for a total of 532,000 homesites. 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.

Stephen Kim: The reduction in average sales price and in revenues, that's just math.

Speaker Change: Our more entry level price sensitive products, knowing how important it is to deal with price sensitivity there and now we are in the midst of designing product youre rolling out for move.

Stephen Kim: And we're just pointing out.

Stephen Kim: The obvious math.

Stephen Kim: But underlying our very very strong and high.

Speaker Change: Move up product and the attach product like Townhomes.

Stephen Kim: Our SG&A levels in corporate for that matter is the fact that we have running through those items. Some significant time attention investment specific dollar outlays, but additionally, additional overhead people.

Speaker Change: Okay. That's helpful. And then maybe looking out further with that do you think you can eventually get to three times inventory turns or where can you get to with with the time and what kind of an environment would you need to see that and how does that work into the cash generation of the business over time.

Stephen Kim: We are working on these programs that we think fills last thing efficiencies.

Speaker Change: You know.

Stephen Kim: We believe that the return on that investment is going to in the rearview mirror.

Speaker Change: It's interesting that you bring this stuff we didn't spend a lot of time on core product today, but it is a core focus.

Stephen Kim: Look.

Stephen Kim: Look very very attractive.

Speaker Change: And.

Speaker Change: And Thats exactly where are our focus becomes now it's going to take us a little bit of time, but we're definitely looking at a three times kind of churn and as.

Stephen Kim: But as you're building these models and programs, it's very hard to to be able to identify what that return is got a day, but the investment is nonetheless still there and running through the system and as I said.

Diane Bessette: With our focus on returns, we are pleased that our inventory return increased to 1.8 times with a solid return on inventory of 27%. As we've stated in the past, we balance margins and asset turnover as both contribute to higher returns. During the quarter, we started approximately 24,200 homes and ended the quarter with approximately 42,400 homes and in the... This inventory number includes 2,900 homes that were completed unsold, which, as noted, is under two homes per community and continues to be within our historical range. Turning to our debt position, we've opportunistically raised $700 million in senior notes at 5.2% due in July 2030.

Speaker Change: As a north star for the company and maybe beyond that.

Speaker Change: We think that there is still a lot of levers to pull our core product focus something again is a drumbeat on a regular basis through our division and it will make a meaningful impact in our ability to improve our inventory turns.

Stephen Kim: And this is the tricky part is most companies that have rebuilt systems and spent significant dollars have done it in the context of fairly strong market conditions.

Stephen Kim: And decidedly right now we are in an industry that is going through a bit of an industry recession, and therefore, you know I'd just say that.

Speaker Change: So we kind of adjusted our discussion today towards some other things and it's a lot like the machines that we brought back up today two years ago, we were talking about it pretty regularly.

Stephen Kim: It's unusually.

Stephen Kim: Unusually high dollar spend on technology at a time when the market is pulling back. So you do have some of that bath tissue as well.

Speaker Change: We just went quiet with it the same thing with core it is happening every day in the company, but it's not something that we need to talk about youll hear more about it over time.

Stephen Kim: Okay I appreciate that and I guess secondly, just on the gross margin just wanted to understand you know kind of what's in that and.

Diane Bessette: We primarily used the proceeds to pay off $500 million of senior notes that matured in May. As a result, our home building debt to total capital was 11% at quarter end. Our next debt maturity of $400 million is not due until June of 2023.

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

Speaker Change: Okay, you bet why do we take our last question.

Stephen Kim: You know when you give the guidance for next quarter, what is in it and not in that so what I'm, referring to specifically is first of all the millrose dividend payments or option deposit payments I think annualized up around $500 million is that full annualized impact at this point.

Speaker Change: And for the last question will go to the line of Michael Rehaut from JP Morgan. Please go ahead.

Michael Rehaut: Hi, Thanks, I appreciate it I.

Diane Bessette: Consistent with our commitment to increasing shareholder returns, we repurchased $4.7 million of our outstanding shares for $517 million, and we paid dividends totaling $134 million. Our stockholders' equity was just under $23 billion, and our book value per share was about $87.

