KB Home (KBH) 21 Sep 222022 Q3 Earnings call transcript

Good afternoon. My name is Alex, and I will be your conference operator today. I would like to welcome everyone to the KB Home 2022 Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode.

Following the Company's opening remarks, we will open the line for questions. being Company's will XX. website is replay available call the at kbhome.com, conference recorded be and for Today's through October

I Investor turn Peters, to begin. would over Now, Jill to the Senior Jill, Relations. call President, you may Vice like

afternoon, Alex. thank and to Good us third quarter you for our results Thank the joining of today everyone, you, for review fiscal XXXX.

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

Act call, the any statements are of forward-looking will items results, that discussed not statements guarantees this of meaning are the undertake Private within the not future Company does considered them. Reform XXXX. During of and obligation These be Litigation update to Securities

detailed our results Securities press factors, in Due today's release in the various materially forward-looking be could Exchange in and stated and from statements. different including or to those implied the with Commission, those filings actual

reconciliation the a of website discussion found comparable at today's referenced be during and/or measures addition, their page most In the directly non-GAAP to GAAP release press in Investor can of Relations on measures today's kbhome.com. our

that, here Mezger. with is And Jeff

larger XXX backlog. results size with our our our than year-over-year approximately XX%. in more most to growth and strength Thank key reflect scale homebuilding points of of and strong highlighted and operating composition you, the of afternoon, in good our by everyone. meaningful margin Jill, financial of We quarter of These the delivered company, results income another metrics, expansion our basis

position And for of closing homes either mortgage at homes buyers these quarter, quarter or the are cash. respect than are At with half completed. and fourth locked our X/X at most third of when the good to us placing backlog our rate into paying more XXXX. their the on in part, in in deliveries XXXX first over a end Approximately our XX,XXX stood their our buyers $X.X billion, valued of are

emotional selected Our purchases and a have features from attachment have finishes to have on creating buyers lot they tend personalized their stems with they homes to that an their chosen.

the diluted As compared revenues $X.XX earnings which we to produced period, the as year of year-over-year. XX% billion, and grew of of share details the quarter, total per XX% prior to almost up $X.XX,

our quarter. affected While on ongoing times we in revenue chain Rob of the build and achieved to the an the provide deliveries low due in more will which shortly. supply experienced issues, chain end extension times detail we guidance, supply cycle

asset margin demand each a of gross of the XX% optimize the internal price the impact along and with our pace, year. environment quarter, starts of highlight to our particular in earlier effective Our our of management is demonstrating robust fiscal initiatives, during

In driving down communities. open addition, remain year-over-year. with we XXX our overhead as to our SG&A expense ratio committed additional to successfully managed our costs, points continue new revenues balancing we We basis

at limited in with new our and homes strong, supporting markets low homes rising of demographics, the population coupled inventory served homeownership rates, demand including job growth of levels The factor underproduction supply price home favorable to and remains industry's more a for existing rental and due affordable points. particularly of the

sidelines concerns. ongoing prospective geopolitical and outlook range of inflation along amid have moved the a higher buyers paused Although and positive, and with mortgage many remains the long-term rates, to macroeconomic

uncertain we As committed build-to-order we remain our manage approach. through these times, to

finishes inventory offer on to the to provide to and customers floor investment a the of incentive and based ability and features on lot, to Our plan, best their personalized upgraded the a standing home elevation. select with focus desire budget lifetime, are them Homebuyers exterior important that their to the interior many are value their home. is making the largest most included that's and best or

constraint is the buyers flexibility studios. believe same can spend We also teams rooms purchase customers our and their affordability number our our the compelling buyers. make home. as we of footage in select as with our if service the a to an choice is a offer, to approach upsizing functionality By our also is is whether home customer well important able at and and price This in lower as reduce a difference personalization a smaller to can our important provide partnership a and community square

homebuilders. down satisfaction a this the customer orders quarter. in to is think ago were among year of strong of production Net X,XXX highest in third a the rating relative We key driver achievement our consistent X,XXX

the some Let backlog and with chase me decision only with providing color discuss orders of At on discussion the of of of quarter, size first the a by sales. net our given to we finished third our sale, made gross our separate available start not orders the for the homes cancellations. components XX

orders in the June's than pricing gross communities, rates average following Labor with coming rates since with activity interest have in and May's. in we've were July June. August. unfolded then underperforming acceleration and time, quarter July's the with softer in orders experienced respect risen, We some declined to had softening pleased a weekly while We consistent in in held mortgage gross steps orders trend. an at gross The Day, August. we experienced orders had same slightly again with June, But taken

to asset. continue community market performance necessary dynamics optimize achieving and between and We our balance as individual maintain the adjust we'll each absorption and to monitor pricing backlog preserving will to minimum rates

cycles, Over one industry, going and the sales the forward. have highest in community we that remains rates of the per and objective our typically generated throughout years

low well It not buyer's that cancellations, necessarily historical understand still it At level of did a sequentially, buyers during They of feel believe comfortable on the better levels. not to with the way the backlog relative gross did was purchase. backlog The not respect ahead unusually for was reason but homes, one to dynamics X%, cancellations to below beginning rate was backlog due remorse. and beginning qualify. at With moving looking orders large the number to cancellation the we XX,XXX is our did cancellations quarter. increase

sale We the being less were market constructed. which which our level in presales than for are homes with months, In we with ended offset second by home XX% our selling environment, models during contrasts not communities past per until finished consistent this partially completed some opening quarter unsold, to XX out fewer XXX% for optimize deferred quarter in the opened one quarter We effort, to the unsold are the and due we selling and with communities community production still our with count of while models only community. openings. expanded third

quarter moderation remain the rates. in will credit We expect in profile increase given in XXXX. use Home be sequential The joint strong of contributor venture, to important orders, and our This and ending in consistent growth our sequentially. buyers mortgage absorption net year-over-year that another the our an count Loans, fourth future KBHS

funded third nearly quarter, for these during the products. loans qualified XX% and customers a of For fixed-rate all conventional used mortgage

