Q3 2025 Lennar Corp Earnings Call

Operator: Please stand by. The conference will begin shortly. Again, please stand by. The conference will begin shortly. Thank you. Welcome to Lennar Corporation's third quarter earnings conference call. At this time, all participants are in a listen-only mode. After the presentation, we will conduct a question and answer session. Today's conference is being recorded. If you have any objection, you may disconnect at this time. I will now turn the call over to David Collins for the reading of the forward-looking statement.

David Collins: Thank you and good morning everyone. Today's conference call may include forward-looking statements, including statements regarding Lennar Corporation's business, financial condition, results of operations, cash flows, strategies, and prospects. Forward-looking statements represent only Lennar Corporation's estimates on the date of this conference call and are not intended to give any assurance as to actual future results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties. Many factors could affect future results and may cause Lennar Corporation's actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These factors include those described in our earnings release and our SEC filings, including those under the caption Risk Factors contained in Lennar Corporation's annual report on Form 10-K most recently filed with the SEC.

David Collins: Please note that Lennar Corporation assumes no obligation to update any forward-looking statements.

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

Stuart Miller: Very good. Good morning everybody and thank you for joining us today. I'm in Miami today together with Jon Jaffe, our Co-CEO and President, Diane Bessette, our Chief Financial Officer, David Collins, who you just heard from, our Controller, and Vice President Katherine Martin is here. She's our new Chief Legal Officer. Welcome Katherine. And Bruce Gross, CEO of Lennar Financial Services, along with a few others as well. I do want to note that Mark Sustana, our 20-year General Counsel, is not here today and he is sorely missed. I don't believe that Mark has missed an earnings call in his 20 years with the company. His service to and with the company has been truly remarkable. Mark recently retired and we have Katherine here as our Chief Legal Officer. Mark will remain a strategic advisor and consultant to the company.

And Bruce Gross, CEO of Lennar Financial Services, along with a few others as well.

Um, I do want to note that Marxist, Dana, our 20-year general counsel, is not here today and he is sorely missed.

Mark recently retired and we add Catherine here as our Chief legal officer, Mark will remain a strategic advisor and consultant to the company and we're sure that Mark can't help but listen today, So mark Youre definitely here in spirit.

I don't believe that, uh, Mark has missed an earnings call in his 20 years with the company, and his service to, and with the company has been truly remarkable.

Stuart Miller: We're sure that Mark can't help but listen today. Mark, you're definitely here in spirit as usual. I'm going to give a macro and strategic overview of the company. After my introductory remarks, Jon is going to give an operational overview, updating construction cost, cycle time, some of our land strategy and position. As usual, Diane's going to give a detailed financial highlight along with some guidance for the fourth quarter. Then, of course, we'll have our question and answer period. As usual, I'd like to ask that you please limit yourself to one question, one follow-up so that we can accommodate as many as possible. Let me begin. We are pleased to review Lennar's third quarter 2025 results against the backdrop of what might be the beginnings of an improving economic landscape for the housing market.

As usual I'm going to give a macro and strategic overview of the company. After my introductory remarks, John is going to give an operational overview updating construction cost cycle time, some of our land strategy and positions.

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

So let me begin.

We are pleased to review <unk> third quarter 2025 results against the backdrop of what might be the beginnings of an improving economic landscape for the housing market.

With that said our third quarter results reflect the continued softening of market conditions and affordability through our third quarter.

Stuart Miller: With that said, our third quarter results reflect the continued softening of market conditions and affordability through our third quarter. Sales volume was difficult to maintain and required additional incentives in order to achieve our expected pace and to avoid building excess inventory. While our deliveries were just below our goal for the quarter, and while we sold more homes than expected during the quarter, these accomplishments came at the expense of further deterioration of margin, which came down to 17.5%. Accordingly, we're going to begin to ease back our delivery expectations for the fourth quarter and full year in order to relieve the pressure on sales and deliveries and help establish a floor on margin. We will reduce our delivery expectations for the fourth quarter to 22,000 to 23,000 homes, and we will reduce our full year expectation to 81,500 to 82,500 for the full year.

Sales volume was difficult to maintain and required additional incentives in order to achieve our expected pace and to avoid building excess inventory.

While our deliveries were just below our goal for the quarter and while we sold more homes than expected during the quarter. These accomplishments came at the expense of further deterioration of margin, which came down to 17, 5%.

Accordingly, we're going to begin to ease back our delivery expectations for the fourth fourth quarter and full year in order to relieve the pressure on sales and deliveries and help establish a floor on margin.

We will reduce our delivery expectations for the fourth quarter to 22% to 23000 homes and we will reduce our full year expectation to 18500 to 18008, I'm, sorry, 81500 to $82500 for the full year.

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<unk>. This is an opportune time to pause and let the market catch up a little bit.

Stuart Miller: For Lennar, this is an opportune time to pause and let the market catch up a little bit. Even though mortgage rates began to trend downward towards the end of the quarter, stronger sales have not yet followed. We have certainly begun to see early signs of greater customer interest and stronger traffic entering the market. With lower mortgage rates, purchasers are showing greater interest in considering their home purchase, and this is generally an early signal of stronger sales activity to follow. Assuming rates remain lower and if interest rates continue to fall, we're quite optimistic that this all will happen soon. The extended period of higher interest rates for longer than expected forced us, however, to adjust construction costs in order to enable sales in difficult market conditions.

Even though mortgage rates began to trend downward towards the end of the quarter stronger sales have not yet followed we.

We have certainly begun to see early signs of greater customer interest and stronger traffic entering the market with lower mortgage rates purchasers are showing greater interest in considering their home purchase and this is generally an early signal of stronger sales activity to follow assuming rates remain.

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And if interest rates continue to fall, we're quite optimistic that this all will happen soon.

The extended period of higher interest rates for longer than expected.

First us however to adjust construction costs in order to enable sales and difficult market conditions.

Our lower construction cost structure together with reduced margins enabled us to meet affordability and support the supply and demand balance.

Stuart Miller: Our lower construction cost structure, together with reduced margins, enabled us to meet affordability and support the supply and demand balance. We drove sales pace to match production pace, and we fortified our market share and position in each of our strategic markets. We are now situated with a lower cost structure, efficient product offering, and strong market positions to accommodate pent up demand as rates moderate and confidence ultimately returns. As I said before, this is the right time. This is just the right time for us to pull back just a little bit. We believe that we've gotten ahead of the current market realities, and we've built what we believe is a stronger long term margin driving platform.

We drove sales pace to match production pace and we fortified our more as we fortify our market share and position in each of our strategic markets.

We are now situated with a lower cost structure efficient product offerings and strong market positions to accommodate pent up demand as rates moderate and confidence ultimately returns.

As I said before this is the right time. This is just the right time.

For us to pull back just a little bit.

We believe that we've gotten ahead of the current market realities and we have built what we believe is a stronger long term margin driving platform.

We know that this has taken some time as the market has remained weaker for longer but we also know that our strategy has helped to build a healthier housing market and has positioned <unk> for strong cash flow and bottom line growth in the future.

Stuart Miller: We know that this has taken some time as the market has remained weaker for longer, but we also know that our strategy has helped build a healthier housing market and has positioned Lennar for strong cash flow and bottom line growth in the future. We are optimistic that if mortgage rates approach the 6% level or even lower, we will soon see some firming in the market, and we will benefit from stronger affordability and therefore demand. Accordingly, we'll remain focused on volume and even float reduction, although at just a little slower pace. We will maintain responsible volume to maintain an affordable cost structure, and we will find the floor and rebuild our margin as the overall housing market continues to remain short on supply. Let me turn quickly to a quick macro overview of the housing market consistent with last quarter's earnings call.

We are optimistic that if mortgage rates approached the 6% level or even lower we were.

We'll soon see some firming in the market and we will benefit from stronger affordability and therefore demand.

Accordingly, we will remain focused on volume and even flow production, although at just a little slower pace, we will maintain responsible volume to maintain and affordable cost structure, and we will find the floor and rebuild our margin as the overall housing market continues to remain.

Short on supply.

So let me turn quickly to a quick macro overview of the housing market.

Consistent with last quarter's earnings call the macro economy remained challenging throughout our third quarter.

Stuart Miller: The macroeconomy remained challenging throughout our third quarter. Mortgage interest rates remained higher and consumer confidence remained challenged by a wide range of uncertainties, both domestic and global. Across the housing landscape, actionable demand remained diminished by both affordability and consumer confidence, and therefore the market continued to soften as we moved through the quarter. Nevertheless, as we came to the back half of the quarter, interest rates began to drift downward, and that drift began to accelerate as we came to the end of the quarter and into the fourth. Today we are possibly getting closer to a 6% mortgage rate that's fluctuating a little bit, and we're just beginning to see consumers return to the market. Against that backdrop, supply remains constrained in most markets, driven by years of underproduction.

Mortgage interest rates remained higher and consumer confidence remained challenged by the by a wide range of uncertainties, both domestic and global.

Across the housing landscape actionable demand remained diminished by both affordability and consumer confidence and therefore, the market continued to soften as we moved through the quarter.