Speaker Change: Good afternoon now everyone.

Speaker Change: Thank you Mike wanted to first dive in a little bit to the SG&A. You know you you've kind of highlighted different drivers of the SG&A move them.

Stephen Kim: Reflected in the.

Stephen Kim: The 18% or is that something that might be a headwind for next year.

Speaker Change: Year over year quarter to quarter.

Stephen Kim: And secondly, when you when you give the 18% gross margin guidance does that is that also inclusive of the 20 bps of purchase accounting.

Speaker Change: And even in the press release.

Speaker Change: Initially in the press release earlier on.

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

Speaker Change: The rise in SG&A was tied to a further investment and then and engagement in future efficiencies, but later on in the press release, you said the rise was primarily due to less leverage due to lower revenues and an increase in marketing and selling expenses. So just wanted to dive in a little bit to that line.

Mike Holmes: So Mike I'll take that the first one.

Diane Bessette: With that brief overview, I'd like to turn to Q3 and provide some guidance. Starting with new orders, we expect two or three new orders to be in the range of 22,000 to 23,000 homes as we match production and sales. We anticipate our Q3 deliveries to also be in the range of 22,000 to 23,000 homes with a continued focus on turning inventory into cash. Our Q3 average sales price on those deliveries should be about $380,000 to $385,000 and gross margins should be approximately 18% as we continue to price to market and use incentives to enable our customers to attain affordable homes.

Mike Holmes: So let's talk about the purchase accounting pretty pretty negligible for the third quarter side. I think you can kind of take that off the table as far as the option maintenance fees to remember you know.

Mike Holmes: Since we started our land banking program you know 545 years ago, that's been embedded in the Clos now of course with the spin off of no rental there is that additional fees, but yeah. It's all included in the margin guidance that we give and as certain Jonathan I'm really pointing.

Speaker Change: Item and understand you know when you talk about low eights and about up 100 150 basis points roughly over the first half of this year versus last year.

Speaker Change: Is it more of the investments.

Speaker Change: That we're talking about or is it more due to the increase in.

Mike Holmes: Now all of the pressures whether it's the market.

Marketing and selling and sales commissions and other marketing market related.

Mike Holmes: Occupancies all are really just keep us incredibly.

Speaker Change: Market related drivers.

Mike Holmes: Incredibly focused on cost efficiencies to offset any other the negative.

Mike: So Mike.

Diane Bessette: Our SG&A percentage should be in the range of 8 to 8.2%, impacted by our continued investment in technology solutions. All of these metrics, of course, are dependent on market conditions.

Mike: You're right on it's really all of the above.

Mike Holmes: Gross margin so it's a.

Mike Holmes: Option fees, that's one component.

Mike: The reduction in average sales price and in revenues, that's just math.

Mike Holmes: But all of the headwinds.

Mike Holmes: Why we're so passionate about making sure that with some cost efficiencies.

Speaker Change: And we're just pointing out.

Mike Holmes: I think that one of the things that we've done, particularly well given our financial group.

Diane Bessette: For the combined home building, joint venture, land sales, and other categories, we expect a loss of about $25 million. We anticipate our financial services earnings to be approximately $175 to $180 million.

Speaker Change: The obvious math.

Speaker Change: But underlying our very very strong and high.

Mike Holmes: And the integrity that is wrapped in that financial group.

Speaker Change: SG&A levels in corporate for that matter is the fact that we have running through those items. Some significant time attention investment specific dollar outlays, but additionally, additional overhead people that are working on these programs that we.

Mike Holmes: The Ah.

Mike Holmes: Looking forward and looking backwards is the same it is consistent the way that we look at margin is consistent there.

