PulteGroup (PHM) Q2 2026 earnings call transcript

And thank you, Jordan. Good morning. I want to welcome everyone to today's call to review PULTY groups operating in finance results for our second quarter ended June 30th, 2026. Joining on today's call are Ryan Marshall, president, CEO, Jamosowski, executive vice president, CFO, and David Carrier, senior VP finance. In advance of this call, a copy of our Q2 earnings release in this morning's webcast presentation have been posted to our corporate website at PULTY group. com. We will also post an audio replay of this call later today. I would highlight that today's presentation includes forward-looking statements about the company's expected future performance. The actual results could differ materially, and those suggested by our 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 accompanying presentation.

These risk factors and other key information are detailed on our SEC filings, including our annual and quarterly reports. Now, let me turn the call over to Ryan.

Thanks, Jim, and good morning. Let me start by saying that I'm extremely pleased with the operating and financial results PULTY group delivered both for our second quarter and for the first six months of 2026. Specific to our second quarter performance, I want to highlight a few key metrics that I think demonstrate the ongoing success of the company. That new orders in the quarter increased by 6% over the same period last year as we realized higher orders across all buyer groups. Active adult orders were up 12% while orders among first-time buyers increased 5%. On a sequential basis, incentives on closing in Q2 dropped 50 basis points from the first quarter. We continued to execute a successful transition back to built-to-order as built-to-order sales increased to 45% of new orders in the quarter, and we further reduced our finished spec inventory, which dropped at 1.3 homes per community a quarter end.

Before turning the call to Jim for a thorough review of the quarter, let me offer a few additional comments about our results and general market conditions. Expanding on my earlier comment, on a year-over-year basis, net new orders were higher by 6% in the second quarter and up 5% year-to-date. During the first six months of 2026, we sold 720 more homes than this same period last year. I'd also highlight that it's a percentage of total orders. Year-to-date sign-ups for built-to-order homes were up 500 basis points from 39% for the same six-month period last year. The ongoing increase in built-to-order homes is consistent with the plan we articulated coming into this year, namely to increase the percentage of built-to-order homes sold among our MOVA and active adult home buyers.

These are individuals who expect choice and are operating model allows them to choose their preferred law and select the options and upgrades they desire. I know our field teams are excited to execute the strategy as it affirms our built cycles have fully recovered from the global supply chain disruptions that hit the industry after COVID. Our decision to build more spec homes when supply chains collapsed and build cycles effectively doubled was the right one at the time, but we much prefer having a growing backlog of sold homes. Consistent with our operating strategies, we are achieving greater sales while still maintaining strong gross margin. More specifically, we delivered home building gross margins of 25% for the quarter and 24.7% for the first half of the year.

In some instances, our home building gross margins are several hundred base points higher than those of our peers. For Pulte Group, our performance is reflective of a disciplined land under writing process, an operating model that is well diversified across markets and buyer groups, and a balanced price pace approach to driving high returns on invested capital. Part of this balance approach has been to continue to thoughtfully manage our start pace as we reduce spec inventory and implement the transition back to build to order. Reflective of this approach, through the first six months of 2026, our net new orders totaled 15,570 homes, but we intentionally started only 14,378 homes. With build cycles down to 100 days or fewer, in some cases, we can effectively manage our start cadence while still meeting our overall production goals.

To put this into a slightly broader context, at the end of 2024, we had approximately 8,800 spec homes in production. By the end of 2025, we had lowered this number to 7,200 specs, and now we are down to approximately 6,600 specs in production. I would note that we've achieved this dramatic reduction in spec inventory while growing overall community count. I want to recognize and applaud the discipline of our teams as they are maintaining, that are maintaining as we continue to work down specs and increasingly sell from a position of strength. At 44% of total production, I think we've gotten to the right spec level of inventory. We still have some work to do and select communities, but as we have demonstrated over the past 18 months, we are committed to this strategy.

