Q3 2025 Taylor Morrison Home Corp Earnings Call

Speaker #1: Ladies and gentlemen, the Taylor Morrison Home Q3 2025 Earnings Webcast and conference call will begin shortly with your host, Mackenzie Aron. We appreciate your patience as we prepare your session today.

Mackenzie Aron: Ladies and gentlemen, the Taylor Morrison Q3 2025 earnings webcast and conference call will begin shortly with your host, Mackenzie Aron. We appreciate your patience as we prepare your session today. During the call, we encourage participants to raise any questions they may have. You can raise a question by pressing STAR followed by 1 on your telephone keypad to remove yourself from the line of questioning, STAR followed by 2. As a reminder to raise a question, STAR followed by 1. We will begin shortly. Good morning and welcome to the Taylor Morrison third quarter 2025 earnings conference call. Currently, all participants are in listen-only mode. Later, we'll conduct a question-and-answer session, and instructions will be given at the time. As a reminder, this conference call is being recorded. I'd now like to introduce Mackenzie Aron, your host, Vice President of Investor Relations. Please go ahead.

Speaker #1: During the call, we encourage participants to raise any questions they may have. You can raise a question by pressing star, followed by one, on your telephone keypad.

Speaker #1: To remove yourself from a line of questioning, staff will apply to. As a reminder, to raise a question, star followed by one.

Speaker #1: We will begin shortly . Good morning and welcome to Taylor Morrison Home third quarter 2020 Earnings Conference Call . Currently , all participants are in listen only mode .

Speaker #1: Later , we'll conduct a question and answer session and instructions will be given at the time . As a reminder , this conference call is being recorded .

Speaker #1: I'd like to introduce Mackenzie Aron , your host , Vice President of Investor Relations . Please go ahead .

Speaker #2: Thank you and good morning . We appreciate you joining us today . Before we begin , let me remind you that this call , including the question and answer session , will include forward looking statements .

[Company Representative]: Thank you and good morning. We appreciate you joining us today. Before we begin, let me remind you that this call, including the question-and-answer session, will include forward-looking statements. These statements are subject to the Safe Harbor Statement for forward-looking information that you can review in our earnings release on the Investor Relations portion of our website at taylormorrison.com. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, those factors identified in the release and in our filings with the SEC, and we do not undertake any obligation to update our forward-looking statements. In addition, we will refer to certain non-GAAP financial measures on the call, which are reconciled to GAAP figures in the release.

Speaker #2: These statements are subject to the safe harbor statement for forward-looking information that you can review in our earnings release on the Investor Relations portion of our website at Taylor Morrison Home.

Speaker #2: These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections . These risks and uncertainties include , but are not limited to , those factors identified in the release and in our filings with the SEC .

Speaker #2: And we do not undertake any obligation to update our forward looking statements . In addition , we will refer to certain non-GAAP financial measures on the call , which are reconciled to GAAP figures in the release .

Speaker #2: Now , I will turn the call over to our chairman and chief Executive Officer , Sheryl Palmer . Thank you . McKenzie , and good morning , everyone .

[Company Representative]: Now, I will turn the call over to our Chairman and Chief Executive Officer, Sheryl Palmer.

Sheryl Palmer: Thank you, Mackenzie, and good morning, everyone. Joining me is Curt VanHyfte, our Chief Financial Officer, and Erik Heuser, our Chief Corporate Operations Officer. We are pleased to report strong third-quarter results despite the continuation of challenging market conditions. Driven by our diversified portfolio and our team's careful calibration of pricing and pace across our well-located communities, we once again met or exceeded our guidance on all key metrics, including home closings volume, price, and gross margin. The ongoing execution of our balanced operating strategy has allowed us to maintain healthy performance even as we have adjusted pricing and incentives, particularly in entry-level price points. Combined with a thoughtful approach to land lighter financing tools and effective cost management, our business is generating strong bottom-line earnings, cash flow, and returns for our shareholders.

Speaker #2: Joining me are Curt VanHyfte, our Chief Financial Officer, and Erik Heuser, our Chief Corporate Officer.

Speaker #3: Operations Officer: We are pleased to report strong third quarter results despite the continuation of challenging market conditions, driven by our diversified portfolio and our teams.

Speaker #3: Careful calibration of pricing and pace across our well-located communities . We once again met or exceeded our guidance on all key metrics , including home closings , volume , price and gross margin .

Speaker #3: The ongoing execution of our balanced operating strategy has allowed us to maintain healthy performance, even as we have adjusted pricing and incentives, particularly in entry-level price points.

Speaker #3: Combined with a thoughtful approach to land lighter financing tools and effective cost management . Our business is generating strong bottom line earnings , cash flow and returns for our shareholders with approximately 70% of our portfolio serving move up and resort lifestyle home .

Sheryl Palmer: With approximately 70% of our portfolio serving move-up and resort lifestyle home buyers, our financial performance is supported by the strength of our broad consumer set. However, even though these generally well-qualified buyer groups are less sensitive to affordability constraints, all consumer segments have been impacted by macroeconomic and political uncertainty, which has weighed on buyer urgency and shopper sentiment. In addition, consumers are aware of the current competitive dynamics in the marketplace and are carefully weighing available incentives, pricing, and spec offerings in their purchase decisions. Appreciating these dynamics, we are focused on deploying innovative and compelling incentives and pricing offers to support buyer confidence and improve affordability, leaning into the appeal of our well-designed spec and to-be-built home offerings to meet consumer preferences and carefully managing new starts as we continue to right-size inventory and prepare for next year's spring selling season.

Speaker #3: Our financial performance is supported by the strength of our broad consumer set . However , even though these generally well qualified buyer groups are less sensitive to affordability constraints , all consumer segments have been impacted by macro and political uncertainty , which has weighed on buyer urgency and shopper sentiment .

Speaker #3: In addition, consumers are aware of the current competitive dynamics in the marketplace and are carefully weighing available incentives, pricing, and spec offerings in their purchase decisions.

Speaker #3: Appreciating these dynamics , we are on deploying innovative and compelling incentives and pricing offers to support buyer confidence and improve affordability . Leaning into the appeal of our well-designed spec and to be built home offerings to meet consumer preferences and carefully managing new starts as we continue to rightsize inventory and prepare for next year's spring selling season .

Speaker #3: Given our quality land locations , the majority of which are in prime core submarkets , our sales strategies are driven community by community based on their unique selling proposition , competitive analysis , and consumer profile .

Sheryl Palmer: Given our quality land locations, the majority of which are in prime core submarkets, our sales strategies are driven community by community based on their unique selling proposition, competitive analysis, and consumer profile. In all communities, we strive to price to market to remain competitive and offer our home buyers the greatest value. In some communities, this results in a price-focused approach to drive volume, especially where we serve predominantly first-time buyers, and differentiation is more challenging given market competitive pressures. However, in move-up and resort lifestyle communities, we are inclined to be more patient to protect values given our distinct locations and product offerings in hard-to-replace communities. We are able to execute this balanced approach in part because we have a well-structured land bank that provides a flexible and capital-efficient lot supply.

Speaker #3: In all communities . We strive to price , to market , to remain competitive and offer our home the greatest value in some communities .

Speaker #3: This results in a price focused approach to drive volume , especially where we serve predominantly first time buyers and differentiation is more challenging given market competitive pressures .

Speaker #3: However , and move up and resort lifestyle communities , we are inclined to be more patient to protect values . Given our distinct locations and product offerings in hard to replace communities .

Speaker #3: We are able to execute this balanced approach , in part because we have a well-structured land bank that provides a flexible and capital efficient lot supply .

Speaker #3: As I said last quarter, while the near-term outlook calls for a more patient trajectory, we strongly believe that we have the platform to jumpstart outsized growth as market dynamics stabilize.

Sheryl Palmer: As I said last quarter, while the near-term outlook calls for a more patient trajectory, we strongly believe that we have the platform to jumpstart outside growth as market dynamics stabilize. In the meantime, we are doubling down on opportunities for cost management with our suppliers, value engineering with our product offerings, and overhead efficiencies in our back office. These efforts help drive year-over-year improvement in our direct construction costs and 80 basis points of SG&A leverage. We are also continuing to expand our industry-leading tech-enabled sales tools, which are contributing to growing cost efficiencies as well as an improved customer experience. I'm pleased to share that we recently launched an industry-first AI-powered digital assistant across select markets on taylormorrison.com.

Speaker #3: In the meantime, we are doubling down on focused opportunities for cost management with our suppliers, value engineering with our product offerings, and overhead efficiencies in our back office.

Speaker #3: These efforts help drive year over year improvement in our direct construction costs and 80 basis points of G&A leverage . We are also continuing to expand our industry leading , tech enabled sales tools , which are contributing to growing cost efficiencies as well as an improved customer experience .

Speaker #3: I'm pleased to share that we recently launched an industry first AI powered digital assistant across select markets on Taylor Morrison Home . Com .

Speaker #3: Unlike traditional chatbots seen in our industry that we rely on scripted responses , forcing home shoppers through a predetermined path , our new digital assistant leverages generative AI to provide dynamic , data driven guidance that better mirrors an in-person sales interaction .

Sheryl Palmer: Unlike traditional chatbots seen in our industry that rely on scripted responses forcing home shoppers through a predetermined path, our new digital assistant leverages generative AI to provide dynamic, data-driven guidance that better mirrors an in-person sales interaction. Our digital assistant guides consumers through their discovery journey, provides them detailed answers to each shopper's unique questions, and helps convert interest into action, supporting lead generation and customer acquisition. This technology marks a meaningful advancement in how we engage prospective buyers online, and it's another step in our ongoing digital innovation strategy as today's consumers increasingly seek intuitive, personalized shopping experiences.

Speaker #3: Our digital assistant guides consumers through their discovery journey , provides them detailed answers to each shopper's unique questions , and helps convert interest into action , supporting lead generation and customer acquisition .

Speaker #3: This technology marks a meaningful advancement in how we engage prospective buyers online , and it's another step in our ongoing digital innovation strategy .

Speaker #3: As today's consumers increasingly seek intuitive , personalized shopping experiences as Teresa demand trends , we were encouraged to see monthly net absorption paces improve each month during the quarter , with September pacing at the strongest level since May .

Sheryl Palmer: As to recent demand trends, we were encouraged to see monthly net absorption paces improve each month during the quarter, with September pacing at the strongest level since May, in contrast to typical seasonal slowing into the end of the summer as the improvement in mortgage interest rates helps spur activity. In total, our monthly absorption pace was 2.4 per community for the quarter and has averaged 2.7 year to date, slightly below our long-term target as demand has remained somewhat choppy. However, there are positive signs that potential buyers are cautiously engaged in the market. For one, our latest national home buying webinar, a free educational opportunity we offer home shoppers to equip them with the knowledge needed for a successful home buying journey, attracted over 400 attendees. That's a 155% increase from our last webinar.

Speaker #3: In contrast to typical seasonal slowing into the end of the summer . As the improvement in mortgage interest rates helped spur activity . In total , our monthly absorption pace was 2.4 per community for the quarter and has averaged 2.7 year to date , slightly below our long term target .

Speaker #3: As demand has remained somewhat choppy . However , there are positive signs that buyers are cautiously engaged in the market . For one , our latest national home buying webinar , a free educational opportunity .

Speaker #3: We offer home shoppers to equip them with the knowledge needed for a successful home buying journey , attracted over 400 attendees . That's 155% increase from our last webinar .

Speaker #3: In addition , total website traffic is up double digits and mortgage pre-qualification volume is trending similarly to year ago levels . I continue to believe that potential for our generally well qualified , diverse customer base , improved confidence in the broader economic and political outlook will be the most important determinant of demand stabilization , especially for discretionary home purchase decisions .

Sheryl Palmer: In addition, total website traffic is at double digits, and mortgage pre-qualification volume is trending similarly to year-ago levels. I continue to believe that for our generally well-qualified, diverse customer base, improved confidence in the broader economic and political outlook will be the most important determinant of demand stabilization, especially for discretionary home purchase decisions in our move-up and resort lifestyle communities. Among the many headlines impacting confidence, uncertainty related to H-1B policy and broader immigration-related changes have weighed on non-resident buyer activity, with Dallas, Austin, Atlanta, and the Bay Area feeling the greatest impacts. From a consumer standpoint, the mix of our orders by buyer group stayed relatively consistent sequentially in the third quarter at 30% entry level, 51% move-up, and 19% resort lifestyle.

Speaker #3: In our move up and resort lifestyle communities . Among the many headlines impacting confidence , uncertainty related to H-1b policy and broader immigration related changes have weighed on non-resident buyer activity , with Dallas , Austin and Atlanta and the Bay area feeling the greatest impacts .

Speaker #3: From a consumer standpoint , the mix of our orders by buyer group stayed relatively consistent sequentially in the third quarter at 30% entry level , 51% move up and 19% resort lifestyle on a year over year basis .