Diane Bessette: For our multifamily business, we expect a loss of about $40 million as we continue to strategically monetize assets to generate higher returns. Returning to Lennar Others, we expect a loss of $35 million, excluding the impact of potential mark-to-market adjustments to our public technology investment. Our Q3 corporate G&A should be about 1.8% of total revenue, and our foundation contribution should be based on $1,000 per home delivery. We expect our Q3 tax rate to be approximately 25.3%, and the weighted average share count should be approximately 257 million shares.

Mike Holmes: There are no moving pieces that are changing the way forward versus what we're doing right now it is it's it's.

Mike Holmes: Exactly consistent with what we've been doing so you're really looking at apples for apples.

Speaker Change: Thanks, Phil last thing efficiencies.

Speaker Change: We believe that the return on that investment is going to in the rearview mirror.

Mike Holmes: And in the evaluation and if you look at the way that we're thinking about margin again.

Speaker Change: Look.

Speaker Change: Look very very attractive.

Mike Holmes: We know the market is soft we know the market is difficult we are injecting.

Speaker Change: But as you are building these models and programs, it's very hard to to be able to identify what that return is got a day, but the investment is nonetheless still there and running through the system and as I said.

Mike Holmes: Some important savings or cost alterations.

Mike Holmes: And the negotiating that we're bringing to whether it's horizontal cost vertical costs or SG&A costs. We are working through how do we can make an attractive for at least the appropriate margin.

Speaker Change: And this is the tricky part is most companies that have rebuilt systems and spent significant dollars have done it in the context of fairly strong market condition.

Diane Bessette: And so on a combined basis, these estimates should produce an EPS range of approximately $2 to $2.20 per share for the quarter.

Diane Bessette: In conclusion, I, like Stuart and John, would like to say thank you to the financial teams in our division and in our corporate office. You bring an incredible amount of dedication to the table each and every day, and it is greatly appreciated.

Speaker Change: And decidedly right now we are in an industry that is going through a bit of an industry recession, and therefore I would just say that.

Mike Holmes: Given where market affordability is the product that we have to build in building it at them on a more efficient basis and at a lower cost that's what you're seeing in our margin and that's how we're approaching the business.

Speaker Change: It's unusually.

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

Speaker Change: Unusually high dollar spent on technology at a time when the market is pulling back. So you do have some of that back tissue as well.

Unknown Executive: We will now begin the question and answer session of today's conference call. We ask that you limit your questions to one question and one follow-up question until all questions have been answered.

Mike Holmes: So with that Mike. Thank you and thank you everyone for joining we look forward to coming back in the third quarter reporting again.

Speaker Change: Okay.

Speaker Change: I appreciate that and I guess secondly, just on the gross margin just wanted to understand kind of what's in that and.

Unknown Executive: If you would like to ask a question, please unmute your phone, press star 1, and record your name clearly when prompted. If you need to withdraw your question, you may use star 2.

Mike Holmes: Have a nice day.

Mike Holmes: That concludes our second quarter earnings conference call. Thank you all for participating you may disconnect your lines and please enjoy the rest of your day.

Speaker Change: You know when you give the guidance for next quarter, what is and is not in that so what I'm, referring to specifically is first of all the millrose dividend payments or option deposit payments I think annualized of around $500 million is that full annualized impact at this point.

Alan Ratner: Again, that is star 1 to ask a question, and our first question will come from Alan Ratner from Zellman & Associates. Please go ahead. Hey, good morning. Thank you for all the details so far. Very, very helpful.

Mike Holmes: Okay.

Stuart Miller: A lot to touch on here, but I think first maybe if we could just chat a little bit about the consumer and what you're seeing there. I know, Stuart, you went into a lot of detail about the overall demand environment, but, you know, we've been getting a lot of questions here and a lot of concerns reading headlines about just the overall quality of the consumer today and, you know, some headlines about student loans, for example, that's beginning to impact some credit scores and just overall kind of stretched, you know, kind of quality there. So have you seen any dramatic shifts that would, you know, year to date in terms of credit quality or just the overall ability for consumers to purchase homes, or has this been kind of just a slow, steady grind over the last few years given affordability?

Speaker Change: We reflected in the.