As a backdrop to our successful efforts to sell homes, manage inventories and generate strong financial results, the second quarter demonstrated a typical seasonal demand pattern. Namely, sales and absorption pace is eased as we move for a month to month during the period. Within the seasonal pattern, I think it's fair to say from day to day and week to week, consumer activity was impacted to varying degrees by global tensions, macroeconomic uncertainty, and the material movement interest rates. Still, we were able to drive higher orders in the period with strong performances across all buyer groups. Along with increased sales, we are also seeing home buyers that are willing to pay for superior locations in the upgrades that they value most.

In the second quarter, options and law premiums on homes closed approached $107,000, which is comparable to prior year and prior quarter. Beyond any differences in demand among buyer groups, we continue to experience different demand dynamics across the markets we serve. For example, order pace in the Midwest was strong in a number of our markets, including Columbus, Cleveland, and Chicago. Stronger demand conditions also carried into our Greenville and Coastal Carolina markets, and our Florida operations continue to generate outstanding results. And while it's too early to read too much into the numbers, I would note that on a year over year basis, orders in Dallas and Houston were also better in the period. In our West operations, we realized improved orders in California and the Pacific Northwest, but we are having to compete aggressively for sales as core demand remains soft.

As with the case in the second quarter, through the first few weeks of July, we continue to experience seasonal demand trends, along with the week-to-week variability caused by macro factors ranging from global tensions and inflation to movements and interest rates and consumer confidence. Overall, there are a lot of positives to be taken from Polte Group's second quarter operating and financial results, but I think the biggest positive remains the fundamental benefits we realized from our strategic business model and our unmatched business platform.

With that, let me turn the call over to Jim for a review of our second quarter results. Jim?

Thank you, Ryan, and good morning. I look forward to providing a detailed review of Polte Group's second quarter operating and financial results. Second quarter net new orders increased 6% over the prior year to 7,536 homes as we realized higher net new orders across all three buyer groups. The value of orders in the period also increased gaining 5% to $4.1 billion. The year over year increase in second quarter orders reflects an 8% increase in average community count to 1,074 are surely offset by a 1% decrease in absorption pace to 2.3 homes per month. Overall, core consumer demand trends follow the typical seasonal pattern as we moved through this year's spring selling season. The strength of demand in our Florida operations continued to stand out as net new orders in Q2 increased by 19% or the same period in 2025.

In fact, orders increased over the comparable prior year period in each region except for the demand has generally been slower to recover. As a percentage of starting backlog, our cancellation rate in the second quarter was 11%, which is comparable to last year. As I mentioned earlier, net new orders were higher within each of our buyer groups in the second quarter. For the period, orders among first time move up and active adult buyers increased over the second quarter of 2025 by 5%, 4%, and 12% respectively. Reflecting the benefits of our ongoing investment in the growth of our business, higher orders in the second quarter were positively impacted by increased community count. As discussed on previous calls, we are working to increase our bill-to-order business with a long-term goal for orders to be approximately 60% BTO and 40% SPAC.

In the second quarter, the order mix was 45% BTO and 55% SPAC. Even our build cycle time is down to 100 working days, and even lower in many markets, we are now able to selectively use more straight bydowns to facilitate BTO sales. Breaking down second quarter net new orders by buyer group, orders were comprised of 39% first time, 36% move up, and 25% active adult.

I would highlight that active adult orders in the period benefited from the opening of our newest explore-by-down web communities in Tampa and Columbus. By comparison, in the second quarter of 2025, net new orders were 40% first time, 36% move up, and 24% active adult. For the second quarter, the company generated home sale revenues of $3.8 billion compared with home sale revenues of $4.3 billion last year. The decrease in home sale revenues in the second quarter reflects an 8% decrease in closings to 6,997 homes, along with a 3% decrease in average sales price to $544,000.

MIPS was a meaningful driver of our lower ASP as we realized fewer closings out of our northeast and west operations, which represent our two highest-price operating geographies.

