Q2 2025 KB Home Earnings Call

Julian: My name is Julian, and I will be your conference operator for today.

Good afternoon, My name is Julian and I will be your conference operator for today.

Julian: I would like to welcome everyone to the KB Home 2025 second quarter earnings conference call. All participant lines are in a listen only mode.

Speaker Change: I'd like to welcome everyone to the Kb home 2025 second quarter earnings Conference call.

All participant lines are in a listen only mode. Following the company's remarks, there will be an open line for questions.

Julian: Following the company's remarks, there will be an open line for questions.

Julian: This conference call is being recorded and a replay will be accessible on the KB Home website until July 23, 2025.

This conference call is being recorded and a replay will be accessible on the KBR website until July 23rd 2025.

Jill Peters: I will now turn the call over to Jill Peters, Senior Vice President of Investor Relations. Jill, you may begin. Thank you, Julian. Good afternoon, everyone. And thank you for joining us today to review our results for the second quarter of fiscal 2025.

Speaker Change: Now I'll turn the call over to Jill Peters Senior Vice President of Investor Relations Jill you may begin.

Jill Peters: Thank you Julien good afternoon, everyone and thank you for joining us today to review our results for the second quarter of fiscal 2025 on the call are Jeff Mezger, Chairman and Chief Executive Officer, Rob Mcgivney, President and Chief Operating Officer, Rob Dillard Executive Vice.

Jeffrey Mezger: On the call are Jeff Mezger, Chairman and Chief Executive Officer, Rob McGibney, President and Chief Operating Officer, Rob Dillard, Executive Vice President and Chief Financial Officer, Bill Hollinger, Senior Vice President and Chief Accounting Officer, and Thad Johnson, Senior Vice President and Treasurer.

Speaker Change: President and Chief Financial Officer, Bill Hollinger, Senior Vice President and Chief Accounting Officer, and Thad Johnson, Senior Vice President and Treasurer.

Jeffrey Mezger: During this call items will be discussed that are considered forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future results and the company does not undertake any obligation to update them. Due to various factors, including those detailed in today's press release and in our filings with the Securities and Exchange Commission.

Speaker Change: During this call items will be discussed that are considered forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.

Jill Peters: These statements are not guarantees of future results and the company does not undertake any obligation to update them.

Speaker Change: Due to various factors, including those detailed in today's press release and in our filings with the Securities and Exchange Commission.

Jeffrey Mezger: Actual results could be materially different from those stated or implied in the forward-looking statements.

Speaker Change: Actual results could be materially different from those stated or implied in the forward looking statements and.

Jeffrey Mezger: In addition, a reconciliation of the non-GAAP measure of adjusted housing gross profit margin, which excludes inventory-related charges, and any other non-GAAP measure referenced during today's discussion to its most directly comparable GAAP measure can be found in today's press release and or on the Investor Relations page of our website at kbhome.com.

Speaker Change: In addition, a reconciliation of the non-GAAP measure of adjusted housing gross profit margin, which excludes inventory related charges and any other non-GAAP measure referenced during todays discussion to its most directly comparable GAAP measure can be found in today's press release and or on the Investor Relations pay.

Speaker Change: Each of our web site at Kb home Dot com and with that here is Jeff Mezger.

Jeffrey Mezger: And with that, here is Jeff Mezger. Thank you, Jill. And good afternoon, everyone. We delivered solid financial results in the second quarter that met or exceeded our guidance ranges across our metrics as we continue to navigate the current environment. With a healthy balance sheet, our financial position and flexibility are strong. We are returning an increasing amount of cash to our shareholders, having repurchased $200 million of our shares in the second quarter. Operationally, we continue to strengthen our business by further reducing our build times and lowering our direct costs. As to market conditions, while longer term, the outlook for the housing market remains favorable, driven by demographics and an undersupply of homes.

Jeff Mezger: Thank you Jill and good afternoon, everyone.

Speaker Change: We delivered solid financial results in the second quarter.

Speaker Change: Met or exceeded our guidance ranges across our metrics as we continue to navigate the current environment.

Speaker Change: With a healthy balance sheet, our financial position and flexibility are strong.

Jeff Mezger: We are returning an increasing amount of cash to our shareholders, having repurchased $200 million of our shares in the second quarter.

Jeff Mezger: Operationally, we continue to strengthen our business by further reducing our build times and lowering our direct costs.

Jeff Mezger: As to market conditions, while longer term the outlook for the housing market remains favorable.

Speaker Change: Driven by demographics, and an under supply of homes.

Jeffrey Mezger: Consumers are continuing to demonstrate a lack of confidence about the short which has impacted their home purchase decision. Affordability challenges have persisted, compounded by the variability in mortgage interest rates, which remain elevated, as well as macroeconomic and geopolitical uncertainty. These factors resulted in a more subdued demand during the spring selling season.

Speaker Change: Consumers are continuing to demonstrate a lack of confidence about the short term.

Speaker Change: Which has impacted their home purchase decisions.

Jeff Mezger: Affordability challenges have persisted.

Jeff Mezger: Pounded by the variability in mortgage interest rates, which remain elevated as well as macroeconomic and geopolitical uncertainties.

Speaker Change: These factors resulted in a more subdued demand during the spring selling season as a result of the softer environment. We are revising our guidance for fiscal 2025.

Jeffrey Mezger: As a result of this softer environment, we are revising our guidance for fiscal 2025. As for the details of our results, we produced total revenues of $1.5 billion and diluted earnings per share of $1.50 in our second quarter. We've exceeded our delivery expectations, driven primarily by faster build times, which improve sequentially by seven days, and are now back to pre pandemic level. We achieved a gross margin of 19.7%, excluding inventory-related charges, above our guidance range. With a focus on prudently managing our costs, our SG&A was at the low end of our guided range, at 10.7%.

Speaker Change: As for the details of our results. We produced total revenues of $1 5 billion and diluted earnings per share of $1 50, and our second quarter.

Speaker Change: We exceeded our delivery expectations, driven primarily by faster build times, which improved sequentially by seven days and are now back to pre pandemic levels.

Jeff Mezger: We achieved a gross margin of 19, 7% excluding inventory related charges.

Speaker Change: Above our guidance range.

Speaker Change: With a focus on prudently managing our costs. Our SG&A was at the low end of our guided range at 10, 7%.

Jeffrey Mezger: contributing to an operating income margin of 9%. We increased our book value per share to nearly $59, a 10% year over year increase. We generated 3,460 net orders in the second quarter. The actions we began to take late in our 2025 first quarter, evaluating base pricing in every community relative to local market conditions, then repositioning our communities with a focus on offering the most compelling value led to strong net orders in March. However, our net orders declined in April and May, which did not follow the typical spring trajectory. As a result, even though our average community count was in line with our projection and our cancellation rate was fairly steady, our monthly absorption pace per community was 4.5 net orders compared to 5.5 in last year's second quarter.

Speaker Change: Contributing to an operating income margin of 9%.

Speaker Change: We increased our book value per share to nearly $59 or 10% year over year increase.

Speaker Change: We generated 3460 net orders in the second quarter.

Speaker Change: The actions we began to take late in our 2025 first quarter.

Speaker Change: Evaluating based pricing in every community relative to local market conditions, then repositioning our communities with a focus on offering the most compelling value led.

Speaker Change: Led to strong net orders in March.

Speaker Change: However, our net orders declined in April and May which did not follow the typical spring trajectory.

Speaker Change: As a result, even though our average community count was in line with our projection and our cancellation rate was fairly steady.

Speaker Change: Our monthly absorption pace per community was $4 five net orders compared to $5 five in last year's second quarter.

Jeffrey Mezger: While our net order pace was below our internal goal, we believe it ranks high among the large production home builders. Our focus is on optimizing our assets to generate the highest returns, balancing pace and price on a community by community basis. In stronger market conditions, we believe this will yield an annual average absorption pace of about five net orders per month. per community as we would increase price in order to maximize margins rather than run our communities any faster. When the market flows. We would expect a pace of roughly four net orders per month per community.

Speaker Change: While our net order pace was below our internal goal, we believe it ranks high among the large production homebuilders.

Speaker Change: Our focus is on optimizing our assets to generate the highest returns.

Speaker Change: Balancing pace and price on a community by community basis.

Speaker Change: And stronger market conditions, we believe this will yield an annual average absorption pace of about five net orders per month.

Speaker Change: Per community as we would increase price in order to maximize margins rather than run our communities any faster.

Speaker Change: When the market slows.

Speaker Change: We would expect the pace of roughly four net orders per month per community.

Jeffrey Mezger: This is not a fixed approach. It allows for flexibility to adjust to changing market conditions as we determine the appropriate pace to achieve the best possible return. For example, reducing base prices late in our first quarter, at the start of the strongest selling period of the year, optimizes our assets. Doing so in the fourth quarter, when demand is typically more inelastic and speculative builders are competing to finish their fiscal years, is not the optimal way to manage our assets. The incremental volume in that context tends to be minimal and comes at a great cost to our margin.

Speaker Change: This is not a fixed approach it allows for flexibility to adjust to changing market conditions as we determine the appropriate pace to achieve the best possible returns.

Speaker Change: For example, reducing based prices late in our first quarter at the start of the strongest selling period of the year Optimizes our assets.

Speaker Change: Doing so in the fourth quarter when demand is typically more inelastic and speculative builders are competing to finish their fiscal years.

Speaker Change: The optimal way to manage our assets.

Speaker Change: The incremental volume in that context tends to be minimal and it comes at a great cost to our margins.

Jeffrey Mezger: Finding the right balance comes from adjusting prices to maintain or increase our absorption pace so that each community has the appropriate selling cadence while maximizing margins, returns, and cash flow.

Speaker Change: Finding the right balance comes from adjusting prices to maintain or increase our absorption pace. So.

Speaker Change: Each community has the appropriate selling cadence, while maximizing margins returns and cash flow.

Jeffrey Mezger: Market conditions change over time. And when resale inventory was lower over the past few years, we started more speculative homes, which shifted our business away from our historical mix of between 70% and 75% built to order. As we continue to sell through our inventory, our goal is to steer our business back to this historical range of built to order homes over time. It is our core competency and a key differentiator from a competitive standpoint, setting us apart from the other large production homebuilders. More importantly, from a consumer standpoint, it offers buyers choice with features we know they value based on our survey data.

Speaker Change: Market conditions change over time, and when resell inventory was lower over the past few years, we started more speculative homes, which shifted our business away from our historical mix of between 70% and 75% built to order.

Speaker Change: As we continue to sell through our inventory our goal is to steer our business back to this historical range of built to order homes over time.

Speaker Change: It is our core competency and a key differentiator from a competitive standpoint, setting us apart from the other large production homebuilders.

Speaker Change: More importantly from a consumer standpoint. It offers buyers choice with features we know they value based on our survey data.

Jeffrey Mezger: Our buyers can significantly influence their final sales price. as they personalize their choice of lot, elevation, and design studio selection, aligning their monthly payment with their budget. Our studios also contribute to our high customer satisfaction scores, as buyers draw value from that aspect of our process, and they enhance our gross margin. As our built order mix grows, we believe it will drive a higher gross margin for our company over time.

Speaker Change: Our buyers can significantly influence their final sales price.

Speaker Change: As they personalize their choice of lot elevation and design studio selection.

Speaker Change: Aligning their monthly payment with their budget.

Speaker Change: Our studio is also contribute to our high customer satisfaction scores as buyers drop value from that aspect of our process.

Speaker Change: They enhance our gross margins.