Speaker Change: The 18% or is that something that might be a headwind for next year.

Speaker Change: And secondly, when you when you give the 18% gross margin guidance does that is that also inclusive of the 20 bps of purchase accounting.

Mike: So Mike I'll take that the first one.

About the purchase accounting pretty pretty negligible for the third quarter site. I think you can kind of take that off the table.

Mike: As far as the option maintenance fees to remember.

Mike: Since we started our land banking program 545 years ago.

Mike: And embedded in the cross sell of course with the spinoff of nowhere.

Bruce Gross: Look, I'm just going to say generally, and then I'm going to turn it over to Bruce for a second. But just generally speaking, the market has definitely softened or continued to soften. New normal interest rates are higher, but more importantly, consumer confidence has started to wane a little bit. In our last earnings call, I did talk about the fact that that we are seeing higher debt levels in some of our loan applications and that too is starting to weigh in on the market.

Mike: There is that additional fee, but yes. It's all included in the margin guidance that we give and certain Jonathan.

Mike: I'm really pointing out.

Mike: All of the pressures whether it's the market.

Mike: Option fees.

Mike: Really just keep them.

Mike: Credit Suisse focused on cost efficiencies to offset any of the negatives that are in the.

Mike: Gross margin so it's really not just additional option fees Thats one component.

Mike: But all of the headwinds.

Speaker Change: Why we are so passionate about making sure that with some cost efficiencies.

Bruce Gross: Bruce, maybe you could give some more color. From a credit perspective, if you're thinking about credit scores, it's been very consistent. What we are seeing, though, is a little bit of a shift to more government loans, which helps with the ratios for some people that don't qualify. So our government loans are up from $40. last year to about 48% in the second quarter of this year, so that's the one noticeable difference. You also brought up student loans, but people do have to qualify assuming the student debt, so we haven't really seen any shift there with any changes with student loans at this point.

Speaker Change: I think that one of the things that we've done, particularly well given our financial group.

Speaker Change: And the integrity that is wrapped in that financial group.

Speaker Change: The.

Speaker Change: Looking forward and looking backwards is the same it is consistent the way that we look at margin is consistent and if there are no moving pieces that are changing the way forward versus what we're doing right now it is.

Speaker Change: It's <unk>.

Speaker Change: Exactly consistent with what we've been doing so you're really looking at apples for apples.

Speaker Change: And in the evaluation and if you look at the way that we're thinking about margin again.

Speaker Change: We know the market is soft we know the market is difficult we are injecting.

Unknown Executive: Great. And it's great to hear your voice, Bruce. Hope you've been doing well.

Speaker Change: Some important savings or cost alteration.

Stuart Miller: Second question, you know, on the, you know, just overall, I guess, price elasticity in the market, you know, Stuart, obviously, with the machine and your ability to flex incentives to maintain a targeted sales pace, impressive results there. I'm just curious, across your portfolio, do you feel like there are any markets right now that don't really have elasticity in demand, meaning, you know, incentives, it doesn't really matter how high you take them, you're struggling to achieve a certain targeted pace, and as a result, you've dialed back the production? Or would you say across the board, there is a market clear in price, it's just a matter of finding what that level is to achieve the targeted absorption?

Speaker Change: And in the negotiating that we're bringing to whether it's horizontal cost vertical costs or SG&A costs. We are working through how do we can make an attractive for at least the appropriate margin.

Speaker Change: Given where market affordability is the product that we have to build and building it out on a more efficient basis and at a lower cost that's what youre seeing in our margin and that's how we're approaching the business.

Mike: So with that Mike. Thank you and thank you everyone for joining we look forward to coming back in the third quarter reporting again.

Stuart Miller: So I'll just say quickly and then turn over to John that, you know, as you as you know, Alan, we are on top of these numbers, our divisions, our region, every day. And I would I would say that you do see somewhat of a rotation. where one week it's one market and one week it's another where the question of elasticity is raised and challenged and it's a real ebb and flow market out there that moves around.

Speaker Change: Have a nice day.