Nevertheless, as we came to the back half of the quarter interest rates began to drift downward and that drift began to accelerate as we came to the ended the quarter and into the fourth.

Today, we are possibly getting closer to 6% mortgage rate, that's fluctuating a little bit and we're just beginning to see consumers returning to the market.

Against that backdrop supply remains constrained and most markets driven by years of under production.

New construction has slowed as builders have pulled back on production due to slow sales and affordability concerns.

Stuart Miller: New construction has slowed as builders have pulled back on production due to slow sales and affordability concerns, therefore exacerbating the chronic supply shortage. Demand is still high as people want and need homes, but affordability and waning confidence around buying now have been constraining that demand. This has been a difficult cycle as low supply fuels high prices, and high prices lock out many of our buyers. As I've said before, mayors and governors around the country continue to list the housing shortage as a priority concern and point to affordability or attainability as a priority. I do suggest that if you want to better understand the conundrum of the housing market, read the book Abundance by Ezra Klein to better understand that housing has a long-term future defined by both structurally short supply and not just growing demand, but growing need for housing as well.

Therefore, exacerbating the chronic supply shortage.

Demand is still high as people want and need homes, but affordability and waning confidence around buying now have been constraining that demand.

This has been a difficult cycle as low supply fuels high prices and high prices lockout, many of our buyers as.

As I've said before mayors and governors around the country continue to list the housing shortage as a priority concern and point to affordability or attain ability as a priority.

I do suggest that if you want to better understand the conundrum of the housing market read the book abundance by as recline to better understand that housing has a long term future defined by both structurally short supply and not just growing demand, but growing need for house.

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The current environment is all about recognizing that short supply is keeping prices higher.

Stuart Miller: The current environment is all about recognizing that short supply is keeping prices higher and that only lower prices enabled by lower cost structures will achieve affordability. Turning to our results, in our third quarter we started approximately 21,500 homes. We delivered approximately 21,500 homes and sold just over 23,000 homes. While we were just short of delivery expectations, we exceeded our sales expectations, and we were able to grow our community count, positioning us better for the remainder of the year. As mortgage interest rates remained higher and consumer confidence declined, we continued to drive volume with our starts. While we incentivize sales to enable affordability and limit inventory build, we have successfully focused on maintaining inventory within our two completed unsold homes per community level. That has been reflected historically.

And at the end that only lower prices drove enabled by lower cost structures will achieve affordability.

Turning to our results in our third quarter. We started approximately 21500 homes, we delivered approximately 21500 homes and sold just over 23000 homes.

We were just short of delivery expectations, we exceeded our sales expectations and we were able to grow our community count positioning us better for the remainder of the year.

As mortgage interest rates remained higher in consumer confidence declined we continued to drive volume with our starts while we incentivize sales to enable affordability and limit inventory build.

We have successfully focused on maintaining inventory.

Within our two completed unsold homes.

Per community level that has been.

That has been reflected historically.

As a result during the third quarter sales incentives rose to 14 three.

Stuart Miller: As a result, during the third quarter, sales incentives rose to 14%, reducing our gross margin to 17.5%, which was lower than expected. On a lower than expected average sales price of $383,000, our SGA came in at 8.2%, which produced a net margin of 9.2%. As we look ahead to the fourth quarter, we expect that our margins will continue. It will come in at approximately 17.5%, consistent with last year. With our last quarter, of course, depending on market condition, we expect to sell between 20,000 and 21,000 homes and deliver between 22,000 and 23,000 homes. We expect our average sales price to be between $380,000 and $390,000 as we expect to continue to somewhat alleviate pricing pressure on homes that will be sold during the quarter as a result of taking some pressure off of our sales pace.

3%, reducing our gross margin to 17, 5%, which was lower than expected on a lower than expected average sales price of $383000 or SG&A came in at eight 2%, which produced a net margin of nine 2%.

As we look ahead to the fourth the fourth quarter, we expect that our margins will continue it will come in at approximately 17, 5% consistent with last with our last quarter.

Of course, depending on market conditions.

We expect to sell between 2000 21000 owned and deliver between 22 and 23000 homes.

We expect our average sales price to be between 380000 390000 as we expect.

To continue.

As we expected.

To somewhat alleviate pricing pressure on homes that will be sold during the quarter as a result of taking some pressure off of our sales pace.

And as I noted earlier, we expect to deliver.

Stuart Miller: As I noted earlier, we expect to deliver between 81,500 and 82,500 homes for the year 2025. We expect our overhead in the fourth quarter to continue to run between 7.8% and 8% as we continue to invest in and evolve various Lennar technology solutions that will define our future. These initiatives, as I've said before, have been and will continue to add to SGA as well as corporate GNA for some time to come as they represent a significant investment in our differentiated future. In conclusion, let me say that while this has been another difficult quarter in the housing market, it is another constructive quarter for Lennar. While the short term road ahead might seem a little choppy, we are very optimistic about our future. We are well aware that our numbers aren't where we would like them to be, but neither are market conditions.

Between 81580 2500 homes for the year 2025.

We expect our overhead in the fourth quarter to continue to run between 788% as we continue to invest in and evolve various linear technology solutions that will define our future future.

These initiatives as I've said before have been and will continue to add to SG&A.

As as.

As well as corporate G&A for some time to come for some time to come as they represent a significant investment in our differentiated future.

So in conclusion, let me say that while this has been another difficult quarter in the housing market. It is another constructive quarter for Lamar while.

While the short term road ahead might seem a little choppy, we are very optimistic about our future we.

We are well aware that our numbers aren't where we would like them to be but neither our market conditions.

We are well situated with a strong and growing national footprint.

Stuart Miller: We are well situated with a strong and growing national footprint, growing community count, and growing volume. We have continued to drive production to meet the housing shortage that we all know persists across our market. As we have driven growth, production, and volumes, we have positioned our company to evolve and create efficiencies and technologies that will make us a better company built for the future. Perhaps most importantly, our strong balance sheet and even stronger land banking relation afford us flexibility and advantaged opportunity to consider and execute on strategic growth for the future as well.

Growing community count and growing volume.

Have continued to drive production to meet the housing shortage that we all know persist across our markets.

And as we have driven growth production and volume we have positioned our company to evolve and create efficiencies and technologies that will make us a better company built for the future.

Perhaps most importantly, our strong balance sheet and even stronger land banking relations.

Board is flexibility and advantaged opportunity to consider and execute on strategic growth for the future as well.

And that regard we will focus on our manufacturing model and continue to use our land partnerships to grow and we will lean into re reshaping our business by developing and using modern technologies.

Stuart Miller: In that regard, we will focus on our manufacturing model and continue to use our land partnerships to grow, and we will lean into revenue reshaping our business by developing and using modern technologies with a focus on cash flow and high returns on capital in order to drive long term shareholder value. Before I end, I can't help but note how inspired I am by the resurgence of a technology company that Lennar has supported for many years. We are quite confident that Opendoor, with its new CEO Kazz, that's how he's referred to, will be a contributing force and partner in Lennar's technology journey and evolution. Kazz has joined Opendoor after six years at Shopify, where he is mission driven as he takes the helm of a company that has the ability to and the ambition now to bring modern technology to change the homeownership market forever.

With a focus on cash flow and high returns on capital in order to drive long term shareholder value.

So before I end I can't help but note how inspired I am.

By the resurgence of the technology company that Lamar has supported for many years.

We are quite confident that open door with its new CEO Caz. That's how he has referred to will be a contributing force and partner inland RF technology journey and evolution.

As joined open door after six years at Shopify, where he is mission driven.

He takes the helm of the company that has the ability and the ambition now to bring modern technology to change the homeownership market forever.

I have always said that the open door platform functioning properly will add significant bottom line to lenore, while creating convenience and joy for our customers.

Stuart Miller: I have always said that the Opendoor platform functioning properly will add significant bottom line to Lennar while creating convenience and joy for our customers. As Kazz took the CEO position, he sent out a note on why he joined Opendoor and left a flourishing career behind at Shopify. This is what he said in part: It is incredibly important that we use all of our energy and modern tools at our disposal to build products that make home ownership easier. We must make the process of buying and selling a home less frictionful so more people do it. Home ownership isn't about a house, it's about families and community, and that is why I am so incredibly proud that I get to support this team in our mission to use every tool at our disposal to make selling, buying, and owning a home easier.

As cash took the CEO position. He has sent out a note on why he joined open door and left.

A flourishing.

We are behind at Shopify.

This is what he said in part.

It is incredibly important that we use all of our energy and modern tools at our disposal to.

To build products that make home ownership easier.

We must make the process of buying and selling a home less friction full so more people do it.

Home ownership isn't about our house.

Our families and communities.

And that is why I am so incredibly proud that I get to support this team and our mission to use every tool at our disposal to make selling buying and owning and owning a home easier.

AI gives us.

Stuart Miller: AI gives, he goes on, AI gives us the chance to accelerate this work in ways never before thought possible. From simplifying the process of buying and selling to unlocking personalized pathways to ownership, AI can help millions of families access homes more efficiently, more affordably, and more transparently than ever before. This is a once in a lifetime opportunity to redefine what's possible in real estate. That is the message from Kazz: we can all do better. We can all be better. Our mission is worthy. Lennar is on that same mission, and we are connected to the success of Opendoor as well. We are extremely well positioned for our future, and we look forward to keeping you up to date on our progress. With that, let me turn over.