Sheryl Palmer: On a year-over-year basis, our first and second move-up sales held in most strongly, while our entry-level segment pulled back, as did our resort lifestyle segment due to performance in our non-Esplanade communities. Going a step further, specific to our premier Esplanade segment, which accounts for just over 10% of our portfolio orders, we're flattish year over year, benefiting from a handful of new community openings. Given the brand's affluent customer base, this segment of our portfolio is relatively insulated from interest rate concerns and instead more reliant on consumer confidence. Positively, we did see improved shopper engagement in Esplanade during the quarter, with many consumers exploring multiple communities across markets with a willingness to travel to find their preferred combination of lifestyle, location, and price.

Speaker #3: Our first and second move up sales held in most strongly , while our entry level segment pulled back , as did our resort lifestyle segment due to performance in our non esplanade communities .

Speaker #3: Going a step further . Specific to our premier Esplanade segment , which accounts for just over 10% of our portfolio orders , we're flattish year over year , benefiting from a handful of new community openings .

Speaker #3: Given the brand's affluent customer base, this segment of our portfolio is relatively insulated from interest rate concerns and instead more reliant on consumer confidence.

Speaker #3: Positively, we did see improved shopper engagement in Esplanade during the quarter, with many consumers exploring multiple communities across markets, with a willingness to travel to find their preferred combination of lifestyle, location, and price.

Speaker #3: With a healthy pipeline of new Esplanade communities scheduled to open in 2026 , we remain encouraged by the strength of this consumer group and the opportunity to capitalize on this brand's unique lifestyle offerings in the years ahead .

Sheryl Palmer: With a healthy pipeline of new Esplanade communities scheduled to open in 2026, we remain encouraged by the strength of this consumer group and the opportunity to capitalize on this brand's unique resort lifestyle offerings in the years ahead. As we look ahead to 2026, it's still too early to provide guidance, but there are a few strategic priorities I would emphasize as we contemplate next year's opportunities against ongoing uncertainties. To begin, we have well over 100 communities expected to open next year, resulting in mid to high single-digit anticipated outlet growth. Many of these communities are slated to open in time for the spring selling season, which should help support our sales pace and delivery goals next year. We also have realized significant cycle time savings, as Curt will detail, providing improved flexibility to start and close homes within the year, including build-to-order homes.

Speaker #3: As we look ahead to 2026 , it's still too early to provide guidance , but there are a few strategic priorities I would emphasize as we contemplate next year's opportunities against ongoing uncertainties .

Speaker #3: To begin , we have well over 100 communities expected to open next year , resulting in mid to high single digit anticipated outlet growth .

Speaker #3: Many of these communities are slated to open in time for the spring selling season, which should help support our sales pace and delivery goals next year.

Speaker #3: We also have realized significant cycle time savings , as Kurt will detail , providing improved flexibility to start and close homes within the year , including build to order homes .

Speaker #3: While we hope to begin gradually shifting our deliveries closer to a more balanced mix of to be built and spec homes over time from our current mix of roughly 70% spec and 30% to be built , sales , this normalization will take time and be dependant on customer demand .

Sheryl Palmer: While we hope to begin gradually shifting our deliveries closer to a more balanced mix of to-be-built and spec homes over time, from our current mix of roughly 70% spec and 30% to-be-built sales, this normalization will take time and be dependent on customer demand. For now, specs will continue to bridge the gap between current buyer preferences for incentivized quick move-in inventory and an eventual return to more historic preferences for personalizing to-be-built homes, especially in our move-up and resort lifestyle communities, which have long been heavily weighted to to-be-built sales. Recognizing this unique environment, we are fortunate to have experienced teams across our divisions with the expertise to respond to local market conditions effectively to best serve our home buyers. With that, let me now turn the call over to Erik.

Speaker #3: For now , specs will continue to bridge the gap between current buyer preferences for incentivized quick move and inventory , and an eventual return to more historic preferences for personalizing to build homes , especially in our move up and resort lifestyle communities which have long been heavily weighted to to be built .

Speaker #3: Sales . Recognizing this unique environment , we are fortunate to have experienced teams across our divisions with the expertise to respond to local market conditions effectively to best serve our homebuyers .

Speaker #3: With that, let me now turn the call over to Eric. Thanks.

Speaker #4: Sheryl , and good morning . At quarter end we owned or controlled 84,564 homebuilding lots of these , just under 12,000 lots were finished .

Erik Heuser: Thanks, Sheryl, and good morning. At quarter end, we owned or controlled 84,564 homebuilding lots. Of these, just under 12,000 lots were finished. The balance are being and will be value-enhanced by normal course entitlement and development efforts over time. Based on trailing 12-month closings, this represented 6.4 years of total supply, of which 2.6 years was owned. The majority of our lots are in prime locations in core submarkets where we believe long-term fundamentals are healthiest. This core location strategy has helped to partially insulate us from the elevated level of new and existing home inventory in some markets. We control 60% of our lot supply via options and off-balance sheet structures. This is up from 57% at the end of 2024 and is considerably higher than the year-end low watermark of 23% in 2019, as we have made significant progress in our asset lighter strategy.

Speaker #4: The balance are being and will be value enhanced by normal course entitlement and development efforts over time . Based on trailing 12 month closings , this represented 6.4 years of total supply , of which 2.6 years was owned .

Speaker #4: The majority of our lots are in prime locations in core submarkets , where we believe long term fundamentals are healthiest . This core location strategy has helped to partially insulate us from the elevated level of new and existing home inventory , in some markets .

Speaker #4: We control 60% of our lot supply via options and off balance sheet structures . This is up from 57% at the end of 2024 , and is considerably higher than the year end low water mark of 23% .

Speaker #4: In 2019 . As we have made significant progress in our asset , lighter strategy . Importantly , we have done so by prioritizing seller financing , joint ventures and other option take down structures complemented by land banking at rates not historically seen .

Erik Heuser: Importantly, we have done so by prioritizing seller financing, joint ventures, and other option takedown structures, complemented by land banking at rates not historically seen. By utilizing each of these vehicles, we look to optimize the trade-off between gross margin and expected returns. As we continue to strategically deploy these tools, we believe we are well on our way of achieving our goal of controlling at least 65% of our lots. With respect to the land market, we have seen some development cost relief and favorable adjustment in land sellers' expectations regarding land structures and values. This has translated into an increased receptiveness on the part of land sellers to structure deals with terms, our preferred financing route, or in a growing share of deals to also adjust pricing.

Speaker #4: By utilizing each of these vehicles , we look to optimize the trade off between gross margin and expected returns . As we continue to strategically deploy these tools .

Speaker #4: We believe we are well on our way of achieving our goal of controlling at least 65% of our lots . With respect to the land market .

Speaker #4: We have seen some development costs , relief and favorable adjustment in land sellers expectations regarding land structures and values . This has translated into an increased receptiveness on the part of land sellers to structure deals with terms our preferred financing route or in a growing share of deals to also adjust pricing .

Speaker #4: In the third quarter, our investment committee reviewed land acquisition updates that contemplated favorable transaction enhancements impacting nearly 3,400 lots and more than $500 million of purchase price.

Erik Heuser: In the third quarter, our investment committee reviewed land acquisition updates that contemplated favorable transaction enhancements impacting nearly 3,400 lots and more than $500 million of purchase price. These enhancements resulted in an 8% average price reduction, six-month average closing deferral, and other structural improvements. These negotiations related to current deal flow, as well as deals that were originally approved as far back as the fourth quarter of 2023. Partially as a result, we have invested $1.6 billion in homebuilding land year to date as compared to $1.8 billion at this time last year. We regularly review and evaluate our deal pipeline to test underwriting assumptions and ensure each new deal and additional phase meet our thresholds prior to closing.

Speaker #4: These enhancements resulted in an 8% average price reduction , six month average closing deferral , and other structural improvements . These negotiations related to current deal flow , as well as deals that were originally approved as far back as the fourth quarter of 2023 , partially as a result , we have invested $1.6 billion in homebuilding land year to date as compared to $1.8 billion at this time last year .

Speaker #4: We regularly review and evaluate our deal pipeline to test underwriting assumptions and ensure each new deal and additional phase meet our thresholds . Prior to closing .

Speaker #4: With the flexibility to be patient given our existing lot supply , we now expect to invest approximately $2.3 billion this year , down from our prior expectation of approximately $2.4 billion , and our initial projection of $2.6 billion coming into the year , especially in volatile markets .

Erik Heuser: With the flexibility to be patient, given our existing lot supply, we now expect to invest approximately $2.3 billion this year, down from our prior expectation of approximately $2.4 billion and our initial projection of $2.6 billion coming into the year. Especially in volatile markets, our investment discipline is critically important to ensuring our portfolio is set up to perform for the long term. Turning to our build-to-rent platform, we previously announced that we had entered into a $3 billion financing facility with Kennedy Lewis to support our Yardly business, which, as a reminder, provides an attractive and affordable single-family living experience in amenitized rental communities. During the third quarter, we transferred 14 of our 22 non-JV projects from our balance sheet into the vehicle, providing capital relief of approximately $140 million.

Speaker #4: Our investment discipline is critically important to ensuring our portfolio is set up to perform for the long term . Turning to our build to Rent platform , we previously announced that we had entered into a $3 billion financing facility with Kennedy Lewis to support our Yardley business , which , as a reminder , provides an attractive and affordable single family living experience in a monetized rental communities .

Speaker #4: During the third quarter, we transferred 14 of our 22 non-JV projects from our balance sheet into the vehicle, providing capital relief of approximately $140 million.

Speaker #4: We expect to complete the transfer of a handful of additional projects by year end , which would release another approximately $50 million in total .

Erik Heuser: We expect to complete the transfer of a handful of additional projects by year-end, which would release another approximately $50 million. In total, these transfers address over $1 billion of funded project costs. Even more meaningfully, on a go-forward basis, the structure allows us to jointly underwrite new Yardly opportunities, which can then be acquired, developed, and constructed fully off-balance sheet within the vehicle, providing significant capital efficiency and optionality as we continue to scale this unique business and optimize disposition strategies. Consistent with this optionality, we now expect to sell two projects by year-end as we have taken a more patient approach given recent market conditions. Now, I will turn the call to Curt.

Speaker #4: These transfers address over $1 billion of funded project costs . Even more meaningfully on a go forward basis . The structure allows us to jointly underwrite new Yardley opportunities , which can then be acquired , developed and constructed fully off balance sheet within the vehicle , providing significant capital efficiency and optionality .

Speaker #4: As we continue to scale this unique business and optimize disposition strategies . Consistent with this optionality , we now expect to sell two projects by year end as we have taken a more patient approach given recent market conditions .

Speaker #4: Now, I will turn the call to Kurt.

Speaker #5: Thanks , Eric , and good morning , everyone . Turning to the details of our financial results for the third quarter , we reported net income of $201 million , or $2.01 per diluted share .

Curt VanHyfte: Thanks, Erik, and good morning, everyone. Turning to the details of our financial results for the third quarter, we reported net income of $201 million, or $2.01 per diluted share. This included inventory impairments, pre-acquisition abandonments, and warranty adjustments. Excluding these items, our adjusted net income was $211 million, or $2.11 per diluted share. During the quarter, we delivered 3,324 homes, which slightly exceeded the high end of our guidance range of 3,200 to 3,300 homes due to faster cycle times. The average closing price of these homes was $602,000, also slightly ahead of our guidance of approximately $600,000 due to a favorable mix. In total, this generated home closings revenue of $2 billion. We are closely managing our starts volume based on community-specific inventory levels and incremental sales. During the quarter, we started 1.9 homes per community, equating to 1,963 total starts.

Speaker #5: This included inventory impairments , pre-acquisition abandonments and warranty adjustments . Excluding these items , our adjusted net income was $211 million , or $2.11 per diluted share .

Speaker #5: During the quarter, we delivered 3,324 homes, which slightly exceeded the high end of our guidance range of 3,200 to 3,300 homes.

Speaker #5: Due to faster cycle times . The average closing price of these homes was $602,000 . Also slightly ahead of our guidance of approximately $600,000 due to a favorable mix .

Speaker #5: In total , this generated home closings , revenue of $2 billion . We are closely managing our starts volume based on community specific inventory levels and incremental sales .

Speaker #5: During the quarter . We started 1.9 homes per community , equating to 1963 total starts . We ended the quarter with 6831 homes under construction , including 3313 specks , of which 1221 were finished .

Curt VanHyfte: We ended the quarter with 6,831 homes under construction, including 3,313 specs, of which 1,221 were finished. Our total spec count was down approximately 15% from the second quarter. As we look ahead to 2026, we will be strategic in putting new spec starts into production in advance of the spring selling season, appreciating that our current spec inventory remains elevated and the demand environment is fluid. Positively, the ongoing improvement in cycle time has significantly strengthened our ability to flex production levels. In the third quarter, we realized another roughly 10 days of sequential savings, leaving us about 30 days faster than a year ago and 90 days faster than two years ago. Even still, we believe there's further room for improvement as we are continuing to find opportunities for additional efficiencies throughout the construction schedule, aided by the slowdown in industry-wide starts.

