PulteGroup (PHM) Q2 2024 earnings call transcript

Great. Thanks, Rob. I want to welcome everyone to Palti Group's Earnings Call to discuss our strong financial performance for our second quarter ended June 30th, 2024. Here to review Palti Group's Q2 results are Ryan Marshall, President and CEO. Excuse me, Bob O'Shaughnessy, Executive Vice President and CFO, Jim Osowski, Senior Vice President and Finance. Copy of earnings released in this morning's presentation slides. Have been posted to our corporate website at PaltiGroup. com. We'll post an audio replay of this call later today. I want to alert everyone that today's presentation includes four looking statements about the company's expected future performance. Action results could differ materially, but no suggestive iron comments made today.

The most significant risk factors that could affect future results are summarized as part of today's earnings release and within the company's presentation slides. These risk factors and other key information are detailed in our SEC filings, including our annual and quarterly reports.

Now let me turn the call over Ryan Marshall. Ryan?

Thanks, Jim. And thank you to everyone joining today's call. Palti Group delivered another quarter of strong financial results, which reflect an approach to the business in which we seek to balance price, pace, and investment over the long term to generate superior returns. Consistent with this strategy, our financial results continue to show the power of capitalizing on the value of each lot at home we sell. Our divisions work extremely hard to secure and title and develop our land assets and work equally hard to generate exceptional profitability while still turning our portfolio at an appropriate rate. Specific to our second quarter performance, we realized a 2% increase in average sales price, an 8% increase in closings, and a 30 basis point gain in gross margin, which an aggregate health drive, a 19% increase in earnings to a second quarter record of $3.83 per share.

Another quarter of overall strong financial performance, highlighted by our double digit earnings growth, resulted in Palti Group generating a return on equity of 27.1% for the trailing 12 month period. Obviously, a key driver of our strong financial results and high returns on invested capital continues to be the company's outstanding gross margins. As Bob will discuss, gross margins in the period benefited from a favorable mix of closings, but I would also highlight the pricing strength evident in our numbers. In Q2, product options and law premiums averaged $104,000 per home and represented approximately 19% of our average sales price of $549,000.

As I'm sure you can all appreciate, options and law premiums are high margin dollars and an important contributor to Palti Group's outsized margins relative to peers. I know how hard our employees work to deliver such outstanding results and I want to thank our entire organization for their efforts. As good as our second quarter numbers are, it's fair to say that as we navigated through the period, demand was a little less consistent than we experienced in the first quarter of 2024. On our Q1 earnings call, we noted buyer traffic had slowed the first few weeks of April. While subsequent Wall Street channel checks confirmed a change in short term demand, the fact remains that we are operating in a housing market that has been underbuilt relative to population, immigration and household formation for more than a decade.

The resulting housing deficit of several million homes is likely a structural reality for years to come given the zoning challenges we face and most municipalities. Our country's underlying new home supply issue has been exacerbated by the lock-in effect caused by the dramatic rise and interest rates over the last two years. What the market continues to experience is existing homeowners who are unwilling or more likely unable to give up the low rate mortgages originated several years ago. As a consequence, the inventory of quality existing homes remains below long-term averages in any markets. The supply of balance is one of the reasons that I am confident in the long-term demand trends for housing in this country, but I do appreciate that buyer demand will fluctuate from quarter to quarter.

For example, the bump in interest rates in the second quarter caused some buyers to become more cautious, while other softward abilities stretch beyond their financial capacity. While many cities are facing a limited supply of homes for sale, we have seen an increase in existing and new home supply and select markets in Florida and Texas. These markets are now in the process of finding the new clearing price needed to work down any excess inventory.

Maybe more impactful than rates in inventory, the feedback we are getting points to a lack of confidence among some consumers that now is a good time to buy. High prices, higher interest rates, and the resulting high monthly payments are making potential buyers more cautious in purchasing a new home. To the degree that this lack of confidence among consumers reflects affordability concerns, this isn't new and in fact it's something we address on a market-by-market even community-by-community basis every day. It was more than a year ago that you first heard me say that delivering high returns requires that we turn our assets and that we won't be margin proud.