XXX. payment to income $XXX,XXX, The The their average score was a XX%, was these average of of cash $XX,XXX. over and ratio buyers loan-to-value household FICO down was translating

mortgage we credit that buyers with able target rates. level we are the above income income our interest a attracting healthy are to While in median higher that submarkets, household qualify

Rob update. a With for me moment to ask that, provide an operational Rob? and let pause

Jeff. you, Thank

difficulties and the guidance were face provided homes or And June. continue short to we in relative in We completing a about the the as deliveries to in midpoint result, that quarter. delivering third XXX we X% of

they times modestly build a consistent seen earnings point, call, we improve had on illustrating we While you May, that times. in shared footing build industry-wide the in significantly larger extended from with our in challenge last which finding

expanded were delivery on XX contributed to times the projection, having days continued factors completion. that delivery from we During which Building extension. several under homes There material an quarter homes. drove impact and miss construction of is have to shortages the in third This reduced. quarter this delay the stage by our to our quarter, also completion the fourth the build for framing

insulation HVAC as improvement duct, HVAC are challenging, and appliances, We garage materials, products. in doors, equipment areas are some of other products still the electrical including flex availability cabinets, such flooring and seeing while

the the more cycle difficult improving mixed be continuing on end. back labor, of the trade to end in the dynamics although are construction to with availability As front

has industry with dealing power intensified. for has this homebuilding and infrastructure been The time, issues quite some

delays we homes that transformers in and build product completed the that third switchgear wire. our obtaining utility many not attached have deliver divisions because quarter and experienced not could could And of our We in electric get providers meters.

the Houston, In due to close scheduled that communities the postponed homes but three across were lack quarter, completed XX of transformers. were in and to third there were

production most levels the experience In delays addition, construction. with municipal to our of due elevated to in staffing end markets back shortages we inspections and continue city in of

chain lead we future in issues times, We labor delivery and our longer the into are supply factoring third municipal shortages experienced quarter ongoing projections. the

working are through teams finding cycle. through to ways challenges progress Our relentlessly the and construction homes the

with back take of to We and markets cost scale, times, this and in providing our control, where them can greater achieve. we an will are our historical will can although slowing to as focused time our our we optimistic level reduce of opportunity are what possible. build starts renegotiate build to most on to that we we start is also lower us The transition

call back And Jeff. will the turn with that, I over to

in acquisition the light visibility its a you with of homebuyers, and and continue quarter, at third that of XX%. of our this almost the impact the future. we foreseeable we market then conditions, expectation just Last did investments of redeploying reducing for quarter, Rob. land economy as current stockholders. year-over-year spend Thanks, reduction to development level land near-term lower shared With cash a our in to to we expect land In the spend our direction and of limited on with

to been extend reduce and renegotiating have lines. land We closing contracts prices time

contracts In the returns that we third quarter, no can where lots. canceled investment, In are terminated X,XXX nearly our we achieve longer contract. the the we comfortable to have on purchase certain cases, we required

controlled. with owned XX,XXX house and under lots XX,XXX Our stands a just Of are XX,XXX these lots, of lot are or only about under having position these, XX,XXX construction. at owned finished

our our start large We phasing up as turns. a build finished are of pace not inventory with so which balancing higher development lots, inventory supports to

were of these or of approximately in XX% our prior up own to during contracted vintage we Relative lots, XX% lots the and XXXX. another tied XXXX

of additional margins. run-up believe majority take the vast quarters, we we allocation The the ability strong to lots capital healthy stock two ongoing before driving average were has and repurchases quarter sustain redeploy be cash this solid expect million before balanced result, caution the our a in $XXX underwritten X% supports With of year-over-year profitability diluted in investments, which reduction the our own our to our towards past year. to selling flow in in in share fourth capital a third land in count we stockholders a prices, approach in and end our of resulted position quarter. As in the expected gross to

and providing flexibility in approach, in a connection closing, thank homebuyers. the personalized team hard ongoing an would buyers like to rates homes work absorption entire In between we We our build-to-order differentiation believe years. and offer KB to has leading for our commitment industry the I their choice their recognize to our and serving creates and that our emotional contributed many over Home

focused we achieving our are order market and on conditions. preserving current targets We navigate minimum backlog our net as

this supply complete fiscal ongoing XX%, $X the chain already returns-focused backlog, growth. the need reflecting we although gross All deliveries. timing we have on in generate representing are acknowledge some in a impacted that about homes margin longer and that of XX%, we to over XX% a for year year-over-year the disruptions strong times a about revenues build XXXX our will return and our growth anticipate year, of we meaningful equity of expected With billion of of

Jeff? call now the to review. With that, for I'll over Jeff turn financial the

will Thank performance I now highlights XXXX third financial our current the the fourth outlook you, for Jeff, and of good review afternoon, discuss for our quarter and everyone. quarter.