Second quarter closings by buyer group are as follows. 41% first time, 37% move up, and 22% active adult. In the comparable prior year period, our closing mix was 39% first time, 41% move up, and 20% active adult. At the end of the second quarter, our backlog told of 10,966 homes with a value of $6.8 billion. We ended Q2 with 14,980 homes in production, of which 44%, for 6,638 homes were spec. Relative to this time a year ago, we successfully lowered our total spec inventory by approximately 1,000 homes, or 13%, as we remain disciplined in managing the cadence of home starts with a pace of sales.

With respect to complete inventory, I would highlight that we ended Q2 with approximately 1,400 finish spec homes for an average of 1.3 finish spec homes per community. This is down from 1.9 finish specs per community at the end of the second quarter of 2025. Our field teams continued to do an outstanding job managing spec home production as we have rebalanced our inventory, which helps our pulted community sell from a position of strength. Given the recent pace of sales and the number of homes under construction, in the third quarter, we expect to close between 7,000 and 7,400 homes.

For full year 2026, we reaffirmed closings to be in the range of 28,500 to 29,000 homes, although we still have many homes to sell and close over the balance of the year.

Based on the timing of community openings and closings over the remainder of 2026, we expect year over year community count growth will be consistent with our previous guidance of up 3 to 5% in each of the remaining quarters. Given current demand dynamics, in the mix of homes we anticipate closing, we expect the average sales price of closings to be in the range of $550,000, $560,000 for both the third and fourth quarters. For the second quarter, we reported gross margin of 25%, a sequential increase of 60 basis points from Q1 of this year. I would also note that incentives in the quarter were 10.4%, the sequential decrease of 50 basis points from the first quarter of this year.

While there are positive implications to be derived from both numbers, the mix of Q2 closings also contributed to the improvement in these metrics. More specifically, we benefited from greater mix of closings from our higher margin floor to markets in combination with lower than anticipated discounts on the homes sold and closed within the quarter. These were the key drivers of the sequential improvement and the outperformance relative to our prior margin guide.

Our second quarter of gross margin also benefited from lower build costs in the period. At just under $75 per square foot, our Q2 house costs were down 5% from last year down approximately 1% from this year's first quarter. Going forward, we'll lose the tailwind of lower lower cost as we move through the year, but we still expect your over-year house costs to be down slightly from 2025. Given house cost trends and the anticipated closing mix, we expect third quarter gross margin to be in the range of 24.5% to 25.0%. At this time, we are reaffirming our 2026 four-year closing margin or gross margin guide to also be in the range of 24.5% to 25.0%.

On a dollar basis, home building SG&A expense in the second quarter was down 2% from the lost leverage as SG&A expense total of 10.1% home sale revenues compared with 9.1% in the second quarter of last year. Overall, SG&A in the second quarter was in line with our expectations, so we're maintaining our guidance for full-year SG&A expense, being the range of 9.5% to 9.7% of home sale revenues. So the second quarter, multi-financial services operations generated a pre-text income of $37 million compared with pre-text income of $43 million in Q2 of last year. Relative to last year, financial services pre-text income in the second quarter was impacted primarily by lower closing volumes in our home building operations.

Q2 mortgage capture rate was 85%, which is comparable to the second quarter of 2025. For the second quarter, multi-group reported pre-text income of $622 million in a tax expense of $150 million or an effective tax rate of 24.2%. Our Q2 tax rate was generally in line with our annual guidance, which remains 24.5% for full-year 2026. Our expected tax rate does not take any comfortable to groups. Second quarter was $472 million or $2.48 per share. In the second quarter of last year, we reported an income of $608 million for $3.03 per share. Earrings per share for the second quarter of 2026 was calculated based on 191 million diluted shares outstanding, which is down 10 million shares or 5% from the second quarter of 2025.