In an environment where market conditions are more competitive, we have worked to ensure that our products, prices, and incentives are clearly meeting by our needs. Consistent with this focus on turning our assets, we continue to build a more efficient and faster turning land pipeline. In the quarter, lots control via option increased to 53 percent of total lots. We are successfully building on our historic base of lots of options directly with the land sellers by increasing our use of third-party land bankers. Today, we have entered into transactions representing almost 13,000 lots and $1.5 billion of capital. As with all land-related activities, we are being disciplined in how we expand this part of our portfolio, but we are making steady progress in assembling a more efficient land pipeline.

As we sit here at the midpoint of 2024, I would say that it is shaping up to be a very good year for bothies. Relative to our expectations coming into 2024, not only did we raise our initial closing guide by a thousand homes, but we are clearly on a gross margin path well above our initial guide. For various reasons, market conditions got a little tougher in the second quarter, but we continue to actively manage price, pace, and start to drive the best business outcome. Based on the current demand conditions and construction cycle times, we continue to start homes at a pace consistent with closing 31,000 homes to share, as well as positioning the company to grow 5 to 10 percent in 2025 consistent with the multi-year outlook we discussed previously.

Through the first few weeks of July, traffic to our communities has been solid, but depending on how demand conditions and absorption paces evolve up or down in each market over the balance of the year, we will adjust our start to pace as needed.

Now, let me turn the call over to Bob for a review of our second quarter results.

Thanks, Ryan, and good morning. Multi-group generated second quarter of home sale revenues is $4.4 billion, which represents an increase of 10 percent over the second quarter of 2023. The increase in revenues for the period was driven by an 8 percent increase in closing to 8,097 homes. In combination with a 2 percent increase in our average sales price to $549,000. On a year-over-year basis, the increase in our ASP reflects modest price increases in our first time and active adult communities, while prices in our move-up communities were consistent with last year. The increase in our average sales prices for the quarter also reflect the impact of six. As we recorded higher closings within our move-up business, which at $250,000, carried much higher prices than our first time in active adult.

Roping down by buyer group, closings in the second quarter consisted of 40 percent first time, 37 percent move-up, and 23 percent active adult. This compares with the mix of closings in the second quarter of last year, which was 41 percent first time, 34 percent move-up, and 25 percent active adult. Reflecting the headwinds caused by higher rates and other market dynamics are 7,649, and new orders were down 4 percent from last year's exceptionally strong results. In particular, I would highlight that last year's Q2 orders benefited from Dell Web grand opening, and build for rent sales that are lumpy in nature. As has been well reported, operating conditions in Select Florida and Texas markets got more competitive in the second quarter.

As interest rates rose during the month of April. On our first quarter earnings call this year, we indicated that higher traffic can slow during the first two weeks of April, and this slowdown did ultimately impact orders as we moved through the period. For the second quarter, our average community count was 934, which is an increase of 3 percent over the same period last year. The resulting absorption pace of 2.7 orders per community per month in the quarter is above the pre-COVID average, but down from the 2.9 you generated last year.

More granularly, our net new orders in the second quarter decreased 3 percent among first-time buyers, increased 4 percent among move-up buyers, and decreased 17 percent among active adult buyers. While we continued to see strong demand among active adult buyers, we did report a larger year-over-year decrease in their second quarter quarter. That decrease primarily reflects lower community count in the current year, and some impacts on the timing of openings and closing to several of our outlooks. Adjusting for the impact of these dynamics, our net new orders, its stores that we're operating consistently in both periods, shows an order decrease of only 3 percent. Consistent with our overall order results, on a unit basis, our quarter-end backlog was down 4 percent to 12,982 homes.