of and our most a XXX earnings In a our in XX% financial operating diluted expansion metrics, in basis the rise our measurable per produced third housing including our increase we a margin year-over-year of key improvements revenues, in quarter, XX% share. point

shortly. completed also We to significant capital our improve and balance structure sheet, strengthen several which will detail transactions our I

the grew compared to revenues overall for billion of XX% prior $X.XX billion housing a number price. in increase rise $X.XX the quarter. reflected average delivered year homes in improvement and a Our selling This their X% to

build infrastructure by extended quarter discussed, driven Rob city tempered most building our served current As delayed shortages, of inspections. our deliveries by were times issues labor trade and material challenges, markets, in power

continuation anticipated quarter industry reflect challenges. an We have revenue moderated outlook our of to fourth these

billion, billion. $X.X revenues times, quarter cycle a and housing our will of to $X.XX status quarter homes anticipate in $X.XX be our construction Considering billion backlog the expected end of range of under fourth construction we

Our of to selling year-over-year homes rose to regions, of XX% ranging higher average overall were the our our region from quarter average delivered in prices our with four in from $XXX,XXX, XX% selling price $XXX,XXX in increases West in each Central region. Coast

fourth of we would are XX%. average an approximately price increase $XXX,XXX, For quarter, the of overall which year-over-year represent a selling projecting

Our gross to $XXX.X $XXX.X profit SG&A as quarter. million compared improvements million to expense income due basis points homebuilding the operating income in margin to increased earlier improved to year XXX both and ratio. margin our in Operating XX.X% meaningful

margin the up $X.X charges was inventory-related XXX and $X.X Excluding quarter to operating year-over-year the income earlier million in current points of our million basis in year quarter, XX.X%.

housing million impairment our operations to planned a of comprised were current future of land with relating abandonment charge a inventory-related The charges associated sale. million and charges $X.X period $X.X

We quarter XX.X% of be impact quarter. income margin, year charges, expect homebuilding the to any XX.X% operating compared will fourth the excluding earlier inventory-related in our approximately

profit Our dynamics XXX was price by gross from market buyers environment, housing to for most XX.X% homes. expansion favorable when housing year contracted margin quarter. margin the purchase the these supported This XX.X%, reflected selling basis mainly prior points healthy up

abandonment Excluding up margin year-over-year the current XX%. charges year prior $X.X was $X.X XXX to points in quarter million the basis of our quarter, million inventory-related gross charges of and

leverage the lower housing Assuming fourth impact our due inventory-related which the of expectation charges, profit in believe adjustments than range no XX% mainly selling our to be will anticipated price to margin point compared XX%, prior we is midpoint, to in of quarter gross to basis At period. softening a lower the market prior expected gross on housing improvement housing quarter the conditions of response profit expectation loss fourth revenues. a and year our as XXX represents

the basis operating quarter, and general third sales and from to points XXX compared commissions of expense administrative quarter. XX actions primarily our anticipated year to improved we costs, basis ratio quarter. expense selling, will higher from and and due continuing fourth as be basis point an the Considering X.X%, the revenues a in reduce increased earlier current by to point in a external X.X% Our as X.X% approximately in compared XXX increase our improvement revenues contain XXXX to decrease quarter SG&A ratio believe leverage

of tax We tax from building energy credits to expense, rate tax net tax of approximately million we the XX%, recognize effective of Our $XX.X was million largely to credits reflecting able $XX.X earned legislation. recently income due homes. were federal energy-efficient enacted

to impact the $X.XX tax We tax favorable expect approximately our prior effective rate expected of for per the compared an reported XX%, share additional energy to $X.XX for million million or per share credits. we diluted quarter be income $XXX.X or year $XXX.X from fourth Overall, quarter. including net diluted

to now count. Turning community

we at for On up were year of XXX with Our X% XXX earlier basis, to third of from average compared ended quarter. communities. sequential the third communities communities quarter XXX open increased We quarter. XXXX a the as sales, the end XX

year-end of this sequential count in the XX% a our rise and Using the fourth XXX. XXX quarter count. would be another fourth in XXXX will expect believe our the quarter range represent community average in midpoint, increase to We community year-over-year

year Our lower the than is due that anticipate fewer as of prior quarter forecasted third we expectation our fourth to our deliveries. affected many quarter same income challenges openings

community land investment third the $XXX and drive to positions acquisitions conditions develop quarter in ability response land of a openings. in million in to period. future housing $XXX softening acquisitions new XX% fees total pivot under land compared land year million representing toward a the new the to year-over-year strategy invested control with million land our more and to prior The already decline during land, reflects selective $XXX in market development We only as

million the addition selective unsecured and end, we In liquidity our approximately available facility. $XXX approximately to cash of of abandoned approximately At being million total land X,XXX more including on $XXX during previously under acquisitions, new lots we quarter $XXX revolving controlled had credit quarter. million

the million unsecured XXXX, with senior and debt. entered to $XXX term into X.X% hand redemption of a million September used together we redeem on maturity, this we senior quarter, XX, loan of million eight-year prior to loss on $XXX million notes X.XX% net issued recognizing In senior commitments. cash the August, of lender proceeds of notes $X.X early a $XXX During the with

due the additional are lender time which advance XXXX, in notes maturity total maturity. commitments par We be term to our senior note any June to November XX, months retiring After at the May the six pursuing our to X.XXX% have draw redeem of the XX, senior intend and will XXXX. use call notes, of a can proceeds May XXXX up next their XXXX. date committed amount through We in loan

million we repurchases quarter, of approximately leaving X.X During XX%. a to million. $XXX increase common We of cash million total current repurchased ended authorization. book of our a for we the Year-to-date, stock under approximately the a value of with year-over-year $XX deployed Board $XXX cost shares, have Directors shares of available of million share quarter X.X at per repurchase million $XX.XX,

and and across while increases current XXXX for our year reflects chain outlook year-over-year of have our returns. market significant summary, full margin, supply most In scale, with in our housing the conditions negatively fourth for metrics housing gross notable financial our key impacted quarter, improvements expectations operating the margin