This year's second quarter, we repurchase 3.1 million common shares for $373 million. With increased community count remaining an important driver of near-term growth, we continue to invest in our future land pipeline. In the second quarter, we invested $1.4 billion in land acquisition and development. This brings our year-to-date spend to $2.7 billion, keeping us on track to invest approximately $5.4 billion in land in 2026. We ended second quarter with 228,000 lots under control, which is down approximately 6,000 lots from the end of 2025, with 55% of our land pipeline controlled via option. We continue to look for opportunities to expand our controlled lot count, but as with all our land investments, option deals need to underwrite to acceptable risk-adjusted returns, while also mitigating risk.

As discussed on our last earnings call and is demonstrated by the company's Q2 land spend, our acquisition teams are still finding great land opportunities that meet our required returns. This type of market environment, you have the discipline and the capital, you can secure the land assets needed for ongoing business success. We ended second quarter with $1.4 billion in cash and debt to capital ratio of 12.3%. And finally, given expected volume, margin and land spend for the year, we continue to expect 2026 operating cash full of generation to be approximately $1 billion.

Now, let me turn the call back to Ryan.

Thanks, Jim. Before opening the call to questions, I wanted to briefly touch on the topic of industry consolidation as the recent increase in M&A transactions has prompted a number of questions from investors. When it comes to assessing M&A opportunities, before we even run the numbers, the first question we ask ourselves is, will this transaction make us better, not just bigger? Integrating businesses, organizations and cultures is hard work, so we have to see the value in terms of the transaction truly enhancing our business.

If the strategic benefit is there, we maintain a discipline valuation process that focuses on the return potential of the underlying land assets. Given the broad business platform we already maintain, M&A for Polte Group is primarily another way for us to buy land, so we underwrite it accordingly. But we certainly have the financial and organizational capabilities to successfully execute a large multi-market acquisition. Our preference is for smaller tuck-in types of transactions that help build local market scale. If you look over the past decade, you see us having acquired Dominion in the Midwest, John Wieland here in the southeast, and American West in Las Vegas. Again, good land pipelines that could help accelerate market share growth, and acquired a price that allowed us to realize acceptable risk adjusted returns.

They solely on the public comments I've read about the local market scale matters. I believe the improved access to land and labor that comes with scale is critical to a home builder's long-term success in any given market. Before opening the call to questions, I want to thank the entire Polte Group organization for another great quarter of operating and financial performance. When we report quarterly earnings, for obvious reasons, everyone focuses on the numbers, but behind every order, every home closing, and every satisfied customer are the people across this company who make these outcomes possible. We can have the right strategy and a strong business model, but these only create value for shareholders when they are paired with great execution.

Now, let me turn the call over to Jim Zumer.

Great. Thanks, Ryan. We're now prepared to open the call for questions, so we can get to as many as we ask that you limit yourself to one question and one follow-up. Gordon, we'll start taking questions now. The first question comes from the line of John LaValle from UBS. Your line is now live.

Yeah, John, we highlighted some of it in the prepared remarks and all of our five regions that we report on. We saw positive year over year growth, and four of them, the West being the one that I think is probably still the softest. Specific to the four where we saw some stabilization and I think some positive signs, I would definitely call out some of the Midwest markets. We continue to see strength there. We're also seeing some favorable trends out of the Southeast markets. We particularly like what's going on in the coastal Carolina markets in Greenville, and then I, you know, look, I've got to highlight Florida again. Florida was up 19% year over year and in a continuation of a theme that we've talked about for the last couple of calls.

We've got great operating teams there and good assets, and we're seeing nice performance there. I'm also encouraged by what we're starting to see in Texas. I'm not ready to declare victory there, but the fact that we saw positive year over year orders, I think, is a good sign.

Yeah, I wouldn't. I would say it's probably a fairly accurate assumption, John. We got a little bit of favorable mix in Q2 with just where closings came from that benefited the margin. You know, maybe that goes back a little bit the other way in Q3, but as GM highlighted, we're reiterating our full year guide. And so, the fact that we're growing orders, you know, we think we outperform relative to order growth expectations in the most recent quarter, and did it all the while delivering great gross margin. So, we feel pretty good about how our teams are executing.

