Mullen Automotive Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
July 25, 2024

There are 12 speakers on the call.

Operator

welcome to the TRI Pointe's 2nd Quarter 2024 Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, David Lee, General Counsel at TRI Pointe Homes. Please proceed.

Speaker 1

Good morning, and welcome to TRI Pointe Homes' earnings conference call. Earlier this morning, the company released its financial results for the Q2 of 2024. The documents detailing these results, including a slide deck, are available at www.tripointhomes.com through the Investors link and under the Events and Presentations tab. Before the call begins, I would like to remind everyone that certain statements made on this call, which are not historical facts, including statements concerning future financial and operating performance, are forward looking statements that involve risks and uncertainties. The discussion of risks and uncertainties and other factors that could cause actual results to differ materially are detailed in the company's SEC filings.

Speaker 1

Except as required by law, the company undertakes no duty to update these forward looking statements. Additionally, reconciliations of non GAAP financial measures discussed on this call to the most comparable GAAP measures can be accessed through TRI Pointe's website and in its SEC filings. Hosting the call today are Doug Bauer, the company's Chief Executive Officer Glenn Keeler, the company's Chief Financial Officer Tom Mitchell, the company's President and Chief Operating Officer and Linda Mamey, the company's Executive Vice President and Chief Marketing Officer. With that, I will now turn the call over to Doug.

Speaker 2

Thank you, David, and good morning to everyone on today's call. During the call, we will share the operating results for the Q2, provide a market update and discuss the progress on some of our growth initiatives. In addition, we will provide our Q3 and full year outlook for 2024. We're extremely pleased with TRI Point's outstanding results in the Q2, which were driven by our focus on building scale and efficiencies within our existing markets as we continue to lay the foundation for organic growth in 3 new markets. We delivered 1700 homes at an average sales price of $666,000 resulting in home sales revenue of $1,100,000,000 a 38% increase compared to the previous year.

Speaker 2

This growth was fueled by a 45% increase in deliveries resulting from strong market conditions, increased community count and improved cycle times. Our gross margin expanded by 320 basis points to 23.6% compared to the prior year, driven by the pricing power we have experienced over the past several quarters, which has enabled us to increase base pricing and moderate incentives. Higher revenue provided operating leverage through SG and A as our ratio as a percentage of home sales revenue improved by 90 basis points to 11% for the quarter. This helped generate a 4 20 basis point improvement in homebuilding operating margin, which was 12.6% for the quarter. The combination of strong revenue, disciplined cost management and strong operational execution led to diluted earnings per share of $1.25 or a 108% increase compared to the prior year.

Speaker 2

Our net new orders for the quarter were 16.51 with a monthly absorption rate of 3.6 orders per community per month, reflecting continued healthy demand levels despite mortgage rates that averaged 7% during the quarter. Incentives on orders in the quarter were 3.7%, which was down slightly from 3.8% in the 1st quarter, indicating the strength of demand in our core market locations, coupled with a strong buyer profile that is financing with our mortgage company, TRI Pointe Connect. Our buyers in backlog with TRI Pointe Connect have an average FICO score of 753, debt to income ratio of 40%, loan to value ratio of 70 household income of $207,000 First time homebuyers are 55% of our backlog and from a generational perspective 63% are millennials and 6% are Gen Z. Our capture rate with TRI Pointe Connect in the 2nd quarter remains strong at 85%. With mortgage rates remaining elevated and nearly 80% of existing mortgage holders enjoying rates below 5%, the lock in effect continues to bolster demand for new construction homes and influence overall selling conditions across most of our markets.

Speaker 2

These dynamics support both sales volume and pricing as the share of total home sales garnered by new homebuilders remains elevated compared to historical norms. We have seen normal seasonal demand trends take shape as June drew to a close and so far into July. Historically, we have experienced lower absorption rates in the summer months and we will continue to focus on balancing pace and price to meet our overall sales objectives. We have been pleased to see that traffic and orders have improved throughout July as mortgage rates dipped below 7%. Considering how strong demand trends have been with elevated rates, the possibility of lower rates in the back half of the year would be a positive for the consumer and our business.

Speaker 2

Long term, we maintain a very optimistic outlook for the industry and our company. The ongoing demand for new housing from millennials and Gen Z coupled with persistent supply constraints in the resale market, land availability and labor resources create a strong foundation for sustained growth in the new housing market. These factors position our company favorably for future success as we continue to address the increasing need for new homes in the face of limited existing inventory. During the Q2, we repaid $450,000,000 of senior notes, eliminating $26,000,000 in annual interest payments. This was accomplished using existing cash, demonstrating our ability to generate positive cash flow to delever the balance sheet while still investing in our business to grow community count and staying active in our share repurchase program.