He goes on AI it gives us the chance to accelerate this work in ways never before possible from.

From simplifying the process of buying and selling to unlocking personalized pathways to ownership.

I can help millions of families access homes more efficiently more affordably and more transparently than ever before.

This is a once in a lifetime opportunity to redefine what's possible in real estate.

That is the message from Kaz.

We can all do better we can all be better our mission is worthy.

<unk> on that same mission.

We are connected to the success of open door as well.

We are extremely well positioned for our future and we look forward to keeping you up to date on our progress and with that let me turn it over to John.

Good morning, everyone. As Stuart described we remain intensely focused on executing and executing our core strategy maintaining consistent high volume production for leveraging advanced technology throughout our homebuilding operations. This is all about driving efficiencies position us as the leading technology enabled low costs homebuilding.

Jon Jaffe: Good morning everyone. As Stuart described, we remain intensely focused on executing our core strategy, maintaining consistent high volume production by leveraging advanced technology throughout our homebuilding operations. This is all about driving efficiencies, positioning us as the leading technology-enabled low cost homebuilding manufacturer. Our ongoing strategy has resulted in greater efficiencies, evidenced by improvements in our cycle times, inventory turns, and overall costs. In this update, I will discuss our third quarter performance concerning sales pace, cost reduction, cycle time improvements, and the execution of our asset-light plan strategy. For the third quarter, we achieved a sales pace of 4.7 homes per community per month, which aligns with our sales plan. To reach this goal, we utilize the Lennar Machine, beginning with attracting qualified leads to our digital funnel. We then focus on a rapid response with each customer along with quality engagement.

Manufacture.

Our ongoing strategy has resulted in greater efficiencies evidenced by improvements in our cycle time inventory churn and overall cost in this update I'll discuss our third quarter performance concerning sales case cost reduction cycle time improvements in the execution of our asset light land strategy for.

For the third quarter, we achieved a sales pace of $4 seven homes per community per month, which aligns with our sales plan.

This goal, we utilized Illinois machine, beginning with attracting qualified leads through our digital funnel.

We then focus on our rapid response with each customer along with the quality of engagement.

Notably our average response time believes improved by 53% from our second quarter, reducing it to just 46 seconds. This means that when a lead some that's a request for information they typically receive a call or text within 46 seconds.

Jon Jaffe: Notably, our average response time to leads improved by 53% from our second quarter, reducing it to just 46 seconds. This means that when a lead submits a request for information, they typically receive a call or text within 46 seconds, supporting our sales process. Our Internet sales consultants benefit from real time analytics for coaching immediately after each interaction. Thanks to proprietary software, this technology-driven approach results in an 8% quarter over quarter increase in appointments. Additionally, we utilize our dynamic pricing tool that matches home prices to real time supply and demand inputs, helping us reach our targeted sales goals. Our pricing technology continues to evolve using the feedback and data from our results.

According our sales process, our internet sales consultants benefit from real time analytics for coaching immediately after each interaction. Thanks to proprietary software. This technology driven approach resulted in 8% quarter over quarter increase in appointments. Additionally, we utilize our dynamic pricing tool.

That matches home prices to real time supply and demand inputs, helping us reach our targeted sales goals.

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To evolve using their feedback and data from our results with.

The successful execution of all of our machine has enabled us to sell the right homes at current market prices, keeping our inventory well positioned with an average of under OLED to unsold homes per community completed homes per community.

Jon Jaffe: The successful execution of the Lennar Machine has enabled us to sell the right homes at current market prices, keeping our inventory well positioned with an average of under only two unsold completed homes per community. Affordability continued to challenge customers throughout all of our markets in the quarter as incentives increased by approximately 100 bps to achieve our sales targets. It is this ongoing affordability challenge that drives our focus on a production-first strategy. At the foundation to this strategy, we delivered a consistent start pace of 4.4 homes per community per month in the quarter. This sustained volume benefits the supply chain, allowing us to leverage volume to reduce both cost and cycle times. Consistent volume supports ongoing negotiations with our trade partners, resulting in lower costs. Over the last 11 quarters, we've achieved cost reductions in 10 of them.

Portability, continuing to charge customers throughout all of our markets in the quarter as incentives increased by approximately 100 basis points to achieve our sales targets.

It is this ongoing affordability challenge that drives our focus on our production for strategy.

At the foundation through the strategy, we delivered a consistent store pace of $4 four homes per community per month in the quarter.

This sustained volume benefits the supply chain, allowing us to leverage volume to reduce both costs and cycle cards.

Consistent volume supports ongoing negotiations with our trade partners, resulting in lower costs.

Over the last 11 quarters, we've achieved cost reductions and 10 of them. The average decrease for each of the 11 quarters is $1 50 per square foot.

Jon Jaffe: The average decrease for each of the 11 quarters is $1.50 per square foot. Direct construction costs for the third quarter were down approximately 1% from the second quarter and about 3% year over year, reaching the lowest construction cost for our company since the third quarter of 2021. This trend of decreasing direct construction costs will continue into our fourth quarter. We have now achieved cycle time reductions for 11 consecutive quarters, with a six-day sequential decrease from Q2, bringing the average cycle time for single family detached homes down to 126 calendar days. This represents a 14-day or 10% year over year reduction and marks the lowest cycle time in our company's history. Technology continues to drive these improvements by providing our construction teams with real-time information displayed in user-friendly dashboards, facilitating better scheduling and field problem solving.

Direct construction costs for the third quarter were down approximately 1% from the second quarter and about 3% year over year, reaching the lowest construction costs for our company since the third quarter of 2021.

This trend of decreasing direct construction costs will continue into our fourth quarter.

We have now achieved cycle time reductions for 11 consecutive quarters with a six day sequential decrease from Q2, bringing the average cycle time for single family detached homes down to 126 calendar days. This represented a 14 day or 10% year over year reduction and marks the lowest towards the lowest cycle time.

In our company's history.

Technology continues to drive these improvements for providing our construction teams with real time information displayed and user friendly dashboards, facilitating better scheduling and fueled problem solving.

Improved cycle times, and technology, driven quality assurance processes have also contributed to higher home quality evidenced by fewer work orders and a reduced warranty warranty spend down about 35% year over year.

Jon Jaffe: Improved cycle times and technology-driven quality assurance processes have also contributed to higher home quality, evidenced by fewer work orders and a reduced warranty spend, down about 35% year over year. Our focus on efficiency and cost reduction extends to land development, where we apply similar volume-based strategies to negotiate lower costs with trade partners in the slowing land market. In the third quarter, we began to see meaningful progress in these efforts and expect further improvements in the coming quarters. Land acquisitions are strategically structured to be just in time, utilizing our land bank relationships and phase takedowns to minimize carrying costs. Regarding our asset-light strategy, we concluded the quarter with improved metrics. Our supply of owned home sites decreased to 0.1 years from 1.1 years a year ago, and the percentage of controlled home sites increased to 98% from 81% a year ago.

Our focus on efficiency and cost reduction extends to land development, where we apply similar volume based strategies to negotiate lower cost with trade partners from the slowing land market.

Third quarter, we began to see meaningful progress in these efforts and expect further improvements in the coming quarters.

Land acquisitions are strategically structured to be just in time, utilizing our land bank relationships and phased takedowns to minimize carrying cost regarding.

Regarding our asset light strategy, we concluded the quarter with improved metrics our supply of owned Homesites decreased to 0.1 years from $1 one years, a year ago and the percentage of controlled Homesites increased to 98% from 81% a year ago.

Gather these operational improvements have led to an increased inventory churn in the third quarter now at one nine versus $1 six last year, representing a 19% improvement.

Jon Jaffe: Together, these operational improvements have led to an increased inventory churn in the third quarter, now at 1.9 versus 1.6 last year, representing a 19% improvement in the fourth quarter. Our team will continue to focus on executing the strategy of maximizing efficiencies to drive down costs across our operating platform. Now I'll turn it over to Diane.

The fourth quarter, our team will continue to focus on executing the strategy of maximizing maximizing efficiencies to drive down costs across our operating platform and now I'll turn it over to Diana.

Thank you John and good morning, everyone Stuart and Jon have provided a great deal of color regarding our homebuilding operation. So therefore, I'm going to provide a quick summary of our financial services operations.

Diane Bessette: Thank you, John, and good morning, everyone. Stuart and John have provided a great deal of color regarding our homebuilding operations. Therefore, I'm going to provide a quick summary of our financial services operations, summarize our balance sheet highlights, and then provide guidance for the fourth quarter. Starting with financial services, for the third quarter our financial services team had operating earnings of $177 million. The strong earnings were primarily driven from our mortgage business and were driven by a higher profit per loan as a result of higher secondary margins. Once again, our financial services team worked in partnership with our homebuilding teams with the goal of providing a great customer experience for each homebuyer. Turning to our balance sheet this quarter, once again we were highly focused on generating cash by pricing homes to market conditions.

Otherwise our balance sheet highlights and then provide guidance for the fourth quarter, So starting with financial services.