Speaker #5: Our total spec count was down approximately 15% from the second quarter. As we look ahead to 2026, we will be strategic in putting new spec starts into production in advance of the spring selling season.

Speaker #5: Appreciating that our current spec inventory remains elevated and the demand environment is fluid. Positively, the ongoing improvement in cycle time has significantly strengthened our ability to flex production levels.

Speaker #5: In the third quarter, we realized another roughly ten days of sequential savings, leaving us about 30 days faster than a year ago.

Speaker #5: And 90 days faster than two years ago . Even still , we believe there is further room for improvement as we are continuing to find opportunities for additional efficiencies throughout the construction schedule , aided by the slowdown in industry wide starts .

Speaker #5: Based on our current inventory position , we expect to deliver between 3100 to 3300 homes in the fourth quarter . This implies an updated full year home delivery target of 12,800 to 13,000 homes , reflecting our current backlog and recent sales paces .

Curt VanHyfte: Based on our current inventory position, we expect to deliver between 3,100 to 3,300 homes in the fourth quarter. This implies an updated full-year home delivery target of 12,800 to 13,000 homes, reflecting our current backlog and recent sales paces. We expect the average closing price of our fourth quarter deliveries to be approximately $590,000, which would leave our full-year closing price at the low end of our prior range of $595,000. Our reported home closing gross margin was 22.1%, while our adjusted home closing gross margin, which excludes inventory impairment and certain warranty charges, was 22.4%. This was slightly ahead of our guidance of approximately 22%. The upside was due in part to a favorable mix of higher margin to-be-built home closings, which benefited from faster cycle times.

Speaker #5: We expect the average closing price of our fourth quarter deliveries to be approximately $590,000 , which would leave our full year closing price at the low end of our prior range of $595,000 .

Speaker #5: Our reported home closing gross margin was 22.1%, while our adjusted home closing gross margin, which excludes inventory impairment and certain warranty charges, was 22.4%.

Speaker #5: This was slightly ahead of our guidance of approximately 22% . The upside was due in part to a favorable mix of higher margin to be built .

Speaker #5: Home closings , which benefited from faster cycle times . Conversely , for the fourth quarter , we expect a modest mix headwind from a higher penetration of spec home closings with spec homes accounting for 72% of third quarter sales , but 61% of closings .

Curt VanHyfte: Conversely, for the fourth quarter, we expect a modest mix headwind from a higher penetration of spec home closings, with spec homes accounting for 72% of third-quarter sales, but 61% of closings. We expect our spec closing penetration to increase in the near term. As a result, we expect our home closings gross margin, excluding any charges, to be approximately 21.5% in the fourth quarter. This would imply a full-year home closing gross margin of approximately 22.5% on a reported basis and roughly 23% on an adjusted basis, consistent with our prior expectations. Now to sales. Net orders in the third quarter totaled 2,468 homes, which was down just under 13% year over year. This was driven by moderation in our monthly absorption pace to 2.4 homes per community from 2.8 a year ago, partially offset by a 3% increase in our ending community count to 349 outlets.

Speaker #5: We expect our spec closing penetration to increase in the near term. As a result, we expect our home closings, gross margin excluding any charges, to be approximately 21.5% in the fourth quarter.

Speaker #5: This would imply a full year home closing gross margin of approximately 22.5% on a reported basis and roughly 23% on an adjusted basis.

Speaker #5: Consistent with our prior expectations now to sales net orders in the third quarter totaled 2468 homes , which was down just under 13% year over year .

Speaker #5: This was driven by moderation in our monthly absorption pace to 2.4 homes per community, down from 2.8 a year ago, partially offset by a 3% increase in our ending community count to 349 outlets.

Speaker #5: Cancellations equaled 10.1% of our beginning backlog and 15.4% of gross orders, while cancellation activity has increased due to a change in consumer sentiment.

Curt VanHyfte: Cancellations equaled 10.1% of our beginning backlog and 15.4% of gross orders. While cancellation activity has increased due to change in consumer sentiment, we believe our cancellation rates remain below industry averages, driven by our emphasis on pre-qualifications, $45,000 average customer deposits, and the overall financial strength of our buyers. Looking ahead, we now expect our outlet count to be approximately 345 at year-end, slightly below our prior guidance as we have intentionally delayed some openings into the new year when anticipated selling conditions are stronger. As Sheryl said, we have well over 100 communities expected to open next year, resulting in mid to high single-digit anticipated outlet growth in 2026. We once again realized strong expense leverage as our SG&A ratio improved 80 basis points year over year to 9% of home closings revenue. This improvement was driven primarily by lower payroll-related costs and commission expense.

Speaker #5: We believe our cancellation rates remain below industry averages , driven by our emphasis on pre-qualification . $45,000 average customer deposits in the overall financial strength of our buyers .

Speaker #5: Looking ahead , we now expect our outlet count to be approximately 345 at year end , slightly below our prior guidance as we have intentionally delayed some openings into the new year when anticipated , selling conditions are stronger .

Speaker #5: As Cheryl said, we have well over 100 communities expected to open next year, resulting in mid to high single-digit anticipated outlet growth in 2026.

Speaker #5: We once again realized strong expense leverage as our G&A ratio improved 80 basis points year over year to 9% of home closings . Revenue .

Speaker #5: This improvement was driven primarily by lower payroll-related costs and commission expenses for the year. We continue to expect our SGA ratio to be in the mid-9% range.

Curt VanHyfte: For the year, we continue to expect our SG&A ratio to be in the mid-9% range. Our financial services team maintained a strong cash rate of 88% during the quarter, which drove financial services revenue of $56 million with a gross margin of 52.5%. This was up from $50 million and 45%, respectively, a year ago. Among buyers using Taylor Morrison Home Funding, credit metrics remained healthy and consistent with recent trends, with an average credit score of 750, down payment of 22%, and household income of $179,000. Before turning to our balance sheet, I wanted to highlight that during the quarter, we incurred net interest expense of $13 million, up from $3 million a year ago, driven primarily by our land banking vehicles. We expect to incur a similar amount of net interest expense in the fourth quarter. Now onto our balance sheet.

Speaker #5: Our financial services team maintained a strong capture rate of 88% during the quarter , which drove financial services revenue of $56 million with a gross margin of 52.5% .

Speaker #5: This was up from $50 million in Q3 2024, representing a 45% increase, respectively, a year ago. Among buyers using Taylor Morrison Home funding, credit metrics remain healthy and consistent with recent trends, with an average credit score of 750.

Speaker #5: Down payment of 22% and household income of $179,000 . Before turning to our balance sheet , I wanted to highlight that during the quarter , we incurred net interest expense of $13 million , up from $3 million a year ago , driven primarily by our land banking vehicles .

Speaker #5: We expect to incur a similar amount of net interest expense in the fourth quarter . Now , on to our balance sheet . We ended the quarter with strong liquidity of approximately $1.3 billion .

Curt VanHyfte: We ended the quarter with strong liquidity of approximately $1.3 billion. This included $371 million of unrestricted cash and $955 million of available capacity on our revolving credit facility. At quarter end, our net homebuilding debt to capitalization ratio was 21.3%, down from 22.5% a year ago. During the quarter, we repurchased 1.3 million shares of our common stock outstanding for $75 million. Year to date, we have repurchased a total of 5.3 million shares for approximately $310 million, representing approximately 5% of our outstanding share count at the beginning of the year. As a result, we are well on track to achieve our full-year repurchase target of at least $350 million as we remain focused on returning excess capital to shareholders and taking advantage of the attractive valuation of our equity. At quarter end, our remaining repurchase authorization was $600 million.

Speaker #5: This included $371 million of unrestricted cash and $955 million of available capacity on our revolving credit facility at quarter end , our net homebuilding debt to capitalization ratio was 21.3% , down from 22.5% a year ago .

Speaker #5: During the quarter , we repurchased 1.3 million shares of our common stock outstanding for $75 million . Year to date , we have repurchased a total of 5.3 million shares for approximately $310 million , representing approximately 5% of our outstanding share count .

Speaker #5: At the beginning of the year . As a result , we are well on track to achieve our full year repurchase target of at least $350 million .

Speaker #5: As we remain focused on returning excess capital to shareholders and taking advantage of the attractive valuation of our equity at quarter end . Our remaining repurchase authorization was $600 million , inclusive of our repurchase target .

Curt VanHyfte: Inclusive of our repurchase target, we expect our diluted shares outstanding to average approximately 101 million for the full year, including approximately 99 million in the fourth quarter. Now, I will turn the call back over to Sheryl.

Speaker #5: We expect our diluted shares outstanding to average approximately 101 million for the full year, including approximately 99 million in the fourth quarter.

Speaker #5: Now I will turn the call back over to Cheryl.

Speaker #3: Thank you, Curt. I'd like to end by acknowledging the administration's recent focus on addressing the country's critical need to help make housing more affordable.

Sheryl Palmer: Thank you, Curt. I'd like to end by acknowledging the administration's recent focus on addressing the country's critical need to help make housing more affordable. At Taylor Morrison, we welcome the opportunity to work collaboratively towards expanding homeownership and improving accessibility. We have long strived to build strong communities and deliver affordable, desirable housing options that serve the needs of our customers with both for sale and for rent offerings. We applaud the administration's commitment to improving the cost and availability of housing and look forward to contributing towards meaningful solutions. I also want to end by thanking our entire team for once again delivering results we are proud to share. Your commitment to our customers, communities, and each other is second to none, and I am confident we will continue to navigate this market successfully.

Speaker #3: At Taylor Morrison, we welcome the opportunity to work collaboratively towards expanding homeownership and improving accessibility. We have long strived to build strong communities and deliver affordable, desirable housing.

Speaker #3: Options that serve the needs of our customers with both for sale and for rent offerings. We applaud the administration's commitment to improving the cost and availability of housing and look forward to contributing toward meaningful solutions.

Speaker #3: I also want to end by thanking our entire team for once again delivering results . We are proud to share your commitment to our customers , communities , and each other .

Speaker #3: Is second to none , and I am confident we will continue to navigate this market successfully . Thank you to everyone who joined us today , and let's now open the call to your questions .

Sheryl Palmer: Thank you to everyone who joined us today, and let's now open the call to your questions. Operator, please provide our participants with instructions.

Speaker #3: Operator, please provide our participants with instructions.

Speaker #1: Of course . Thank you very much . We'd like to open the lines for the Q&A . If you'd like to ask a question , please signal now by pressing star , followed by one on your telephone keypad .

Mackenzie Aron: Of course. Thank you very much. We're now able to open the lines for the Q&A. If you'd like to ask a question, please signal now by pressing the STAR followed by 1 on your telephone keypad. If you'd like to remove yourself at the time of questioning, it will be STAR followed by 2. As a reminder, to raise a question, it will be STAR followed by 1. Our first question comes from Trevor Allinson from Wolfe Research LLC. Trevor, your line is now open.

Speaker #1: And if you'd like to remove yourself from the line of questioning , it will be star , followed by two . As a reminder to raise a question , we'll be star followed by one .

Speaker #1: Our first question comes from Trevor Allison from Wolfe Research. Trevor, your line is now open.

Speaker #6: Hi . Good morning . Thank you for taking my questions . I wanted to start with your views on the potential action from morning , from the administration , to encourage volumes .

[Analyst 1]: Hi. Good morning. Thank you for taking my questions. I wanted to start with your views on the potential action from the administration to encourage volume. Sheryl, I appreciate your comments and the prepared remarks. Have you guys had conversations directly with the administration on the topic? If so, can you talk about specifically what they're looking from you as a home builder? Do these conversations change your views at all on your approach to volume versus pace in the current environment?

Speaker #6: And , Cheryl , I appreciate your your comments . In the prepared remarks . Have you guys had conversations directly with the administration on the topic ?

Speaker #6: And if so , can you talk about specifically what they're looking for from you as a homebuilder and do these conversations change your views at all on your approach to volume versus pace in the current environment ?

Speaker #3: Well , thanks , Trevor . Appreciate the question . As has been reported , there's a number of meetings that have have been held .

Sheryl Palmer: Thanks, Trevor. Appreciate the question. As has been reported, there's a number of meetings that have been held. Honestly, I believe it's great for the industry that we're having these very productive conversations with the administration. The discussions are really about how we can overcome the housing shortages in this country. Most critically, how do we make housing more affordable? We do have some excess inventory in the system. Everyone knows today that builders are working through, and we need to be very thoughtful of how that happens. I think we can all agree that we have an affordability issue, and it didn't happen overnight. It's going to require tremendous collaboration by a number of stakeholders to solve. It's a very complicated issue. The good news is it's getting tremendous focus by a lot of smart people. We need to tackle rising land costs, local regulations.