Sam, our expectation is that the market's going to continue to remain competitive and that we're going to continue to see elevated incentive lows beyond kind of the guidance that we've given you on gross margins. We typically don't, you know, comment specifically on numbers for incentives. We did highlight that last quarter was going to be our high watermark, and that is indeed proven to be true. I'm very pleased to see that our incentives came down 50 basis points in the quarter. They're still high, even though they did come down and we'd expect just given everything that the consumer's dealing with and the affordability challenges that will, you know, will remain in an elevated incentive environment.

Great question, Sam. You know, what I tell you on the community count, we've seen community count growth across all of the segments. And really what I tell you is that we've seen a little bit higher than guided level in the second quarter is just some of the communities are taking a little bit longer to close out. And so, you know, as we continue to work through the balance of the year, we still feel really good that three to five percent year over year is really what we're looking for. That's Q3 of 26 versus Q3 of 25 and then Q4 of 26 versus Q4 of 25.

Yeah, Matt, it's a fair question. We did highlight that last quarter. We did not emphasize that this point, but I would not, I'd encourage you not to run to the high end. I think there's, we still have a lot of homes to sell. As I mentioned on one of the earlier questions, we think incentive loads are going to remain relatively elevated. And, you know, we've seen a little bit of turmoil come back into the mind of the consumer with some of the things that are going on globally. So, I think there's a lot out there, but we feel confident about the 50 basis point guide that we've given, given how our teams are performing right now.

Yeah, sure. So, we have had visibility to this and this has been part of our plan for the entire year. So, as we've talked about new communities coming online, moving from a predominantly or a higher level of specs to more built to order and then matching our start rate to the sales that we have, we knew that this is the situation that we are going to be in and it was going to come from homes that are sold as dirt sales that get built and closed in the fourth quarter. So, you know, as we've highlighted, we still have some homes to sell, but with our 100 day cycle times, we still have quite a bit of time left to sell and start homes that will still deliver in the year.

So, that works got to be done, but there's nothing in the guide for Q3 or Q4 and how that relates to the full year that hasn't been kind of part of our full year visibility from the very beginning.

Yeah, Stephen, there's definitely a lot going on in the market on both fronts and maybe let me start with the distribution channels. You know, to this point, we've not seen any changes to the way that we interact with either the old companies or in naming names, some of the consolidators, we've already derived some nice strategic benefits from the increased scale of those new companies and the way that they're able to serve and meet our needs. You know, I'm personally engaged in some strategic conversations with our procurement teams and some of those partners as we think about how they could do even more for us down the road. So net net, Stephen, I mean, at this point, I think it's generally a positive.

You know, certainly these companies that are consolidating, they want to get a return on their capital as well, and you know, we just, we hope that that, we hope that as far as it relates to us, that that return can come from increased efficiencies that was opposed to this forcing higher prices on offs or their customers. And then, you know, with some of the things that are going on inside a home building, we do watch it a lot. You know, the things that are happening, we're not surprised by because for a long time, we've appreciated the value of having local market scale. We definitely believe we have national market scale, but where we, in our own operations, where we see the appropriate amount of market share in a specific market, we perform better.

And I think some of this consolidation that's going on are other companies' attempts to achieve some of that. As it relates to competitive dynamics, the competitors that are being consolidated, they're the competitors that were there yesterday. They're there today. They're just under a different umbrella. We've not seen a change in competitive behavior to this point. My crystal ball's not clear enough at this point to say what will happen down the road, but to this point, we haven't seen a change.

Yes, Stephen, our efforts in ICG were really focused on the structural components that could go into site-built homes. And I think most of the stuff in the Road to Housing bill is directed at manufactured housing, which I think can be favorable for overall housing supply, but that's not where we were innovating or attempting to innovate with ICG. So as it relates to ICG, we're kind of moving through the process of that divestiture. We're making great progress, and I think we'll have more to share in the next quarter. And then we absolutely continue to partner with all of the advanced manufacturing companies that we currently work with, including whoever may potentially be the buyer of ICG, because we really see the value of the benefits and the value of the production methodologies employed there.