Speaker Change: As our built to order mix grows we believe it will drive a higher gross margin for our company over time.

Jeffrey Mezger: Before I turn the call over to Rob McGibney, let me spend a moment addressing our lower guidance for 2025. With market conditions having softened and taking our net order results from the first half of this year into consideration, resetting our revenue expectation is appropriate.

Speaker Change: Before I turn the call over to Rob Mcgivney, Let me spend a moment addressing our lower guidance for 2025.

Speaker Change: With market conditions, having softened and taking our net order results from the first half of this year into consideration resetting our revenue expectation is appropriate.

Jeffrey Mezger: Rob will provide additional details on how we expect to achieve the new range of between $6.3 and $6.5 billion. We anticipate the lower top line will contribute to lower margins, although we continue to pursue additional improvements in build times and direct costs, and we are right sizing our overhead structure to align with our lower volume this year.

Rob Mcgivney: Rob will provide additional details on how we expect to achieve the new range of between six three and $6 5 billion.

Speaker Change: We anticipate the lower top line will contribute to lower margins. Although we continue to pursue additional improvements in build times and direct costs and we are right sizing our overhead structure to align with our lower volume this year.

Jeffrey Mezger: Let me pause here for a moment and ask Rob to provide more details on our sales, as well as an operational update.

Speaker Change: Let me pause here for a moment and ask Rob to provide more details on our sales as well as an operational update Rob.

Rob McGibney: Rob.

Rob McGibney: Thank you, Jeff. Operationally, our divisions are executing well on the fundamentals, maintaining our high customer satisfaction levels, further improving build times, lowering our direct cost and balancing pace and price to optimize each We exceeded our anticipated deliveries in the second quarter, one example of our solid execution, which had a positive impact on our financial results for the quarter. With respect to sales, on our last earnings conference call, we had outlined the actions that we had began to take in February to reposition our We simplified our sales approach to provide what our buyers want, which is securing a home that meets their needs at the best possible price.

Rob: Thank you, Jeff operationally, our divisions are executing well on the fundamentals maintaining our high customer satisfaction levels further improving build times, lowering our direct costs and balancing pace and price to optimize each asset.

Speaker Change: We exceeded our anticipated deliveries in the second quarter. One example of our solid execution, which had a positive impact on our financial results for the quarter.

Speaker Change: With respect to sales on our last earnings conference call. We had outlined the actions that we had began to take in February to reposition our communities.

Speaker Change: We simplified our sales approach to provide what our buyers want which is securing a home that meets their needs at the best possible price.

Rob McGibney: Our strategy focuses on delivering the most compelling value and improving affordability with transparency. Rather than relying on incentives, we focused on adjusting base pricing and consumers' Three weeks into March, we had achieved solid weekly net orders with an absorption pace that was approaching seasonally normalized.

Speaker Change: Our strategy focuses on delivering the most compelling value in improving affordability with transparency rather than relying on incentives, we focused on adjusting based pricing and consumers responded.

Speaker Change: Three weeks into March we had achieved solid weekly net orders with an absorption pace that was approaching seasonally normalized levels.

Rob McGibney: Moving into April consumers grew increasingly apprehensive about the economy and rising geopolitical tensions driving consumer confidence to a 13 year low. As a result, the housing market cools. In response, we proactively adjusted base pricing in our underperforming communities to remain aligned with local market dynamics, including rising resale inventory and softening home prices in some markets. Despite these actions, demand we We believe this was due not only to the lack of consumer confidence, but also to mortgage interest rates, which edged up in early April and remain high and variable for the balance of the course.

Speaker Change: Moving into April consumers grew increasingly apprehensive about the economy and rising geopolitical tensions driving consumer confidence to a 13 year low.

Rob: As a result, the housing market cooled and.

Rob: In response, we proactively adjusted based pricing in our underperforming communities to remain aligned with local market dynamics, including rising resale inventory and softening home prices in some markets.

Rob: Despite these actions demand weakened we.

Rob: We believe this was due not only to the lack of consumer confidence, but also to mortgage interest rates, which edged up in early April and remain high and variable for the balance of the quarter.

Rob McGibney: In addition to these broader macroeconomic factors, we encountered municipal delays and final utility sign offs and certificates of occupancy for model homes that impacted the timing of a number of our planned community While these issues were relatively minor in nature, largely driven by local municipal staffing shortages and administrative bottlenecks, They shifted some of our grand openings to later in the second quarter or into our third quarter, which in turn impacted our net orders in the second quarter. For the full quarter, our average absorption pace was 4.5 net orders per month per community, a good result in this environment, although below our targeted range for the At quarter end, we had 253 active communities, up 2% year over year, and within our guided range, contributing to an average of 254, an increase of 5% as compared to the prior year period.

Rob: In addition to these broader macroeconomic factors, we encountered municipal delays in final utility sign offs and certificates of occupancy for model homes that impacted the timing of a number of our planned community openings.

Rob: While these issues were relatively minor in nature, largely driven by local municipal staffing shortages and administrative bottlenecks. They shifted some of our grand openings to later in the second quarter were into our third quarter, which in turn impacted our net orders in the second quarter.

Rob: For the full quarter, our average absorption pace was $4 five net orders per month per community. A good result in this environment, although below our targeted range for the spring.

Rob: At quarter end, we had 253 active communities up 2% year over year and within our guided range contributing to an average of 254, an increase of 5% as compared to the prior year period.

Rob McGibney: We are further strengthening our community opening process by enhancing coordination with municipal stakeholders to improve visibility and response. helping us better anticipate and navigate potential delays going forward. We continue to expect to maintain roughly 250 active communities for the remainder of fiscal 2020. Our backlog at the end of May was 4,776 homes valued at $2.3 billion. We maintained a normalized cancellation rate during the quarter, indicating that buyers are ready and able to close on their home. While our backlog is lower year over year, our build times are 20% faster than the prior year quarter. This allows us to sell built to order homes later in the year while still achieving a year in close Our updated fiscal 2025 revenue expectation now implies about 13,200 deliveries.

Rob: We are further strengthening our community opening process by enhancing coordination with municipal stakeholders to improve visibility and responsiveness, helping us better anticipate and navigate potential delays going forward.

Rob: We continue to expect to maintain roughly 250 active communities for the remainder of fiscal 2025.

Rob: Our backlog at the end of May was 4776 homes valued at $2 3 billion.

Rob: We maintained a normalized cancellation rate during the quarter, indicating that buyers are ready enable to close on their homes.

Rob: Our backlog is lower year over year, our build times are 20% faster than the prior year quarter.

Rob: This allows us to sell built to order homes later in the year, while still achieving our year end closing.

Rob: Our updated fiscal 2025 revenue expectation now imply is about 13200 deliveries.

Rob McGibney: Using round numbers for simplicity, that means we have roughly 7,300 homes left to deliver. With approximately 4,800 homes in backlog as of the end of May, we need to sell about 2,500 homes to achieve our planned deliveries for this year. These homes will come from a portion of built to order homes that are sold early in our 2025 third quarter, as well as inventory homes sold through October. We have nearly 2800 unsold homes in production, inclusive of deliverable models. Based on this detailed mapping of our projected 2025 deliveries and the visibility we have for the remaining two quarters of the year, we believe our target is reasonable.

Rob: Using round numbers for simplicity that means we have roughly 7300 homes left to deliver.

Rob: With approximately 4800 homes in backlog as of the end of May we need to sell about 2500 homes to achieve our planned deliveries for this year.

Rob: These homes will come from a portion of built to order homes that are sold early in our 2025 third quarter as well as inventory homes sold through October.

Rob: We have nearly 2800 unsold homes in production inclusive of deliverable models.

Rob: Based on this detailed mapping of our projected 2025 deliveries in the visibility we have for the remaining two quarters of the year, we believe our target is reasonable.

Rob McGibney: Overall, our build times measured in calendar days improved sequentially in the second quarter by another seven days to 140 days, which contributed to our beat on delivery. We're built to order homes, our build times are currently 132 days. We have returned to pre-pandemic levels and this progress moves us closer to our goal of 120 days from start to home completion. is at the lower end of our historical record. Several of our divisions are already building homes at this target level, and we are confident in our ability to achieve this goal company-wide. The benefits of lower build times are numerous, including a more compelling selling proposition for customers purchasing a built-to-order home relative to the 60 days it typically takes to complete an existing or speculative home purchase.

Rob: Overall, our build times measured in calendar days improved sequentially in the second quarter by another seven days to 140 days, which contributed to our beat on deliveries for.

Rob: We're built to order homes, our build times are currently 132 days.

Rob: We have returned to pre pandemic levels and this progress moves us closer to our goal of 120 days from start to home completion, which is at the lower end of our historical range.

Rob: Several of our divisions are already building homes at this target level and we are confident in our ability to achieve this goal companywide.

Rob: The benefits of lower build times are numerous including a more compelling selling proposition for customers purchasing a built to order home relative to the 60 days. It typically takes to complete an existing or speculative home purchase.

Rob McGibney: Better Inventory Turns and Monetizing Our Assets Quickly. We are continuing to rely on our long-standing trade relationships with our even flow production to ensure that we have the crews necessary to get our home. Our value engineering and studio simplification efforts in addition to an enhanced focus on costs contributed to direct costs that were 3.2% lower year over year on our home started during the second quarter, helping to offset the impact of our price reductions and increases in land The homes that we started in May came in at the lowest cost per square foot year to date as our divisions are continuing to drive better performance on Our costs including lumber are protected for almost all of our third quarter starts under the terms of our supply.

Rob: Better inventory turns and monetizing our assets quicker.

Rob: We are continuing to rely on our longstanding trade relationships with our even flow production to ensure that we have the crews necessary to get our homes built.

Rob: Our value engineering and studio simplification efforts. In addition to an enhanced focus on cost contributed to direct costs that were three 2% lower year over year on our homes started during the second quarter, helping to offset the impact of our price reductions and increases in land cost.

Rob: The homes that we started in May came in at the lowest cost per square foot year to date as our divisions are continuing to drive better performance on costs are.

Rob: Our costs, including lumber are protected for almost all of our third quarter starts under the terms of our supply contracts.

Rob McGibney: Our national purchasing team, working with our divisions, has done an excellent job holding off tariff-related cost increases, with only two minor price increases to date.

Rob: Our national purchasing team working with our divisions has done an excellent job holding off tariff related cost increases with only two minor price increases to date.

Rob McGibney: Before I wrap up, I will review the credit profile of our buyers who financed their mortgages through our joint venture KBHS HomeLearn. We maintained our high capture rate with 88% of buyers who financed their homes using KBHC. Higher capture rates help us manage our backlog more effectively and provide more visibility in closings, which benefits our company as well as our buyers. In addition, we see higher customer satisfaction levels from buyers who use our JB versus other lenders. The average cash down payment was stable both sequentially and year over year at 16%, equating to over $78,000.

Rob: Before I wrap up I will review the credit profile of our buyers who finance their mortgages through our joint venture kv Hs home loans.

Rob: We maintained our high capture rate with 88% of buyers who financed their homes using <unk> Hs <unk>.

Rob: Your capture rates helped us manage our backlog more effectively and provide more visibility in closings, which benefits our company as well as our buyers.

Rob: In addition, we see higher customer satisfaction levels from buyers, who use our JV versus other lenders.

Rob: The average cash down payment was stable both sequentially and year over year at 16% equating to over $78000.

Rob McGibney: On average, the household income of customers who use KBHS was about $136,000, and they had a FICO score of 743,000.