Speaker #3: And honestly , I believe it's great for the industry that we're having these very productive conversations with the administration . So the discussions are really about how we can overcome the housing shortages in this country .

Speaker #3: And most critically, how do we make housing more affordable? You know, we do have some excess inventory in the system.

Speaker #3: Everyone knows today that builders are working through , and we need to be very thoughtful of the how that happens . But I think we can all agree that we have an affordability issue .

Speaker #3: And it didn't happen overnight. And it's going to require tremendous collaboration by a number of stakeholders to solve. It's a very complicated issue.

Speaker #3: You know , but the good news is it's getting tremendous focus by a lot of smart people . We need to tackle rising land costs , local regulations .

Speaker #3: So, the list just goes on and on. What I would tell you is, we're in the early days, so more to come.

Sheryl Palmer: The list just goes on and on. What I would tell you is we're in the early days, so more to come. Rest assured that Taylor Morrison and all the big builders want to be part of the solution on providing the right housing for Americans. I'm quite confident, given the meetings we've had, that we'll see opportunities and progress. I'd also point you to the LBA statement that went out a couple of weeks ago. I think it did a really nice job representing the position of all the big builders. As far as your second part of that question, we're going to continue to do the right thing, community by community, asset by asset. As we've talked about for years, Trevor, we don't make that decision globally.

Speaker #3: But rest assured that Taylor Morrison and all the big builders want to be part of the solution on providing the right housing for Americans .

Speaker #3: And I'm quite confident , given the meetings we've had , that we'll see opportunities in progress . I'd also point you to the statement that went out a couple of weeks ago .

Speaker #3: I think it did a really nice job representing the position of all the big builders . And as far as your second part of that question , you know , we're going to continue to do the right thing , community by community , asset by asset .

Speaker #3: You know , as we've talked about for years , Trevor , we don't make that decision globally . We really look at the balance of price and pace and consumer group and every community .

Sheryl Palmer: We really look at the balance of price and pace and consumer group in every community, and we'll continue to do that. It's not going to be helpful to flood the market with inventory that can't be absorbed. We just need to be very conscious of the dynamics in each submarket.

Speaker #3: And we'll continue to do that . It's not going to be helpful to flood the market with inventory that can't be absorbed . So we just need to be very conscious of the dynamics in each submarket .

Speaker #6: Thanks for that , Cheryl . It makes a lot of sense . I think that's a very logical approach . And then second , on recent demand trends , you talked about demand improving sequentially throughout the quarter , which is very encouraging .

[Analyst 1]: Thanks for that, Sheryl. It makes a lot of sense. I think that's a very logical approach. Second, on recent demand trends, you talked about demand improving sequentially throughout the quarter, which is very encouraging. Are you seeing a difference by consumer segment? Just thinking as rates came down, did you see entry-level traffic become more, entry-level consumers become more engaged, or is it more broad across consumer segments? Any color on if those improved trends continued into October? Thanks.

Speaker #6: Are you seeing a difference by consumer segments ? Just thinking as rates came down , did you see entry level traffic become more entry level consumers become more engaged ?

Speaker #6: Or is it more broad across consumer segments? And then any color on if those improved trends continued into October. Thanks.

Speaker #3: Yeah , great question . You know , I would tell you it's been pretty broad based . Trevor and I share just like prior discussions that it almost comes down to once again , community by community .

Sheryl Palmer: Yeah, great question. I would tell you it's been pretty broad-based, Trevor. I'd share, just like in our prior discussions, that it almost comes down to, once again, community by community. For example, entry-level, absolutely, we've seen traffic pick up, but we know we have affordability issues we're trying to solve for. When we look at our move-up and our resort lifestyle business, there continue to be increases in traffic, increases in west traffic, foot traffic. Actually, I'm quite encouraged, specifically with the resort lifestyle as we move into the shoulder season. That's going to continue. That consumer group is more sophisticated. They know what's going on in the market. The opportunity is to convert them from traffic to action.

Speaker #3: You know , for example , entry level . Absolutely . We've seen traffic pick up , but we know we have affordability issues .

Speaker #3: We're trying to solve for when we look at our move up and our resort lifestyle business , you know , there continues to be increases in traffic , increases in web traffic , foot traffic and actually , I'm quite encouraged .

Speaker #3: You know , specifically with the resort lifestyle as we move into the shoulder season , that's going to continue . That consumer group is more sophisticated .

Speaker #3: They know what's going on in the market . So the opportunity is to convert them from traffic to action . And we have a lot of tools .

Sheryl Palmer: We have a lot of tools, if it's anything from everything from our incentives, our mortgage programs, to our new AI-powered digital assistant to help consumers get from start to finish.

Speaker #3: If it's anything from everything from our incentives , our mortgage programs to our new our new AI tool to help consumers get from start to finish .

Speaker #6: Thank you for all the color and good luck moving forward .

[Analyst 1]: Thank you for all the color, and good luck moving forward.

Speaker #3: Thank you. I appreciate the questions.

Sheryl Palmer: Thank you. Appreciate the questions.

Speaker #1: Thank you very much . Our next question comes from Mike Dahl from RBC . Mike , the line's not open .

Mackenzie Aron: Thank you very much. Our next question comes from Michael Dahl from RBC Capital Markets. Michael, the line's not open.

Speaker #7: Hi . Great . Thanks for taking my questions . Cheryl , as part of the as part of this cultural trend , I was hoping you could elaborate on incentives .

[Analyst 2]: Hi. Great. Thanks for taking my questions. Sheryl, as part of the sequential transit, I was hoping you could elaborate on incentives. You talked in your remarks in the press release about kind of innovative and compelling. I mean, obviously, rate buy-downs have been out there for years now. You know, what are you doing that's different? Is this kind of lower teaser rates? Is it adjustable-rate mortgages? What do you think you're doing that may be playing a role in helping to drive that customer off the sidelines?

Speaker #7: You talked in your remarks in the press release about kind of innovative and compelling . I mean , obviously , rate by downs have been out there for years now .

Speaker #7: So , you know what ? What are you doing that's different ? Is this kind of lower teaser rate ? Is it arms .

Speaker #7: What do you think you're doing ? That may be playing a role in helping to drive that that customer off the sidelines ?

Speaker #3: Yeah , I would tell you honestly , Mike , it's all of the above . As you know , we continue to use , you know , both on the conventional and the FHA loans we're using buy downs .

Sheryl Palmer: Yeah, I would tell you, honestly, Mike, it's all of the above. As you know, we continue to use both on the conventional and the FHA loans. We're using buy-downs. We're using adjustable-rate mortgage loans. We also have proprietary loans for our inventory that's just gotten in the ground, or specifically our to-be-built, really trying to stimulate that business. We have recently just introduced a new proprietary nine-month program for our to-be-built. I think most of those are done with Fannie and Freddie through the window. We've got a slightly different program, and it really gives our customers flexibility on a forward lock, but the security of a longer period of time if they believe rates are going to drop. Obviously, in most of these programs, we also have the ability for a free float down.

Speaker #3: We're using adjustable loans . We also have proprietary loans for our inventory that just gotten the ground or specifically are to be built really trying to stimulate that business .

Speaker #3: We have recently just introduced a new proprietary nine month program for our to be built . I think most of those are done with Fannie and Freddie through the window .

Speaker #3: We've got a slightly different program , and it really gives our customers flexibility on a forward lock . But you know , security of a longer period of time if they if they believe rates are going to drop , obviously , in most of these programs , we also have the ability for a free float down .

Speaker #3: So , you know , I think for us , Mike , it's really about making sure we personalize each customer's experience . Some of them need help with closing costs , some of them don't know how you know , aren't expecting to be in the house a long time .

Sheryl Palmer: I think for us, Mike, it's really about making sure we personalize each customer's experience. Some of them need help with closing costs. Some of them don't know how, aren't expecting to be in the house a long time, and an adjustable-rate mortgage program seems most helpful. Some need the confidence of a 30-year lower fixed rate. It's really making sure we understand the customer needs, and we just have a plethora of programs to provide.

Speaker #3: And adjustable program seems most helpful . Some need the confidence of a 30 year low fixed rate . So it's really making sure we understand the customer needs .

Speaker #3: And we just have a plethora of programs to provide .

Speaker #7: Okay . Got it . That's helpful . And then Cheryl , I know it's early to give . 26 commentary . You did highlight a couple of things around community count , growth specs , maybe being a bridge to to help you a little bit in the near term .

[Analyst 2]: Okay. Got it. That's helpful. Sheryl, I know it's early to give 2026 commentary. You did highlight a couple of things around community count growth, specs maybe being a bridge to help you a little bit in the near term. I think some of that probably alludes to the fact that your backlog's down nearly 40% in dollar terms year on year and probably ends the year somewhat similarly. The obvious question we get from investors is if you have a traditional kind of build-to-order builder go into the next year with backlog down that much, how can you possibly drive to even flat revenues, or do you have a significant gap out? Maybe can you just talk to how you're viewing that as you go into the spring?

Speaker #7: I think some of that probably alludes to the fact that your backlog is down nearly 40% in dollar terms year-on-year, and probably by the end of the year somewhat similarly.

Speaker #7: So the , the the obvious question we get from investors is if you have a traditional kind of build to order , build or go into the next year with backlog down that much , how can you possibly drive to even flat revenues ?

Speaker #7: Or do you have a significant gap out? So maybe, can you just talk to how you're viewing that as you go into the spring?

Speaker #7: It sounds like maybe you're a little more willing to put some some specs in the ground where others are pulling back a little , but just just give a little more detail on how we shall be thinking about that positioning .

[Analyst 2]: It sounds like maybe you're a little more willing to put some specs in the ground where others are pulling back a little, but just give a little more detail on how we should all be thinking about that positioning.

Speaker #3: Yeah , I think you have to hit it from a number of angles . First of all , I think we've been very clear that we're going to do look at each community and make sure we understand the right need and put the right number of specs in the ground .

Sheryl Palmer: Yeah, I think you have to hit it from a number of angles. First of all, I think we've been very clear that we're going to look at each community and make sure we understand the right need and put the right number of specs in the ground. Our specs, as I said, I think both Curt and I said in our prepared remarks, are a little higher. We pulled back a little bit in the third quarter to see what happened to sales paces. We have the fourth quarter, given the reduction in construction cycle, it gives us much more time. I think back to a year ago where we probably had to have houses in the ground by January and February and probably no later than March, depending on the community or market. Today, that can go till next July or August.

Speaker #3: Our specs, as I said, I think both Kurt and I said in our prepared remarks, are a little higher. We pulled back a little bit in the third quarter to see what happened to sales prices.

Speaker #3: We have the fourth quarter . Given the reduction in construction cycle , it gives us much more time . And I think back to a year ago where we probably had to have houses in the ground by January and February , and probably no later than March , depending on the community or market today , that can go until next July or August .

Speaker #3: So you've fundamentally picked up at least another quarter of production cycle next year. You combine that with our ability to add new to be built.

Sheryl Palmer: You've fundamentally picked up at least another quarter of production cycle next year. You combine that with our ability to add new to-be-builts well into next year and the community count growth. We are going to really seek to understand the market, and we have the platform to ramp up starts if the market is there for it. As I've said, we're not going to force inventory in the ground. In some communities, we find that pricing has been inelastic. We really have to make that decision community by community and balance profitability along with volume.

Speaker #3: Well into next year, and the community count growth, and then we're going to really seek to understand the market. And we have the platform to ramp up Starch.

Speaker #3: If the market is there for it . But as I've said , we're not going to force inventory in the ground in some communities , we find that pricing has been inelastic .

Speaker #3: And so we really have to make that decision community by community and balance , you know , profitability along with volume .

Speaker #7: Okay . Thank you .

[Analyst 2]: Got it. Okay, thank you.

Speaker #3: Thank you .

Sheryl Palmer: Thank you.

Speaker #1: Thank you very much. As a reminder, if you'd like to raise a question, please signal now by pressing star followed by one on your telephone keypad.

Mackenzie Aron: Thank you very much. As a reminder, if you'd like to raise a question, please signal now by pressing STAR followed by 1 on your telephone keypad. Our next question comes from Michael Rehaut from JPMorgan Chase & Co. Michael, your line's now open.

Speaker #1: Our next question comes from Michael Ryholt from J.P. Morgan . Michael , your line is now open .

Speaker #8: Great . Thanks very much . Good morning everyone , and congrats on the results . Thank you . Wanted to first drill down on , you know , how you're thinking about you kind of talking specifically about spec inventory .

[Analyst 3]: Great, thanks very much. Good morning, everyone, and congrats on the results.

Sheryl Palmer: Thank you.

[Analyst 3]: I wanted to first drill down on how you're thinking about, you kind of are talking specifically about spec inventory. You know, kind of saying earlier that it remains elevated. I think that's kind of one of the key reasons why you're looking for a little bit of a dip down sequentially in Q4 gross margins. I'm trying to get my arms around how you're thinking about this going into the first half of next year, if you would expect this kind of drag or headwind to remain in place or even accelerate. If you're kind of working through excess spec inventory, let's say at the current fourth quarter pace, when might, assuming the market trends follow normal seasonality, when might that overhang dissipate?