So we want to continue to be an implementer, a user, all of these innovative technologies and techniques. We just would prefer not to be the operator. We think others are probably better suited to do that.

Alan, it's a fair question. We're not quite to the point of putting numbers out for next year, but I'll address it thematically. I think if you went back to a period of time pre-COVID, you would generally see modest increases year over year, one and a half, maybe 2% cost increases year over year. And we were able to more than offset that with price increases, a reasonable price increase that we would see in the home price. So the environment that we're in right now, there's a lot of focus on affordability in every consumer product or everything that society consumes, especially housing. So I think we're going to do everything we possibly can to maintain cost control.

There are some things like lumber, like oil that are commodities that make it much more difficult to kind of influence because they're much bigger than just housing. You know, lumber aside, which we can see where that's going, oil probably continues to be the one that I'm most nervous about just because of how much oil is in some pretty big ticket items like land development. And I talked about this last quarter, but asphalt, underground piping, all of the, you know, there's some real big dollars that go into land development, never mind the diesel fuel that goes into the tractors that are moving dirt around. So, you know, those are things that we're really paying attention to, Alan, that could have an impact on not just price per square foot house costs, but ultimately maybe develop land costs.

And of course, you know, that ultimately goes into the total, you know, the total cost basket for the house.

Yeah, we we don't really provide that level of granularity on incentives. Mike, I, you know, I will tell you as it relates to seasonality, it was a normal quarter as we moved, you know, from April into June, kind of normal step downs and seasonality that we've seen for a long time. So really nothing surprising there. You know, we did see week to week variability based on some things that were going on in the economy and in the world, rather, maybe better said. So we're paying attention to that. And then as we've gotten into July, you know, I think we continue to see pretty normal seasonal trends that are influenced by, you know, some of the more recent events that, you know, that are going on globally.

Sure, Mike. Thanks. Great question. You know, you're right. We've lost some leverage in the first half of this year. You know, we've seen, you know, our lowest ASP levels of the year and the first half of the year as we've guided, we expect it to be five fifty to five sixty over the balance of the year and Q three and for the full year. So you'll see a list from that. We have our volume that's increasing in the back half of the year. But what I tell you is there really isn't anything structurally or anything that we need to do. We still feel really good about it. We check it every quarter. And, you know, as I said, in my prepared remarks, I mean, we were right on where we thought we would be as at the end of the second quarter and still feel, you know, very confident getting over the balance of the year within that guy.

Yeah, I'll take the last part first, Anthony, in terms of the geographies that make a lot of sense. It's really the geographies where we've recently decided to expand to. So, you know, those are places that would be great M&A targets and it would allow us to build local markets scale a bit faster if, and we haven't been able to find acceptable M&A targets. And so, we've elected to grow those markets organically, which we're fine with as well.

As it relates to the pipeline, the pipeline's pretty steady. We see a lot of things that come across our desk. We look at all of them. As I mentioned in my prepared remarks, the first question that we really ask is, is this something that fits with us strategically? Or is it the right buyer groups? Is it in the right parts of the MSA that we want, that we want to target?

And if we can say yes to all of those things, then we go down the path of, you know, can we offer a price that makes sense? The place that where most of these break down is we really underwrite these transactions as if we're acquiring additional land. We already have an operating model. We already have a branding on our house of brands. So, some of the kind of intangibles and the things that a seller might want to get paid for, it doesn't mean there's not value there. It just is not as valuable to us because we already have our own. And so, a lot of the, you know, even if we're able to answer the first question, which is the hardest, if you can get past that, sometimes the, you know, the underwriting, the risk adjusted underwriting doesn't make sense.

So, it's pretty rare that you go from looking at a deal to actually getting, you know, super interested in making offers, just the probability, I think, of all those things lining up is on the lower side.