Speaker Change: That concludes our second quarter earnings conference call. Thank you all for participating you may disconnect your lines and please enjoy the rest of your day.

Speaker Change: Okay.

Jonathan Jaffe: John? I completely agree with that, Stuart. Nothing you can point to, however, to say this market is behaving consistently in a different direction. As I highlighted, some of the markets that are harder to find that pace. As I said, it's in part driven by perhaps where pricing is, and particularly tech workers who are foreign tech workers, just the uncertainty around that. So in combination, you tend to see a bigger impact, but that also tends to be very community-specific. And we make the adjustments.

Unknown Executive: Great. Thanks for all the detail, guys. Appreciate it. You bet.

Stephen Kim: Next we'll go to the line of Stephen Kim from Evercore ISI, please go ahead. Yeah, thanks very much, guys. Appreciate all the color as always. I guess last quarter, we discussed your view that long-term normalized operating margins before corporate expense were like in the mid to high teens, and that you could be nimble in adjusting your operations to a lower level of volume if you needed to. You know, you made clear today, again, you're definitely committed to driving volume-based efficiencies. But based on the third quarter order guide, it looks like maybe you are tweaking down volume a little bit.

Stuart Miller: And your comments there, just in response to Alan, you know, it sounds like maybe some markets where there's an inelasticity of demand, you know, you sort of may be tweaking volume down a bit. So I'm just wondering, first of all, to make sure that I heard that correctly. I also noticed you didn't really give, I didn't hear it at least a full year volume guide. So my question basically is, could you talk a little bit about how you see the overall level of volume for on an annualized kind of basis? Has it changed in the last few months?

Stuart Miller: And is there some sort of a metaphorical line in the sand for either volume or margins that is worth talking about, you know, in addition to the sort of the long-term normalized level? Is there like a bottom line or a bottom or floor level that's worth talking about? So that's a number of questions in one, but let me clear up, Steve, that in my comments I did say that we are still expecting for the full year to hit the bottom of the range that we previously articulated of 86,000 to 88,000 homes, so we did detail that.

Stuart Miller: You know, I think that we're remaining consistent. And we're, we're focusing on driving volume, but we're not trying to break anything. You know, this is a day by day kind of program of, you know, working with market conditions. And what we're doing is adjusting pricing, using incentives to meet the market at affordability. And at the same time, we're working with cost structure to say, okay, the market is going to be able to afford X. Now we've got to be able to build something that is market desirable at a cost structure that enables us to make a responsible margin.

Stuart Miller: Is there a breaking point? I'm not, I don't think so, Steve. I think that we're really focused on saying the market is going to be where it's going to be. And that interest rates, you know, the interest rate is part of the affordability program. We're going to have to find a way. The challenge for the industry is going to be to find a way to build at cost structure and take inefficiencies out of our system, build that cost structure, housing that the market can afford. At the end of the day, you know, this conundrum that you've got a supply shortage.

Jonathan Jaffe: and Demand Challenged at the Affordability Level, you know, I tried to really highlight that. It's not something that we've really seen before. And so the market needs supply. It needs supply at a cost structure where we can make a margin and where the customer can afford. And that's what we're driving towards with everything that we're doing. I think you said it really well, Stuart, and that's, as I highlighted, those markets that have some more challenges, Steve, it's, exactly as Stuart said, we are finding our way to a recalibrated cost structure to meet that demand. The demand is there, it is just challenged, as we all know, so it's up to us to do the hard work to figure out how to provide pricing with our homes that is actionable for those consumers.

Stuart Miller: Yeah, and obviously a lot of that is just good old blocking and tackling and making sure you're sharing the pain with all of your partners who are benefiting from your volume. But you also talked intriguingly, Stuart, at length about technology and the major productivity gains you anticipate from technology. And you made clear that you felt like you weren't quite there yet. And so what I wanted to clarify is, is the gap, is it one of know-how and time? Or do you think that you actually need to have a higher level of volume than you have today in order to capture and optimize those products?