Rob: On average the household income of customers, who use kv Hs was about $136000 and they had a FICO score of 743.

Rob McGibney: Even with one half of our customers purchasing their first home, we are still attracting buyers with strong credit profiles who can qualify for their mortgage while making a significant In conclusion, we believe we are navigating market conditions well and have taken action to support affordability for our buyers while balancing pace and price at the community level.

Rob: Even with one half of our customers purchasing their first home, we're still attracting buyers with strong credit profiles, who can qualify for their mortgage while making a significant down payment.

Rob: In conclusion, we believe we are navigating market conditions, well and have taken action to support affordability for our buyers, while balancing pace and price at the community level.

Rob McGibney: Our divisions have done a solid job in controlling what is controllable by reducing build times, lowering cost and remaining committed to serving our Reflecting this commitment, KB Home received an unprecedented number of division-level customer satisfaction honors recently from Avid CX, a trusted platform of home-buying experience in-house.

Rob: Our divisions have done a solid job in controlling what is controllable by reducing build times lowering cost and remaining committed to serving our buyers.

Rob: <unk>. This commitment Kb home received an unprecedented number of division level customer satisfaction honors recently from avid CX a trusted platform of home buying experience insights based on comprehensive post move in customer surveys.

Rob McGibney: based on comprehensive post move in customer service.

Rob McGibney: As we look to the second half of fiscal 2025, we are focused on driving results for this year and beginning to shape our fiscal 2026.

Jeff Mezger: As we look to the second half of fiscal 2025, we are focused on driving results for this year and beginning to shape, our fiscal 2026 and with that I will turn the call back over to Jeff. Thanks, Rob.

Rob Dillard: With that, I will turn the call back over. Thanks, Raph. With respect to our lot position, we owner control nearly 75,000 lots, 47% of which are controlled. Our built-to-order approach provides visibility into the need and timing for replacement communities based on each community's pace and expected sellout date, which is beneficial in our effort to be capital efficient. We are developing lots in smaller phases wherever possible and balancing development with our starts pace to manage our inventory of finished lots. We have long employed a balanced approach to allocating the healthy cash flow that our business generates towards our priorities of future growth and returning capital to our shareholders.

Rob: With respect to our lot position, we own or control nearly 75000 lots, 47% of which are controlled.

Rob: Our built to order approach provides visibility into the need and timing for replacement communities based on each community space and expected sellout date.

Rob: Is beneficial in our effort to be capital efficient.

Rob: We are developing lots in smaller phases wherever possible and balancing development with our starts pace to manage our inventory of finished lots.

Rob: We have long employed a balanced approach to allocating the healthy cash flow that our business generates towards our priorities of future growth and returning capital to our shareholders.

Rob Dillard: Although we continue to view the long-term outlook for the housing market favorably, we are scaling back our land-related investment spend to align to the current market conditions. In the second quarter, we invested over $513 million in land acquisition and development, of which about 75% went toward development and fees on lots we already own. Through our regular review of land deals in our pipeline, we also canceled contracts to purchase approximately 9,700 lots that no longer meet our underwriting criteria.

Rob: Although we continue to view the long term outlook for the housing market favorably, we are scaling back our land related investments spend to align to the current market conditions.

Rob: In the second quarter, we invested over $513 million in land acquisition and development.

Rob: Of which about 75% went toward development and fees and lots we already own.

Rob: So our regular review of land deals in our pipeline, we also canceled contracts to purchase.

Rob: Approximately 9700 lots that no longer meet our underwriting criteria.

Rob Dillard: Will markets stabilize? We have the flexibility to again increase our land investment. With an expected lower level of spend on land for the remainder of the year, and given our healthy lot pipeline to support future growth, we intend to continue a meaningful return of capital to our shareholders. In our 2025 first half, we returned just under $290 million in cash to our shareholders, including $250 million in share repurchases at an average price of approximately $55.70 per share, which is below our current book value. At these levels, the repurchases provide an excellent return and will enhance both our future earnings per share and our return on equity.

Rob: When market stabilized we have the flexibility to again increase our land investments.

Rob: With an expected lower level of spend on land for the remainder of the year.

Rob: And given our healthy pipeline to support future growth, we intend to continue a meaningful return of capital to our shareholders.

Rob: And our 2025 first half we returned just under $290 million in cash to our shareholders, including $250 million in share repurchases at.

Rob: At an average price of approximately $55 70.

Rob: Per share, which is below our current book value.

Rob: At these levels the repurchases provide an excellent return and will enhance both our future earnings per share and our return on equity.

Rob Dillard: For 2025 third quarter, we expect to repurchase between 100 million and $200 million of our shares.

Rob: For our 2025 third quarter, we expect to repurchase between $100 million and $200 million.

Rob: Of our shares.

Rob Dillard: Rob Dillard will provide more detail on our capital allocation perspective in a moment.

Speaker Change: Rob Dillard, who will provide more detail on our capital allocation perspective in a moment.

Rob Dillard: In closing, I want to recognize and thank the entire KB Home team for the commitment to operating our business with a daily emphasis on serving our homebuyers and a results oriented focus. We believe we are taking the right steps in the current market environment by lowering our land spend and redirecting capital towards share repurchases to maximize our returns and enhance shareholder value. We believe we're well-positioned with a strong balance sheet and significant financial flexibility and an experienced team that has successfully navigated varying market cycles in the past.

Rob: In closing I want to recognize and thank the entire kv home team for their commitment to operating our business with a daily emphasis on serving our homebuyers and a results oriented focus.

Rob: We believe we are taking the right steps in the current market environment by lowering our land spend and redirecting capital towards share repurchases to maximize our returns and enhance shareholder value.

Rob: We believe we're well positioned with a strong balance sheet and significant financial flexibility and an experienced team that has successfully navigated varying market cycles in the past.

Rob Dillard: And now I will turn the call over to Rob Dillard. Thanks, Jeff. It's a pleasure to be here and I'm excited to be part of the KB Home team. I'm also pleased to report on the second quarter 2025 As Jeff and Rob stated, we're meeting the market with discipline and with our focus on our employees, our customers and our shareholders. We continue to emphasize our transparent pricing strategy while we promote our built to order advantage. This price and production flexibility is the embodiment of our continued strategy to optimize every asset. We do this by managing absorption by community based on specific market conditions.

Rob Dillard: And now I will turn the call over to Rob Dillard.

Rob Dillard: Thanks, Geoff it's a pleasure to be here and I'm excited to be part of the Kb home team I'm also pleased to report on the second quarter 2025 results as.

Speaker Change: As Jeff and Rob stated, we're meeting the market with discipline and with our focus on our employees our customers and our shareholders. We continue to emphasize our transparent pricing strategy, while we promote our built to order advantage.

Rob: Price and production flexibility is the embodiment of our continued strategy to optimize every asset.

Rob: We do this by manager managing absorption by community based on specific market conditions. This strategy fosters healthy communities.

Rob Dillard: This strategy fosters healthy communities that then enable us to optimize profitability and improve cash flows. In the second quarter of 2025, we utilize this strategy and operating model to generate total revenues of $1.53 billion. and Home Building Revenues of $1.52 billion. A 10% decrease from the prior year. We delivered 3,120 homes in the quarter. We're pleased with this delivery result. As it exceeded our implied guidance during a period when we were refining our pricing strategy to limit or eliminate In the second quarter, we increased our average selling price on a year-over-year basis to approximately $489,000.

Rob: And enable us to optimize profitability and improved cash flows and returns.

Rob: In the second quarter of 2025, we utilized this strategy and operating model to generate total revenues of $1 $5 3 billion and homebuilding revenues of $1 $5 2, Billion% to 10% decrease from the prior year.

Rob: We delivered 3120 homes in the quarter, we're pleased with this delivery result.

Rob: As it exceeded our implied guidance during a period when we were refining our pricing strategy to limit or eliminate incentives.

Rob: In the second quarter, we increased our average selling price on a year over year basis to approximately $489000. We expected this pricing performance, despite continued product and regional mix shifts.

Rob Dillard: We expected this pricing performance despite continued product and regional metrics. Prices increased in the West Coast and the Southwest regions, but we're down with mixed performance by market and other. Housing gross profit margin was 19.3%. and adjusted housing gross profit margin, which excludes inventory related. was 19.7. This strong margin performance beat expectations due to our continued success managing costs and positive regional mix and appeared where pricing power remained limited. Adjusted housing gross profit margin was 150 basis points lower than a year ago. Digital Pricing Pressure, Regional Mix, Higher Relative Land Cost, and Reduced Outbreak. only partially offset by lower construction.

Rob: Prices increased in the West coast and the southwest regions, but were down with mixed performance by market and other regions.

Rob: Housing gross profit margin was 19, 3% and adjusted housing gross profit margin, which excludes inventory related charges was 19, 7%.

Rob: This strong margin performance beat expectations due to our continued success managing costs and positive regional mix and appeared where pricing power remains limited.

Rob: Adjusted housing gross profit margin was 150 basis points lower than a year earlier.

Rob: Due to pricing pressure.

Speaker Change: <unk> mix higher relative land costs and reduced operating leverage only partially offset by lower construction costs.

Rob Dillard: SG&A expenses as a percent of housing revenues were $10.7 60 basis point increase from a year ago, mainly due to higher marketing expenses and reduced opportunity. Home Building Operating Income for the second quarter decreased to $131 million, and Home Building Operating Income excluding inventory-related charges was $136 million. are 9% of homebuilding. Total pre-tax income was $142 million, or 9.3% of total revenue.

Speaker Change: SG&A expenses as a percent of housing revenues were 10, 7%.

Speaker Change: 60 basis point increase from a year ago, mainly due to higher marketing expenses and reduced operating leverage.

Speaker Change: Homebuilding operating income for the second quarter decreased to $131 million in homebuilding operating income excluding inventory related charges was $137 million or 9% of homebuilding revenues.

Speaker Change: Total pre tax income was $142 million or nine 3% of total revenues, we reported net income of $108 million or $1 50 per diluted share benefiting from solid operating performance, an 8% reduction in our average diluted shares outstanding from the prior year booking.

Rob Dillard: We reported net income of $108 million, or $1.50 per diluted chair, benefiting from solid operating performance and 8% reduction in our average diluted chairs outstanding from the prior Looking ahead.

Speaker Change: Looking ahead.

Rob Dillard: We're adjusting our guidance for 2025 and response to current market conditions as Jeff and Rob. Our goal is to remain disciplined and optimize every asset as we focus on maximizing shareholder value. In the third quarter of 2025, we expect to generate housing revenues between 1.5 and 1.7 billion. For the full year, we now expect housing revenues between $6.3 and $6.5 billion. We expect a third quarter average selling price of between $470,000 and $480,000. and the full year 2025 average selling price of between $480,000 and $490,000. The expected variation in average selling price is due to lower prices and regional Housing gross profit margin, assuming no inventory related charges, is expected to be between 18.1% and 18.7% in the third and 19 and 19.4% on the full.

Speaker Change: We are adjusting our guidance for 2025, and our response to current market conditions as Jeff and Rob discussed.

Speaker Change: Our goal is to remain disciplined and optimize every asset as we focus on maximizing shareholder value.

Speaker Change: In the third quarter of 2025, we expect to generate housing revenues between one five and $1 7 billion.

Speaker Change: For the full year, we now expect housing revenues between six three and $6 5 billion.

Speaker Change: We expect our third quarter average selling price of between 470004 hundred $80000 and the full year 2025 average selling price of between 480004 hundred $90000 to expected variation in average selling price is due to lower prices and regional mix.