Although backlog value was down only 1 percent to 8.1 billion dollars. Turning to production, we started approximately 8,100 homes in the second quarter and entered the quarter with a total of 17,250 homes under construction. Of the 17,250 homes under construction, approximately 6,900 or 40 percent of spec, including an average of 1.3 finished specs per community. These levels are in line with our targets of 40 percent and one finished spec per community, and put us in a meet our delivery targets over the balance of the year. As always, we are prepared to adjust our cadence and spec starts up or down in response to sustained changes in overall fires. Based on the units we have under construction and their stage of production, we currently expect to close between 7,400 and 7,800 homes in the third quarter and continue to expect to have closed approximately 31,000 homes for the full year.

As noted, we realized an average sales price of $549,000 in the second quarter, which is consistent with our prior guide for pricing of $540,000 to $550,000. Looking ahead, we expect closing to the third and fourth quarters to be in that same range of $540,000 to $550,000. While our average price and backlog is higher than our guide, we have a lot of homes left to sell and close this year, most of which will be spec production with our first time by our communities where pricing is lower. We reported second quarter gross margins of 29.9%, which represents an increase of 30 basis points over both the second quarter of last year and the first quarter of this year.

As in Q1 of this year, our reported gross margins reflectably favorable makes it closing in a generally supported pricing environment for many of the spec sales we close in the quarter. Second quarter gross margins also benefited from opportunities we've taken in prior quarters to improve net pricing in a number of communities across our portfolio, consistent with such actions and incentives on closing in the second quarter of a 6.3% selling price, which is down from 6.5% of the first quarter. While recent macro data has sparked optimism about potential for fed rate cuts, we don't factor such expectations into our guide. What we do know is that rates remain elevated, affordability is stretched, and our delivery mix will be less favorable in the back half of the year.

As we discussed on our Q1 earnings call, in the third and fourth quarters we'll be closing more homes in our west region. We're always carrying a lower relative margin profile than we did in the first half of the year. These factors combined with our D8-3 price competitive return assets point to an expected gross margin of approximately 29% in the third quarter to 28.5% to 29% in the fourth quarter.

As stated previously, we still have almost selling clothes to feed our full-year delivery guidance 31,000 units. So, demand conditions over the next few months can have an impact on the results field. In the second quarter, our recorded SG&A expense was $361 million, or 8.1% of home sale revenues. Recorded SG&A includes a $52 million pre-tax insurance benefit recorded in the period. In Q2 of last year, our recorded SG&A expense was $315 million, with 7.8% of home sale revenue, which includes a $65 million pre-tax insurance benefit.

Excluding the impact of the insurance benefits recorded in the first two quarters of this year, we continue to expect SG&A expense for the full year to be in the range of 9.2% to 9.5% of home sale revenues. Prior to our financial services operations, we reported pre-tax income of $63 million in the second quarter, which is up for $46 million in the same period last year. The 36% increase in pre-tax income reflects strong financial performance across all business lines, including mortgage title and insurance. Our performance also benefited from an increase in capture rates across all business lines, including a mortgage capture rate of 86% in the quarter, up from 80% last year. In total, reported pre-tax income for the second quarter was $1 billion.

It represents an increase of 10% over last year. Our tax expense in the quarter was $239 million for an effective tax rate of 22.8%. Our effective tax rate for the quarter includes the benefit of energy tax credits and a $13 million benefit related to the favorable resolution of certain state tax benefits. For the remaining quarters this year, we continue to expect our tax rates to be in the range of 24.24.5%. Taken altogether, we reported net income of $20 million for $3.21 per share. On a first-year basis, we continue to benefit from our uncommon share repurchase program, which on a year-over-year basis, reduced shares outstanding by 5% for last year. Capitalizing on our strong cash flows, we continue to support the future growth of our business as we invest in approximately $1.2 billion in land acquisition and development in the second quarter.