We will of our on XX.X% XXXX. on expectations full to believe quarter we a year generate fourth XX% compared as around based return equity for

to fourth positioned our quarter We we May we complete plan business of drive our in stock book manage market achieve carefully conditions and housing the notes continued quarter, fourth repurchases. and accretion intend value are XXXX and and through to the current XXXX. to into solid the the returns senior during addition, well refinancing common believe In measured

please Alex, your the We open lines. will now take questions.

question-and-answer be a [Operator question John UBS. we At Instructions] with first conducting you. Please comes the from will line of with question. this Thank proceed Our session. Lovallo your time,

help quantify guess, the margin now I sequential sequentially, in think the of and backlog the same imply is, you incentives are incentives as the does about incentive one then And quarter were could maybe year-over-year you that buyers down being First us well? lines along on using? responding? Are a fourth What gross basis. that maybe activity type on used

a John, to it few I'll the on make Jeff to I incentives the for growth. specifics slight kick can on and movement comments

on comments, which, prepared focus my in is the with incentives. and square them the look buyer shared best most I then us, a that, the footage studio. up incentives to price their at the at value. we the the on personalize as value, result buyer really best don't As providing for of value let home pushing and builds And versus us of a the force own then building We

up we in our move the typically -- sales a don't like I'm if Jeff, not they than over run which quarter, incentives. year. a X.X%, lot in less mistaken, selling, may it's of were community the But in think really incentive therefore, I is X%, some take if use what rate. we'll We pricing have to not pick stuff and our And

incentives, deliveries the well. hold and costs true closing less kind would us, the and as quarter for So here financing that of fourth X%, our mortgage than for in freebies

sequential? to want about talk You the

gross Yes, on Jeff. Sure, guide. the margin sequential

out which level a year-over-year all, is of points year-over-year, to first improvement guide important basis. to our think, XX% of at I a the phenomenal midpoint XXX with basis XX% on up is it's at point

the what couple margin from relate So we really impacts we've seen expecting pricing. changed There have have end quarter, what of outlook and there. that a progression pleased we're few first a bit that of been gross last of a at to with that them all, we're

and pricing delivery. quick more expectations a or either the took fourth market homes for homes we to in quarter sold are third cautious reflecting is approach those on quarter move-in current quarter the relating in any the One conditions fourth

we may certain our that now in. impact. We in some backlog. cases, have our bit we that some locked conditions, with market include price of some it. had the have did So cover customers had to provision communities there sure some for customers need below where to In some adjustments wanted some that required we potential a selective make of in pricing of And be that and current

the We've explained also lost revenue quarter some little and we chain most what the a with fourth that leverage on bit for supply in we're lower seeing part. expectation the

or then We well saw closing So that had our XXX result, coming we some that of that as by the on over guide. the mix fourth, of mix did in at quarter fourth into basis in we deliveries gross to And we also third impacts. see finally, points higher-margin the a third expect quarter the impact a part small impact And some the beat midpoint quarter close so guide driver as of play there. margin. the was

That is June order worse guess think, is, that question this you environment? was was the in adjusting then sense being the up orders? gross higher actually rate down the firming relative any And really then being August, with orders July, getting expected, a Or or helpful. positive are than I again, to still softening with to you And people I works? and September interest this then and cadence net provided July. are

digested that up that in a seemed encouraged the little noise they a it it's And have When ran August. to I'd buyer And call Labor that. higher we actually with XX bit to so I in it bit, The which were there's rates you -- includes Day startup time, qualify always look September, a ahead. they at we activity move and okay a that rate were and August. the in John, the little want a at softened process. days -- weekend, September, it saw with and it's

their I had helped. September, communities steps and in time, August, since that weren't saw And comments, steps run my them that we think to go take some we I've back in turn And have taken last a rates the you softer made it And over sales. forward, But hitting even as think a there's we go also we if some some generate with more. assumed we today, no -- in last question we'll down since than up is week, little And bit. market sluggish, Fed prepared that take it move further the rates. again. was sales things the since comments point to And if they'll

than our I comments, and some interesting, And where I interest can also, rate didn't buyer, have What's were we we mortgage in take great those on compelling nobody and it's have a shifted far. would in share that XX-year points lower fixed. yet. a basis it to And of the minute. hundred rates and if a couple XX-year include that adjustable I It's mortgages, very fixed, of a are is people taking it so number arms limited

hearing I the put And I all just concerns, -- out, our it's waiting things it the just and said, moved more, everyone that of the They're on that that They're up rates that the haven't arms as how they to not and shared, They're away. up with you're buyers kind our I the in dynamic profile they sideline gone at just take inflation if running buying things they've need were. pair interest see these level it paused. buyer yet. know play about They the don't whether just media, pause. -- you they're

you. Thank

line question. from with Evercore of proceed Stephen next ISI. Our question comes the your with Please Kim

about sounds commentary like issues that demand. nature thanks are Jeff, Certainly in the yes, that. for of more mental slowdown the than the

mentioned want your to discounting you on pick and And of or some more did believe comment that margin up, quick that. something move to do maybe anticipating I outlook. move-in gross that the the though, I was And K., you're about part homes a to so going Jeff encouraging. that's

quick have that hearing that, been in to are things they by because deal one the homes demand the interesting is like greater regarding that so buyers And actually of we recently quickly. the consummate move-in