Third quarter, our financial services team had operating earnings of $177 million with strong earnings were primarily driven from our mortgage business.

And were driven by a higher profit program as a result of higher secondary margins. Once again, our financial services team worked in partnership with our homebuilding teams with the goal of providing a great customer experience for each home buyer.

Turning to our balance sheet. This quarter. Once again, we were highly focused on generating cash by pricing homes to market conditions. The results of these actions was that we ended the quarter with $1 4 billion of cash and total liquidity of $5 1 billion.

Diane Bessette: The result of these actions was that we ended the quarter with $1.4 billion of cash and total liquidity of $5.1 billion. As John noted, consistent with our land light lower risk manufacturing model, our year supply of owned home sites was 0.1 years and our home sites controlled percentage was 98%. We ended the quarter owning 11,000 home sites and controlling 512,000 home sites for a total of 523,000 home sites. We believe this portfolio of home sites provides us with a strong competitive position to continue to grow market share and scale in a capital efficient way. With our focus on turning inventory, our inventory turn increased to 1.9 times and our return on inventory was 24%. During the quarter, we started about 21,500 homes and ended the quarter with approximately 42,500 homes in inventory.

As John noted consistent with our land light lower risk manufacturing model our year supply of owned Homesites was 0.1 years and our Homesites controlled percentage was 98%. We ended the quarter owning 11000, homesites and controlling 512000 homesites for a total of <unk>.

523000 Homesites.

We believe this portfolio of home site provides us with a strong competitive position to continue to grow market share and scale in a capital efficient way.

With our focus on turning inventory our inventory turns increased to one nine times and our return on inventory was 24%.

During the quarter, we started about 21500 homes and ended the quarter with approximately 42500 homes in inventory.

Eric mentioned, we carefully manage our inventory levels ending the quarter with fewer than two completed unsold homes per community, which is within our historical range.

Diane Bessette: As Stuart mentioned, we carefully manage our inventory levels, ending the quarter with fewer than two completed unsold homes per community, which is within our historical range. Turning to our debt position, we ended the quarter with $1.1 billion outstanding on our revolving credit facility and our homebuilding debt to total cap was 13.5%. We had no redemption or repurchases of senior notes this quarter. Our next debt maturity of $400 million is not due until June of 2026. Consistent with our commitment to increasing total shareholder returns, we repurchased 4.1 million of our outstanding shares for $507 million and we paid dividends totaling $129 million. Our stockholders' equity was just under $23 billion and our book value per share was about $89. In summary, the strength of our balance sheet provides us with confidence and financial flexibility as we progress through the remainder of 2025.

And then turning to our debt position, we ended the quarter with $1 1 billion outstanding on our revolving credit facility and our homebuilding debt to total cap was 13, 5%.

No redemption or repurchases of senior notes this quarter. Our next debt maturity of $400 million is not due until June of 2026.

Consistent with our commitment to increasing total shareholder returns, we repurchased $4 1 million of our outstanding shares for $507 million, and we paid dividends totaling $129 million.

Our stockholders' equity was just under $23 billion and our book value per share was about $89 in summary, the strength of our balance sheet provides us with confidence and financial flexibility as we progress through the remainder of 2025.

With that brief overview I'd like to turn to Q4 and provide some guidance estimates.

Diane Bessette: With that brief overview, I'd like to turn to Q4 and provide some guidance estimates starting with new orders. We expect Q4 new orders to be in the range of 20,000 to 21,000 homes. As we match production and sales paces, we anticipate our Q4 deliveries to be in the range of 22,000 to 23,000 homes, with a continued focus on turning inventory into cash. Our Q4 average sales price on those deliveries should be about $300,000 to $390,000 and gross margin should be approximately 17.5%, consistent with the prior year, and our SGA percentage should be in the range of 7.8% to 8%. All these metrics, of course, are dependent on market conditions. For the combined homebuilding, joint venture, land sales, and other categories, we expect earnings of approximately $50 million. We anticipate our financial services earnings to be approximately $130 million to $135 million.

Starting with new eyes.

We expect Q4 Q4, new orders to be in the range of 20 to 21000 homes as we match production and sales pace.

We anticipate our Q4 deliveries to be in the range of 22 to 23000 homes with a continued focus on turning inventory into cash our Q4 average sales price on those deliveries should be about 300000 to 390000 and gross margins should be approximately 17, 5%.

Consistent with the prior year and our SGA SG&A percentage should be in the range of 782, 8%.

All of these metrics of course are dependent on market conditions.

For the combined homebuilding joint venture land sales and other categories. We expect earnings of approximately $50 million, we anticipate our financial services earnings to be approximately $130 million to $135 million for our multifamily business, we expect a loss of about $30 million as we.

Diane Bessette: For our multifamily business, we expect a loss of about $30 million as we continue to strategically monetize assets to generate higher returns. Turning to Lennar Other, we expect a loss of $35 million, excluding the impact of any potential mark to market adjustments to our public technology investment. Our Q4 corporate G&A should be about 1.9% of total revenues and our foundation contribution will be based on $1,000 per home delivered. We expect our Q4 tax rate to be approximately 23.5% and the weighted average share count should be approximately 253 million shares. On a combined basis, these estimates should produce an EPS range of approximately $2.10 to $2.30 per share for the quarter. With that, let me turn it over to the operator.

Continued to strategically monetize assets to generate higher returns.

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

Our Q4 corporate G&A should be about one 9% of total revenues and our foundation contribution will be based on $1000 per home delivery.

We expect our Q4 tax rate to be approximately 23, 5% and the weighted average share count should be approximately 253 million shares.

And so on a combined basis. These estimates should produce an EPS range of approximately $2 10.

To $2 30 per share for the quarter with that let me turn it over thank you operator.

Oh.

Thank you we will now begin the question and answer session of todays conference. We ask that you limit your questions to one question and one follow up question until all questions have been answered.

Operator: Thank you. We will now begin the question and answer session of today's conference. We ask that you limit your questions to one question and one follow up question until all questions have been answered. If you would like to ask a question, please unmute your phone, press Star 1 and record your name clearly when prompted. If you need to withdraw your question, you may use Star 2. Again, that is Star 1 to ask a question. Our first question comes from Alan Ratner from Zelman & Associates. Please go ahead.

I'd like to ask a question on mute your phone press star one and record your name clearly on Thomson if you need to withdraw. Your question. You May you start to again that is star one to ask a question. Our first question comes from Alan Ratner from Zelman <unk> Associates. Please go ahead.

Hey, good morning, Thanks for all the detail as always I appreciate it.

Alan Ratner: Hey, good morning. Thanks for all the detail, as always. Appreciate it, Stuart. Obviously, I think a lot of people want to dig into the pivot here on strategy a little bit and understand whether this is a little bit more short term in nature or just a change in the way maybe you're thinking about the longer term. I guess from an incentive standpoint, I'm just curious, have you already started to dial back some of the incentives, and if so, what has the response been in terms of order, pace, or margin, or any color you could give there.

Stuart you know, obviously I think a lot of people wanted to dig into the pivot here on strategy, a little bit and understand whether this is a little bit more short term in nature or just.

Change in the way you are maybe youre thinking about.

The longer term.

From an incentive standpoint, I'm just curious have you already started to dial back some.

Some of the incentives and if so what has the response been in terms of order pace or margin or any color you can give there.

So I wouldn't really look at it as a change in strategy I would look at it more that we are making adjustments as we go forward.

Stuart Miller: I wouldn't really look at it as a change in strategy. I would look at it more that we are making adjustments as we go forward. We're still very focused on volume. We're maintaining a very, very strong volume. I think we're taking the edge off as the market has continued to become a little bit more stressed. I think that as we went through our third quarter and interest rates were trending more towards the 7% range than what ultimately took place at the end of the quarter and into the fourth, we just felt that it was an opportune time to take a step back, particularly as perhaps interest rates are starting to moderate a little bit. They're a little up and down. Still, we thought it was a good time to let the market catch up a little bit.

We're still very focused on volume, we're maintaining a very very strong volume I think we're taking the edge off as the market has continued to.

To become a little bit more stress.

And I think that as we went through our third quarter and interest rates were trending more towards the 7% range than what ultimately took place at the end of the quarter and into the fourth.

We just felt that it was an opportune time to take a step back particularly.

Perhaps interest rates are starting to moderate a little bit they'll go up and down still.

<unk>.

We thought it was a good time to let the market catch up a little bit.

In terms of have we already started the answer is no.

Stuart Miller: In terms of have we already started, the answer is no. That is something that John will be directing and focusing on over the next few weeks, but we're just recalibrating to make sure that we're not pushing too hard on a market that really doesn't want to be pushed.

Sure.

That is something that John will be directing and focusing on over the next few weeks.

But we're just recalibrating to make sure that we're not pushing too hard on a market that really doesn't want to be push.

Got it that's helpful color.

Second question relates to the land strategy.

Alan Ratner: Got it.

Jon Jaffe: That's helpful.

Stuart Miller: Color.