Speaker Change: Allison gross profit margin, assuming no inventory related charges is expected to be between $18, one and 18, 7% in the third quarter and 19% to 19, 4% in the full year. This expected margin reduction is due to anticipated pricing pressure and mix variation.

Rob Dillard: This expected margin reduction is due to anticipated pricing pressure and mix variation. which we expect to be partially offset by lower construction. The third quarter SG&A ratio is expected to be between 10.3 and 10.7. and the full year S-GNA ratio is expected to be between 10.2 and 10.6. We're actively managing SG&A for the current environment and will continue to align overhead levels with our volume. We expect a third quarter home building operating income margin of between 7.6 and 8.2%. We expect a full year home building operating income margin of between 8.6 and 9%. These projections assume no inventory related Our effective tax rate for the third quarter and the full year is expected to be approximately 24%.

Speaker Change: Which we expect to be partially offset by lower construction costs.

Speaker Change: The third quarter SG&A ratio is expected to be between $10, three and 10, 7%.

Speaker Change: In the full year SG&A ratio is expected to be between 10, 2% and 10, 6%.

Speaker Change: We're actively managing SG&A for the current environment, and we will continue to align overhead levels with our volumes.

Speaker Change: We expect the third quarter homebuilding operating income margin of between seven six and eight 2% and we expect our full year homebuilding operating income margin of between eight six and 9%.

Speaker Change: Projections assume no inventory related charges.

Speaker Change: Our effective tax rate for the third quarter and the full year is expected to be approximately 24% as energy tax credits and other adjustments are expected to remain at their current levels.

Rob Dillard: as energy tax credits and other adjustments are expected to remain at their current levels.

Rob Dillard: Turning now to The Balance. Our balanced capital strategy is focused on minimizing the cost of capital, maximizing flexibility, optimizing returns from investment in land and inventories, and returning capital to reward shareholders. We have inventories consisting of land in various stages of development and homes completed or under construction, totaling 5.9 billion at the end of the second We invested over $513 million in land, development, and fees during this sector. In the first two quarters of fiscal 2025, we invested over $1.4 billion in land development. following investing $2.8 billion in fiscal 2024.

Speaker Change: Turning now to the balance sheet.

Speaker Change: Our balanced capital strategy is focused on minimizing the cost of capital maximizing flexibility optimizing returns from investment in land and inventories and returning capital to reward shareholders.

Speaker Change: We had inventories consisting of land in various stages of development and homes completed or under construction totaling $5 9 billion at the end of the second quarter.

Speaker Change: We invested over $513 million in land development and fees during the second quarter and the first two quarters of fiscal 2025, we invested over $1 4 billion in land development and fees falling investing $2 8 billion and physical 2024.

Rob Dillard: We believe that we are well capitalized for the current market and expect to moderate investment in land to focus on only the highest return opportunities and to a more favorable market. With our inventory position, we own or control over 74,000 watts, over 14% more than this time last This provides both a strong basis for future growth and a high degree of flexibility. Included in the 74,000 lots, we control over 34,000 lots that we have the option but not the obligation to pay. This provides us with meaningful flexibility to manage our land. And we can exercise this flexibility to our advantage when market conditions impact.

Speaker Change: We believe that we are well capitalized for the current market and expect to moderate investment in land and to focus on only the highest return opportunities and to a more favorable market conditions emerge.

Speaker Change: With our inventory position, we own or control over 74000 lots over 14% more than this time last year.

Speaker Change: This provides both a strong basis for future growth and a high degree of flexibility.

Speaker Change: Included in the 74000 lots, we controlled over 34000 loss that we have the option, but not the obligation to purchase this provides us with meaningful flexibility to manage our land investment and we can exercise this flexibility to our advantage when market conditions impact returns.

Rob Dillard: Because we finance our land investments on our balance sheet with extremely limited land banking or other off balance sheet vehicles, we provide maximum transparency while minimizing cost and preserving flexibility. We view this as a meaningful positive in evaluating our liquidity and leverage. At quarter end, we had total liquidity of $1.2 billion, including $309 million of cash and $882 million available under our revolving credit. The current 200 million outstanding on the revolving credit facility is associated with seasonal working capital. We expect to pay off the revolvers. We believe our strong WB positive credit profile is optimal for our business.

Speaker Change: Because we finance our land investments on our balance sheet with extremely limited land banking or other off balance sheet vehicles, we provide maximum transparency, while minimizing costs and preserving flexibility. We view this as a meaningful positive and evaluating our liquidity.

Speaker Change: Average.

Speaker Change: At quarter end, we had total liquidity of $1 2 billion, including 309 million of cash and $882 million available under our revolving credit facility.

Speaker Change: The current $200 million outstanding on the revolving credit facility was associated with seasonal working capital investment, we expect to pay off the revolver by year end.

Speaker Change: We believe our strong double be positive credit profile was optimal for our business that provides a reliable access to capital at a low cost with an aggressive investment grade like covenants and significant flexibility. We will continue to target a total debt to capital ratio in the neighborhood of 30% to support this rating.

Rob Dillard: It provides a reliable access to capital at a low cost, with investment-grade-like covenants, and significant flexibility. We will continue to target a total debt-to-capital ratio in the neighborhood of 30% to support this requirement. And we are pleased with our current 32.2% rate.

Speaker Change: We are pleased with our current 32, 2% ratio, we have no debt maturity until our term loan matures in 2020 and our next note maturities in 2027.

Rob Dillard: We have no debt maturity until our term loan matures in 2026. And our next note maturity is in 2027.

Rob Dillard: The strong balance sheet enables us to provide shareholders with a healthy debt which currently has an approximately 2% yield, as well as return capital to shareholders in the form of share repurchase. We believe our current share price, which is below book value per share, is undervalued and represents a strong investment opportunity. Repurchasing shares that are priced below book value not only improves liquidity in our shares, reduces our weighted average cost of capital, reduces share count and benefits EPS, but also improves return on equity and increases book value per share. In the second quarter, we repurchased 3.7 million shares at an average price of $53.55.

Speaker Change: The strong balance sheet enables us to provide shareholders with a healthy dividend, which currently has an approximately 2% yield as well as return capital to shareholders in the form of share repurchases.

Speaker Change: Yes.

Speaker Change: We believe our current share price, which is below book value per share is undervalued and represents a strong investment opportunity.

Speaker Change: Repurchasing shares at a price below book value not only improves liquidity in our shares reduces our weighted average cost of capital reduced the share count and benefits EPS, but also improves return on equity and increases book value per share in the second quarter, we repurchased three 7 million shares at an <unk>.

Speaker Change: Average price of $53 55.

Rob Dillard: for a return of capital of $200 million, which combined with dividends resulted in a total return of capital of $217 million.

Speaker Change: For return of capital of 200 million, which combined with dividends resulted in a total return of capital of $217 million.

Rob Dillard: with this strategy and our solid earnings. We have increased our bulk value per share to $58.64, a more than 10% increase over the prior year. We have now repurchased over 30% of our outstanding common stock since implementing our share buyback program in late 2021. Over the past four years, we have returned over 1.59 billion to shareholders in the form of dividends and share We have $450 million remaining in our current repurchase authorization and expect to repurchase between $100 and $200 million of our common stock in the third quarter, assuming all other things being equal, especially our outlet for the operating environment, capital market conditions, and other investment .

Speaker Change: With this strategy and our solid earnings.

Speaker Change: We have increased our book value per share to $58 64.

Speaker Change: More than 10% increase over the prior year.

Speaker Change: We've now repurchased over 30% of our outstanding common stock since implementing our share buyback program in late 2021 over the past four years, we have returned over $1 $5 9 billion to shareholders in the form of dividends and share repurchases.

Speaker Change: We have $450 million remaining on our current repurchase authorization and expect to repurchase between 100 and $200 million of our common stock in the third quarter, assuming all other things being equal, especially our outlook for the operating environment capital market conditions and other investment opportunities.

Rob Dillard: In conclusion. We're pleased with our solid results and disciplined operating strategy. And we expect to optimize shareholder value over the long term by augmenting these results with our shareholder focused capital strategy that prioritizes minimizing the cost of capital, maximizing flexibility, improving returns from investment, and increasing returns to the shareholders in the form of share appropriations.

Speaker Change: In conclusion.

Speaker Change: We're pleased with our solid results and disciplined operating strategy and we expect to optimize shareholder value over the long term by augmenting. These results with our shareholder focused capital strategy that prioritizes minimizing the cost of capital maximizing flexibility improving returns from investment and increasing returns to shareholders.

Speaker Change: In the form of share repurchases with that we'll now take your questions. Julian would you. Please open the lines.

Julian: With that, we'll now take your questions. Julian, will you please open the line?

Julian: Thank you.

Julian: We will now be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. The confirmation tone will indicate your line is in the question You may press star two to remove yourself from the queue for participants using speaker equipment that may be necessary to pick up a handset before pressing the start And as a reminder, we ask that you please limit yourself to one question and one follow up.

Speaker Change: Thank you.

Speaker Change: Now be conducting a question and answer session if you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two to remove yourself from the queue.

Speaker Change: Participants using speaker equipment that may be necessary to pick up the handset before pressing the star keys and as a reminder, we ask that you. Please limit yourself to one question and one follow up.

Julian: Thank you. One moment while we poll for questions.

Speaker Change: Thank you one moment, while we poll for questions.

John Lovallo: And our first question comes from the line of John Lovallo with UBS. Please receive this request. Good evening, guys, and thanks for taking my questions. The first one is, you know, I think the flexibility that you guys are demonstrating makes makes a lot of sense on the production front. The question is on SG&A, though, you know, despite the 6% cut at the midpoint of revenue, SG&A is only going up by about 20 basis points versus the previous outlook. I'm just curious what you know what steps you're taking to kind of pull back here on some of this fixed overhead cost?

Speaker Change: And our first question comes from the line of John Lovallo with UBS. Please proceed with your question.

John Lovallo: Good evening, guys and thanks for taking my questions.

Speaker Change: First one is I think the flexibility that you guys are demonstrating makes it makes a lot of sense on the production front.

Speaker Change: Question is on SG&A, though despite 6% cut at the midpoint of revenue SG&A is only going up by about 20 basis points versus the previous outlook I'm, just curious what steps you're taking to kind of pull back here on some of this fixed overhead costs. What specifically are you guys doing.

John Lovallo: You know, what specifically are you guys doing?

Rob Dillard: John, we've always been really focused on keeping our overhead in line with our revenue and scale. And in part, there's formulas for what kind of headcount we need in construction or sales or whatever, depending on how many deliveries so that we are adjusting our headcount . to align with our new revenue projections for this year. And past that, there's buckets everywhere that we look at to see where else can we save some money. So I actually think over time, we can get our ratio back down under 10, where it was a couple of years ago at this revenue level.

Speaker Change: John we've always been really focused on keeping our overhead in line with our revenue and scale.

Speaker Change: And.

Speaker Change: In part there is formulas for what kind of head count, we need and construction or sales or whatever.

Speaker Change: Pending on how many deliveries so we are adjusting our head count too.

Speaker Change: To align with our new revenue projections for this year.

Speaker Change: Pass that others buckets everywhere that we look at to see where else can we save some money. So I actually think over time, we can get our ratio back down under 10.

Speaker Change: It was a couple of years ago at this revenue level so what.

Rob Dillard: So we'll be pulling all the levers and really working hard to keep our costs in line. makes sense.

Speaker Change: We'll be pulling all the levers and really working hard to keep our costs in line.