-- on are so curious, -- a homes your generating seems that, you move-in pretty you are curious, to I of than homes are your BTOs? your don't maybe I'm have And margins move-in was it currently gross selling lot you're you on inventory, tied QMIs then so quickly. you standing your or quick quick like lower And

you kind generating thing. lot margin are pretty be you're to that quickly? of selling seems because them again, for demand There it, a So lower a of

My to a comments really, were where Steve, ago. were at we quarter relative

expectations ago obviously, our that pricing quarter So with versus come those have a expectation a today, little. down

quick you wasn't to that imply having as anything move-ins are meant know. coming our Most to quick from move-ins we're cancellations, it or else. of discount So, deeply

So the the it's BTO it was written transacting it dynamic as But fourth more end where overall, a just and expectations. at a quarter our quarter where QMI. at comment was versus we between order far as of on third relative up really

Okay. That's good.

quick like are at sound doesn't homes it problem So move-in a particularly point. for you this

Not at all.

you -- very fact the already talked isn't only that was about on rate yes. which you already And backlog much And either. X%, can the

to quick that at would operating on do it buyers, inventory better sales point Would basis? then follow-up were margin So to QMIs your sort demand a than you mortgage line you selling investor come average where to or the if landlords. like? an basically to and expectations And to of retail more is would standing more slow have landlords homes here, a or more I move-in wanted you consider talk about rates investor higher buyers

that. don't few why Steve, comments we a make on

on previous wouldn't over your lock. First question, spec prefer off, that order. customer the nine-month I say a built buyers We to offer

that up percentage their buyers they today's get they locked of home. rates cash. on value personalize to our the or the So still ability them. I share are not And going

limit position any away wouldn't or sale from really get people We prefer try I to the take investor activity. So spec homes. that

the mixed community. bunch to things into one I'm And is sensitive our a of of having call it, that renter I'll churn,

a to that sell house investors in rental next go would householder a bucket not here of and we're over a company or a put approach, So broad-based customers maybe a inventory our on haven't but there looked and where yet, if we penciled land it, consider that larger we a at it purchasing and have do it we holding. But and may investors renting. may we've

we distinct may with mingled a out, and as they have look that. basis, I in could just their rentals, would bulk. there's going they're I both we're something at identify And type partners going plot market of though on due like streams and bulk that pay rate now. of would in can't then think the our and own believe lots aren't expect single-family that I purchasers, to doing they to think it, to buying some not even pricing right discount you

you. Thank

from with line Our proceed your next Matthew comes Bouley the question. Please of Barclays. with question

know I So on making communities. the topic of adjustments in some price ASPs, underperforming mentioned you

adjustments the been the on think overall you XX% doing XX% more right, down I are, more should those just that see start becoming land reinvigorating looks than finding realistic reductions? of sequentially. I down the impairments if like pricing? that, the pace math communities? to maybe ASP sales owned order that it perhaps given price given magnitude And move-in these West guess might in Or sequentially. expect have it more I was And we I'm Are the Coast, guess,

movement million. to $X.X out mixed. quarter Jeff approached that impairment ASP price either give or up you million, had primarily the and was several $X.X second sellout is Matt, We the talk sold the where million, to in thoughts. can totally California the then I'll extremely communities well sold $X

that's Anaheim, not with and you of get townhomes ASP mix sell they coastal you a shift. happened That's your when can for and out in in it and replace really few That's in business those $XXX,XXX move down, a our them cuts. communities And California. price what

business. happened shift. it, to because in but And that other further California regions, of the the as the have then of that's you your the thought. in or X/X mix want impairment So been as mixed rest don't it was when give price not at in cut change we pure a adjustments Jeff, our about ASP, may what do look at look

impairment question, the our far lots of those our pricing in and locked time inventory about Jeff communities. remarks little the pretty and bit we're to during in spent as of talking goes. now the vintage relation prepared our In And of when our proud right position lot were lots Yes. a as

at safest currently view, mid-XXs in where of even impairment. a with puts margin Exiting and we've Company year, would about gross as the us in between homes we're the from the the guided of to most we room line start the at tenure an point with the had selling my cross point

at type right we're So, particular to for doing with not carefully in new in now but what high those margins. moment. with concern land, right particular continue investments, list the a the it's of concerns Obviously, now not we'll on it's monitor us

Got it.

I really construction starts. about that one, potential for particularly the you correctly, side the I mix with housing Rob mentioned certain around That's helpful. think clarification decline heard there. begin materials. renegotiating spoke If the you Okay. in on Thanks at the I guess top, to second

input and expand Just where you sort see curious reduce of maybe there. I some of to bit a if that opportunities costs you on could, the little your guess,

Rob, do you want to speak to that?