Speaker #8: Sorry . You know , kind of saying early that it remains elevated . I think it's kind of one of the key reasons why you're looking for a little bit of a dip down sequentially in for Q gross margins .

Speaker #8: I'm trying to get my arms around how you're thinking about this going into the first half of next year , if you would expect , you know , this kind of drag or headwind to remain in place or even accelerate .

Speaker #8: And , you know , you know , if you're kind of working through excess spec inventory , let's say at the current fourth quarter pace , when might you know , assuming the market trends , you know , follow normal seasonality , when might that overhang dissipate ?

Speaker #3: Yeah , I think similar to what I said to my doll , I think it's a balancing act . Mike . I mean , obviously it's our intention to work through the inventory .

Sheryl Palmer: Yeah, I think similar to what I said to Michael Dahl, I think it's a balancing act, Michael. I mean, obviously, it's our intention to work through the inventory, and we obviously have a lot of new communities that will be bringing new inventory to the marketplace. We'll be monitoring it month by month as we look at our fourth quarter starts. We've always said we're going to align sales pretty close to starts. You saw us pull back a little bit on that in the fourth quarter because the inventory wasn't.

Speaker #3: And then we obviously have a lot of new communities that will be bringing new inventory to the market place and we'll be monitoring it month by month .

Speaker #3: As we look at our fourth quarter starts . You know , we've always said we're going to align sales pretty close to starts .

Speaker #3: You saw us pull back a little bit on that in the fourth quarter , because the inventory was third quarter . Excuse me , in the third quarter .

[Analyst 2]: Third quarter.

Sheryl Palmer: Excuse me, in the third quarter. Thank you. Going into the fourth quarter, we're going to play that by ear, but we're in a position, if it's permits on the shelf, ready to respond to the demand in the marketplace. Like I said, we're not going to flood the market with inventory, so we're really going to pace it based on sales and opportunity.

Speaker #3: Thank you . Going into the fourth quarter . And so we're going to play that by ear . But we're in a position if it's permits on the shelf ready to respond to the demand in the marketplace .

Speaker #3: But like I said we're not going to flood the market with inventory . So we're really going to pace it based on sales and opportunity .

Speaker #8: Okay . I appreciate that . And I guess just looking at your different regions , you know , you talked about September being a little bit better from a within the quarter .

[Analyst 3]: Okay, I appreciate that. I guess just looking at your different regions, you talked about September being a little bit better from a, within the quarter, and perhaps that's continued into October. From a regional standpoint, I'm curious if you've seen the strength more concentrated in any areas, and specifically, maybe you could kind of go around the world in terms of which markets remain on the margin stronger than average, weaker than average. We heard comments yesterday that maybe Florida is showing a little bit of signs of stabilization. I would love your thoughts on that as well.

Speaker #8: And perhaps that's continued into October from a regional standpoint . I'm curious if you've seen the strength more concentrated in any areas . And you know , specifically maybe you could kind of go around the world in terms of , you know , which markets remain on the margin stronger and stronger than average , weaker than average .

Speaker #8: We heard comments yesterday that maybe Florida is showing a little bit of signs of stabilization. So, I love your thoughts on that as well.

Speaker #3: Certainly be happy to . Yeah . You know I would agree with the comments on Florida Mike . You know we continue to be very bullish around Florida .

Sheryl Palmer: Certainly, I'd be happy to. Yeah, you know, I would agree with the comments on Florida, Mike. You know, we continue to be very bullish around Florida. I think Florida was the last to really adjust if we think about the last few years. The good news is, given how late it was to the adjustment party, we're already seeing green shoots on inventory sales activity. When I look at our sales, half of our Florida markets were up year over year. In fact, Orlando had the highest paces in the country. Closings for the quarter were up almost across the board in all of our Florida markets, and half the markets saw improvement in their margin in the quarter year over year. Heading into shoulder season, like I said, I stay optimistic that we'll have a good season for the resort lifestyle business.

Speaker #3: You know I think Florida was the last to really adjust . If we think about the last few years . But the good news is , given how late it was to the adjustment party , you know , we're already seeing green shoots on inventory sales activity .

Speaker #3: When I look at our sales , half of our Florida markets were up year over year . In fact , Orlando had the highest pace in the country .

Speaker #3: Closings for the quarter were up almost across the board in all of our Florida markets . And half the market saw improvement in their margin in the quarter year over year .

Speaker #3: You know , heading in the shoulder season , like I said , I say optimistic that we'll have a good season for the resort lifestyle business .

Speaker #3: We're also seeing a decent reduction in both new and resale inventory . And once again , I'm delighted to see that if I go to Texas and you see it in the numbers , Mike , you know , it was a tougher quarter from a volume standpoint .

Sheryl Palmer: We're also seeing a decent reduction in both new and resale inventory, and once again, I'm delighted to see that. If I go to Texas and you see it in the numbers, Mike, it was a tougher quarter from a volume standpoint. Inventories have been elevated in Texas. If I kind of run around the state, often they've been at this for, it feels like, darn close to three years. It does feel like we're starting to see the bottom, which I would say is encouraging. Months of supply have come down, and it feels like it's holding pretty steady. We'll go a couple more months and see if that's true. When we look at underproduction QMIs in the market, they've settled to more reasonable levels. Margin recovery, we've seen them up a little bit quarter over quarter. The land market, I would tell you, continues to be tough.

Speaker #3: Inventories have been elevated in Texas. If I kind of run around the state, you know, often they've been at this for it feels like darn close to three years.

Speaker #3: So it does feel like we're starting to see the bottom , which I would say is encouraging . Months of supply have come down and it feels like it's holding pretty steady .

Speaker #3: You know , we'll go a couple more months and see if that's true . But when we look at like under production , Schmitz in the market , they've settled to more reasonable levels , margin recovery .

Speaker #3: We've seen them up a little bit quarter over quarter. I would tell you that the land market continues to be tough. The teams have been very diligent in their assumptions not to get ahead of themselves until we really find final pricing in the market.

Sheryl Palmer: The teams have been very diligent in their assumptions not to get ahead of themselves, until we really find final pricing in the market. The good news is we have a very strong portfolio of quality assets, and that will continue to carry the day. Dallas, I think it's slowed down a bit, a little bit more. The lowest price points in Dallas are hyper-competitive, and most builders, it appears as real, have subscribed to, I would say, more of an inventory strategy. Resales have remained generally stable, maybe up a bit. Once again, I tell you, our balanced portfolio gives us some great opportunities because it's a high-growth market for us as we look forward. Great land pipeline. Margins are still strong.

Speaker #3: But the good news is we have a very strong portfolio of of quality assets , and that will continue to carry the day , you know , Dallas , I think it's slowed down a bit , a little bit more .

Speaker #3: The lowest price points in Dallas are hyper competitive and most builders , it appears , is will have subscribed to , I would say , more of an inventory strategy .

Speaker #3: Resales have remained generally stable , maybe up a bit . Once again , I tell you , our balance portfolio gives us some great opportunities because it's a high growth market for us as we look forward .

Speaker #3: Great land pipeline margins are still strong . Probably the thing I'd point to in Dallas , and I think I said it in my report , prepared remarks say that three times , prepared remarks .

Sheryl Palmer: Probably the thing I point to in Dallas, and I think I said it in my prepared remarks, say that three times, prepared remarks, Mike, is the H-2-1 buyers. We've seen that both in the demand and from a cancellation standpoint. If I wrap up with Houston there, the first-time buyers, it's competitive, very competitive for them. The good news is there's lots of them. It actually had one of our highest paces in the quarter in the country. Our core communities continue to do well, but you have to put it on a relative basis. Paces are down from the peak levels, certainly in Texas, more than we've seen across the board. I think our locations are doing well. The ones in the core are doing better. Qualifications seem to be the biggest issue for our first-time buyers there.

Speaker #3: Mike is the H1n1 buyers . You know , we've seen that both in the demand and from a cancellation standpoint . And then if I wrap up with Houston , there , you know , the first time buyers , it's competitive , very competitive for them .

Speaker #3: The good news is there's lots of them . It actually has one of our highest prices in the quarter in the country . Our core communities continue to do well .

Speaker #3: But you have to put it on a relative basis . Paces are down from the peak levels , certainly in Texas , more than we've seen across the board .

Speaker #3: But I think our locations are doing well. The ones in the core are achieving better qualifications. Qualifications seem to be the biggest issue for first-time buyers.

Speaker #3: There . And we're having to use both rate incentives , buy downs really every tool we have in our toolbox to assist these buyers get to a payment that they can afford .

Sheryl Palmer: We're having to use both rate incentives, buy-downs, really every tool we have in our toolbox to assist these buyers get to a payment that they can afford. I'd probably describe it as competitive but steady, but like I said, pulled back from our peak levels. Carolina is broadly doing really good. You can really start to see the difference between core and some of the fringe markets, and our core assets are really performing nicely. If I move to California, we've been discussing for a while, on the capital front, we've really tightened up our investment. The communities we have in SoCal are doing well. We have pulled back the investment a little bit. Once again, SoCal is above the company average, so even it's pulled back from its peaks. Their absorptions are above the company average.

Speaker #3: I'd probably describe it as competitive , but steady . But like I said , pulled back from our peak levels . Carolina is broadly doing really good .

Speaker #3: You can really start to see the difference between core and some of the fringe markets and our core assets are really performing nicely .

Speaker #3: If I move to California , you know , we've been discussing for a while on the capital front , we've really , tightened up our investment .

Speaker #3: The communities we have in SoCal are doing well . We have pulled back the investment a little bit . You know , once again , SoCal is above the company average .

Speaker #3: Even though it's pulled back from its peaks or Absorptions are above the company average . If I go to the Bay , I would say tech has had an impact on both .

Sheryl Palmer: If I go to the Bay, I would say tech has had an impact on both probably Bay and Seattle. If I go to Sac and round out California, I'd say they're holding steady. They're getting more than their fair share in the marketplace. When I look at our resort lifestyle business there, we have one that's approaching closeout, one that's in the new stage, newer stages of opening without the amenity. Those are kind of balancing each other out. I'd say Sacramento overall stable, consistent community count paces year over year. Maybe I'll wrap up with Phoenix. I think that market probably provides the most diverse offering across all consumer groups for us. It's a balanced market with our to-be-builts and inventory offering. We've seen good improvement on cycle times.

Speaker #3: Probably Bay and Seattle, and if I go to SAC and round out California, you know, I’d say they’re holding steady.

Speaker #3: They're getting more than their fair share in the marketplace . When I look at our resort lifestyle business there , we have one that's approaching closeout , one that's in the new stage and a new stage , newer stages of opening without the amenity .

Speaker #3: So those are kind of balancing each other out . I'd say Sacramento overall stable , consistent community count pace is year over year .

Speaker #3: And then maybe I'll wrap up with Phoenix . I think that market probably provides the most diverse offering across all consumer groups . For us , it's a balanced market with our chubby belts and inventory offering .

Speaker #3: We've seen good improvement on cycle times . We definitely , with our move up buyers here , have a more discerning buyer , but we have the option to meet their needs .

Sheryl Palmer: We definitely, with our move-up buyers here, have a more discerning buyer, but we have the options to meet their needs. Paces have been constant sequentially. I'd say this is a market that's kind of punching above their weight, strong margins for us, modest incentives compared to the rest of the country. In the land market, it's a little bit mixed. We're seeing some wonderful opportunities where we're very deal-specific. We've been able to renegotiate terms and price. We've seen, just coming out of an auction, a state auction that was pretty frothy. A little bit of everything in the marketplace. I'd just wrap, Mike, with just a macro that I know there's been a lot of discussion on California, excuse me, Florida and Texas. When you look at migration patterns, they're still leading the country. They continue to be very important markets for the industry.

Speaker #3: Cases have been constant sequentially . Once again , I'd say this is a market that's of punching above their weight . Strong margins for us , modest incentives compared to the rest of the country , you know , in the landmark , it's a little bit mixed .

Speaker #3: We're seeing some wonderful opportunities where very real specific we've been able to renegotiate terms and price . We've seen , you know , just coming out of an auction , a state auction that was pretty frothy .

Speaker #3: So a little bit of everything in the marketplace , you know , I just wrap my with just a macro that I know there's been a lot of discussion on California .

Speaker #3: I mean , excuse me , Florida and Texas , but when you look at migration patterns , they're still leading the country . They continue to be very important markets for the industry , consumers still have strong equity in their homes , incomes .

Sheryl Palmer: Consumers still have strong equity in their homes. Income networks are growing. I'd say the green shoots are starting. Erik, I'm sure I missed a lot. Anything you can think of?