Rob Dillard: And then maybe switching over to the gross margin, the outlook was 19.2 to 21 to 919.0 to 19.4. I mean, obviously, you tighten it a bit and lower it a bit. But maybe just help us, you know, sort of bucket, you know, the drivers between volume, you know, lower ASP mix, maybe higher land costs, if you could. Yeah, sure.

Speaker Change: Makes sense and then maybe switching over to the gross margin.

Speaker Change: The outlook was 19, 2% to 29% to 19 pointed out of $19. Four I mean, obviously, you tightened it a bit and lowered a bit but maybe just help us sort of bucket the drivers between volume.

Speaker Change: Lower asps.

Speaker Change: Mix, maybe higher land costs, if you could.

Speaker Change: Okay.

Rob Dillard: Hey, John, this is Rob Dillard. A lot of that is operating leverage, right? And so with the lower number, that kind of reduced the outlook for gross profit margins in the second half. You know, land costs on a relative basis with prices coming down a little bit has impacted that margin. And then there's also a pretty meaningful amount that's just mixed between communities and regions. You know, that seems to be working against this a bit. You know, I'd also point out that the reduction in construction cost has offset a fair amount of this pricing pressure, but we're still kind of where we are with an expectation for 19 and 19.4 for the full year now.

Speaker Change: Yeah sure Hey, John This is Rob Dillard.

Speaker Change: A lot of that is operating leverage right and so with the with the lower number that kind of reduced the outlook for gross profit margins in the second half.

Speaker Change: Land cost on a relative basis with prices coming coming down a little bit.

Speaker Change: Has impacted that margin and then there is also a pretty meaningful amount, that's just mix between communities and regions.

Speaker Change: That seems to be working against us a bit.

Speaker Change: I'd also point out that the reduction in construction costs has.

Speaker Change: I'll set a fair amount of this pricing pressure.

Speaker Change: But we're still kind of where we are with with an expectation for <unk> 19 to $19 four in them.

Speaker Change: For the full year now.

Rob Dillard: Understood.

Speaker Change: Understood.

Speaker Change: So.

Speaker Change: [music].

Unknown Executive: Miranda. Yeah.

Speaker Change: Miranda.

Speaker Change: Yeah.

Unknown Executive: Thank you.

Speaker Change: Thank you.

Stephen Kim: And our next question comes from the line of Stephen Kim with Barclays.

Speaker Change: And our next question comes from the line of Stephen Kim with Barclays. Please proceed with your question.

Stephen Kim: Please receive it's a question.

Speaker Change: [laughter].

Stephen Kim: Not for a long time actually, Steve Kim from Epicor. Guys, appreciate all the color. The guidance does seem to imply a pretty robust closing outlook. Rob, I think you specifically called for that. ...out the side for the fourth quarter. It seems to suggest that you're either going to have a very high backlog turnover ratio, you know, maybe in the 80s or something, or you're going to have an awful lot of orders in the third quarter. And you know, typically, I would think that the third quarter absorption cadence would be a little lighter than 2Q.

Speaker Change: Not anymore.

Speaker Change: Not for a long time actually Steve Kim from Evercore.

Speaker Change: I appreciate all the color of the guidance.

Speaker Change: It does seem to imply a pretty robust.

Speaker Change: Loathing outlook Rob.

Speaker Change: Rob I think you specifically costs.

Speaker Change: For the fourth quarter.

Speaker Change: It seems to suggest that you're either going to have a.

Speaker Change: It's very high backlog turnover ratio.

Speaker Change: Maybe in the <unk> or something.

Speaker Change: Or youre going to have an awful lot of orders in the third quarter.

Speaker Change: And typically I would think that the third quarter absorption cadence would be a little lighter than <unk>, but just wondering if you can help us think through I know, you've given us a lot of guidance already but.

Rob Dillard: But just wondering if you can help us think through, I know, you've given us a lot of questions already, but, you know, just struggling a little bit to try to figure out which lever you're going to be really pulling to get a fourth quarter closings, you know, somewhere in the vicinity of, you know, 4000 or something. Well, Steve, you know, I think starting with build times, you know, we've made good progress on build times. I don't think we're done there yet. We continue to see those come down quarter over quarter. Even as we look at the monthly cadence, we've seen build times to come down.

Speaker Change: Im just struggling a little bit to try to figure out, which lever youre going to be really pulling to get the fourth quarter closings.

Speaker Change: Somewhere in the 74000 or something.

Speaker Change: Well, Steve I think starting with Bill times, we've made good progress on build times I don't think we're done there yet we continue to see those come down quarter over quarter, even as we look at the monthly cadence we've seen build times to come down so that's going to relieve some of the pressure on units there, but as I walked through the setup for the balance.

Rob Dillard: So that's going to relieve some of the pressure on units there. But as I walk through the setup for the balance of the year, you know, we need about the 2500 more sales. It's really, that's less than what we did last year.

Speaker Change: <unk> of the year, we need about 25 more.

Speaker Change: 2500, more sales, it's really that's less than what we did last year. So I'd just point out that in 2024, we really took the same approach that.

Rob Dillard: So I just point out that in 2024, you know, we really took the same approach that Jeff outlined when Q4 was tough. And despite that, we still sold over 2600 inventory homes between the third and the fourth quarter and over 1200 of those were coming in Q4 in tougher.

Speaker Change: Jeff outlined when Q4 was tough and despite that we still sold over 2600 inventory homes between the third and the fourth quarter and over 200 of those were coming in Q4 and tougher market conditions dissimilar.

Rob Dillard: Similar set Okay, so anything particular on the, you know, regarding backlog turnover ratio or absorptions, you know, sequentially? Um, well, we're going to continue to target high backlog turnover ratios. I mean, you know, some of that comes from the inventory that we're covering during the quarter. But, you know, no, not I mean, nothing specific, unless I'm misunderstanding your question. I mean, we're looking at it similar to the way we had, you know, going into last year's setup. And it's actually a little more favorable on what we've got to cover.

Speaker Change: Setup as we go into the back half.

Speaker Change: Okay.

Speaker Change: Anything in particular on the regarding backlog turnover ratio or <unk>.

Speaker Change: Absorption.

Speaker Change: Sequentially.

Speaker Change: Well, we're going to continue to target high backlog turnover ratios I mean, some of that comes from the inventory that we're covering during the quarter, but no I mean nothing specific in lithium misunderstanding. Your question I mean, we're looking at it similar to the way we had going into last year's setup.

Speaker Change: And it's actually a little more favorable than what we've got to cover on the inventory side from a sales perspective, Steve If you went back to.

Rob Dillard: Dave, if you went back to The pre pandemic build times, it was not uncommon for our backlog conversion to be 70 to 80%. Yeah, you're building a much quicker Gotcha. And you know, certainly with the cycle times being back to normal and even get pressing ahead, that would, okay, I guess I explained a lot of it.

Speaker Change: The pre pandemic build times it was not uncommon for our <unk>.

Speaker Change: Backlog conversion to be 70% to 80%.

Speaker Change: Yes.

Speaker Change: You are building a much quicker.

Speaker Change: Gotcha.

Speaker Change: Certainly with the cycle times being back to normal and even get pressing ahead that would okay. I guess explain a lot of it.

Rob McGibney: Can you give us a little bit more color regarding the community delay? It was kind of interesting, you mentioned that you were delayed, you had some communities that kind of opened up late in the quarter, and kind of, I think, pushed, I would assume that weighed a little bit on your on your order pace a little bit. So I was wondering if you could elaborate on that at all.

Speaker Change: Can you help us.

Speaker Change: Give us a little bit more color regarding the community.

Speaker Change: It was kind of interesting you mentioned that.

Speaker Change: You were delayed you had some communities that kind of opened up late in the quarter.

Speaker Change: And kind of I think pushed.

Speaker Change: I would assume that weighed a little bit on your on your order pace a little bit I was wondering if you could elaborate on that at all and to what degree would you say that your community count and particularly these grant these grand openings, which I know can be pretty important from an order perspective to what degree did you maybe not get the full benefit of that like you normally would have expect.

Rob McGibney: And, you know, to what degree, would you say that, you know, your community count and particularly, you know, these grand, these grand openings, you know, can be pretty important from an order perspective, to what degree did you maybe not get the full benefit of that, like you normally would have expected? Um, yeah, it was pretty significant. I mean, you know, it's not a new issue community challenges opening communities as an ongoing thing, but it was, I'd say, more significant or so in our second quarter, I'd say, you know, order of magnitude, we probably missed a couple hundred sales from those delays and community openings that we that we didn't get, which is one of the reasons why I mentioned it in my prepared remarks.

Speaker Change: Good.

Speaker Change: Yes, it was pretty significant I mean, it's not a new issue community challenges opening communities is an ongoing thing, but it was I'd say more significantly in our second quarter I'd say order of magnitude, we probably missed a couple of hundred sales from those delays in community openings that we that we didn't get which is one of them.

Speaker Change: Reasons, why I mentioned it in my prepared remarks.

Rob McGibney: It's something that's difficult to predict with precision.

Speaker Change: It's something that's difficult to predict with precision.

Rob McGibney: Maybe our forecasting has been a little too aspirational in some cases, but we are pulling levers and making changes out there to get in front of it to at least be able to forecast better and hopefully also open our communities faster than what we've been doing. Thank you.

Speaker Change: Maybe our forecasting has been a little too aspirational in some cases, but we are pulling levers and making changes out there to get in front of it to at least be able to forecast better and hopefully also open our communities faster than what we've been doing.

Speaker Change: Thank you and our next question comes from the line of Matthew Bouley with Barclays. Please proceed with your question.

Matthew Bouley: And our next question comes from the line of Matthew Bouley with Barclays.

Michael Reihart: Please proceed with your question. Correction, this line comes from Michael Reihart with JP Morgan. Please receive as a question. Thanks for taking my question.

Speaker Change: Of course in this line comes from Michael Rehaut with Jpmorgan. Please proceed with your question.

Speaker Change: Thanks for taking my question good afternoon, everyone.

Michael Reihart: Good afternoon, everyone. I wanted to first try and dive in a little bit to the gross margin cadence in 3Q, 4Q. I believe if the math, if our math is right, we're looking for a decent Rebound in gross margins in the fourth quarter to the low 19 range, I believe, from the 18.1 to 18.7 guidance in the third quarter. So just wanted to understand what's driving that outlook and if there's any anticipated change within that outlook in terms of incentives, incentive levels that closings would have in 4Q versus 3Q. Yeah.

Speaker Change: I wanted to.

Speaker Change: First try in.

Speaker Change: I've been a little bit to the gross margin cadence in <unk> I believe.

Speaker Change: And that if our math is right we're looking for a decent.

Speaker Change: The rebound in gross margins in the fourth quarter to the low 19 range I believe.

Speaker Change: From the 18, 1% to 18 seven guidance in the third quarter. So just wanted to understand.

Speaker Change: Whats driving that outlook.

Speaker Change: And if theres any anticipated change within that outlook.

Speaker Change: <unk> and.

Speaker Change: <unk>.

Speaker Change: Incentive levels that closings would have an <unk>.

Speaker Change: <unk> versus <unk>.

Rob Dillard: Hey, Michael, this is Rob Dillard. You know, it's really actually, I mean, you can get the 40 bps of difference between 3Q and 4Q almost completely from operating leverage. And so that's what really drove our expectation for margin. And there's a little bit of price, but then that's also probably going to create some mix as well. But really, it's really operating leverage.

Speaker Change: Yeah.

Speaker Change: Hey, Michael This is Rob Dillard.