Sure. Yes.

we hungrier. we're through direct, front that all to much just because are as to down, there, on see not relief and it the I of the so construction moving the On end, expect the end starts slowed suppliers the out how think would cycle, houses the that's the starting and get some the there's front trades happen

working the really and business. attacking we're drive to right now the of cost what out that's So

there's haven't I until We the on we expect get of side. of success on because this lot out operate all markets we new production the and in the home through a same the probably that back volume end year, there wouldn't in seen to

trade still the are, tough, flow drywall associated to with and through. and product beyond that's So going the homes that the say, pretty base is but

system. in slowdown slab relief first of then to seeing start we're moves Some on get the it and on through framing and the

today. teams So and way that that's approaching really the are it it our attacking

Thank you.

with Alan of line the Associates. from your Please comes & question question. with next Zelman proceed Our Ratner

renegotiated? more a didn't forward any play schedule away were would the an those attempt there guys deals to market is sense from First reason any I could was in you didn't your or for kind lots to make on based ball? I'm color those takedown get Or one one, that it that another, sellers lots just X,XXX kind potentially where and have either just at quarter. you of going, the bit on little of renegotiate view just want or the on walked roughly love curious, price move to to of

it board. the would think across be I Alan,

You the reduce they're they've other your okay, And land on think the in city wings the it. we and extending they're in sticky, people will not got take answered willing sellers because decided are some some price, not to of said, we they in in walk. we're can't that We support fine, the cases, come and -- price what and was position. we we're others comfortable that point and going don't where, around you not Then at there's it, just and return.

the little that of underwriting we has pace. less going get not we can't price get similar activity on now, our similar we and stabilized, And with land unless point, there. look and a have a or the price submarket out it it's demonstrated pace as to at But or comfortable tougher the starts

-- doing to mix it sense, positions. things. if walk these but But make it's We're we everything doesn't to So anything prepared to of are and preserve a full

been potentially these the growth these kind And primarily lots were it. of it, of of contributed just near-term call Or edge were vintage Got for in community duration beyond? would down community deals, growth? deals kind that were terms count have on taking more you of the count in, these have 'XX that on could and or that

now years don't last There might very where more part, but a trajectory. the we've had have here. up also, it's very late if in good for at go run. lot or a one we over a growth pipeline you urgency on, that's 'XX, been the And beyond. to the And 'XX count fringe It's but most it's right have to tie filling the look have a successful deal, two

nice favorable growth than a but a trajectory we still years or two trajectory. softer position, very have thought We three ago,

be have We urgency any afford now. can to don't right particular. So we

underwriting. remember your obviously And recall makes you year, much on was That four you rates that monthly to I was pace the time, some range, and mine it. land were generally And you six assuming I Jeff, a in earlier a up sense. assumptions lot the those Got on related of brought answered question of you And the to of underwriting. your sales in higher. when absorption at said that underwriting,

at you in changed a to Are want we you really your there, three to price be guys pace point Today, this that a six lever being? maybe pulling until it's maybe quarter? desired And that at. three you're sales lower more at think But be than time Or course. is more four time, you view piece about to going that at get did of the this where to is all? in probably should and you four comfortable have you significantly range for current

And it profits run. six, three all we make we always be five if to the to -- can of depends point to margins said three returns say talk and on good many kind the it'd at we lots three what's those and now. to five, can very things, how it I'd I every and is four and price always five, good very about. But replaceable we

Thank you.

question question. comes with of Rehaut Michael from your the Our next with JPMorgan. Please line proceed

First, I I quarter. in an just quick spec, and margins or a reduced circle quick on It a wanted from the as earlier on guess, to pricing spec driver, fourth clarify around was expectations question or back move-in. moving cited

at get margin that would right. that, margin in to suggest would a your it So wanted I than homes least, that I backlog is just presume. lower spec on

you think And to two, Jeff your gross prior guidance, number expectations. it's the reduced versus bps. K, And think margin mentioned four I about drivers XXX I

just different the sense get the each drivers those I'm and of of guidance magnitude to four represent cited reduction. on You a drivers, what of degree trying of

to both try address those. I'll Yes, Sure. of

to anything particularly a very over spec again, It were the been well between we all, couple and homes or quarter last the QMI very, on type So homes of years. at ago much. first that any comparison to was hasn't was there anything QMI build-to-order versus related relational. a it else. done basis, with we needed have sell We've of where of And

and pretty delivery Our has small. spec homes been

really actually pretty the but on of the fourth a impact quarter one factors. gross it margin, So small is that's

When the price order and I the just backlog. lower are the potential look mentioned things, probably mix leverage provisions -- four that largest impact impact mentioned in adjustments being probably probably you event the lower end we of magnitude, was QMI the of end, the made at on that on The being we things. selective required on

know a bit, judgmental the prudent and event but wanted that it was fourth conditions on and keep quarter, we yet be don't land conservative that of we deteriorating. piece So will that a bit in it -- where the to and for

see today. it So that's how we

those closing over the of and some in at the we'll homes homes, homes be mix also look in QX, lower-margin the was performance The somewhat impact fourth quarter and impactful close the those sold actually you when They in were third. higher-margin in backlog.

trade-off don't a it quantify community-by-community, of right as as we we the a see we well. bit that's see go But time, Every all drivers main we little redo a there's So, and now. but those the home-by-home of differences, through how forecast, of it. are there kind

Right.