Speaker #3: Networks are growing . So I'd say , you know , the green shoots are starting . But Eric , I'm sure I missed a lot .

Speaker #3: Anything you can think of .

Speaker #4: Are you covered at long term ? You know , excited about the population gains and net move ins that we've seen in those markets over time ?

[Analyst 2]: You covered it. Long term, you know, excited about the population gains and net move-ins that we've seen in those markets over time. Specifically, as you think about months of supply and price in the resale markets, your two key indicators we've watched carefully, you know, seeing some real stabilization. A few examples, maybe Sarasota and Tampa by way of example, where months of supply are actually down and pricing has stabilized, so no real movement there. Houston's been interesting in that the months of supply are down about 4% on a moving average and stable pricing. Some real examples of some stabilization. Of course, we'll continue to watch seasonality and evolution. On the new inventory side, the cycle is a little different than all others. There is always a little bit of seasonality, but we continue to monitor the core versus non-core benefits that we think we have.

Speaker #4: And specifically , as you think about months of supply and price in the resale market , which are two key indicators we've watched carefully , you know , seeing some real stabilization , a few examples , maybe Sarasota and Tampa , by way of example , where months of supply are actually down and pricing has stabilized .

Speaker #4: So, no real movement there. Houston's been interesting in that the months of supply are down about 4% on a moving average, and stable pricing.

Speaker #4: And so some real examples of some stabilization . Of course , we'll continue to watch seasonality and evolution . And on the new inventory side , this cycle is a little different than all others .

Speaker #4: There is always a little bit of seasonality , but we continue to monitor the core versus non core benefits that we think we have .

Speaker #3: Really see a difference in performance, right?

Sheryl Palmer: It's a really big difference in performance.

[Analyst 2]: Right.

Sheryl Palmer: Yeah.

Speaker #8: Great. Thank you very much.

[Analyst 3]: Great. Thank you very much.

Speaker #3: Thank you .

Sheryl Palmer: Thank you.

Speaker #1: Thank you very much . Our next question comes from Matthew Bouley from Barclays . Matthew your line is now open .

Mackenzie Aron: Thank you very much. Our next question comes from Matthew Bouley from Barclays. Matthew, your line's not open.

Speaker #9: Hey morning everyone . Thank you for taking the questions . So I wanted to ask on the I guess , the over 100 new communities to come next year .

[Analyst 1]: Hey, good morning, everyone. Thank you for taking the questions. I wanted to ask on the over 100 new communities to come next year. I'm curious, any detail on how that may break out either from a regional or product perspective? Specifically, I'm curious on your Esplanade expansion. I think you said it's still hanging around kind of 10% of sales today. I know you guys had some ambitious goals of expanding that product. Should we expect to see any movement on that mix of Esplanade next year as well with all those openings? Thank you.

Speaker #9: I'm curious , any detail on how that may break out either from a regional or product perspective and specifically , I'm curious on your Esplanade expansion .

Speaker #9: I think you said it's still hanging around kind of 10% of sales today. I know you guys had some. You've got some ambitious goals of expanding that product.

Speaker #9: So should we expect to see any movement on that mix of Esplanade next year as well ? With all those openings ? Thank you .

Speaker #3: You know , we really leaned in , Matt , talking about 26 . So we're not going to go too far . But I will give you a tidbit .

Sheryl Palmer: You know, we really leaned in, Matt, talking about 2026. We're not going to go too far, but I will give you a tidbit. I'll give you in Esplanade specifically, we have three new Esplanades opening in the first quarter, along with amenity centers, nine holes of golf in one of our communities. Very exciting. When I look at next year and just across the Esplanade portfolio with the amenities that are opening along with new communities, I think we're excited. Very consistent with what we discussed at our investor day. Before we get into more detail on communities, Curt, anything you want to add to that? We really want to wait till next quarter.

Speaker #3: I'll give you an Esplanade . Specifically . We have three new esplanades opening in the first quarter , along with amenities centers , nine holes of golf in one of our communities to very exciting .

Speaker #3: When I look at next year and just across the Esplanade portfolio with the amenities that are opening along with new communities , I think we're excited .

Speaker #3: Very consistent with what we discussed at our Investor Day. But I think before we get into more detail on communities, I think you want to add to that.

Speaker #3: We really want to wait until next quarter .

Speaker #5: Yeah , I think we'll wait , Matt , until we kind of wrap up the year . But as you can imagine , I think the outlet growth will be pretty broad based kind of throughout the country .

Curt VanHyfte: I think we'll wait, Matt, until we kind of wrap up the year. As you can imagine, I think the outlet growth will be pretty broad-based, kind of throughout the country. I think we'll leave it at that for now, and we can handle that more when we wrap up the year.

Speaker #5: So I think we'll leave it at that for now . And we can handle that more when we wrap up the year .

Speaker #9: Okay . Got it . I appreciate that . Secondly , just say look like a lot of leverage there . Despite sort of flattish home building revenue year over year .

[Analyst 1]: Okay. Got it. I appreciate that. Secondly, just SG&A. Looked like a lot of leverage there, despite sort of flattish homebuilding revenue year over year. Can you speak a little more around what you're doing to control costs here? Was there anything, you know, one time in that Q3 result, or should we think you've kind of found a new run rate level here in Q3 that we can kind of use to model out the next year on SG&A? Thank you.

Speaker #9: Can you speak a little more around what you're doing to control costs here ? Was there anything one time in that three Q result , or should we think you've kind of found a new run rate level here in Q3 that we can kind of use to model out the next year on SG&A ?

Speaker #9: Thank you .

Speaker #5: Yeah , Matt , thanks . Thanks for the question . Yeah , it's a focus of ours . Ideally , it's part of the culture .

Curt VanHyfte: Yeah, Matt. Thanks for the question. SG&A, yeah, that's a focus of ours. Ideally, it's part of the culture. The teams are focused on it. We're constantly looking at our throughput results that we get on various metrics. In the quarter specifically, we benefited from some lower payroll-related costs and lower SG&A commission costs as well. As we said in our prepared comments, you know, we're tracking to be in that mid 9% range for the year. All in all, I'm very happy with where we're at from an SG&A perspective. The teams are focused on it, and we're doing a lot of good things from a cost control perspective. I should also highlight the fact that from a back-office standpoint, we're continually trying to find ways to improve how we're operating, whether it's our shared contract program that we have where we're centralizing all of our contracts.

Speaker #5: The teams are focused on it . We're constantly looking at kind of our throughput kind of results that we get on various metrics in the quarter , specifically , we benefited from some lower kind of payroll related costs and lower commission costs as well .

Speaker #5: And as we said , in our prepared comments , you know , we're we're tracking to be in that mid 9% range for the year .

Speaker #5: So all in all , I'm very happy with where we're at from an SGA perspective . The teams are focused on it and we're doing a lot of good things from a cost control perspective .

Speaker #5: And I should also highlight the fact that from a back office standpoint , we're continually trying to find ways to improve kind of how we're operating , whether it's , you know , our our shared contract kind of program that we have where we're centralizing all of our contracts .

Speaker #5: And, you know, we're moving the needle on that as well, on some of the other aspects of the business.

Curt VanHyfte: We're moving the needle on that as well, on some of the other aspects of the business.

Speaker #3: You know , the other one I'd point to , I think your our contracts department that we've had in place for a year now , right where all the contracts are centralized .

Sheryl Palmer: You know, the other one I'd point to, I think your, our contracts department that we've had in place for a year now, right, where all the contracts are centralized, I think that's a good one. I think the other one I'd point to, Curt, is what we're seeing in the reservation system. I mean, even just in September, we saw about an 800 basis point reduction from our overall business to those that came in reservation on co-broke. If we can keep that up, generally, month to month, we've been seeing 400 or 500 on average. 800 was a, or September was a peak for us. Obviously, the more we get through our reservation system with that reduction, that will continue to show the leverage in the SG&A.

Speaker #3: I think that's a good one . I think the other one , I point to , Kurt , is what we're seeing in the reservation system .

Speaker #3: I mean , even just in September , we saw about an 800 basis point reduction from our overall business to those that came in reservation on Cobra .

Speaker #3: So if we can keep that up , generally month to month , we've been seeing 4 or 500 on average , 800 was a September was a peak for us , but obviously the more we get through our reservation system with that reduction , that will continue to show the leverage in the SG&A .

Speaker #9: Got it . Super helpful . Thank you , Cheryl and Kurt . Good luck guys .

[Analyst 1]: Got it. Super helpful. Thank you, Sheryl and Curt. Good luck, guys.

Speaker #3: Thank you .

Sheryl Palmer: Thank you.

Speaker #1: Thank you very much . Excuse me as a reminder , if you'd like to raise a question , please seek them now by pressing star followed by one on your telephone keypad .

Mackenzie Aron: Thank you very much. Excuse me. As a reminder, if you'd like to raise a question, please signal now by pressing the STAR followed by 1 on your telephone keypad. Our next question comes from Alan Ratner from Zelman & Associates LLC. Alan, your line is now open.

Speaker #1: Our next question comes from Alan Ratner from Zelman Associates. Alan, your line is now open.

Speaker #10: Hey , guys . Good morning . Thanks for all the the detail so far . And nice quarter , I guess just first on the just since that was the last topic there .

[Analyst 1]: Hey, guys. Good morning. Thanks for all the detail so far and nice quarter. I guess just first on the SG&A, just since that was the last topic there, you know, I'm just trying to back into what the implied guide for Q4 is and to get to mid 9s for the year. I think it does imply that that rate does tick up a bit sequentially on a fairly similar revenue base. Is that just some conservatism around that 800 basis point reduction in the broker side that you just mentioned, Sheryl, or is there some other thing that I should be aware of on that?

Speaker #10: You know , I'm just trying to back into what the implied guide for , for Q is and to get to mid nines for the year .

Speaker #10: I think it does imply that that rate does tick up a bit sequentially on a , you fairly similar revenue base . So is that just some conservatism around that 800 basis point reduction in in the broker side that you just mentioned ?

Speaker #10: Cheryl , or is there some other thing that I should be aware of on that ?

Speaker #5: Yeah . Hi , Alan . I think it's a couple of things . A yeah , we are seeing a potential influx of commission costs for Q4 as what we're seeing from some of the competitors in the marketplace and what everyone's doing to drive , maybe their closings for the year .

Curt VanHyfte: Yeah. Hi, Alan. I think it's a couple of things. Yeah, we are seeing a potential influx of commission costs for Q4 as what we're seeing from some of the competitors in the marketplace and what everyone's doing to drive maybe their closings for the year.

Speaker #3: With brokers , right ?

Sheryl Palmer: With brokers, right?

Speaker #5: Brokers . And then what I would also say is that based on our guide of , you , the midpoint of our range of 3200 units , with our average sales price at 590 , we are losing a little bit of leverage just because of the top line is going to be a little bit less than it was in Q3 .

Curt VanHyfte: With brokers. What I would also say is that based on our guide of the midpoint of our range of 3,200 units, with our average sales price at $590,000, we are losing a little bit of leverage just because the top line is going to be a little bit less than it was in Q3.

Speaker #10: Got it . Okay . Understood . Thanks for that , Kurt . Second question and I apologize . I missed some of these numbers , but I thought the detail that Eric gave surrounding some of the successes you've had on land renegotiations was really encouraging to hear .

[Analyst 1]: Got it. Okay. Understood. Thanks for that, Curt. Second question, and I apologize, I missed some of these numbers, but I thought the detail that Erik gave surrounding some of the successes you've had on land renegotiations was really encouraging to hear. I was hoping, first, can you just repeat that? Second, on the deals where you were actually able to get lower pricing, can you quantify like what maybe the margin impact is on those particular projects and just the general timing of when we should expect to see that benefit beginning to flow through?

Speaker #10: So I was hoping , you know , first , can you just repeat that ? And second off on the deals where you were actually able to get lower pricing ?

Speaker #10: Can you quantify, like, what the margin impact is on those particular projects and just the general timing of when we should expect to see that benefit beginning to flow through?

Speaker #4: Hi , Alan . Yeah , great question . Appreciate it . It was about 3400 lots in the quarter that rolled through our investment committee that were renegotiated and that renegotiated renegotiation took the form of of deferrals .

[Analyst 2]: Hi, Alan. Yeah, great question. I appreciate it. It was about 3,400 lots in the quarter that rolled through our investment committee that were renegotiated. That renegotiation took the form of deferrals. Those on average were about six months. A relatively surprising level were actually on price, and it was basically an 8% decrease in the original purchase price, on deals that were rolling back through the investment committee that had been negotiated from fourth quarter 2023 through relatively current. As you think about navigating this particular cycle, it's been interesting to me in participating in it, that this one's been relatively quick, in terms of seller receptiveness for the call, but also our proactiveness in making sure that we're playing offense and communicating clearly. We've seen success.

Speaker #4: So, on average, these were about six months. However, a relatively surprising level were actually on price, which resulted in an 8% decrease.