Alan Ratner: The second question relates to the land strategy in relation to this. This isn't my view, but it's one I hear from investors that given the spin to Melrose and given the fact that now you're 100% off-balance-sheet with option contracts that are tied to some certain takedown schedule, I know there's been some concern that maybe you don't have the flexibility to meaningfully change the start pace or the takedown pace. I'm curious. I know this is a fairly modest pullback in start activity, so it probably doesn't affect things too much, but is there any adjustment that's also going on on the land side to account for this slower start pace? Meaning have you adjusted the takedown schedules or paused in any cases? On the flip side, would land begin to then accumulate on the balance sheet, potentially, if you don't reaccelerate those starts in 2026.

In relation to this.

This isn't my view, but its one I hear from investors that given the spin to Melrose and given the fact that now you're 100% off balance sheet with option contracts that are tied to some certain takedown schedule.

I know theres been some concern that maybe you don't have the flexibility to meaningfully change the start pace or the take down pay so I'm curious.

No. This is a fairly modest pullback in start activity, so probably doesn't affect things too much but is there any adjustment. That's also going on on the land side to account for this slower start pace, meaning have you adjusted the takedown schedules are paused in any cases.

Or on the flip side would land begin to then accumulate on the balance sheet potentially if you don't reaccelerate those starts in 'twenty six.

Yes.

Thanks, Alan I've heard I've heard that question a number of times.

Stuart Miller: Thanks, Alan. I've heard that question a number of times. The answer is we are not constrained in any way by our land relationships or the reconfiguration of land. To the contrary, we were very deliberate about injecting the ability to pause as market conditions change and adjust. Additionally, we have the ability, though it is expensive, to walk away from programs that we have in place. It is not the constraint of our land relationships that define our strategy at all. To the contrary, it is much more about the recognition that we're going to have to find, frankly, as an industry, a way to build and deliver homes at a more affordable level. That is all going to derive from cost structure all the way from land to land finance costs, all the way through to vertical construction and horizontal restructuring and SG&A.

The answer is we are not constrained in any way by our land relationships, where the reconfiguration of land to the contrary we were very deliberate about.

Injecting the ability to pause as market conditions change and adjust and additionally, we have the ability.

So it is expensive to walk away from.

Programs that we have in place.

It is not the constraint of our land relationships that define our strategy at all to the contrary it is much more about the recognition.

We're going to have to find frankly, as an industry a way to build and deliver homes at a more affordable level and that is all going to derived from cost structure. All the way from land to land finance costs, all the way through to vertical construction and horizontal.

Restructuring and SG&A, it's why we're so focused on a differentiated way forward relative to modern technologies, we have to get more efficient and effective and unfortunately the road to get there is one of volume right.

Stuart Miller: It's why we're so focused on a differentiated way forward relative to modern technologies. We have to get more efficient and effective. Unfortunately, the road to get there is one of volume and working with our trade partners to deal with logistics and cost structures and also building new technologies that are expensive to do. The SG&A goes up before it goes down. To bring this back to land would be a mistake because land was carefully crafted to not be a factor in strategy, but instead to be a stepping stone of the strategy for going forward.

The system and working with our trade partners to deal with logistics and cost structures and also building new technologies that are expensive to do the SG&A goes up before it goes down.

But.

To bring this back to land would be.

It would be a mistake because land was carefully crafted to not be a factor in strategy, but instead to be a stepping stone of our strategy for going forward.

I appreciate it thanks very much.

You bet.

Alan Ratner: Appreciate it.

Stuart Miller: Thanks very much. You bet.

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

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

Yes, thanks, very much guys and thanks for that.

Stephen Kim: Yeah, thanks very much guys, and yeah, thanks for that commentary. Stuart, I was going to follow on Alan's question there with respect to the duration of this pause. Could you give us a sense or do you see this planned slowdown in your sales production as maybe like a one to two quarter pause, you know, several months kind of a thing ahead of what is hopefully a better spring selling season? Or do you see this as a more lasting recalibration of your Lennar Machine to a lower level of volume? I guess you could say you address that both in terms of the housing production as well as the land.

Commentary Stuart I'm, just going to follow on Alan's question, there with respect to that.

The duration of this pause could you give us a sense or do you see this planned slowdown in your.

Your sales production.

Maybe like a one to two quarter pause several months kind of a thing ahead of what is hopefully a better spring selling season or do you see this as a more lasting recalibration of your Lin our machine to a lower level of volume.

And I guess, you could say address that both in terms of the housing production as well as the land.

So.

Our strategy remains very focused on volume and delivering supply to markets that need. It. It is very focused on how do we and we're working on it every day Steve.

Stuart Miller: Our strategy remains very focused on volume and delivering supply to markets that need it. It is very focused on how do we bring our cost structure down so that we can drive margin even in a slowing market. It's not an easy thing to do. It's not a linear kind of program. This is how you get there. It's a rocky road. The answer to your direct question is, is this a change in strategy or a slowdown that's more permanent? We don't see it that way at all. The focus of our strategy is to maintain volume, to use volume to enable us, our trade partners, even our land partners, to find ways to be more efficient and effective as we try to meet the growing need of our communities, of our population that needs more affordable housing.

We bring our cost structure down so that we can drive margin even in a slowing market.

It's not an easy thing to do it's not a linear kind of program. This is how you get there it's a rocky road.

The answer to your direct question is is this a change.

Change in strategy or a slowdown that's more permanent we don't see it that way at all the focus of our of our strategy is to maintain volume to use volume to enable us our trade partners, even our land partners to find ways to be more efficient and effective as we try to meet the.

A growing need of our communities of our population that needs more affordable housing.

Okay, but you have indicated that you are looking to.

Stephen Kim: Okay, you have indicated that you are looking to slow your volume versus maybe what you had thought about three months ago. I guess the nature of my question is, is this slowdown, however you characterize it, or this adjustment, is it something that you see as measured in a few months and then you're on the other side of that, there's going to be a reacceleration? Are you sort of pushing things off, or is this something where you are just lowering your overall or recalibrating to an overall lower level of volume than what you may have thought three to four months ago?

Slow your volume versus let's say, maybe what you had thought or thought about three months ago.

And I guess the nature of my question is is this slowdown however, you characterize it.

This adjustment is it something that you see as a.

Measured in a few months and that Youre on the other side of that there is going to be sort of a reacceleration or you sort of like pushing things off or is this something where you were sort of just lowering your overall are recalibrating to an overall lower level of volume than what you may have thought three to four months ago, let's say.

So look I think we're living in a fluid world right now we're going to have to see how the market evolves, but the way that I would think about what we're doing is we're running a marathon.

Stuart Miller: Look, I think we're living in a fluid world right now. We're going to have to see how the market evolves. The way that I would think about what we're doing is we're running a marathon. Partway through, we're just taking a moment to take a breath, let our body catch up to where we are, and we're on a mission to move forward and to keep pursuing the strategy that we have in place.

And part way through we're just taking a moment to take a breath.

Let our body catch up to where we are and where we're on a mission to move forward and to keep pursuing the strategy that we have in place.

Gotcha, Okay. That's helpful.

And then I was wondering if you could help me with.

Jon Jaffe: Gotcha. Okay, that's helpful.

Stephen Kim: I was wondering if you could help me with just, I wanted to run some math by you a little bit on the margin. I mean, just very simplistically, if we were to say that mortgage rates stay around 40 basis points or so lower than they were earlier in this year, then I'm guessing that the cost of a rate buydown should basically go down or add 100 basis points or maybe even a little bit more to your gross margins, just given what I think the cost of a rate buydown is. On top of that, if you're slowing your volume while rates drop, I would think that would improve the supply and demand relationship and thus improve your pricing power. That would be additionally to your gross margin.

Wanted to run some math a little bit on the margin I mean, just very simplistically, if we were to say that mortgage rates.

Stay around 40 basis points or so lower than they were earlier in this year.

Then I'm guessing that the cost of a rate buy down.

Should basically go down by or at a 100 basis points or maybe even a little bit more to your gross margins just given what I think the cost of a rate buy down is.

And then on top of that if you're slowing your volume while rates drop I would think that that would improve the supply demand relationship and doesn't prove your pricing power and so that would be additionally, additive to your gross margin. So I'm wondering is this a reasonable framework to think about the kind of or the magnitude of margin leverage that we might be able to see going forward.

Stephen Kim: I'm wondering, is this a reasonable framework to think about the kind of or the magnitude of margin leverage that we might be able to see going forward, or is there something that you think needs to be corrected in that?

Or is there something that you would you think needs to be corrected on that.

I think that the pieces are correct and the timing is not going to be.

Stuart Miller: I think that the pieces are correct and the timing is not going to be directly translatable. It will be somewhat of a rocky road to get there too. I think the pieces in the way that you're thinking about it are correct. Okay, excellent. Thanks so much, guys. Thank you.

Directly translatable it'll be somewhat of a rocky road to get there too, but I think the pieces and the way that youre thinking about it are correct.

Okay excellent. Thanks, so much guys.

Okay. Thank you.

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

Operator: Next we'll go to the line of Mike Rehaut from JP Morgan. Please go ahead.

Good morning, everyone. Thanks for taking my questions.

Stuart Miller: Thanks.