This brings our year at date land spent to just over $2.3 billion, keeping us on track to invest approximately $5 billion in land acquisition and development for the full year. For both the quarter and the first six months of 2024, the allocation of land spent with 60% development had 40% acquisitions. At the end of the second quarter, we had approximately 225,000 lots under control, of which 53% were held via option. Given the strength of our land pipeline, we continue to forecast community cash flows of 3% to 5% in the third and fourth quarters of this year over the comparable prior period last year. Consistent with our capital allocation priorities, we are also continuing to return capital shareholders.

In the second quarter, we've been purchased 2.8 million common shares at across $314 million for an average price of $113.79. This brings our year at date share, we purchased activity to a total of 5.1 million shares. We purchased that across the $560 million, $110.58, per share. In addition to refurbishing stock, we also completed a tender offer for $300 billion for senior notes in the second quarter. As a result, our debt to capital ratio is now just 12.8%. And our notes payable have decreased to $1.7 billion, which represents the lowest level since before we acquired the web in 2001. After spending more than $1.8 billion during the quarter-owned land investment to the purchase of our equity and debt, we ended the quarter with more than $1.4 billion in cash.

Adjusting for our cash position, our net debt to capital ratio at the quarter end was 1.8%. I'm also pleased to report that in acknowledgement of our improved operations, strong cash flow generation, and outstanding balance sheet, which recently upgraded our debt to triple B+, while Moody's upgraded outlook to positive. Now that we turn the call back to Ryan for some final comments.

Thanks, Bob. For the first half of 2024, traffic to our communities was good, and absorption pays rent slightly above historic norms. So I feel good about our opportunities in the back half of the year. To the degree that the Fed actually cuts interest rates in the coming months, I think that will provide a powerful tailwind both financially and psychologically as we enter 2025. Before turning the call back to Jim, I would draw your attention to a release we issued a couple of weeks ago about one of our newest community openings and our first in Utah in more than 20 years. Along with representing Pulte Group's reentry into my home state, Utah's the seventh greenfield new market entry we have initiated over the past few years.

Through the first half of 2024, we increased home sale revenues by 10% and grew reported earnings per share by 25% over the last year. Over the same period, we increased our land investment by 31% to $2.3 billion, while increasing year-to-date share repurchases and dividend payments by 37% to $645 million. We also retired $300 million of debt. Pulte Group has executed extremely well, and with expectations of closing 31,000 homes for the full year, we are in excellent position to drive strong results going forward. And finally, before opening the call to questions, I want to briefly address the press release we issued yesterday announcing our CFO's success and plans. After a truly impactful 13-year career with Pulte Group, Bob O'Shaughnessy has initiated a transition toward retirement at the end of 2025.

Step one in this process is that Bob will relinquish his title as Chief Financial Officer, effective early February of next year. I'm pleased to say that Bob will then remain with us for another 10 months as Executive Vice President. During that time, he will support a smooth transition of CFO responsibilities, as well as continue to oversee our financial services business, our strategic partnerships, and our Asset Management Committee. Since its founding, Pulte Group's greatest strength has always been the talented people who work here. Reflecting this depth of exceptional people, and proud to announce that Jim Osowski, currently Senior Vice President of Finance, has been named as the company's next CFO. Jim has had an outstanding 22-year career at Pulte Group, during which time he has served as VP of Finance and Corporate Controller, VP of Finance, Home Building Operations, Area of VP of Finance, and Director of Corporate Audit.

In his current role as SVP of Finance, he manages our Critical Asset Management Committee and FP&A function. Jim has been promoted to Executive Vice President and CFO, effective February of 2025. At that time, Jim will report directly to me and will have responsibility for our accounting, tax, audit, risk management, and treasury functions. In announcing these changes now, we ensure having plenty of time to implement the seamless transition of responsibilities.

Now let me turn the call back to Jim.