Stuart Miller: It's a really important question. Let me first say, I don't think, I think that we need volume, but I think that we have volume. So I'm not making an argument that we need more volume in order to run through. I think that we have that high level of volume that will enable us to learn. But what I did try to articulate is... I don't care if you look at the Technology companies that are self-made as technology companies like Amazon, like Meadow, like Google. If you look at those companies, the amount of money that they invested to become what they were, and before they ever saw a dollar of profit, was enormous.

Stuart Miller: If you then back up and look at the companies like Home Depot and Walmart, that On an old chassis, they put a brand new engine to enable them to be prepared for a digital future. The dollars that were invested by those companies was not just numbers of dollars, but it was management time, it was general overhead, it was focus and attention. I'm not sure that any of these companies did what they did in the context of a softening market. The coincidence of, we didn't start what we're doing in a softer market, but we're traversing a softer market as we are building these components that we think position our company to be very unusual within the industry.

Stuart Miller: It just takes time, it takes attention, it takes overhead to get the programs working well. If I look back at the time that I said, we are developing the machine and you should all come here and see what we're doing, to today, the advances have been breathtaking. They're critically important. The problem is, in a descending market, it's hard to see what we're actually doing. But our grasp on the numbers, moment by moment, day by day, of what's coming through our system and how we're set up for sale and how marketing is driving the sales component that we're looking at.

Stuart Miller: If I think about the response time and the quality of engagement with our digital customers, I'm going to say revolutionary in terms of what we're used to as a company, and we're learning every day. So we're pretty enthusiastic about what we're doing in these spaces, and we are engaging top-flight professionals to work with us so that we're learning, you know, we don't know what we don't know, we're learning what we don't know as we migrate forward. It takes time. We're not there yet, and we probably will never be there, but we're getting closer, and we're adding efficiencies to our program even as we build the system.

Unknown Executive: Sorry for the long-winded answer. No, it's great. I appreciate all the color guys. Best of luck. Thanks.

John Lovallo: Next, we'll go to the line of John Lovallo from UBS. Please go ahead. Good morning, guys. Thanks for taking my questions. The first one is, I guess, you know, I understand that you guys are working through some, you know, some older land assets, and you guys talked about the land management systems today that you're developing. You've also been, you know, very clear about, you know, what you believe to be the benefits of the even flow model.

Stuart Miller: But I guess what I'm curious about is, you know, what margins and returns are you putting capital to work at today? Well, interesting question. Look, anything that we're buying today is going to come through the system maybe a year or two years from now. We are working through some older land assets. But even as we work through those land assets, we are reworking and focusing on the hard development costs associated with that. And that can be as expensive as the land asset itself. As we look to put assets to work today, just remember that in the declining market, what we might underwrite today might still move around.

Jonathan Jaffe: John, how would you handle that? Well, it will vary by market, obviously. But I'd say we try to adhere to finding our way to, you know, around a 20% gross market as we do our underwriting with the expectation, as you heard from Stuart and myself, of recalibrating and driving down our cost structure as a buffer against the market conditions. But just remember that because our land assets are generally much shorter term than they ever were historically... We are running through, over shorter periods of time, those land assets and reloading with newly configured land assets on a regular basis.

Jonathan Jaffe: And that rotation means that we might suffer from some lower margins for a period of time. But over time, there will be a turnaround. Home prices presumably will start to migrate up, and that notion will turn on itself where margins will be improved.

Fred Rothman: Fred, do you want to add to that at all? Yeah, I think we're also exhibiting quite a bit of patience as we look at deals today and be very selective as we fine-tune our negotiating skills again and bring back the lessons that we've learned over the many years at Lennar to buy land at the right price, and most importantly right now, on the right terms. So we're not taking down large tracts, we're buying just in time, and we're being very selective in what market we're buying in. A great point, because we've spent a lot of time with this, you know, when you go from strong market conditions, and maybe even overheated market conditions, the ability to negotiate and to really make sure that the terms, conditions, and pricing are right, really becomes almost impossible.