Speaker #4: And the original purchase price on deals that were rolling back through the investment committee had been negotiated from Q4 2023 through relatively current.

Speaker #4: So , you know , as you think about navigating this particular cycle , it's been interesting to me in participating in it that this one's been relatively quick in terms of seller receptiveness for the call , but also our proactiveness in making sure that we're playing offense and communicating clearly .

Speaker #4: And we've seen success . And so maybe to your question , relative to what should we expect ? You know , as we review deals that we had on original expectation in terms of gross margin and return production , we want to make sure that we're holding those .

[Analyst 2]: Maybe to your question relative to what should we expect, as we review deals that we had an original expectation in terms of gross margin and return production, we want to make sure that we're holding those. Sometimes that does require an adjustment. I wouldn't say that's the result in significant upside, but we are maintaining our original expectations in most cases. In terms of timing, those are going to roll through over time. Again, relatively current on deals that we'll be closing on in the next few months, developing. It's going to take some time for that to roll through the system. The last thing I would say interestingly is we're talking about the land environment. This one being a little bit different than past, is we have seen some interesting finished lot pickups. About 25% of the land rolling through our system most recently are actually finished lots.

Speaker #4: And sometimes that does require an adjustment. So, I wouldn't say that's the result of significant upside, but we are maintaining our original expectations in those cases.

Speaker #4: And then in terms of timing , those are going to roll through , you know , over time . So again relatively current on deals that will be closing on in the next few months developing .

Speaker #4: And so it's going to take some time for that to roll through the system . The last thing I would say interestingly , is we're talking about the land environment , this one being a little bit different than past is we have seen some interesting finish lot pickups .

Speaker #4: And so about 25% of the land rolling through our system . Most recently are actually finished lots . And those have been difficult to find over the last couple of years .

[Analyst 2]: Those have been difficult to find over the last couple of years. I think that's likely the case of some other builders maybe walking from deals in our ability to renegotiate those in a way that made sense for us. As I alluded to, we're also seeing some development costs relief. Those would be a couple of other upsides that we see.

Speaker #4: And I think that's likely the case of some other builders maybe walking from deals on our ability to renegotiate those in a way that makes sense for us .

Speaker #4: And as I alluded to , we're also seeing some development cost relief . So those would be a couple of other upsides that we see .

Speaker #3: And Eric , would you just so we don't get over our ski tips , I mean , it's been interesting , right ? Because to your point , we've had some tremendous renegotiation and we've had other guys that just won't move .

Sheryl Palmer: Erik, would you, just so we don't get over our ski tips, it's been interesting, right? Because to your point, we've had some tremendous renegotiation, and we've had other guys that just won't move, and we've been forced into a position to walk away.

Speaker #3: And we've been forced into a position to walk away . .

Speaker #4: Completely agree . The success cases . I mentioned are the deferrals and the purchase price reductions . And in some cases , just some restructuring of the deal .

[Analyst 2]: Completely agree. The success cases, as I mentioned, are the deferrals and the purchase price reductions, and in some cases, just some restructuring of the deal. There are also instances where they just don't work, and we're standing our ground and just having to walk from those. Those you'll see roll through the system as well.

Speaker #4: But there are also instances where they just don't work . And we're standing our ground and ground and just having to walk from those and , and so that you'll see roll through the system as well .

Speaker #10: Hey , Eric , can I , can I squeeze in one more on that topic ? Because I think it's really , really interesting .

[Analyst 1]: Hey, Erik, can I squeeze in one more on that topic because I think it's really, really interesting? Have you seen any common thread on the deals that you have been able to renegotiate? Are you seeing more success with, say, land bankers or your more institutionalized land sellers and developers, or more success perhaps with the one-off mom-and-pop landowners, farmers, etc.? I'm just curious if there's a common thread on the deals that people are holding their guns versus the ones that seem to be a bit more willing to negotiate.

Speaker #10: Have you seen any common thread on the deals that you have been able to renegotiate ? You know , are you more are you seeing more success with , say , land bankers or kind of you're more institutionalized land sellers and developers or more success , perhaps with kind of the one off mom and pop landowners , farmers , etc.

Speaker #10: . I'm just curious if there's a common thread on the deals that people are kind of holding their guns, or versus the ones that seem to be a bit more willing to negotiate.

Speaker #4: Yeah , it's it's it's really all categories , Alan . And so we start with the seller financing , you know , asking can you just carry this .

[Analyst 2]: Yeah, it's really all categories, Alan. We've started with the seller financing, you know, asking, "Can you just carry this?" We need some more time on it, and we've seen success there. The land banking appetite continues to be relatively strong, and we use that in a surgical way where we can optimize our return by using land banking. I would say the supply of the availability of land banking has been very high. Lastly, with regard to just the price changes, as I mentioned, of those 3,400 lots, about 75% of the lots actually resulted in some kind of price change. It's been really interesting as we think about the solutions, which are many.

Speaker #4: And we need some more time on it. And so we've seen success there. The land banking appetite continues to be relatively strong.

Speaker #4: And so we use that as a surgical way where we can optimize our return by using land banking. But I would say the supply of the availability of land banking has been very high.

Speaker #4: And then lastly , with regard to just the price changes , you know , as I mentioned , with those 3400 lots , about 75% of the lots actually resulted in some kind of price change .

Speaker #4: And so, it's been really interesting as we think about the solutions, which are many.

Speaker #10: Great. Thanks for all the detail, guys. I appreciate it.

[Analyst 1]: Great. Thanks for all the detail, guys. I appreciate it.

[Analyst 2]: Thank you, Beth.

Speaker #3: Alan .

Sheryl Palmer: Thanks, Alan.

Speaker #1: Thank you very much. Our next question comes from Ralph Jaworski of Bank of America. Ralph, your line is now open.

Mackenzie Aron: Thank you very much. Our next question comes from Rafe Jadrosich of BofA Securities. Rafe, your line is now open.

Speaker #11: Hi . Good morning . It's Ralph . Thanks for thanks for taking my question . I wanted to just ask in terms of the incentive change .

[Analyst 2]: Hi. Good morning. Thanks for taking my question. I wanted to just ask, in terms of the incentive change, you comment sort of that entry level was where you're seeing the most pressure, but you're also seeing, you know, some hesitancy on the move-up in resort lifestyle. Can you sort of quantify where the margins are for each of the segments and then maybe how much the incentives have changed for each of them? How different is it across the different segments?

Speaker #11: You commented that the entry level was where you're seeing the most pressure, but you're also seeing some hesitancy on the move up and resort lifestyle.

Speaker #11: Can you sort of quantify where the margins are for each of the segments, and then maybe how much the incentives have changed for each of them? Like how different is it across the different segments?

Speaker #3: Yeah , I mean , the incentives by consumer group , you know , I always hate averages because I think it doesn't tell the whole story .

Sheryl Palmer: Yeah. I mean, the incentives by consumer group, I always hate averages because I think it doesn't tell the whole story. Certainly, you would expect our most expensive incentives go with those forward commitments. Those are generally our first-time buyers, and we're having to help them get the rate as low as we can. As to total dollars, the sales price is less, so the total dollars are a little less, but the percentage, that's where, once again, I think our most expensive sit. You go all the way to the resort lifestyle buyer where that's our, you know, that ASP is probably about $200,000 higher than our average. Those folks aren't generally as concerned about interest rates, and those incentives work differently. We'll see a lot of support there on helping them with options. If you spend this, we'll give you that. Sometimes it's reduction in lot premiums.

Speaker #3: But certainly you would expect our most expensive incentives go with those forward commitments . And those are generally our first time buyers . And we're having to help them get the rate as low as we can .

Speaker #3: So as to total dollars , the sales price is less . So the total dollars are a little less . But the percentage that's where once again , I think our most expensive set you go all the way to the resort lifestyle buyer , where that's our you know , that ASP is probably about $200,000 higher than our average .

Speaker #3: And those folks aren't generally as concerned about interest rates . And so those incentives work differently . We'll see a lot of support there on helping them with options .

Speaker #3: If you spend this, we'll give you that. Sometimes it's a reduction in law premiums. They're more sophisticated. They know what's happening in the market.

Sheryl Palmer: They're more sophisticated. They know what's happening in the market. They don't want to overpay, and if they can't get it in a mortgage incentive, they want it somewhere else. I'd say, generally, we're using incentives across the board. It's just the how for each customer. I wouldn't point to significant differences in range, except for the callout that our most expensive incentives tend to be with first-timers. Curt, does that resonate?

Speaker #3: They don't want to overpay . And if they can't get it in a mortgage incentive , they want it somewhere else . But I'd say , you know , generally , you know , we're using incentives across the board .

Speaker #3: It's just the how for each customer. But I wouldn't point to significant differences in range, except for the call out that our most expensive incentives tend to be with first-timers.

Speaker #3: Kurt , is that resonate ?

Speaker #5: I think generally speaking , you're in the ballpark and know we don't really provide kind of margins based on kind of the segment overall .

Curt VanHyfte: I think generally speaking, you're in the ballpark. You know, Rafe, we don't really provide kind of margins based on the segment overall. I think you could probably imagine, I think what we have said in the past is that our resort lifestyle margins are typically the highest in the portfolio. To Sheryl's point, it comes down to each buyer's specific situation, and we try to align the incentive to maximize each buyer's situation.

Speaker #5: But I think you could probably imagine. I think what we have said in the past is that our resort lifestyles margins are typically the highest kind in the portfolio.

Speaker #5: So but to Cheryl's point , it comes down to kind of each buyer's specific situation . And we apply and we try to align the incentive to maximize each buyer's situation .

Speaker #11: Okay . That's helpful . And then you sort of mentioned that cycle times are they're still coming down . How do we think about how much higher the backlog conversion can go and then how much opportunity do you have on the cycle ?

[Analyst 2]: Okay, that's helpful. You sort of mentioned that cycle times are still coming down. How do we think about how much higher the backlog conversion can go, and how much opportunity do you have on the cycle times from here? How much more can they come down?

Speaker #11: The cycle times from from from here . How much more can can they come down ?

Speaker #5: Yeah . If I would say that just from a cycle time perspective , we're essentially at pre-COVID levels for the most part . We have a couple of markets that maybe still have a little bit of opportunity to kind of run through the tape there .

Curt VanHyfte: Yeah, Rafe, I would say that just from a cycle time perspective, we're essentially at pre-COVID levels for the most part. We have a couple of markets that maybe still have a little bit of opportunity to kind of run through the tape there. We do feel like there's continued opportunity there overall for the entire business. Relative to the conversion kind of rate, I think we were at about 74, 75% in Q3. Based on our closing guide and where backlog is today, I think you can expect that conversion rate will be higher in Q4, just based on kind of the sheer numbers of the numerator and the denominator there. You can expect that to be higher probably in Q4 than it was in Q3.

Speaker #5: So we do feel like there's continued opportunity there overall for for the entire business relative to the conversion kind of rate . I think we were at about 74 , 75% in Q3 and based on our closing guide and we're backlog is today , I think you can expect that that conversion rate will be higher in Q4 just based on kind of the sheer numbers of the numerator and the denominator there .

Speaker #5: So you can expect that to be higher, probably in Q4 than it was in Q3.

Speaker #11: Is that like a sustainable level going forward , or is that just because of the mix of spec relative to to BTO ?

[Analyst 1]: Is that like a sustainable level going forward, or is that just because of the mix of spec relative to to-be-built inventory?

Speaker #5: Yeah . Ralph , it's it's more of a function of where specs are today . As you've heard Cheryl talk about , you know , we intend over time to be able to see an influx or to raise the level of , to be built over time .

Curt VanHyfte: Yeah, Rafe, it's more of a function of where specs are today. As you've heard Sheryl talk about, we intend over time to be able to see an influx or to raise the level of to-be-builts over time. It's a point in time.

Speaker #5: So it's a it's a point in time kind of where we're at today and , you know , and then as I said , we'll see what we can do on the to be built side of the business in the coming months .

Mackenzie Aron: Of where we're at today, and then as I said, we'll see what we can do on the to-be-built side of the business in the coming months and quarters.

Speaker #5: And quarters .

Speaker #3: But the next couple of quarters are going to likely be higher .

[Company Representative]: The next couple of quarters are going to likely be higher.

Speaker #5: It's going to be a higher conversion for the next couple of quarters . Yes .

Mackenzie Aron: It's going to be a higher conversion for the next couple of quarters, yes.

Speaker #11: Okay. That's helpful. Thank you.

Sheryl Palmer: Okay. That's helpful. Thank you.

Speaker #3: Thank you .

[Company Representative]: Thank you.

Speaker #1: Thank you very much . As a reminder , if you would like to raise a question , please signal now by pressing star followed by one on your telephone keypad .

Erik Heuser: Thank you very much. As a reminder, if you would like to raise a question, please do so now by pressing star followed by one on your telephone keypad. Our next question comes from Kenneth Zener from Seaport Research Partners. Ken, your line's now open.