Thanks Ryan. You're now prepared to open the call for questions, so we can get to as many questions as possible during the remaining time of this call. We ask that you limit yourself to one question and one follow-up. Thank you and I'll ask Rob to again explain the process and we'll open the call for questions.

Yes, Stephen, it's Ryan. Thanks for the question. Maybe the first part of the question about the margin and the balance of the year related to the West. We've mentioned last quarter and it's continued into this quarter. The West has performed better than it had in kind of prior periods, so we've got a heavier mix of West Coast closings coming through. Those margins on a relative basis are a little bit lower, and so we've factored that into the margin guide that we've given for Q3 and Q4.

The margins are, I think you'll agree, incredibly strong at the levels that we've guided to. As it relates to land banking, we're making great progress. The goal that we've kind of laid out is to get from the historical 50% options that we've been running at, the 70% that incremental kind of 20% move was going to be done with land bankers. I highlighted in my prepared remarks, we're making great progress. It's steady, it's deliberate, and we're absolutely on the path to get to 70%. In terms of the trade between margin and return, that's what we typically look at is we're looking, what we're ultimately looking for is we're looking for transfer risk, and with that, we typically see somewhere between a two to three hundred basis point trade between margin and return.

Every deal is unique, so to paint it with any more of a broad brush than that, I think wouldn't be fair, and then the closing comment I'd make is, and I know you know this, Stephen, we underwrite the return, not the margin. Return is what we believe ultimately drives shareholder value.

It's a great question, Stephen. So cycle time days and a quarter on closings were 123 days, so that's a pick up of about a week from where we were in Q1. I would tell you today, we've got a number of divisions where the cycle times are at or below kind of that 100-day target that we set for ourselves, but we do still have some divisions where it's elevated.

I see trade availability is probably what's holding some of those divisions back. You know, looking forward as we look to the end of the year, we'll probably be slightly elevated over that 100-day target that we set, but we're working hard, and we think we can get there in the first half of that. Stephen, it's Ryan again. I'll take the ICG question. We're pleased with how ICG is performing. We've got two active plants both located in the southeast part of the U. S. They do a mix of our business along with other single-family home-builder business, and we have a decent amount of commercial business that runs through those plants as well as part of the ICG business that's lagging.

It would be that commercial business with the slowdown in new apartment development or new apartment project starting. We do have a physical location secured and owned, actually more than secured. We own a location for our third ICG plant. We have not started construction on that yet. We're just finalizing some of the design parameters for that new location. As we have more details on that, we'll be sure to share it.

We're pleased with not only the cycle time benefits, we get out of ICG, the quality pickups, better safety. We also think we get better costs just in the way that we're able to buy particularly Humber as it flows into the ICG plant.

Yeah, John, it's a good question. You know, probably the one market that's higher than what we'd ideally like to see would be Southwest Florida there. We've seen inventory, resale inventory levels approach about nine months. You know, with the benchmark or the kind of equilibrium rate being six months. So, you know, we're a tad elevated. I wouldn't consider it concerning. There's been a very strong market for a long time. I think it continues to be a really desirable place for retirees and second homeowners. So, I think that, you know, market had unprecedented price appreciation. Part of the reason that I think we're seeing some of the elevated inventory levels. The market will go through a bit of an adjustment.

It'll find a clearing price and I'd expect inventory levels to come back to kind of a more normal range. There are a few markets in Texas that I think are in similar situation. Austin Dallas would be the two that I would probably highlight, you know, that I've also seen unprecedented growth in population jobs and, you know, resulting home price increases. But, you know, other than the nine months of inventory in Southwest Florida, there's probably nothing that I would characterize as concerning.

Yeah, just something I might add to that. It's worth it to remember, you know, if they're selling a home or often than not, that's also a buyer. So, it's not really net supply add to the market. It can influence pricing as much as anything else. And, you know, resale has always been our biggest competitor. We always have the, we have the advantage today of being able to offer great incentives to the buyers. So, for the demand that's there, we are compelling choice.