Stuart Miller: When you then migrate to slower conditions that we're in right now, we have to reeducate ourselves and start incorporating some of those old skills that are critically important. And that's exactly what we've been doing. That's why I mentioned my comments are sort of the shorter term, but also at a high volume, we generate cash flow for when sellers in a market that the macro conditions are slowing down. And so it's a very different environment today than what we've been through for the past few years. Okay, yeah, that's helpful color.

Diane Bessette: And it looks like you know, home building cash flow from ops was about a billion dollar outflow in the second quarter and was typically a positive quarter. Can you provide any color around the moving pieces there? Yeah, sure. I think what you're seeing, Don, is just the impact of the lower average sales price for a variety of reasons, and also just some lingering remnants of the Mill Road spinoff. So the cash flow is really most dependent on RHP and the margin, the bottom dime margin. And, you know, we've seen that those are both challenged in this second quarter.

Diane Bessette: Look, in the context of our Mill Road spinoff, which is still fresh, and, you know, some of the ins and outs that derive from that, we're still going through some of those reconciliations, and you're seeing our numbers move around. It'll probably be another quarter of that, but, you know, we're really migrating to a strong cash flow environment. Yeah, continuous cash flow. I think that's really important. As we're turning the assets, right, it's one of the most important components of cash flow. So the nominal amount moves around a little bit, but consistent cash flow is definitely our goal.

Unknown Executive: Okay, thank you guys.

Unknown Executive: Thank you.

Susan Maklari: Next, we'll go to the line of Susan Maklari from Goldman Sachs. Please go ahead. Thank you. Good morning, everyone. Or good afternoon now, I guess I should say. My question is on the core product. Can you talk a bit about where you are in terms of integrating that into the business? How that perhaps benefited the improvement in inventory terms that you saw this quarter? And how we should think about the path to you really sort of fully integrating that into the strategy? This is in our shot. Our core product continues to be rolled out across our divisions.

Jonathan Jaffe: It now represents about a third of our starts. And I guess by way of example, you know, it is more efficient from a cost and cycle time perspective. So we expect actually about almost a 20-day improvement in cycle time between non-core to core product. As it is, it's designed and engineered to maximize efficiency of both the build process and the cost to build. And so we're seeing continued improvement, and it just takes some time to roll it out across all of our product portfolio. We started at a more entry-level price sensitive product, knowing how important it is to deal with price sensitivity there.

Jonathan Jaffe: And now we are in the midst of designing a product and rolling it out for move-up product and attached product like talent.

Stuart Miller: Okay, that's helpful. And then maybe looking out further with that, do you think you can eventually get to three times inventory terms? Or where can you get to with with the terms? And what kind of an environment would you need to see that? And how does that work into the cash generation of the business over time? You know, it's interesting that you bring this up, we didn't spend a lot of time on core product today, but it is a core focus. And that's exactly where our focus becomes. Now, it's going to take us a little bit of time, but we're definitely looking at a three times kind of turn as a North Star for the company, and maybe beyond that.

Stuart Miller: We think that there are still a lot of levers to pull. Our core product focus, something, again, is a drumbeat on a regular basis through our division, and it will make a meaningful impact in our ability to improve our inventory terms. So, you know, we kind of adjusted our discussion today towards some other things, and it's a lot like the machine that we brought back up today. Two years ago, we were talking about it pretty regularly, and then we just went kind of quiet with it. The same thing with core. It is happening every day in the company, but it's not something that we need to talk about.

Unknown Executive: You'll hear more about it over time.

Unknown Executive: Okay, thank you for the color. Good luck with everything. Okay, you bet.

Michael Rehaut: Why don't we take our last question? And for the last question, we'll go to the line of Michael Rehaut from J.P. Morgan. Please go ahead. Hi, thanks. Appreciate it. I guess good afternoon now, everyone. Thank you, Mike. Wanted to first dive in a little bit to the SG&A. You know, you've kind of highlighted different drivers of the SG&A move, you know, year over year, quarter to quarter. And even in the press release, you know, initially in the press release earlier on, the rise in SG&A was tied to a further investment and an engagement in future efficiencies.