Speaker #1: Our next question comes from Ken Zenner from Seaport Research Partners . Ken , your line is now open .

Speaker #12: Good .

Speaker #9: Morning everybody .

Curt VanHyfte: Good morning, everybody.

Speaker #5: Hi , Ken .

Speaker #3: Good morning .

Mackenzie Aron: Hi, Ken.

[Company Representative]: Good morning.

Speaker #12: So a couple of things here . Just kind of housekeeping , but with incentives . If you were to think about the bucket , I think some of the builders have been described , at least to me , like , you know , half of the incentive is price reduction .

Curt VanHyfte: A couple of things here, just kind of housekeeping. With incentives, if you were to think about the bucket, I think some of the builders have been describing this to me like, you know, half of the incentive is price reduction, and then the other half is kind of split equally between mortgage buy-downs and closings. Within those three buckets, do you have a comment?

Speaker #12: Half . And then the other half is kind of split equally between mortgage buy downs and closings . Do you within those three buckets , do you have a comment ?

Speaker #3: Yeah , I would tell you that , you know , it moves a little bit quarter to quarter . And it will be a little different if you're talking gross or net price or you're talking units , but you know , somewhere around 45% of our incentives are specific to financial services .

[Company Representative]: Yeah. I would tell you that, you know, it moves a little bit quarter to quarter, and it will be a little different if you're talking growth or net price or you're talking units. You know, somewhere around 45% of our incentives are specific to financial services, and a subset of that would be what we would call the most expensive forward commitment. The balance, the other 50%, is going to be a combination of all the other things we've talked about. You know, it could be options. It could be locked premiums. In some instances, we may have had to reset pricing to market, but it's a combination.

Speaker #3: And a subset of that would be what we would call the most expensive forward commitment . And then the balance , the other 50% is going to be a combination of all the other things we've talked about .

Speaker #3: It could be options. It could be lot premiums in some instances. We may have had to reset pricing to market, but it's a combination.

Speaker #12: And just to be clear , when you say financial services , show you're recording all that stuff in the HomeBuilder segment , net pricing , is that correct or is there stuff running through financial services ?

Curt VanHyfte: Just to be clear, when you say financial services, Sheryl, you're recording all that stuff in the homebuilder segment net pricing. Is that correct, or is there stuff running through financial services? Just to be clear.

Speaker #12: Just to be clear .

Speaker #3: No , it's running through the margin . Most of the financial services are running through the margin . I mean , actually all of them , some are running through ASP and some are running through cost of goods .

[Company Representative]: No, it's running through the margin. Most of the.

Curt VanHyfte: Right.

[Company Representative]: Financial services are running through the margin. I mean, actually, all of them. Some are running through ASP, and some are running through cost of goods.

Speaker #12: Right . Okay . Just wanted to clarify and then , you know , obviously with orders you generally want to follow your starts will generally follow your orders .

Curt VanHyfte: Right. Okay. Just wanted to clarify. With orders, you generally want to follow your starts. Will generally follow your orders. I'm just wondering, looking back, Q3 starts were below orders, pulled down. Inventory units make sense. Q2, it was higher. The idea was there you wanted to build, right, to have spec. If, let's say, spring is softer than expected, would you guys still be in the position where you want to keep that volume up, relative to the start volume up relative to orders? I'm thinking you did so much work on the fixed G&A, right? It's like down 20% comparable to your inventory units. I'm just trying to think about how your guys' playbook works there, or if you really just have starts follow orders wherever they go, in the spring of next year.

Speaker #12: I'm just wondering , you know , looking back . So three Q starts where below orders pulled down inventory units make sense to Q .

Speaker #12: It was higher . And the idea was there . You wanted to build right to have spec it which you know , if let's say spring is softer than expected , would you guys still be in the position where you want to keep that volume up relative to relative ?

Speaker #12: You know , the start volume up relative to orders , and I'm thinking you did so much work on the fixed G&A , right ?

Speaker #12: It's like down 20% , comparable to your inventory units . I'm just trying to think about how you guys playbook works there , or if you really just have starts , follow orders wherever they go .

Speaker #12: You know , and spring them next year .

Speaker #5: Yeah . Ken . Great question . You know , at this point in time relative to next year , we're probably not going to get into specifics there .

Mackenzie Aron: Yeah, Ken, great question. At this point in time, relative to next year, we're probably not going to get into specifics there. What I can say is we're going to continue to probably, you know, we've adjusted our starts in Q3 relative to sales, to kind of right-size our inventory position.

Speaker #5: But what I can say is we're going to continue to probably , you know , we've adjusted our starts in Q3 relative to sales to kind of rightsize our inventory position .

Speaker #5: And generally speaking , we're going to stay sticky from a staff standpoint to sales . But then it's going to come down to a community by community kind of analysis and how each community is doing .

Curt VanHyfte: Right.

Mackenzie Aron: Generally speaking, we're going to stay sticky, from a start standpoint to sales, but then it's going to come down to a community-by-community kind of analysis, and how each community's doing. We'll fluctuate that as necessary based on, A, the community. Entry level is going to be more spec. Townhomes are going to be more spec, and then, of course, as we move our way up in the consumer segmentation profile, we'll look to kind of hopefully pursue more to-be-built business. I think the market's going to tell us and lead us to that path, down the road.

Speaker #5: And we'll fluctuate that as necessary based on a the community entry level is going to be more spec . Townhomes are going to be more spec .

Speaker #5: And then of course , as we move our way up in the consumer segmentation profile , we'll look to kind of hopefully pursue more to be built business .

Speaker #5: But I think the market's going to tell us and lead us down that path down the road.

Speaker #12: Okay . No , I appreciate that . I was trying to get next year's guidance as much as kind of your thinking about when starts , you know , go above and below orders .

Curt VanHyfte: Okay. No, I appreciate that. I wasn't trying to get next year's guidance as much as your thinking about when starts go above and below orders. Thank you very much for your time.

Speaker #12: Thank you very much for your time .

Speaker #3: Thanks , Ken .

[Company Representative]: Thanks, Ken.

Mackenzie Aron: Thanks, Cheryl.

Speaker #1: Thank you very much. Our next question comes from Jay McCandless from Wedbush. Jay, your line is now open.

Erik Heuser: Thank you very much. Our next question comes from Jay McCanless from Wedbush Securities Inc. Jay, your line's now open.

Speaker #7: Hey . Good morning everyone . I wanted to ask , where is the spread now between spec closings and build order closings ?

[Analyst 1]: Hey, good morning, everyone. I wanted to ask, where is the spread now between spec closings and build order closings?

Speaker #5: On a closing standpoint, we were 60%, 40%, 60% spec or 61% spec in 39% to be built for the quarter.

Mackenzie Aron: On a closing standpoint, we were 60/40, 61% spec and 39% to-be-built for the quarter.

Speaker #7: Okay, then what's the gross margin spread on that? Now?

[Analyst 1]: Okay, what's the gross margin spread on that now?

Speaker #5: Yeah . You know , we continue to run in that several you know , hundred kind of basis points . As you can imagine , Jay , you know nothing new there within our Esplanade communities .

Mackenzie Aron: Yeah, you know, we continue to run in that several hundred kind of basis points. As you can imagine, Jay, nothing new there. Within our Esplanade communities, with the high premiums and the high option revenue, we can see some of these differences get up to 1,000 basis points. Generally speaking, it's at several hundred basis points.

Speaker #5: You know , with the high premiums and the high option revenue , we can see , you know , some of these differences get up to , you know , 1000 basis points .

Speaker #5: So but generally speaking , it's at several hundred basis points . And then we continue to track to .

[Company Representative]: And then.

Mackenzie Aron: We continue to track to.

Speaker #3: Also, I believe... Do you think it's fair, Curt? Even within our Esplanade, non-Esplanade resort lifestyle, we have a spread, right?

[Company Representative]: Also, do you think it's fair, Curt, even within our Esplanade, non-Esplanade resort lifestyle, we have a spread, right? Because our Esplanade tends to deliver the highest.

Speaker #3: Our Esplanade tends to deliver the highest, and our Esplanade is still age-targeted restrictive. It's a little lower. Yeah.

[Analyst 1]: Yep.

[Company Representative]: Our non-Esplanade still age-targeted restricted is a little lower.

[Analyst 1]: Okay. Thanks. The second question I had, it's encouraging to hear that maybe land prices are breaking a little bit. Just as we think about how and when that can start to help the gross margin, you know, is it going to be a back half of 2026 event? Also, one of your competitors called out, it was a small number. I think it was like $1,500 per home tariff impact. Have you all tried to assess what impact the new tariffs might have on costs for next year?

Speaker #7: Okay thanks . And then the second question I had encouraging to hear that maybe land prices are breaking a little bit , but just as we think about how when , when that can start to help , the gross margin , you know , is it going to be a back half of 26 event and also one of your competitors called out ?

Speaker #7: It was a small number . I think it was like $1,500 per home turf impact . Have you all tried to assess what impact the new tariffs might have on costs for next year ?

Speaker #4: Yeah , I'll start with with Jay . You know , from a timing standpoint , this is current current updates to our underwriting .

[Analyst 2]: Yeah, I'll start with land, Jay. From a timing standpoint, this is current updates to our underwriting. So you're probably practically not going to see it really roll through until 2027 and beyond for most of that. In some cases, I would tell you that we're just holding our original underwriting expectations in terms of re-trading. In some limited circumstances, we are seeing some opportunistic deals roll through. Those are the ones that you might see some future upside on, but kind of a blend of the two. With regard to tariffs, I'll just make a brief comment on the land market, and Curt can take the balance and vertical.

Speaker #4: So probably not going to see it really roll through until 27 . And beyond for most of that . And in some cases I would tell you that it's we're just , you know , holding our original underwriting expectations in terms of retraining and in some limited circumstances , we are seeing some opportunistic deals roll through .

Speaker #4: And those are the ones that you might see . Some , you know , future upside on . But kind of a blend of the two .

Speaker #4: I would just and then with regard to tariffs , I'll just make a brief comment on land market . And Kurt can take the balance and vertical .

Speaker #4: But you know, we are hearing from our teams that generally speaking, on the land development release standpoint, there are not going to be a whole lot of specific tariff impacts.

[Analyst 2]: We are hearing from our teams that generally speaking, on the land development release standpoint, there's not going to be a whole lot of specific tariff impacts, but kind of the magnitude of 5% to 6% relief on costs on the development side.

Speaker #4: But kind of the magnitude of 5 to 6% release on costs on the development side .

Speaker #5: And J on the House side . Yeah , I think we subscribe to the thinking that it'll be a modest increase from a tariff standpoint .

Mackenzie Aron: Yeah. Jay, on the house side, I think we subscribe to the thinking that it'll be a modest increase from a tariff standpoint. There's the cabinet stuff that came out, the vanities, the steel is out there. I think what I would also add to that is we're doing a lot of things behind the scenes, just from an operational kind of execution standpoint, working with our trade partners and our suppliers on what I'll call cost reduction strategies that the teams are doing a great job working through. I would also add that we've recently hired a new National VP of Purchasing and Construction that is helping us lead that charge, and that's one of his focal points as well.

Speaker #5: There's , you know , the cabinet stuff that came out , the vanities , the steel is out there , but again , I think what I would also add to that is we're doing a lot of things behind the scenes , just from an operational kind of execution standpoint , working with our trade partners , our suppliers on what I'll call cost reduction strategies that , you know , the teams are doing a great job working through .

Speaker #5: I should I would also add that we've recently hired a new national VP of purchasing and Construction that is helping us lead that charge , and that's one of his focal points as well .

Speaker #5: So all in all , I think we have a pretty good balance approach . And in dealing with the tariff potential increases for some of the other things that we're working on behind the scenes relative to our cost reduction strategy .

Mackenzie Aron: All in all, I think we have a pretty good balanced approach in dealing with the tariff potential increases through some of the other things that we're working on behind the scenes relative to our cost reduction strategies in light of some of the start activity that we're seeing.

Speaker #5: In light of some of the start activity that we're seeing .

Speaker #7: Okay . That's great . That's all I had . Thank you .

[Analyst 1]: Okay, that's great. That's all I had. Thank you.

Speaker #5: Thanks , Jay .

[Analyst 2]: Thanks, Jay.

Speaker #1: Thank you very much. We currently have no further questions, so I'd like to hand it back to Sheryl Palmer for any further remarks.

Erik Heuser: Thank you very much. We currently have no further questions, so I'd like to hand back to Sheryl Palmer for any further remarks.

Speaker #3: Thank you very much for joining us for our third quarter call . And wish you all a wonderful holiday season , and we'll look forward to talking to you early in the New Year .

[Company Representative]: Thank you very much for joining us for our third-quarter call. We wish you all a wonderful holiday season and look forward to talking to you early in the new year.

Erik Heuser: As we conclude today's call, we'd like to thank everyone for joining. You may disconnect your lines.