Mike Rehaut: Good morning everyone. Thanks for taking my question. I don't want to beat a dead horse here, but I just wanted to try and put a maybe perhaps a finer point on, you know, this kind of shorter term adjustment in approach given the challenging market. I'm wondering, on kind of a bottom line basis, if you guys just felt like you didn't want to go below 17.5% margin and you know that the cost was too high to drive that volume where you hoped it was, where you wanted it three months ago, or is there also, in your view, sort of an elasticity of demand issue.

I don't certainly don't want to beat a dead horse here, but I just wanted to try and put a maybe perhaps a finer point on.

This kind of shorter term adjustment.

In approach given the challenging market and I'm wondering.

I'm kind of a bottom line basis.

You guys just felt like.

We didn't want to go below 17, 5% margin.

The cost was too high to drive that volume, where you hope to.

Was was.

Where you wanted it.

Three months ago.

Or is there also in your view sort of the elasticity of demand issue where.

You know.

Part of the problem here is that.

Stuart Miller: Where.

Mike Rehaut: Part of the problem here is that even if you were to drop margins or raise incentives to keep that, you really wouldn't ultimately even be successful in what you needed for from a volume perspective. With that, maybe demand becoming more inelastic, just a lack of demand in the marketplace, it just didn't make sense to drop that gross margin below where you're looking in the back half.

Even if you were to drop margins or raise incentives.

Keep that.

But you really wouldn't ultimately even be successful in.

What you needed from a volume perspective and so.

With that.

Maybe demand becoming more inelastic Jeff.

A lack of demand in the marketplace.

It just didn't make sense to drop that that gross margin below where youre looking.

In the back half of this year currently.

Jon Jaffe: Of this year currently.

Hi.

I'm not sure that we've gotten quite that philosophical but.

Stuart Miller: I'm not sure that we've gotten quite that philosophical, but I think that we are responding real time to what we see as market conditions. We just felt, and I said it clearly, Michael, that we just felt it was a good time to take a little pressure off. We have some tremendous athletes that are working on our marketing and sales programs across the company, and they've just done terrific work to pull us through some really challenging times. We felt that this was a good moment for us to take a little pressure off of that part of our program and recalibrate as we go forward, think about what is our next step. Our base strategy remains the same. We're focused on building volume, supplying the market with affordable attainable products. John, you want to weigh in on that?

I think that we are responding in real time to what we see as market conditions.

And.

We just felt and I said that.

Michael but we just felt it was a good time to take a little pressure off.

We have we have some tremendous athletes that are working on our marketing and sales programs across the company and they've done they've just done terrific work to pull us through some really challenging times.

We felt that this was a good moment for us to take a little pressure off of that part of our program and recalibrate as we go forward think about what is our next step, but our base strategy remains the same we're focused on building.

The lead volume supplying the market with affordable obtainable product John you want to weigh in on that.

The degree of <unk>.

It's really hard to answer your question, Michael because it's market by market.

Jon Jaffe: Yeah, I would agree, Stuart, and it's really hard to answer your question, Michael, because it's market by market and even community by community. It is just as Stuart said, it's taking some of that edge off so we can better fine tune exactly how we price in that market by market analysis and community by community analysis.

Even community by community. So it is just as Stuart said, it's taken us over the edge off.

So we can better fine tune exactly how we price in that market by market analysis it community by community.

Yes.

No I appreciate that and I understand it's probably.

Mike Rehaut: I appreciate that and understand it's probably a bottoms up analysis to really fully answer that question, I suppose.

Bottoms up.

Analysis to really fully answer that question I suppose but.

Uh huh.

Jon Jaffe: But.

I think ultimately, though this idea around elasticity.

Mike Rehaut: I think ultimately though, this idea around electricity is really important and maybe just as a second question, follow-up question, we did see rates come down, mortgage rates, that is, maybe 20, 30 basis points in August and so far in September, another 20 or 30 basis points. I'm curious, amid that type of, that's a net 50 basis points roughly, but kind of gradually seeping into the market. I'm curious if you could comment on if you did see any impact on demand trends across your markets, perhaps which ones. If that's the case and all else equal, would this potentially reduce pressure on gross margins or incentives? Or are you just at a point right now where, given what you've done during the quarter, you expect the incentive that you've laid out to effectively remain in place throughout the fourth quarter?

It is really important.

Maybe just.

Second question follow up question.

We did see rates come down mortgage rates that is maybe 2030 basis points in August and.

And so far in September another 20, or 30 basis points.

I'm curious amid that type of.

That's a net 50 basis points roughly.

But kind of gradually seeping into the market.

I'm curious if you could comment on if you.

You did see any.

Impact on demand trends across your markets, perhaps which ones.

That's the case and.

All else equal would this potentially reduce pressure on gross margins or.

Incentives or are you just at a point right now where.

Given what you've done during the quarter that you expected incentive that.

You've laid out.

Effectively remain in place throughout the fourth quarter.

Okay. Thank Michael.

Michael.

<unk> laid out.

Jon Jaffe: I think, Michael, as Steve laid out, it does help reduce the cost of those mortgage rate buy downs. As Stuart responded, it's not exactly linear. It's each market, it's each community, how they're used and what the buyer demand is and the affordability stressors that exist.

So it does help reduce the cost of those mortgage rate buy downs, whether it has to respond to this it's it's not exactly linear it's each market in each community, how they're used and what the buyer demand is.

The affordability stressors.

It exists.

I think the way that I would think about it Michael is when we think about elasticity I think thats more of a news report looking backwards.

Stuart Miller: I think the way that I would think about it, Michael, is when we think about elasticity, I think that's more of a news report looking backwards. When we think about what we're doing, it is as you described, a bottoms up approach. I think Jon has said, you know, it is community by community and we're responding and pulling the levers as a company to be reflective of what we see our best and brightest doing in each market across the country. In terms of 30 basis points in August, 20 to 30 in September, there are fluctuations in the 10-year right now, maybe it's migrating up a little bit. We'll have to see, I think the volatility impacts consumer confidence. We're going to have to see how it plays out.

And when we think about what we're doing is as you described a bottoms up approach and I think John said.

It is community by community.

And we are responding and pulling the levers as a company.

To be reflective of what we see our best and brightest doing in each market across the country.

And I think that.

In terms of 30 basis points in August 20 to 30 in September there are fluctuations in the 10 year right now, it's maybe it's migrating up a little bit.

We'll have to see I think the volatility in it.

Sure.

<unk> consumer confidence so we're going to have to see how it plays out at the end of the day when we look back at our third quarter and as I noted in my remarks, we did not yet see sales impact, but we did see some a little bit of pick in the consumer's engagement.

Stuart Miller: At the end of the day when we look back at our third quarter and as I noted in my remarks, we did not yet see sales impact, but we did see a little bit of kick in the consumers' engagement. As we run into the fourth quarter, we generally don't comment on what we're seeing so far in this quarter, but I will and say that as we've come into the fourth quarter, we've seen a little bit more interest, but we're pretty confident that if interest rates really do go down and stay down as you get to 6%, closer to 6%, as you go below 6%, we think you're going to see some real optimism in the marketplace and people who have needs really activating because they can afford to.

And as we've gone into the fourth quarter, we generally don't comment on.

What we're seeing so far in this quarter, but I will say that as we've come into the fourth quarter we've seen.

A little more a little bit more interest.

But we're pretty confident that if interest rates really do go down and stay down.

As you get to 6% closer to 6% as you go below 6%, we think youre going to see some real optimism in the marketplace and people will have need really activating because they can afford to.

Great. Thank you appreciate it.

Beth.

Mike Rehaut: Great, thank you.

Stuart Miller: Appreciate it, Yvette.

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

Operator: Next we'll go to the line of Susan Maklari from Goldman Sachs. Please go ahead.

Thank you good morning, everyone.

Thank you. My question is on the inventory turns can you talk through how some of these companies to fulfill that parts are continuing to come through even as you moderate or adjust the strategy and how we should think about the upside to those inventory turns in this kind of an environment and long term the ability to get to three times as you can.

Susan Maklari: Thank you. Good morning everyone. My first question is on the inventory turns. Can you talk through how some of these company specific efforts are continuing to come through even as you moderate or adjust the strategy, and how we should think about the upside to those inventory turns in this kind of an environment and long term the ability to get to three times as you do think about the setup on the ground.

Do you think about the setup on the ground.

So.

I will tell you that.

Stuart Miller: I will tell you that John and I, at the end of each quarter, go out and do what we call operations reviews. We sit with our division management teams and really go through their operations and strategies. What has been fascinating to me is to sit and watch our Divisions focus on their inventory turn, which to me, and I think to John as well, is really an indication of whether we are focusing on effectiveness and efficiencies and really working on using the things that we're doing to become more efficient and drive costs down to build affordability. The answer to your question is I was sitting in one of those OPS reviews this week with a team that is actually getting closer to exactly that. Three times inventory turn. As a company, it will be. We'll be adding together all the divisions and you'll see averages.

So John and I at the end of each quarter. We go out we do what we call operations reviews.

And we sit with our division management teams and really go through their operations and strategies and what has been fascinating to me is to it.