Where you see the difference in incentive level is based on built order versus spec. And most of our spec is in entry level. And so, you see higher incentives in entry level because of that, but it's not the buyer group that's driving it. It's the difference between spec versus built order.

Yeah, really no change on the timeline, Trevor. It'll likely be sometime next year that we get to that 60%. So, we haven't set a target out there for the back half. You know, I'd like to see us continue to chip away at it and make kind of measured and steady progress. So, between now and sometime next year, you know, I'd like to chip away at those incremental 15% points that we need that we want to go after.

Yeah, you know, our procurement teams are really good and and they really operate on data and facts. So, they do are really nice job kind of looking at our overall cost structure and identifying places where we were arguably paying more than the market warrants and we go that's where we go after. We want our trade partners to be successful. We want them to have healthy profit and so, you know, we're cognizant of that as well. I think our procurement teams have done a wonderful job and the fact that, you know, environment, I think it's a job, well done.

No, nothing else meaningful to call out. You know, we have a higher volume of closings coming in the back half of the year. Spring selling season is when you're starting to put inventory in motion. You're doing land development. You're doing home construction. So, yeah, inventory reduction with extra closings is the tail one in the back half.

So, I would tell you, you know, from a from a lot count standpoint or what we saw going on in the quarter, not not a whole lot of change. It was a pretty typical quarter for say, I think the numbers, we put about 13,000 lots under control. We walk from 6,000. We close 7,000. So, it was kind of a push. It was a fairly normal quarter for us as it relates to lock count across the geographies. But I tell you what, what we really focus on more is just the lots that we control. You know, we talk about it often. Let's put some deposits, responsible deposits down. Let's get that land pipeline in front of us.

And that way, we need to lean into it because the market's strong and healthy. We'll do it. If it's a little bit softer market, we don't always pull back in that. So, I wouldn't read anything more into kind of the variability of the of the lock count over the past couple of years.

Yeah, Ray. Good morning. The spec level that we're at, we think is about perfect. So, you know, you might see that go up a little down a little, depending on kind of what's going on. But we think we're kind of accomplished on reducing spec inventory. And then as it relates to starts in the back after the year, really what we've been doing is we've been working to match starts with kind of prior quarter sales as kind of the best linkage. And with with the caveat that we intentionally under started the sales that we had in the first half because we had more spec inventory than we wanted. So a lot of the sales that we had in the first half were specs that we wanted to get out of the system.

And now, you know, as we continue to make this transition back to built order, I think you'll see a more stronger linkage between what we're selling and what we're starting.

Yeah, you know, Ray, we've talked about this the last several quarters. And really, when we think about capital allocation and the needs of the business, we talk about what do we want to accomplish? Where do we want to grow the business? Where do we want to, you know, make strategic investments in land, in-house, et cetera, in new markets? And then we go through the capital planning exercise to determine how much money that's going to take. And we figure out whether or not that can be financed and supported or cash flow through operations or do we need debt to do it. And then that drives whether or not we're going to go to the capital markets and ask for money.

I know that it's a normal thing to look at debt leverage ratios. And I understand that more debt can make some efficiency. There's an efficiency argument that if you have the right amount of debt or more debt, you know, it's a beneficial lever to return. But in this environment, I think we're positioned with lower leverage and doing all the things that we've said we're going to do. We're growing the company. We're growing our land pipeline. We're growing community count. We're growing markets. We're paying our dividend and increasing it. And we've been really consistent with our share of idarchs. There's not an argument, at least not one that I've been unable to convince myself what to suggest that we need more debt.

Good morning. Good morning.

Yeah, Susan, I'm really excited about Explore by Delweb and the ideas we're taking these highly amentatized lifestyle communities that have historically been targeted to the age restricted over 55 buyer. And now you're opening it up to a broader range of buyers, particularly the Gen Xers that are approaching retirement that maybe aren't as interested in being in the age restricted community. So I think it'll be just tremendous opportunity. Jim mentioned our first, we've got our first two communities, actually first three communities that are now open, one in Southern California and the desert, the Palm Desert area, one in Columbus that just opened in the most recent quarter and one in Tampa, Florida that just opened. And then our next opening will be in Utah, just kind of east of Park City, east of the New Deer Valley expansion.