Diane Bessette: But later on in the press release, you said the rise was primarily due to less leverage due to lower revenues and an increase in marketing and selling expenses. So just wanted to dive in a little bit to that line item and understand, you know, when you talk about, you know, low eights and about 100, 150 basis points roughly over the first half of this year versus last year. You know, is it more the investments that we're talking about? Or is it more due to the increase in, you know, marketing and selling and sales commissions and other marketing, you know, market related, you know, housing market related drivers?

Diane Bessette: So, Mike, you're right on, it's really all of the above, you know, the reduction in average sales price and in revenues, that's just math. And we're just pointing out, you know, the obvious math.

Diane Bessette: But underlying our very, very strong and high SG&A levels, and corporate for that matter, is the fact that we have running through those items some significant time, attention, investment, specific dollar outlays, but additionally, additional overhead people that are working on these programs that we think build lasting efficiencies. We believe that the return on that investment is going to, in the rear view mirror, look very, very attractive. But as you're building these models and programs, it's very hard to be able to identify what that return is going to be, but the investment is nonetheless still there and running through the system.

Diane Bessette: And as I said, and this is the tricky part, is most companies that have rebuilt systems and spent significant dollars have done it in the context of fairly strong market conditions. And decidedly right now, we are in an industry that is going through a bit of an industry recession. And therefore, you know, I just say that it's unusually high dollars spent on technology at a time when the market is pulling back. So you do have some of that math issue as well. Okay, I appreciate that.

Diane Bessette: And I guess secondly, just on the gross margin, just want to understand, you know, kind of what's in that and You know, when you give the guidance for next quarter, what is in it and not in that. So what I'm referring to specifically is, first of all, the Millrose dividend payments or option deposit payments, I think annualized of around 500 million. Is that full annualized impact at this point? fully reflected in the 18% or is that something that might be a headwind for next year? And secondly, when you give the 18% gross margin guidance, is that also inclusive of the 20 bps of purchase accounting?

Diane Bessette: So, Mike, I'll take that. The first one, so let's talk about the purchase accounting. Pretty negligible for the third quarter, so I think you can kind of take that off the table. As far as the option maintenance fees, remember, you know, since we started our land banking program, you know, four or five years ago, that's been embedded in the cost. Now, of course, with the spinoff of Mill Road, there is that additional fee. But, yes, it's all included in the margin guidance that we give. And as Stuart and John have been, you know, really pointing out, all of the pressures, whether it's the market, option fees, all really just keep us incredibly focused on cost efficiencies to offset any of the negatives that are in the gross margin.

Diane Bessette: So it's really... that's one component. But all of the headwinds, you know, are why we're so passionate about making sure that we're focused on cost efficient. I think that one of the things that we've done particularly well given our financial group and the integrity that is wrapped in that financial group, the looking forward and looking backwards is the same, it is consistent. The way that we look at margin is consistent. There are no moving pieces that are changing the way forward versus what we're doing right now. It is exactly consistent with what we've been doing, so you're really looking at apples for apples in the evaluation.

Diane Bessette: If you look at the way that we're thinking about margin, again, we know the market is soft. We know the market is difficult. We are injecting. Some important savings or cost alterations in the negotiating that we're bringing to whether it's horizontal costs, vertical costs, or SG&A costs, we are working through how do we make an attractive or at least appropriate margin given where market affordability is, the product that we have to build, and building it on a more efficient basis and at a lower cost. That's what you're seeing in our margins, and that's how we're approaching the business.

Unknown Executive: So with that, Mike, thank you, and thank you, everyone, for joining. We look forward to coming back in the third quarter reporting again. Have a nice day.

Unknown Executive: That concludes Lennar's second quarter earnings conference call. Thank you all for participating. You may disconnect your line and please enjoy the rest of your day.

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