margin saying portion maybe Okay. the further No, I an these gross your -- When from just guess. the drill appreciate you're And of down the reduction a that, guidance need on around do sounds you are adjustments, is bigger little to you say of that it Jeff. I'm answer, I end so might made yet. like to of what through assumptions November. assumption right, hearing selective you price These that if haven't adjustments those

weeks go. And in have you so surprising to me, that another that's a to little XX

a amount about number of large a closings. time decent you're Obviously, but talking that's of

have that, a would thought was I -- hear little to surprised been that those So that made. price have already would I adjustments

assumption but kind progress? two month these ongoing it in hit of curious certainly and and that had Just in on run out maybe last active if based a that? you price some already line that it's where on something to do haven't the you're of is Or projecting kind you've yet, adjustments finish is the and are rate or

backlog, Price on the closing are Mike, very date. center close to and adjustments generally home made

not you you're beyond prices below So price, decrease later that denominator. lowest increase some hitting the that, price of if slightly its common contracted but the

the close to those. on close date pretty always it's So

months there's just don't of right definitely environment next like how because now to encouragement will that closed. extrapolation to help get may buyers many lot numbers Yes, need we over couple a their homes or know and the what the in of that's look

Thank you.

question. from with Please comes proceed Susan your with Sachs. question of Goldman next line Our Maklari the

how they're sales? seeing? any talk buyers a bit the thinking you that the about that options Can little into the is. putting And question first homes? your are of My changes you're the and studio some about And there features

interesting, It's Susan.

between and on You contract close. start with lag recognition the the

our of the the were the in buyer sold get we -- guts I QX December, actually lot whether But up don't really a I went closing February the actually don't into spend I think year-over-year. know it's changed. didn't preference into that's studio And and So March. that. of January,

But went type up. I the as up much choosing prior pretty changed studio pricing years. type think items and going of costs same of with spend the were were the were the items because the our they

So we yet. there seen a haven't shift

changed. the The of thing our homes not size interesting to our has -- me, other

moved have and While to ago up year orders interest rates was almost everything, gone deliveries and pricing and was identical. and footage the has a footage similar the the on

not are changing their buyers So yet. preference

I think, this still. buyers the part, of can all profile it's the we're in catering to afford

change. But ahead. we it shift so keep may so, moving far, seen And if going rates up, anything haven't

to My mortgage fact the also people color. you now, that basis that you really the versus buy offering to you rent that choosing that of are pause kind buy waiting several spend higher? decide you're make is, than rents how still they just are some are especially helpful how lower are points mentioned seeing That's moving a are to I decision and decision. decision? today, Okay. that fixed despite rate considering second question order about XX-year alternatives loans weighing the And other buyer psychology? What for thinking overall guess the that they are in are

on a pretty a be equity a average, to over up heard value think in the work that compelling continues reason to homeowner And build Yes. report today up payments move. just that be driving that, It's lock and are year-over-year. XX% I rental observed a I single-family and big time. to

it's on and things of it's not all are consumer whether on and out Ukraine I what's me, confidence play going whether war, the buyer is they going think inflation to there, the the away. the Fed in today. rates, hear They're these the and primarily, coverage the interest state or news on weighing in today just

each yesterday years, on now somebody was in joking Gen with not how I Zs home-buying going their and they're month, And away. there's millions more

for own be a And homeowner. there's rent. to think make I So decision people arguments both, a to want they but have to versus

now, they've taken them didn't backlog not of to have and keep just And start pause. for inventory several didn't we need because -- part that's it. elected we we why monitoring we sales. have the And already a right chasing out they're of we One, And the quarters deliveries.

I'm And just right to the have them get not run, short not they If buyers now. do the two, locked I going going so down, off think fence by inelastic the anything to throwing you're in out. more

we'd not changed. it plays still out. we and how the there. are just all out thought That But see buyers has pause So

Thank you.

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

thinking there month about little I give XX%, down down on and maybe that the then monthly XX% just moving to month. be from to ask through the pieces basis, a it cadence Could with gross of a about tracking year-on-year? trends you you should talk us lot of, Even September, be decline order we net, pace the in more wanted to? orders a or year-on-year sense a year-on-year when And type what about what obviously, quarter? comments of you're track really softening the can on bit

not weeks. Year two for

a September. it's two-week Mike, any you I don't because know on color if we can in even give that period

it's in I know the I couldn't I year than you what So two we -- little last just did a softer August. don't weeks. first tell

July, August versus in Well, guess if specifically, piece, with something at Okay. weekly to sales respect even or more that. sales in month trends each in like least June, decline year-on-year x it's speak orders month? of And guess each the pace September, net either I well at kind the this anything on there's to then I can you down August,

don't I numbers. the have

get far as typically detailed the trying call it seen now September, on or I the just short a August. again relevant market won't was little remarks the the probably we some on a signs one I market, some and the may in I life happened talked not of the trending was as since -- had on if a rally August. during a we've relief in But saw go that little call of prepared same had mean terribly bit in August went behavior. mean with we you that relief during whatever, so period of Jeff bit -- don't things don't buyer right well rates a have about know, moves I'm too either. it's impact to on do little stock there through month, and and sure quarterly rate this the as a

I Okay. slightly Fair different a enough. way. ask, Maybe I'll guess,

thinking rates, kind not latter stable could if you if step-up Jeff, lower of three land of that you've mentioned calendar part deals year, should prices? seasonally that to selling as thinking be mean, you we pace versus things think, that more like the little I in be about pace. on about sure given I a potentially targets, that, also things pace. that the to five like Or kind I'm of or a But current what underwriting as was XQ? adjusted you're that your new when in the seeing you're the thinking with terms seasonality of you're the the that we you in, see in in saw seasonality

the was operate land to set and was and to four say question our the on what say, we're before X about just the But just on if let's or X.X. community, talking to five relative X assume, go-forward you three packages going to underwriting. if five, to Well, I previous is