Speaker Change: It's really actually I mean, you can get the 40 bps of difference between <unk> and <unk> almost completely from from operating leverage and so that's what really drove our expectation for margin and there is a little bit of price, but then that's also probably going to create some.

Speaker Change: Mix as well, but really its really operating leverage.

Rob Dillard: Okay, perfect. And then also, I think, earlier in the prepared remarks, you know, it was referenced that there are some communities that lowered price during the quarter. I was curious, you know, what percent of communities did did see price reductions? And, you know, what was the rough average of those price reductions in those communities? And perhaps which markets were those reductions may be more prominent? A few questions embedded there. So, you know, we moved pricing in over half of our communities. We had some that were up, some that were down. It was really surgical by community as we're working to optimize each asset.

Speaker Change: Okay perfect.

Speaker Change: And then also I think earlier in the prepared remarks.

Speaker Change: It was referenced that there are some communities that lowered price during the quarter.

Speaker Change: Obviously in response to the softer demand.

Speaker Change: I was curious what percent of communities did did see price reductions.

Speaker Change: And what was the rough average of those price reductions.

Speaker Change: In those communities and perhaps which markets were those reductions may be more prominent.

Speaker Change: Yes few questions embedded there so we move pricing in them.

Speaker Change: Over half of our communities. We had some that were up some that were down it was really surgical by community as we're working to optimize each asset.

Rob Dillard: You know, we liked how we were positioned coming out of March. We had consumer confidence drop off in April. We found that we had to adjust in more communities above what we did in February to get those communities running at their minimum run rate that we've got established for each one. You know, I just tell you, as far as numbers go, that's all baked into our guidance for the back half of the year and into our ASB as well.

Speaker Change: We like how we're positioned coming out of March we had consumer confidence dropped off in April we found that we had to adjust and more.

Speaker Change: And more communities above what we did in February to get those communities running at their minimum run rate that we've got an established for each one.

Speaker Change: I would just tell you as far as numbers go thats, all baked into our guidance for the back half of the year and into our ASP as well.

Rob Dillard: The second part of your question on the market color, I'll just take a minute to address kind of what we're seeing across the markets because the story continues to be very local and very dynamic. And I would say that all of the markets we operate in experience some level of softening at some point during the quarter. markets that I would say where we're still seeing relatively strong demand and sales performance would be Las Vegas, the Inland Empire, the North Bay in Northern California, Texas markets like Houston and San Antonio, Tampa, Florida as well. By contrast, some of the markets that are facing some more significant headwinds recently are like Sacramento and Seattle, they've slowed down a little bit, and we've had to do a little more there with price relative to some of the others.

Speaker Change: The second part of your community. Your question on the market color I'll, just take a minute to address kind of what we're seeing across the markets. Because the story continues to be very local and very dynamic and I would say that all of the markets. We operate in experience some level of softening at some point during the quarter.

Speaker Change: Markets that I would say, where we're still seeing relatively strong demand and sales performance would be Las Vegas inland Empire, the North Bay in Northern California.

Speaker Change: Texas markets like Houston, and San Antonio.

Speaker Change: Tampa, Florida as well and.

Speaker Change: By contrast, some of the markets that are facing some.

Speaker Change: More significant headwinds recently are like Sacramento in Seattle, they've slowed down a little bit and we've had to do a little more there with price relative to some of the others.

Rob Dillard: Markets like Austin and Colorado, Jacksonville, Orlando and Florida, places where resale supply has increased and starts putting pressure on pricing and creating more competition and just more choice. for buyers, but it is very local, very specific. can't put, put a, you know, a market condition on an entire state or even an entire market in Thank you.

Speaker Change: Markets, like Austin, and Colorado, Jacksonville, Orlando, and Florida Places, where resale supply increase in starts putting pressure on pricing and creating more competition and just more choices for for buyers but.

Speaker Change: It is very local very specific.

Speaker Change: You can't put foot.

Speaker Change: Our market condition on an entire state or even an entire market in most cases, it's community by community.

Speaker Change: Thank you.

Matthew Bouley: And our next question comes from the line of Matthew Bouley with Barclays. Please proceed with your question. Yeah, thanks, guys. I hope you can hear me this time. So my question is on back on the topic of ASP and your sort of price philosophy versus incentives. And I just kind of wanted to understand exactly what you guys were saying. So obviously, you enacted that strategy back in Q2, and it sounded like April and May maybe ended up a little disappointing relative to expectations. You know, but as we look forward, you're talking about optimizing the assets and obviously, you need to sell through some spec here in the second half.

Speaker Change: And our next question comes from the line of Matthew Bouley with Barclays. Please proceed with your question.

Matthew Bouley: Yes, Thanks, guys I Hope you can hear me this time.

Speaker Change: So my question is on back on the topic of Asps.

Speaker Change: And Europe's sort of price philosophy.

Speaker Change: <unk> incentives.

Speaker Change: Just kind of wanted to understand exactly what you guys were saying so obviously you enacted that strategy back in Q2 and it sounded like April and May maybe ended up a little disappointing relative to expectations.

Speaker Change:

Speaker Change: But as we look forward, you're talking about optimizing your assets and obviously you need to sell.

Speaker Change: Spec here in the second half so.

Matthew Bouley: So I'm just kind of curious around, you know, were you messaging that, you know, maybe you will kind of pull back a little bit on this philosophy a little or was the idea that, you know, in order to make sure we hit that full year delivery guide, you know, that we will continue to be active with adjusting base prices to kind of make sure we get that volume. Thank you. Yeah, Matt, we'll, we'll respond to the market situation and what our experience is, in every community. So if things, communities are hitting their pace, we'll, we'll let them go, may push price up a little if they're not hitting their pace, we'll have to take further steps.

Speaker Change: Just kind of curious around.

Speaker Change: What are you messaging that maybe you will kind of pull back a little bit on this philosophy, a little or was the idea of that.

Speaker Change: In order to make sure we hit that full year delivery guide.

Speaker Change: We will continue to be active with adjusting base prices to kind of make sure we get that volume. Thank you.

Speaker Change: Matt will respond to the market situation and what our experiences.

Speaker Change: Every community so things communities are hitting their pace, we'll we'll let them go may push price up a little if theyre not hitting their pace, we will have to take further steps, but we've already baked into our guidance.

Matthew Bouley: But we've already baked into our guidance, what we think it's going to take to hit the sales we need to hit the delivery Okay, fair enough.

Speaker Change: We think it's going to take the hit to sales we need if the deliveries for the year.

Speaker Change: Okay fair enough.

Matthew Bouley: Secondly, the adjustment to land investment. And, you know, here you loud and clear on, you know, the decision you're making around, you know, kind of therefore leaning more into share repurchase, especially when you when you're trading below book value, you know, all kind of well understood and adjusting to market conditions, but but obviously, just the, you know, result of that, and the, you know, thought around growth going forward. I think I heard you say you're going to stay around kind of 250 communities for the balance of this year. And please correct me if I'm wrong.

Speaker Change: Secondly, the adjustment to land investment.

Speaker Change: And hear you loud and clear on the decision, making around kind of therefore leaning more in share repurchase.

Speaker Change: Especially when you are trading below book value.

Speaker Change: All kind of well understood and adjusting to market conditions, but obviously just the.

Speaker Change: The result of that and the <unk>.

Speaker Change: <unk> around growth going forward.

Speaker Change: I think I heard you say youre going to stay.

Speaker Change: Stay around kind of 250 communities for the balance of this year and please correct me if I'm wrong, but as you have pulled back or are pulling back on land development spend and how should we think about the outlook for community growth kind of going beyond 2025, and setting up for 26. Thank you.

Rob Dillard: But you know, as you have pulled back or are pulling back on land development spend, I mean, how should we think about the outlook for community growth, kind of going beyond 2025 and setting up for 26? Thank you. A lot of that, Matt, will be driven by the Whatever the market conditions are for the communities, we need to fill in for, frankly, for 27 or very, very late in 26. We shared on the previous call that we have a little slowdown here in community count growth and expect it to come back the other way first quarter at 26.

Speaker Change: A lot of that Matt will be driven by the.

Speaker Change: Whatever the market conditions are for the communities, we need to fill in for frankly for 27.

Speaker Change: We're very very late in 2006, we shared on the previous call that we have a little slow down here in community count growth and expect it to come back the other way first quarter at 26, So we with.

Rob Dillard: So with the lot count we have today, owned and controlled, we have a platform for growth. It's how much can we mine it out of whatever the market conditions? Thank you.

Speaker Change: With the lot count we have today owned and controlled we have a platform for growth. It is how much can we mine it out of whatever the market conditions are.

Speaker Change: Thank you.

Mike Dahl: And our next question comes from the line of Mike Dahl with RBC Capital Markets. Please proceed with your question.

Speaker Change: Our next question comes from the line of Mike Dahl with RBC capital markets. Please proceed with your question.

Speaker Change: Yes.

Mike Dahl: Hey everyone, we've actually got Steve and Mia on for Mike Dahl today. Thanks for taking my questions. I wanted to ask a question about the backlog here. Fully understand the backlog and all your other initiatives like Build Time are supportive for the volume goals for Fiscal 25 here and, you know, without asking for specific guidance, I was hoping to get a sense of how you're thinking the backlog might shake out at the end of the year and how that may affect your thoughts on potential growth for 2026. So, you know, we have quite a long way, a lot of sales to make between now and when we get to the end of 25 and get it into 26.

Steve Kim: And you've actually got Steve EMEA on for Mike Dahl today, Thanks for taking my questions.

Speaker Change: I wanted to ask a question about the backlog here fully understand.

Speaker Change: Backlog in all your other initiatives like Bell time are supportive for the volume goals for fiscal 'twenty five here and without asking for specific guidance I was hoping to get a sense of how youre thinking the backlog might shake out at the end of the year and how that may affect your thoughts on potential growth through 2026.

Speaker Change: Yeah.

Speaker Change: So we have quite a long way in a lot of sales to make between now and when we get to the end of 'twenty five and get it into 'twenty six but that's all part of our strategy and our plan as we've shifted away from.

Rob Dillard: But, you know, that's all part of our strategy and our plan as we've shifted away from the incentive that we were offering, going to offering the best value to the lowest base price. We're seeing that, you know, be attractive to people looking to buy a personalized home. So we expect that we'll continue to grow that backlog and hit an inflection point. I mean, all this depends on market conditions and where things are headed, but we're setting minimum run rates that we want to get by community. That's geared towards building that backlog to get to a sufficient level to support our strategy for 26, but obviously not guiding to.

Speaker Change: The incentives that we were offering going to offering the best value to the lowest base price, we're seeing that be attractive to people looking to buy a personalized home. So we expect that we will continue to grow that backlog and hit an inflection point in all of this depends on market conditions, and where things are headed but we're set.

Speaker Change: Minimum run rates that we want to get by community that's geared towards building that backlog to get to a sufficient level to support our strategy for 2006, but obviously not guiding to 26 at this point.

Rob Dillard: No, that's super helpful. Thanks for the context there. And then I guess, moving closer in time, I wanted to ask about the fourth quarter and kind of how you're looking at that from a margin perspective, you know, that we have the numbers for the third quarter, and the full year kind of implies a similar-ish range for the fourth quarter, but slight uptick with the midpoint, just kind of how you think margins might play out, punctually from the third to fourth quarter, especially in the context of you guys doing a good job of adapting to the market with price adjustment.

Speaker Change: No that's super helpful. Thanks for the context, there and then I guess moving closer and Tom I wanted to ask about the <unk>.