As to sit and watch our divisions focus on their inventory turn which to me and I think John as well is really an indication of are we focusing on effectiveness and efficiencies and really working on using the things that we're doing to become more.

Fisher and drive costs down to build affordability the answer to your question is.

I was sitting in one of those ops reviews. This week.

With a team that is actually getting closer to exactly that.

Three times inventory turn.

As a company it will be.

We'll be adding together all of the divisions and you'll see averages.

But at the local level that kind of Northstar is very much a part of the discussion as we get cycle times down John talked about the fact that these are the lowest cycle times as an average that we've seen as a company that is directionally, where we're headed.

Stuart Miller: At the local level, that kind of North Star is very much a part of the discussion as we get cycle times down. John talked about the fact that these are the lowest cycle times as an average that we've seen as a company. That is directionally where we're headed. Do not measure us against three times because that's a pretty hard hurdle to get to. Go ahead, John.

But don't measure us against three times because.

That's a that's a pretty hard.

Hurdle to get to go ahead, John just as good as we are.

Discussed discussed in prior quarters as well.

Jon Jaffe: Yeah, I'll just add, Stuart, as we've discussed and discussed in prior quarters as well, this ongoing focus on efficiency. Just in time into our land banks, just in time out of our land banks where we raised our production. All of this is a constant tweaking or refinement of processes to do just that. It is going to continue to drive that metric, which as you've seen, they'll be making good progress on.

Ongoing focus on efficiency. So just in time into our land bank just in time out of our land banks, where we are.

Raised our production all of this is a constant tweaking our refinement of processes to do just that as they continue to drive that metric, which as you've seen that we've been making good progress.

And every one of these programs thinking processes John talks about <unk>.

Stuart Miller: Every one of these programs, thinking processes, you know, Jon talks about land into the land bank, land out of the land bank. Those efficiencies, all of these tie to modern technologies that are partners of what we're trying to do. As we get those technologies working, those efficiencies are going to amp up.

Land into the land bank land out of the land bank and those efficiencies all of these tie to modern technologies that are partners of what we're trying to do and as we get those technologies working those efficiencies are going to amp up.

Yes, Okay. That's very helpful color and then maybe taking that one step further as we do you think about the inventory turns in these efforts coming through can you talk about the cash generation of the business and how youre thinking about the uses of that cash, especially in this sort of an environment that we're in and any updates on the M&A.

Susan Maklari: Yeah, okay, that's very helpful.

Diane Bessette: Color.

Susan Maklari: Maybe taking that one step further as we do think about the inventory turns and these efforts coming through, can you talk about the cash generation of the business and how you're thinking about the uses of that cash, especially in this sort of an environment that we're in? Any updates on the M&A environment, those kinds of strategic efforts?

Environment those kinds of strategic effort.

Well as far as we're concerned everything is on the table.

Stuart Miller: As far as we're concerned, everything is on the table. We are certainly focused on total shareholder return. That is sometimes defined by how we grow and what kind of M&A strategy we might inject into our business as we go forward. We are looking at everything. As I've said, the use of our land banking program is something that enables more of that focus. At the same time, we're focused on returning capital to shareholders. You've seen that we've had a pretty steady program of doing exactly that. We are very, very focused on driving cash flow now. There's been an adjustment period in the wake of Melrose, and getting the pieces working exactly together takes a little bit of time, but our program is laser focused. How do we get to that total shareholder return? How do we use cash effectively? How do we drive growth effectively?

Yeah.

We are.

We are certainly focused on.

Total shareholder return that is sometimes defined by how we grow and what kind of M&A strategy.

We might.

Injected into our business as we go forward.

Looking at everything and as I've said the use of our land banking program is something that enables more of that focus.

At the same time, we're focused on returning capital to shareholders.

Seen that we've had a pretty steady program of doing exactly that.

And we are very very focused on driving cash flow now there's been an adjustment period in the wake of.

No Roes and <unk>.

Getting the pieces working exactly together it takes a little bit of time, but our program is laser focused on how do we get to that total shareholder return how do we use cash effectively how do we drive growth effectively and look at the end of the day.

Stuart Miller: At the end of the day, the focus of this company is how do we become something different in the future from what we've been in the past? A big capital allocation. Do you want to say anything on that? Wait, no.

The focus of this company is how do we become something different in the future from what we've been in the past and a big.

For capital allocation.

Okay, and do you want to say anything.

Okay.

Great.

No I was going to just buy it.

So I think that there is no change in our strategy.

Diane Bessette: I agree with Stuart. I think that there's no change in our strategy from quarter to quarter, you know, given the incentive because of our push on volume. Cathie moves around a little bit, and this was an unusual year with Melrose, but the trajectory is to really keep the focus on cash generation, which is definitely benefited by the efficiencies that we're focused on. Yeah.

From quarter to quarter, you know given the incentives because of our push on volume.

A little bit and this is an unusual year with numbers, but tissue track trajectory is to really keep the focus on cash generation.

Which has definitely benefited by the.

Efficiencies that we're focused on.

Yeah. Okay. Thank you all for the color and good luck with the quarter.

Susan Maklari: Okay, thank you all for the color.

Thank you.

Stuart Miller: Good luck with the quota.

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

Diane Bessette: Thank you, Susan.

Stuart Miller: Thank you.

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

Hi, Good morning, guys. Thanks for taking my questions as well. The first question is orders were obviously very solid and a little bit ahead of.

John Lovallo: Good morning, guys.

Stuart Miller: Thanks for taking my questions as well. The first question is orders were obviously very solid, and, you know, a little bit ahead of expectations. You guys are working at the lowest cycle times in a very long time, if not in history.

Patients you guys are working at the lowest cycle times in a very long time, it's not in history.

Cause sort of the slight miss in the third quarter deliveries given those factors.

Jon Jaffe: What caused the slight miss?

Stuart Miller: In the third quarter deliveries, given those factors?

So.

It really is just timing.

And.

Jon Jaffe: Really, it's just timing and relative to when sales occur, getting through the mortgage approval process. Nothing more than that.

Relative to when the sales occur getting through the mortgage approval process.

Nothing more than that.

Okay.

Understood.

I guess, we've heard from several of your peers.

Stuart Miller: Okay, understood. I guess, you know.

David Collins: We've heard from several of your.

Some other companies through the value chain.

Jon Jaffe: Peers and from some other companies too.

Florida inventory levels are beginning to stabilize maybe even improve a bit obviously theres a lot of markets in Florida, but.

Stuart Miller: The value chain that Florida inventory levels are beginning to stabilize, maybe even improve a bit.

And some of the key markets, maybe the I four corridor. If you could talk about I mean is this.

Jon Jaffe: Obviously, there's a lot of markets in.

Stuart Miller: Florida, in some.

Jon Jaffe: Of the key markets, maybe the I-4 corridor, if you could talk about, I mean, is this consistent with what you're seeing.

Consistent with what Youre seeing on the ground.

Yes.

Stuart Miller: Seeing on the ground.

Orlando market.

For.

Jon Jaffe: Tampa and Orlando markets along the I-4, as I comment, we have always remained very laser focused on inventory levels. Part of our strategy is even flow production and sales pace. With respect to other builders, we did see some buildup, but I would agree with that in general. I need to see some stabilization.

As I commented, we are always remain very laser focus on inventory levels as part of our strategy even flow production sales pace.

With respect to other builders, we did see some buildup.

I would agree with that in general are starting to see some stabilization.

Yes, and remember that the.

The size of inventories.

Stuart Miller: Yeah, remember that the size of inventories.

Across.

Across the competitive landscape, meaning existing homes and new homes.

Jon Jaffe: Across.

Stuart Miller: Across the competitive landscape, meaning existing homes and new homes, is a big part of what defines the stress on the sales process. In Florida, that has been a factor. Inventories have been high both across existing and the new home market. They have been moderating, and that has started to build a more stable environment. That's helpful, thank you. Yes.

Big part of what defines the stress on the sales process and in Florida that has been.

A factor inventories have been high.

Both across existing and the new home market they have been moderating.

That is starting to build.

More stable environment with yourself.

That's helpful. Thank you guys.

Okay.

Next we'll go to the line of Matthew Bouley from Barclays. Please go ahead.

Operator: Next, we'll go to the line of Matthew Boulay from Barclays. Please go ahead.

Good morning, everyone and thank you for taking the questions.

One on incentives.

John Lovallo: Good morning everyone. Thank you for taking the questions. One on incentives, I guess sort of another philosophical question. I mean, I guess going forward, depending on where the rate environment goes, do you anticipate kind of maintaining some level of these buy downs as kind of a competitive advantage structurally versus the resale market, or as you do get to, if we do get to 6% or lower, is there some level where you really do foresee a kind of a more material pullback on those incentives?

I guess sort of another philosophical question, but.

I guess going forward, depending on where the rate environment goes.

I mean, do you anticipate kind of maintaining some level of these buy downs as kind of a competitive advantage.

Structurally versus the resale market.

Or as you do get to if we do get the 6% or lower I mean is there some level, where you really do foresee.

Kind of a more material pull back on those incentives.

No.

Interesting question.