Well, certainly our cash flow guide is still current. You know, and I think, you know, we've historically not given a view as to how much we're going to be repurching in the forward periods. You know, we've let our kind of actions speak for themselves. You can and should expect to see us continue to be in market.

Yeah, it's an interesting question. And I wish I had a perfect answer for you. But, you know, a lot of it will depend on, you know, what is prompting that decline in rates, right? We've talked about this before. If the economy is healthy, lower rates are good because it means that the consumers while it is still healthy and they still have a job and the lower interest rate environment allows them to save some money. I think in that environment, we would expect to see margins a tailwind because our incentive load likely goes down. If it is in concert with that, you know, we're worried about recessionary impacts, GDP, not healthy jobs, not as solid as they are today.

That has another influence. The other thing that factors into this is supply, right? We talked about it in some markets. It's a little bit more competitive. And so there could be a scenario where we've made it clear we want to sell homes and we're going to find the price that's going to get there. While we may be able to save a little bit of money on the incentive for the financing, we may be in a position where we're giving some of that in some other form of incentive. So like I said, I don't know, Brian, if you want to comment, but the broader environment is important to that. It's just a what happened to rates.

We've always said rates are interesting, but they're only one element of the consumer equation.

So the sticking brick costs in the second quarter were $80 worth, but that's flat with the first quarter of this year. You know, as we look ahead, you know, we expect inflation to be manageable, you know, maybe low single digits over the balance. And that's incorporated into the guide that we provided.

Yeah, maybe worth highlighting. I think Jim's referencing primarily verticals, because the land the land costs we've talked about kind of high single digit increases through 24 also embedded in that guide.

Hey, Mike. Yeah, it's Ryan. I think the way you've articulated is accurate. So I think you're understanding the right. I would reiterate that the 50% that we have in our business today of land options, those are land options with the underlying seller. And that's been the case for the last seven or eight years. So that's not a change. And going forward, we'd expect that to remain in that kind of 50% range. So, you know, the incremental optionality taken is from 50 to 70. That's the piece that will have more land banking in it.

Yeah, maybe just one point of clarification. I'd rather we're speaking to the IRR on the transaction as opposed to our return on equity. Like, you know, our equity gets influenced by lots of other things. Ultimately, we need to kind of get to the parent level, but put on a deal-by-deal basis, you know, banked versus non-banked. It is roughly a two to three hundred basis point cost in margin. And then a roughly two to three hundred basis point benefit to the return on that transaction.

Yeah, Mike, the way I ask you to think about capital allocation is, is we look at the needs of the business first and foremost, and that starts with how much investment do we want to put into land? How much investment do we want to put into dividends? How much investment do we want to put into share repo? And, you know, as evidenced in the over the last couple of years, we've even been retiring debt. So we look at the collective needs of the business, and then we think about how are we going to finance that. The business is performing incredibly well, and we've been generating great cash flow, and that cash flow can put us in a very favorable position where we haven't needed the levels of debt that we've historically used in the business.

So, you know, I think we can all agree that having an appropriate amount of leverage in a business is advantageous and efficient from a return standpoint.

That's part of the reason that we said kind of our target rate at 20 to 30%, but we're not going to let the tail wag the dog here. We look at how we want to run the business, think about the capital that we need for that, and then we look at how we're going to finance it. And in the position that we're in, we're in a great position to have lower leverage, lower debt, and still do all of the things that we want to do strategically from an investment standpoint. So, I'd take the position that we're in from an overall debt level any day of the week and twice on Sunday, could the business absorb or handle more debt?

Certainly. But again, the number one priority is how do we want to run the business, and then we go figure out how to finance it.

No other than that, you know, furthering Brian's point, you know, we, as we get a more efficient land pipeline, i. e. more optionality, I think we get to a point where our cash flows better match our earnings, so less of the cyclicality on the balance sheet and the impact on cash flows from inventory changes, which in the environment we operate today is going to generate a lot of cash. And so, you know, it's not likely that we would be levering from here.