Speaker Change: Fourth quarter and kind of how you are looking at that from a margin perspective that we have.

Speaker Change: Numbers for the third quarter.

Speaker Change: The full year kind of implies a similar ish range for the fourth quarter, but slight uptick with the mid point.

Speaker Change: How you think margins might play out sequentially from the third to fourth quarter, especially in the context, you guys, Jamie a good job of adapting to the market with price adjustments.

Rob Dillard: Yeah, absolutely. Yeah, without giving, you know, explicit guidance to the fourth quarter, I mean, we've got the third quarter and the full year in there, so you can kind of back into it. But as I said, you know, the deliveries we're expecting to be up in the fourth quarter, and that's going to provide a margin uplift of about 40 basis points, really just through operating leverage. And so, yes, we do think ASP will be slightly higher, but it's really going to be the operating leverage from having more deliveries than that.

Speaker Change: Yes, without giving explicit guidance for the fourth quarter I mean, we've.

Speaker Change: The third quarter and the full year in there. So you can kind of back into it but as I said.

Speaker Change: The deliveries, we will we're expecting to be up in the fourth quarter and that's going to provide a margin uplift of about 40 basis points really just through through operating leverage and so yes. We do think asps will be slightly higher, but it's really going to be the operating leverage from having more deliveries in that fourth quarter number.

Speaker Change: Yeah.

Alan Ratner: Thank you and our next question comes from the line of Alan Ratner with Zellman and Associates. Please proceed with your question. I think that that's always a factor and a pullback if people are getting really aggressive with incentives out there. But generally, I think our teams have done a good job of being able to sell the value in the price. I mean, there are, in a lot of cases, I believe that there are customers that are overpaying for the home to effectively get an incentive. So they're tied into this higher price that they're going to be stuck with forever until they sell that home.

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line of Alan Ratner with Zelman and Associates. Please proceed with your question.

Alan Ratner: Hey, guys. Good afternoon, and thanks for all the detail as usual much appreciated.

Speaker Change: First question just drilling in a little bit on the pricing strategy.

Speaker Change: So you guys are are focused on kind of getting away from incentives and more adjusting the base price for necessary I'm just curious because we've seen from other builders kind of moving in the opposite direction. If anything it seems like incentives have continued to increase here through the spring and as you think about the order results in March being strong April may a bit weak.

Speaker Change: How.

Speaker Change: How do you guys feel.

Speaker Change: Feel from a competitive perspective, when you're when other builders are increasing incentives are consumers coming into your communities asking for those incentives. So they understand how your strategy differs and do you feel like the pullback in orders you saw later in the quarter was that all due to other builders, becoming more aggressive with incentives.

Speaker Change: That's always a factor and a pullback if people are getting really aggressive with incentives out there, but generally I think our teams have done a good job of being able to sell the value in the price I mean, there are a lot of cases I believe that there are customers that are.

Speaker Change: Are overpaying for the home.

Speaker Change: <unk> get an incentive so they're tied into this higher price that theyre going to be stuck with for forever until they sell their home they may potentially be upside down when they try to sell that home versus a clean simple transparent way of selling the value of what we offer and I'll tell you. We do have people to come in and ask for incentives and the way.

Alan Ratner: And they may potentially be upside down when they try to sell that home versus a clean, simple, transparent way of selling the value of what we offer. And I'll tell you, we do have people that come in and ask for incentives. And the way that we're approaching it, it doesn't work for everybody. Some people are enamored by the incentives, and they're just stuck on that. And that's what we want to go after. But we're happy with the results that we've seen since we've made this change. It's really the way that we've operated for decades before we had this unique situation with mortgage rates doubling effectively overnight and just getting back to our knitting of what we do well and what our sales teams are geared towards selling.

Speaker Change: We're approaching it doesn't work for everybody. So when people are enamored by the incentives and Theyre just stuck on that and Thats, what we want to go after but we're happy with the results that we've seen since we've made this change it's really the way that we've operated for decades before we had this unique situation with mortgage rates doubling effectively overnight and.

Speaker Change: Just getting back to our knitting of what we do well and what our sales teams are geared towards towards selling so where we're happy with the approach and sticking with it.

Rob Dillard: So we're happy with the approach and sticking with it. Got it. Appreciate the thoughts there.

Speaker Change: Got it I appreciate the thoughts there.

Rob Dillard: Second question on the cost reductions you guys have been able to realize. Are you able to break that down at all by input? I'm just curious, you know, if you look at that 3% plus reduction, how much of that is due to lower lumber, which is more of a commodity and maybe a little bit less in your control versus either labor or other inputs that you've directly been able to negotiate lower? Yeah, I can't really break it down as far as the 3.2. There's so many things that go into that percentage of whether it's, you know, mixed by divisions, or which batches of house even mixed within the communities.

Speaker Change: Second question on the cost reductions you guys have been able to realize are you able to break that down at all by input I'm. Just curious if you look at that 3% cost reduction how much of that is due to lower lumber, which is more of a commodity and maybe a little bit less in your control versus <unk>.

Speaker Change: Labor or other inputs that you have directly been able to negotiate lower.

Speaker Change: Yes, I can't really break it down as far as the 3.2. There are so many things that go into that percentage of whether it's mixed by divisions or whats batches of house, even mix within the communities.

Rob Dillard: You know, obviously, lumber coming down has been a bit of a help. In fact, I didn't look year over year at what lumber did in the prior year that's in that 3.2. But we've been seeing that trend continue. We just know based on our, not only our started home budgets, but on our house budgets that we maintain for each of the products out there that our divisions are doing an excellent job of driving down cost, and in some cases, fighting off other commodity level increases. And despite that, still getting the 3.2. So I really can't break it down any further for you than that.

Speaker Change: Obviously lumber coming down has been a bit of a help but in fact I didn't look year over year, what lumber did in the prior year Thats in that three two but we've been seeing that trend continue we just know based on our not only our started home budgets, but on our house budgets that we've maintained for each of the products out there that our divisions are doing an excellent.

Speaker Change: One job of driving down cost and in some cases fighting off other commodity level increases and despite that still getting the three two so.

Speaker Change: I really can't break it down any further than that but there are significant cost decreases coming out of other things than just commodity drops like lumber.

Rob Dillard: But there are significant cost decreases coming out of other things than just commodity.

Rafe Jadrosich: Thank you.

Speaker Change: Thank you and our next question comes from the line of.

Rafe Jadrosich: And our next question comes from the line of Rafe Jadrosich. with Bank of America. Please proceed with your question. Hi, good afternoon. Thanks for taking my question. I just wanted to follow up a little bit on the land spend. Can you just help us understand how much land inflation is flowing through your P&L today, sort of in the back half of the year and land that you're contracting today? Are you seeing any relief on land prices? Has that come down at all with the softer market? And is there a point here where we could start to see land prices come down as we go on to 26?

Speaker Change: Charter such.

Speaker Change: Bank of America. Please proceed with your question.

Speaker Change: Hi, good afternoon, Thanks for taking my question.

Speaker Change: I just wanted to follow up a little bit on the land spend.

Speaker Change: Just.

Speaker Change: Help us understand how much land inflation is flowing through your P&L today sort of in the back half of the year and land that you are contracting today.

Speaker Change: Are you seeing any relief fund.

Speaker Change: Prices does that come down at all with the softer market and is there a point here, where we could start to see.

Speaker Change: Sure.

Speaker Change: <unk> come down.

Speaker Change: As we go out into 'twenty six.

Rob Dillard: Rafe, I can make a few comments on that, because we don't have the exact numbers that you're asking for here with us. One of the things that we're seeing that you don't hear discussed much is you type a piece of land, you get it entitled, you go close, you move on, and the improvement costs went up quite a bit due to the supply chain, or in turn, oil prices that drove it up, and a lot of the city's fees went up quite a bit. So it's not necessarily just land inflation. We may have owned a piece of land for two years now.

Speaker Change: Right I can make a few comments on that.

Speaker Change: We don't have the exact numbers that you are you're asking for here with us.

Speaker Change: One of the things that we're seeing so you don't hear discussed much as.

Speaker Change: You type piece of land you get it entitled You go close you'll move on and.

Speaker Change: Improvement cost went up quite a bit due to the.

Speaker Change: The supply chain or in turn oil prices that drove it up in a lot of the city's fees went up quite a bit so it's not necessarily just.

Speaker Change: Land inflation. So we may have owned a piece of land for two years now we're developing the next phase in the cost bump up because of those components.

Rob Dillard: We're developing the next phase, and the costs bump up because of those components. The land sellers are definitely showing a willingness to give you time and terms. Normally, that's the first step, and then you start to see price. I don't think we've seen a lot of price yet, but I expect there will be some coming as we go through the rest of this year.

Speaker Change: The the land sellers are.

Speaker Change: <unk> definitely showing a willingness to give you time and terms.

Speaker Change: Normally that's the first step and then you start to see price I don't think we've seen a lot of price yet, but I expect there will be some coming as we go through the rest of this year.

Rob Dillard: Okay, that's, that's helpful. And then, um, just to maybe help us understand the quarterly cadence on growth, gross margin, I didn't really, what's the amount of fixed costs that you have in your your cost of goods? And how does it vary by quarter? Just how does that contribute to the lower gross margin guide given the the revenue reduction in that sort of 40 basis points sequential step that you're talking about in the fourth quarter? So just how much of the two Q that the second half gross margin cut is just from from the leverage? Well, it's not the leverage in the second half, really, it's it's actually gaining leverage from third to fourth.

Speaker Change: Okay.

Speaker Change: Helpful and then.

Speaker Change: Just maybe help us understand the quarterly cadence on gross margin.

Speaker Change: What's the amount of fixed cost that you have in your cost of goods and how does it vary by quarter, just how does that contribute to the lower gross margin guide given the revenue reduction and that sort of 40 basis points sequential.

Speaker Change: Couple that youre talking about in the fourth quarter.

Speaker Change: So just how much of the <unk>.

Speaker Change: Can have gross margin card is just from from deleverage.

Speaker Change: Well, it's not deleverage in the second half really it's actually gaining leverage from third to fourth.

Rob Dillard: The second to third sequential difference is really more just margin. I mean, it's really mixed and lack of pricing power, right? So we're, we're giving up, you know, a couple points of price, just as things kind of normalize over that, over that quarter to quarter sequence. And that's really the primary driver for for margin and the sequential And then in the fourth quarter, really, we'll get some more. through operating leverage, as we discussed, just going from third to fourth. But it's really going to be a continuation of the trend of where margins are, but stabilizing in the second.

Speaker Change: The second to third sequential difference is really more just margin I mean, it's really mix.

Speaker Change: And a lack of pricing power right, so we're giving up.

Speaker Change: A couple of points of price, just as things kind of normalize over that over that quarter to quarter sequence.

Speaker Change: And Thats really the primary driver for for margin and the sequential component.

Speaker Change: Then in the fourth quarter really will get some margin.

Speaker Change: Through operating leverage as we discussed just going from third to fourth sequentially.

Speaker Change: But it's really going to be a continuation of the trend of where margins are but stabilizing in the second half.

Rob Dillard: Thank you.

Sam Reid: And our next question comes from the line of Sam Reid with Wells Fargo. Please receive with your question. Awesome, thanks. Just wanted to ask about some of the lot options that you walked away from during the quarter. I believe it was about 9,700 lots. We'd just love some perspective on some of the metrics that you might be using internally to determine when it makes sense to walk away from a lot. And then looking forward, you know, could you just give us a sense as to what gives you confidence that you're optimized from a lot standpoint, and that there's not a risk that you might need to walk away from more options in the second half of the year?