So these are communities that have got a heavy, heavy amount of lifestyle and really kind of speak to buyers that maybe they're retired, maybe they're getting closer retirement. And we think it can be just a really nice augmentation and growth opportunity within our already very successful Delweb business.

Yeah, so the way that we've thought about growing the business is we've made the investments into land and into new communities that will grow. You've seen us pretty consistently over the last three to five years where we've grown our community count somewhere in the three to five percent range. And you're seeing that we've been very consistent predictable on that. And I expect that to kind of continue. If we can see some normalization of absorption paces, then I think you've got a very good opportunity to be total volume growth in the five to 10 percent range. Some of that coming from community count growth, some of that coming from a slight expansion and absorption rates. In terms of the right number of sales per community for us, we're of the view that we want to strike the right balance between pace and price to drive ultimate return.

And every community is a little bit different. That said, we are a production home builder. And the general rule of thumb is every community's got to sell at least two homes per month. If it's not doing that, I think it's hard to give the economy the scale that you need in order to be a successful production home builder. So that would be the kind of minimum level. And then hopefully we're operating at something higher than that. That makes sense for the return objectives that we have.

Texas, Ken, the two that we highlighted, we saw positive improvement in Dallas and Houston. Dallas, we have a very diversified business, so we do everything from entry level to move up to active adult. Houston tends to be more affordable. So the fact that we're seeing some, I said it's a little early to declare victory, but we are seeing some positive trends there. And then it relates to Florida. I don't have those numbers off top of my head, Ken. It really varies by city and then also by the type of community.

We, Tampa, as an example, have a fair number of kind of first time buyer entry level communities in Tampa. Those are going to be predominantly local buyers. And then you go to Fort Myers and Naples area. We do a lot of second home seasonal kind of retirement communities. And you got a much, much higher percentage of folks that are probably coming from out of state. So Florida, I think Florida continues to do really well despite some of the things that have been talked about with Florida related challenges. The fact that this is now our probably third or fourth quarter in a row where we've had positive year over year order growth. So it's not as if we're comparing on soft cops.

We're seeing kind of real momentum and growth in Florida. And I think it's reflected above the land positions and the operators that we have there.

Well, well, the build time, we really measure it from start to final. So that's how all of our cycle times are calculated and both spec and built order are in those 100 day numbers that we're giving you. So there is no difference. In terms of order to close, it depends. I mean, it really depends on does a spec home sell during the production process, in which case there is no difference. If the house finishes and it sits for 60 days, well, you know, you're adding 60 days to the end of the kind of finish timeline. So, you know, that's why to get consistent measurement on that, Ryan, it's always from the time that you put a shovel in the ground and dig the foundation to when you get your, you know, final inspection.

Yeah, I mean, look, we're focused on running the best holistic business that we can that's going to drive the best return on this environment. I think we've been pretty, pretty crystal clear. And if we haven't, I'll do it now to say we are kind of prioritizing the pace price balance. And right now, you know, I think there's plenty of examples out there of where just driving volume for volume sake isn't necessarily kind of yielding the best results. So not to say that our weight perfect, but it's the way that we've decided around the business, which is, you know, I think we're optimizing, we're getting volume, but, you know, we're doing it in a pretty responsible way.

So if that means that our overhead leverage is a little less than optimal, you know, I can live with that. And all that said, the total, you know, the total SGA leverage is going to be pretty consistent with where we've been the last number of years at 95 to 97. And I think the ultimate benchmark and report card is operating margin, which I think we continue to perform pretty well in that in that category.

Appreciate everybody's time today. We'll certainly be available for any additional questions as we go forward. Otherwise, we will look forward to speak with you on an experience call. Thank you. That concludes today's meeting. You may now disconnect.