Yeah, Ray, thanks for the question. I think what's, you know, created some of the increase in inventory is the unprecedented rise in price, which has caused some owners to become sellers for whatever reason. Those high prices have created a bit of an affordability challenge that prospective buyers are struggling to kind of, you know, digest at this point. So, as I mentioned on one of questions, I think what happens here will be a little bit of a kind of price, you know, market clearing price adjustment process that will happen over time. I don't think it takes a terribly long time, but you know, over the next probably three, six, nine months, I'd expect that market to kind of work through some of the build up of inventory.

I'd point you to, as an example, Austin, if you looked at the Austin market going back probably two years ago, you know, a couple of years post-COVID unprecedented job growth combined with unprecedented rise in sales prices, all of a sudden the market kind of came to a bit of a slowdown. We saw it build an inventory. It took about six months for the market to kind of work through some of that inventory and it settled back into kind of a more normal run rate growth rate. So, my expectation would be probably for something similar to happen as it relates to Southwest Florida.

Yeah, it's really a combination of two primary things. One is it's the mix that we've highlighted. And to a degree, we saw that coming. So, it was in the 29 area that we had given back at the end of the first quarter, but that has continued. So, we've got a bigger mix kind of number than we saw 90 days ago. And really, you know, we've highlighted the market's gotten a little bit choppier. And so, we see that there's likely to be a little bit more incentive. We've told you we've got homes to sell and close. And so, we're projecting that into our guide as well. I think it's worth highlighting, you know, the range that we've given now is a little bit lower, but it includes that same point that we had given at the beginning, you know, at the end of the first quarter.

So, I don't want anybody to misconstrue. We don't see a big change in market. This is really just kind of circumstance.

Yeah, Alan, I, you know, I think Bob's prior answer, you know, to raise question helped to address that. Now, I'd combine that with the comment that I made that we're not going to be large and proud. It's important for us to turn our assets, you know, the demand environment, and specifically consumer confidence and affordability has been a little bit choppier.

So, you know, the combination of a little bit more West Coast mix with a few markets where we think we're going to have to add in a few incremental incentives. You know, we've given kind of some incremental or some, you know, more kind of finite range in where we think margins fall in Q4. The guide for Q3, we left unchanged at 29, you know, approximately 29 percent, and we just put a range around the fourth quarter to accommodate for some of the things that I just described. Okay, that's helpful.

Well, and just one other point, I mean, we've got 13,000 units of backlog, the vast majority of which are going to deliver over the next six months. So, you know, we can see a lot of that. And to your point about forward incentive load, we already know what the incentives are on those homes. So, it's really just undifferently.

Yeah, I think the thing that I would probably reorient, the focus would be around how difficult it is to have entitled land in this country. We're in an environment that is largely a not-in-my-back yard anti-growth environment for municipalities. So, the land that we have entitled and we're able to develop becomes somewhat of a precious commodity and we're treating it as such.

And we're treating it as such and balancing pace and price to drive the best returns that we can because we fundamentally believe that's what creates shareholder value. And I think the last decade of performance from this company demonstrates just that. Growth is a very important part of our story and it's part of the reason that in our last quarter, we laid out a multi-year growth target of 5 to 10 percent over a multi-year period. So, for 2024, we're going to be at the higher end of that range for the business that we'll deliver in 2024. And then in my prepared remarks, I highlighted that for 2025, we'd expect to be within that range. So, the way we've been investing capital, the way we've been thinking about kind of community level absorption and total volume deliveries out of the business are very much aligned with that 5 to 10 percent multi-year growth target.

And I'd probably leave it there as opposed to going into by community absorption rates.