Speaker Change: Thank you.

Speaker Change: And our next question comes from the line of Sam Reed with Wells Fargo. Please proceed with your question.

Speaker Change: Awesome. Thanks.

Sam Reed: Just wanted to ask about some of the lot options that you walked away from during the quarter I believe it was about 9700 lot would just love some perspective on some of the metrics that you might be using internally to determine when it makes sense to walk away from a lot and then looking forward could.

Sam Reed: Could you just give us a sense as to what gives you confidence that you're optimized from a lot standpoint, and that there is not a risk that you might need to walk away for more options in the second half of the year.

Sam Reid: But Sam, it's a pretty fluid process. And we have a good process that we track with all the deals in every division where if it's an entitlement project, They'll get approval to spend X dollars on the entitlements. And then when it's time to close on the land, they come back in for approval on the land. Then as we develop each phase, they'll come in for approval on the development of that phase. And every one of those submittals has market updates tied to it. What's the competitive landscape, how's resales, what's going on with incomes in that sub market.

Sam: Sam it's a pretty fluid process and we have a good process that we track.

Sam: With all the deals in every division where.

Speaker Change: If it's an entitlement.

Speaker Change: Jack.

Speaker Change: We will get approval to spend X dollars on the entitlements and then when it is time to close on the land.

Speaker Change: <unk> come back in for approval on the land that as we develop each phase that will come in for approval on the development of that phase and every one of those submitted as market updates tied to it what's the competitive.

Speaker Change: <unk> landscape house resales, what's going on with incomes in that sub market. So it's a pretty fulsome process all the way through.

Sam Reid: So it's a pretty fulsome process all the way through.

Rob McGibney: The last one we walked on. In the last quarter was basically, I would call them earlier stage controlled lots that We just determined with the market movement in those sub-markets, it wasn't something that we felt comfortable would hit our returns, and we always want to make sure we have quality returns on our investments. So it's far better to walk and wait another day on those than to keep putting more money into them. But it's worth pricing. So it's been in a pretty tight band. I think we were about 70% broker participation rate in Q2. It was maybe 68 or 67 in Q1.

Speaker Change: Lots of work done.

Speaker Change: In the last quarter was basically.

Speaker Change: I would call them earlier stage controlled lots that.

Speaker Change: We just determined with the market movement in those submarkets. It wasn't something that we felt comfortable would hit our returns.

Speaker Change: We always want to make sure we have quality returns on our investment so it's far better to walk in weight.

Speaker Change: Wait another day on those than to keep putting more money into them.

Speaker Change: We're pricing and ship it.

Speaker Change: No. That's helpful. And then just switching gears on a third party broker relationships.

Speaker Change: Might be a few of your peers that are actually leaning into these as the market flows.

Speaker Change: To that end could you just remind us where your broker attach rate that in the second quarter, how that compared to Q1, and then were there any quarter over quarter differences in the commission rate paid in Q2 versus Q1 that might be worth calling out. Thanks.

Speaker Change: So it's been in a pretty tight band I think we were about 70% broker participation rate in Q2. It was maybe 68 or <unk> 67 in Q1.

Rob McGibney: After the NAR settlement came out, we saw rates drop a little bit and now they've kind of bounced back. We haven't really seen that in incentivizing the broker community results in more sales. So we're focused on giving our buyers the best value we can on their home. Our typical commission rate that we're paying is about $3. Thank you.

Speaker Change: After the NAR settlement came out we saw rates drop a little bit and now they've kind of bounce back we haven't really seen that.

Speaker Change: Incentivizing the broker community results in more sales. So we're focused on given our buyers the best value we can on their home.

Speaker Change: Our typical commission rates that we're paying is about 2%.

Speaker Change: Thank you and our next question comes from the line of Jade Rahmani with <unk>. Please proceed with your question.

Jade Rahmani: And our next question comes from the line of Jade Rahmani with KBW. Please proceed with your question. Thank you. Was wondering if you could talk about how much of the orders weakness relates to existing home inventory. Do you have any data as to sales prospects you're losing to the existing home market where we've seen, you know, a meaningful uptick in homes for sale? I don't have any specific data that you know, I can that I can point to where we track we lost a certain buyer. I mean, we, we have our teams that they're going to know that by community, and they're going to know where some of their prospects that were an interested lead may have gone, but, you know, we do know in the markets, as I mentioned, as I was going through some of the regional and market color, those markets where you've seen resale inventory or resale supply, get back to, you know, norms or above those norms of six or seven months of supply.

Jade Rahmani: Thank you was wondering if you could talk about how much of the quarter's weakness relates to existing home inventory do you have any data as to sales prospects you are losing to the existing home market, where we've seen a meaningful uptick in homes for sale.

Speaker Change: I don't have any specific data as it did.

Speaker Change: Did I can point to where we track we lost a certain buyer.

Speaker Change: We have our teams that theyre going to know that by community and Theyre going to know where some of their prospects that werent interested lead may have gone but.

Speaker Change: We do know in the markets as I mentioned as I was going through some of the regional and market color of those markets, where you have seen resale inventory of resale supply get back to norms are above those norms of six or seven months of supply.

Rob McGibney: Those resales become a more formidable competitor than they were to us back when we would measure months of supply in terms of weeks instead of months. And on the flip side, most of the markets where resale supply has stayed fairly suppressed and limited, we're, we're tending to see better results.

Speaker Change: Those re sales become a more formidable competitor than they were to us back when we measure months of supply in terms of weeks instead of months and on the flip side most of the markets where.

Speaker Change: <unk> supply has stayed fairly suppressed and limited we're tending to see better results there.

Rob McGibney: And on the average selling price, which is down 8% year on year, do you know how much of that related to outlay priced up versus geographic or product mix? No, yeah, the average selling price year over year in the second quarter was up, you know, a percent or so, you know, and a lot of that was just regional variation, you know, by region by market by community, you know, there were some big swings in certain communities. And then mix between the regions actually had a pretty meaningful impact. But we don't have.

Speaker Change: And on the average selling price, which was down 8% year on year.

Speaker Change: How much of that related.

Speaker Change: Right.

Speaker Change: Geographic or product mix.

Speaker Change: We have that.

Speaker Change: Yes, the average selling price year over year in the second quarter was up.

Speaker Change: A percent or so.

Speaker Change: In Nevada that was just regional variation by region by market by community. There were some big swings in certain communities and then mix between the regions actually had a pretty meaningful impact there, but we don't have.

Speaker Change: The specific data that you are asking for.

Rob McGibney: Great, and our final question comes from the line of Susan Maklari with Goldman Sachs. Please proceed with your question. Oh, thanks for taking the question. Sure, yeah. So, you know, we've we've stated that our target average for the company is 120 day build time. And we set that as a, you know, what seemed like a really bold goal about a year ago, but now that we're getting close to it, and we can kind of see that in our sites, you know, I think that is very achievable. And we intend and think that we'll get there this year.

Speaker Change: Great and our final question comes from the line of Susan Macquarie with Goldman Sachs. Please proceed with your question.

Susan Macquarie: Hello, Thanks for taking the questions.

Susan Macquarie: My first one is on the Bill Times, you mentioned that you do you think that you could see further improvement there can you talk about where that can go.

Susan Macquarie: Much of it is being driven by perhaps some of the weakness in the market and maybe a loosening of labor.

Susan Macquarie: And how we should think about the sustainability of any of those gains when the market does turn.

Susan Macquarie: Sure Yeah. So we've stated that our target average for the company is 120 day build time, and we said that is what seemed like a really bold goal about a year ago, but now that we're getting close to it and we can kind of see that in our sites.

Speaker Change: I think that is very achievable and we intend to think that we will get there this year and once we do.

Rob McGibney: And once we do, you know, I don't think we'll rest on that, we'll pursue something faster. But I do think it's probably at the point of diminishing returns. I mean, there was times in the market over the last couple of decades, where we've had divisions that built in 90 days, we've got some divisions today that are, you know, approaching that 100 day mark and others that are above it. But overall, for the company with our current mix and current portfolio, we think 120 is a good target. As I said, once we once we get there, we'll set a more aggressive target.

Speaker Change: I don't think we will rest on that we'll pursue something faster, but I do think it's probably at the point of diminishing returns I mean, there was times in the market over the last couple of decades, we've had divisions that built in 90 days. We've got some divisions today that are approaching that 100 day, mark and others that are above it but overall for the company with our current mix.

Speaker Change: And current portfolio. We think 120 is a good target as I said once we once we get there we'll set a more aggressive target, but we believe that one is very achievable.

Rob McGibney: But we believe that one's very There was a second part of that question, I will it hold? Oh, will it hold? You know, I think right now, with what we're seeing in the market, there is more availability and overall, you know, starts move around, but generally starts have been in most of our markets have been a little slower. And there's more labor out there. And we're taking advantage of that we're relying on our trade partner relationships. So I think it's sustainable, you know, we get supply chain crunch or something like what we dealt with back in 21 and 22.

Speaker Change:

Speaker Change: There was a second part of that question I would hope we'll at.

Speaker Change: I think right now.

Speaker Change: What we're seeing in the market there is more availability and overall starts move around but generally starts have been in most of our markets have been a little slower and there is more labor out there and we're taking advantage of that we're relying on our trade partner relationships. So I think it's sustainable.

Speaker Change: We get a supply chain crunch or something like what we dealt with back in 'twenty, one and 'twenty. Two then that can change things, but barring any kind of macro event I think it's I think we can improve and then I think we can hold onto that improved level.

Rob McGibney: And that can change things. But barring any kind of macro event, I think it's, I think we can improve and then I think we can hold on to that improved level.

Rob Dillard: Okay, that's helpful.

Speaker Change: Okay. That's helpful. And then maybe a question for Rob if she is coming into this role can you talk a bit about what you're most focused on how youre thinking about the positioning of the business given the environment that we're in and any initiatives that we should be aware of.

Rob Dillard: And then maybe a question for Robert, he's coming into this role. Can you talk a bit about what you're most focused on how you're thinking about the positioning of the business given the environment that we're in and any initiatives that we should be aware of? Yeah, I think we're in a really great position. It's still kind of early days, kind of third month coming in, really focused initially on on the team, have a great team here. And we're really getting stabilized and focused. I think there's a lot of things that, you know, finance can do to improve performance here.

Speaker Change: Yes, I think we're in a really great position Thats still kind of early days kind of third month coming in.

Speaker Change: Really focused initially on the team have a great team here and we're really getting stabilized and focused I think theres a lot of things that <unk>.

Speaker Change: Finance can do to improve performance here and I think we're really focused on getting those things.

Rob Dillard: And I think we're really focused on getting those things, those, those initiatives kind of aligned. Nothing kind of yet to announce, but we're certainly focused on, you know, adding value in new ways. And I think that the focus on shareholders and the share of purchases that we've done initially is a good indication of Thank you.

Speaker Change: Those initiatives kind of aligned.

Speaker Change: Nothing kind of yet to announce but we're certainly focused on.

Speaker Change: Adding value in new ways, and I think the focus on shareholders and those share repurchases that we've done initially as a good indication of that.

Speaker Change: Sure.

Speaker Change: Yes.

Julian: And ladies and gentlemen, that does conclude today's teleconference. We thank you for your participation. You may now disconnect your lines at this time.

Speaker Change: Thank you and ladies and gentlemen that does conclude today's teleconference. We thank you for your participation you may now disconnect your lines at this time.

Speaker Change: [music].