X.X a if April, in you'll March, going a a year, be run May June and typical period. year X.X through So to through that you're at in

a drop that the us. in you'll And be then pretty fourth seasonal would typical quarter, And four. under trajectory for down

in If a headed, did going seasonality. did do the you're normalized do the trying quarter think due in quarter third you than seasonal returning to more to to I the sale our you're And to fourth is than quarter in where pattern. second model less you we're

Thank you.

the next question Truman Patterson proceed Wolfe from with your Please comes with question. Our line of Research.

kind little bit decline believe a I down of of product sequentially look mix that to up sure that's of quarter-over-quarter, of you questions order in that remaining I four-point on Matt's gross First, correctly. shift, all XX% or I function the so, of just said And Jeff, was the X% about a making implying that and purely base a X/X is follow headwind direct ASP of that that else margin kind if heard clarity. to equal. for of X/X pricing one wanted

some lumber hitting the And items all ran your Jeff gross through reasons why I pricing March on February, K., any margin down the sequentially? you quarter-over-quarter. in costs fourth will frame. lumber that quarter of are in believe fourth time guidance, peaked of P&L be quarter kind the seeing from benefit it's But you lower

Yes. the fourth third, -- to quarter. expected The we be peaking lumber lumber sort of

I we'll see on think, relief, forward So, going some that.

the back it, of lumbers I see within they we'll come such large think a as should see factor. cost nice as certainly, kind call range, some benefits

just lumber. And the on not

and else cost suppliers on pretty pricing pricing. benefits offset and we've the subcontractors other I of hard help And any to think everything softens terms and pricing as some that on... then was the we're There's in market benefits that our question working help issues usually seen.

Tampa you to California it's X/X, only. and I was It's every quarter, every referring prices shift have month say mix the are to Yes. x hard Truman, you and directly ins the down in and because whether open something outs California, through tied price different. But sold we to X/X the South. in the are you goods Coastal of something North high-priced that the and Denver prices in shift and close was all

the to XX% included well assuming as mix that. Yes. that I falling in trying impact concessions shift there's price But understand I'm was just in realize I because so... the that ASP West can quarter.

Go any guided second we've price quarter deliveries. from of was That was mix. on the a it -- order back though significantly price because higher the than to was the blip

you. Got

Okay.

order it also for, cuts, other think similar have what understand base ASP I'll And everybody trying been nationwide, I price is declined. leave is I kind of alone. Okay. all of Anyways, seeing believe, what the the you but to two of regions, level

these online, communities maybe on communities not all new heard new and respond communities the understand the And they you builders, you wanting Is we've absorption your their of are if all new versus adjusting coming cutting new hitting strategy to down new existing the price but communities. there communities magnitude sort consumers community, existing you Are maybe of road. relative the targets? more pricing have to that coming to online, any have of communities? On that's across that seeing your

Yes.

a tied that, a the part, the lot well. in prepared most the reshape would four these would years even. For And have the I what years openings at ago five very much up the working from because price margins our of underwriting three, therefore, as comments, we higher And that market been Truman are the ago, answer, than lift. plan are shared assets margins on I of

So helps adjust a have price points the we and reservation community. prices in are us what come now in focus process if that right the on down, we

underwritten opening, make we a but ensure successful community want successful still they were but to opening. -- that above the margins at. that tweak is you're sure them a So, well we to may the down And

You can they gets painful. if only open it them successful, once. And aren't

bring a And the out of of markets we good like gate. typically, energy bad generate and lot where pricing the or the works excitement and sales. to openings of new So set community a lot

So working well. pretty ours are

Our Fargo Raghavan Securities. Wells line from final Deepa of with comes question the

cancellation the you resilient? with the higher a backlog backlogs those you mean, are talk can risk had can rate, for overall again to due backlog rate, appreciating what the you the Jeff, rate, XX% you I cancellation ensure mean your buyers X% have? maybe again? proactively you the scrubbed that through fully have the backlog qualification versus I to conversations

when lesson a Well, the would have want a isn't deeper. is we're that's name backlog us the home to construction home completed. we constantly scrubbing on The close prepared under that to

processes some loan had was their those quality home to we are buyers that backlog. have all we're degree, approved, a was loan seeing, their locked, completed. the So we've What intact, gets and

control locked $XX,XXX, say don't that they much I'm feel noise There's even $XX,XXX they us say, done. about this and just still feel interest can't then they have equity going we they the And though in good the that. the in I comfortable purchase, really too in of home, don't And with rate this. with I $XX,XXX, and world, their forward threes

I But the of width at impact And at if impact within deliveries, unsold. didn't our end our the that's all. didn't the they our of look level really the you percent and quarter, at deliveries It's quarter. for same in my most buyers the very are still of third predictable. at as closing shared comments, the the when And the part, was these it home quarter, is It's end second been completed.

Okay. kind September that it X.X has bigger selling spring If just That's of out too could higher question. is the in stay X potential to rates playing how these expect to been see helpful. with normalized interest recovery, demand a A picture is season? given late rates? range, we Or

with qualify on you think a consumer spring. if our buyers it the drives normalized Well, still everything the jobs, rates, consumer they interest I it depends see economy, more digests I and else do, and confidence. on what's were going like inflation, But think could where that rates held they

So, to now I on It's with happen going right wouldn't trends a suggest week would that too say what for that. next of a way is couple early precursor spring. everything

Thank you. today's this gentlemen, and for your you teleconference. Ladies participation. concludes Thank

now may You lines. your disconnect