Yes, Sam. I think it's something that the entire country is grappling with, not just Florida. I think we've seen insurance rates go up in a number of states, certainly the issues are maybe more acute in the Florida markets. We are fortunate that we've got our own insurance agency. They do an amazing job. We have high capture rate. And they're able to provide, not only provide insurance coverage, but to do it at a very attractive rate for the buyers that are buying in our communities to your point. Our homes are built to the most up-to-date code. They're more resilient, both in terms of building materials, but also in terms of how they handle rain events and rising water type events, because of the way that we manage land development, on site retention, drainage, etc. I think it's not to be dismissed, but it's not something that's having an impact on our ability to sell homes.

The other thing that I would highlight, at least with a lot of Florida buyers, typically, you've got somebody that already lives in Florida. They're selling home in Florida, and they might be moving to another location. So they've had insurance. They've been paying on a relative basis, higher insurance rates, and so there's not necessarily a shock there. There's also, as it relates to buyers that are coming in from outside of the state of Florida, they may be on a relative basis to where they're leaving. They might be paying higher rates, but there are other benefits they might be picking up in terms of lower property tax rates, no state income tax. So there's some, you know, you don't have to shovel snow and things like that.

So there are some puts and takes to insurance rates.

Yeah, apologies if we weren't clear. We haven't changed our cost estimates for land. Hi, baby, guilty of saying high single-digit versus mid to high single-digit.

It means the same thing, and I apologize. It's somewhere between 5 and 10%.

Yeah, Mike. It's always tricky when we're giving qualitative descriptions about three weeks of traffic in July. So we try to choose our words carefully. The second quarter, you know, I think you've heard from us and you've heard from others that have reported, you know, it was choppy throughout the quarter. But, you know, things in early July, three weeks in, have been solid and we're pleased with kind of how the business is performing. And probably the biggest thing that I'd want you to focus on is kind of our re-affirmation of how we view the business for the entire year, our start rate, what we believe we can deliver, and kind of how that sets us up for kind of 2025.

So certainly, you know, three weeks of kind of data in July, I know they're important. I know there's a lot of focus on it. But, you know, I think the bigger picture of what's the full year of 24 going to look like? How are we thinking about 2025? Those are the things that I think are probably more important.

Yeah. You know, Mike, the only thing that I'd probably kind of point to there, you know, Bob talked about his prepared remarks, some of the Dell Web, impact in the quarter, both of those markets are big markets for Dell Web. So, you know, beyond some of the community count transition, you know, the community count transition that we're having with some closing and new Dell Web's opening, I wouldn't really go any more granular than that.

Yeah, it's a good morning. Thanks for the question. I think it's really around two things. One, psychology and consumer confidence. So, when rates, you know, up ticked in early, kind of early April, I think that had a real impact in kind of the confidence level of consumer when it comes to is now a right time to buy. We do some surveying on our website with prospective buyers.

When we ask that question, how do you feel about now is a good time to buy. And it was right in that time period that we saw kind of a noticeable change in kind of response to that question. So, some of it I think is just the rate change and the things that people are hearing in the news and reading in the newspapers. Some of it is impacted by affordability, you know, how much is attributable one versus the other heart to know. So, I think, you know, the prospect that potentially rates might come down later in the year, I think that, you know, similarly could play into consumer confidence or buyer psychology in a positive way.

Yeah, we're always, you know, we're always looking at where, where is the population going and are there new growth cities that could create interesting opportunities for us? With the seven markets that we've entered over the last two or three years, I think we've, we're in all of the markets that we need to be in today. You know, could there be opportunities down the road? Sure, I'd never kind of close that off, but we don't have any kind of remaining major growth cities that I think we've got to get into. And then as it relates to kind of the cities that we're in and the growth targets, you know, we're pleased with how all those cities are performing and they're small, you know, relatively smaller businesses today and kind of our view of growth in those new markets, that's all embedded into our five to 10 percent growth rate.

Okay, thank you. Appreciate it. We just found this morning. We're certainly around available in Andrew today. We have any questions. Please submit them. And otherwise, we will look forward to speaking with you on our next call.