Stuart Miller: Thank you. Interesting question. A number of people have asked why are you focused on interest rates coming down? You're buying them down anyway, and the market has access to the lower interest rate. The reality is it is the stall that's embedded in the existing home market that is relevant because as the existing home market starts to unlock a little bit, it enables people to activate the process of going from a first-time home to a move-up home and a move-up home to a second move-up home. It just unlocks an awful lot in and around the ability of people to engage in the housing market. That migrate. Yes, the homebuilders are generally providing that lower interest rate by buying down, and it is impactful to margin.

No.

A number a number of people have asked why are you focused on interest rates coming down you're buying them down anyway.

And so the market has access to the lower interest rate. The reality is it is the the <unk>.

Stall that's embedded in the existing home market that is relevant.

As the existing home market starts to unlock a little bit it enables people to activate the process of going from a first time home to a move up home in the move up home to a second move up home is that just unlocks an awful lot in and around the ability of people to engage in the housing.

Market so.

That migrate yes, the homebuilders are generally providing that lower interest rate.

By buying down and it is impactful to margin.

But unlocking the rest of the housing market as a flywheel kind of approach or effect and.

Stuart Miller: Unlocking the rest of the housing market has a flywheel kind of approach or effect, and that effect unlocks a lot of activity for the entirety of the ecosystem. Okay, fair enough.

And that effect unlocks a lot of activity for the entirety of the ecosystem.

Okay Fair enough. Thank you for the thoughts there Stuart.

You bet, Yeah secondly.

John Lovallo: Thank you for the thoughts there, Stuart.

Sort of following on John's question, I think what he was alluding to around.

Stuart Miller: Secondly.

John Lovallo: Yeah, secondly, I guess sort of following on John's question. I think what he was alluding to around orders and deliveries into the next quarter, I'm just curious if you can update us on the cancellations environment a little bit. I guess whatever the trend was, what you're reading into what you're seeing in cancellations today.

Orders and deliveries into the next quarter I'm. Just curious if you can update us on the cancellation of the environment a little bit in.

I guess, whatever the trend was kind of what youre reading into what youre seeing in cancellations today. Thank you.

Stuart Miller: Thank you.

So I'd say.

It's really really pretty consistent from second quarter through third quarter in terms of order pace cancellation pace.

Jon Jaffe: I'd say it's really remained pretty consistent from second quarter throughout third quarter in terms of order pace, cancellation pace. It's as we said, we really didn't see any effect in the third quarter relative to interest rates going down at the end of the quarter. It's directly tied in on that community by community basis of what do we need to do to support our customer as they're challenged by affordability. Bottom line is it's remaining pretty consistent.

<unk>.

As we said, we really didn't see any.

The effect in the third quarter relative to interest rates going down at the end of the quarter.

And it's directly tied in.

And that community by community basis of what do we need to do to support.

Our customers are challenged by affordability.

Bottom line is it remaining pretty consistent.

Okay. Thanks, John and good luck guys.

Stuart Miller: Okay, thanks, Jon. Good luck, guys. Okay, why don't we take one more?

Okay, why don't we take one more.

Perfect. Our final question comes from Jade Rahmani from <unk>. Please go ahead.

Operator: Perfect. Our final question comes from Jade Rahmani from KBW. Please go ahead.

Thank you very much can you say what.

Stuart Miller: Thank you very much. Can you say what quantity or % of year to date deliveries have come from Melrose? Diane?

Quantity or percentage of year to date deliveries have come from Melrose.

Yeah.

Yeah, I want to say, it's been about Dave correct me, if I am kind of five percentage not in that zone.

Diane Bessette: Yeah, I want to say it's been about, Dave, correct me, for about 25% ish in that zone.

And so in terms of the gross margin outlook.

Stuart Miller: In terms of the gross margin outlook, looking beyond the fourth quarter, should we still expect the remaining 75%, you know, once you're at a steady cadence with Melrose, to come through that interest cost on gross margin?

Looking beyond the fourth quarter should we still expect.

The remaining 75% once you're at a steady cadence of Melrose to come through that interest cost on gross margins.

Yeah.

The obvious with with the low cost that mirrors offers us the more that we have deliveries from that vehicle, it's benefiting our margin, but realistically across our land banking environment, where we're focused on managing the.

Diane Bessette: Yeah, stating the obvious, with the low cost that Melrose offers us, the more that we have deliveries from that vehicle, it's benefiting our margins.

Stuart Miller: Realistically, across our land banking environment, we're focused on managing the option costs of those communities. One of the things that benefits, and this is an interesting flywheel within the land banking world, is our ability to build certainty within the land banking structures. That is, certainty of close and certainty of execution enables us to maintain a more moderated cost structure within those systems and to actually bring down costs. Therefore, when we talk about does land banking drive our business, in one sense we have the ability to walk away from deals if we need to. The reality is we are highly, highly incentivized to keep each of our structures, whether it's vertical construction, horizontal construction, or land banking, operating in a smooth, effective way because that's how we get to the best cost structure and therefore produce affordability.

The option cost of those of those communities.

No.

One of the things that benefits.

This is this is an interesting flywheel within the.

The land banking world.

Our ability to build certainty within the.

Land banking structures and that has certainty of close certainty of execution.

<unk> enables us to maintain a more moderated.

Cost structure within those systems and to actually bring down cost and therefore.

When we talk about the land banking drive our business.

In one sense.

We have the ability to walk away from deals if we if we need to but the reality is we are highly highly incentivized to keep.

Each of our structures, whether it's vertical construction horizontal construction or whether it's land banking operating in a smooth effective way because thats, how we get to the best cost structure, and therefore produce affordability and all of this kind of ties together as to why our strategy relative to volume.

Stuart Miller: All of this ties together as to why our strategy is relative.

Thats offset store for us it's a.

Jon Jaffe: To volume, I think that's well said, Stuart. For us, it's a manufacturing approach, meaning even flow from beginning to end. It starts with land into our land banks, as I said, just in time coming out predictably, just in time from the land banks to a production team that's focused on bringing cycle time and cost down. It's an ecosystem that's all the way through. The more effective we are in doing that, as we've noted, we bring down our construction costs by the story of highlighting. The more effective we are in creating stability and reliability in the land bank world, the more that capital costs come down. They all have our laser focus on how do we become more efficient, more durable, and bring value to our partners.

Manufacturing approach screening even flow from beginning to end so it starts with land into our land banks.

As I said just in time coming out predictably just in time from the land banks to our production team that's focused on bringing cycle time and costs down.

That's an ecosystem that's all the way through so the more effective we are in doing that as we've noted we bring down our construction costs, but as Stuart highlighted now more effective we are creating stability reliability landbank world to more of a back capital cost come down. So they all have our laser focus on how do we become more efficient more durable and very value.

To our partners so even while we might have the ability to risk mitigate or to walk away or to do something else.

Stuart Miller: Even while we might have the ability to, as a risk mitigator, walk away or do something else, our whole strategy is focused on building certainty and across our land banking system, bringing down cost and option costs in each of our land banks to help with the affordability factor. I'm not sure if that's answered your question, but I think that's what you're getting at. When you talk about 25% from Melrose and advantage cost, the question is, can we get more advantage costs across the whole spectrum? Okay, thanks for that. I was trying to understand as the 25% grows toward 100%, shouldn't that—I think the market's assuming that would be a negative, an incremental headwind, because that $560 million of annual interest costs is not yet fully reflected in gross margin.

Our whole strategy is focused on building certainty and across our land banking system brings.

Down comps.

And option costs in each of our land bank to help with the affordability factor I'm not sure if that answered your question, but I think thats, what youre getting at is when you're talking about 25% from Melrose and advantage cost. The question is can we get more advantage cost across the whole spectrum.

Okay. Thanks for that I was trying to understand as the 25% grows toward 100%.

So does that I think the market, assuming that would be a negative and incremental headwind because that $560 million of annual interest cost is not yet fully reflected in.

Gross margin.

Yes.

While I have tremendous affection for.

Stuart Miller: I have tremendous affection for Melrose and Darren and the group there, and we want to do a lot of business with them. We think that our business is best configured with a range of participants that are providing low cost capital to enable us to be the best version of ourselves. With that diversity of engagement, I think we get the best out of everybody and we really have been migrating towards building, enabling, participating in an industry solution, not just a myopic one. For Lennar, thanks very much. Thank you. With that said, I want to thank everybody for joining us and we look forward to reporting back on consistent and focused progress as we go forward. Thanks everybody.

No rose and Darren and the group there and we wanted to do a lot of business with them.

Think that our business is best configured with a range of participants that are providing low cost capital to enable us to be the best version of ourselves with that diversity of engagement I think we are.

Think we get the best out of everybody and we really have been migrating towards building, enabling participating in an industry solution not just a myopic one for Linda.

Thanks very much.

Thank you.

That said I want to thank everybody for joining us and we look forward to reporting back on consistent.

And.

And focused our progress as we go forward thanks, everybody.

That concludes <unk> third quarter earnings conference call. Thank you all for participating you may disconnect. Your line and please enjoy the rest of your day.

Operator: That concludes Lennar's third quarter earnings conference call. Thank you all for participating. You may disconnect your line and please enjoy the rest of your day.

Stuart Miller: It.