Speaker 2

Our homebuilding debt to capital ratio improved to 22.9%, while maintaining strong liquidity of $1,200,000,000 Speaking of our share repurchase program, we repurchased just over 1,000,000 shares during the quarter for a total spend of 37,000,000 dollars We have reduced our share outstanding share count by 5% over the past 12 months, bringing the total reduction to 42% since the beginning of 2016. Through this reduction in shares and strong profitability, we have achieved a 15% growth in book value per share compounded annually over the same period. As we discussed in the prior earnings call, we are committed to growing our scale and share in existing markets, while further diversifying our company and positioning us for ongoing strategic growth in our 3 new expansion markets of Utah, Coastal Carolinas and Orlando. In Utah, we are pleased with our progress towards meeting our goal of first deliveries in 2025. We have our first projects under control, including a community in the highly desirable city of Holiday in Central Salt Lake, which will offer premium detached homes and townhomes.

Speaker 2

It's still early innings at both the Coastal Carolinas and Orlando markets, but our teams are attracting talent and identifying core market land opportunities for our premium product. We are enthusiastic about these new divisions and confident that they will contribute significantly to further growth and geographic diversification for our company. We started Tri Pointe Homes in California in 2,009 and as the 4th largest builder currently in the state measured by deliveries, we continue to produce strong revenue and profits. With that said, we have seen the benefits of growing our business outside of California to diversify our customer base and price points, while always focusing on land in core market locations. Revenue from non California divisions previously represented less than 50% of the total company revenue.

Speaker 2

Currently, revenue generated outside of California is expected to grow to approximately 70% of our business by 2026, demonstrating our successful expansion into other top MSAs across the country. In conclusion, TRI Pointe Homes is poised for a very positive second half of twenty twenty four and beyond. As we continue to capitalize on our strengths and pursue opportunities in both existing and new markets. The housing industry's underlying fundamentals remain robust with a persistent undersupply of homes driving demand. Our strategic focus on profitability, growth and shareholder returns combined with a strong industry outlook fuels our optimism.

Speaker 2

We remain committed to our goal of increasing book value per share by 10% to 15% annually, while generating strong returns, driving incremental value for our shareholders. With that, I will turn the call over to Glenn. Glenn?

Speaker 3

Thanks, Doug, and good morning. I'd like to highlight some of our results for the Q2 and then finish my remarks with our expectations and outlook for the Q3 and full year for 2024. As Doug mentioned, demand remains strong in the 2nd quarter with 1651 net new home orders at an absorption pace of 3.6 homes per community per month. For some color on the markets, the West continued to show outsized demand with Arizona, California, Nevada and Washington all reporting absorption paces above 4 for the quarter. Results in the central region were moderate with an overall absorption pace of 2.5.

Speaker 3

In Texas, our Houston division continued to show strong buyer activity for our well located premium entry level and move up communities. Demand in DFW showed some softening in the quarter due to higher rates and an increasing supply of both new and resale homes, while Colorado has remained a challenging market. In the East, our Charlotte and Raleigh markets with attractive price points across a range of product types continue to produce strong absorption rates above the company average. Finally, our DC Metro market continues to benefit from the lack of supply and high demand with an absorption pace over 5 for the quarter. Our cancellation rate during the quarter remained low at 9% and we ended the quarter with approximately 2,700 homes in backlog representing $2,000,000,000 of future revenues.

Speaker 3

Turning to communities, we opened 19 new communities in the quarter and closed 22 ending with 153 active selling communities, which was a 5% increase over the prior year. We are excited about our land pipeline and future community count growth. We ended the quarter with approximately 34,000 total lots. We are approaching our short term goal of a fifty-fifty owned and controlled lot ratio with our controlled lots this quarter increasing to 48%. Looking at the balance sheet and capital spend, we ended the quarter with approximately $1,200,000,000 of liquidity consisting of $493,000,000 of cash $700,000,000 available under our unsecured revolving credit facility.

Speaker 3

Our debt to capital ratio decreased 8 60 basis points sequentially to 22.9% after paying off $450,000,000 of senior notes during the quarter. Our homebuilding net debt to net capital ratio was 12.2% to end the quarter. We do not have another debt maturity until 2027, which puts us in a strong position to use our capital to invest in our business and support the stock through our share repurchase program. During the Q2, we repurchased a little over 1,000,000 shares for a total aggregate dollar spend of $37,000,000 leaving us with $163,000,000 available under our current authorization. We continue to be active in the land market during the Q2 investing approximately $275,000,000 in land and land development.

Speaker 3

Now I'd like to summarize our outlook for the Q3 and full year for 2024. For the Q3, we anticipate delivering between 14.50 Homes and 1550 Homes at an average sales price between $685,000 $695,000 We expect homebuilding gross margin percentage to be in the range of 23% to 23.5 percent and we anticipate our SG and A expense ratio to be in the range of 11% to 11 0.5%. Lastly, we estimate our effective tax rate for the 3rd quarter to be approximately 25.5%. Based on our strong backlog headwinds in the back half of twenty twenty four, we are raising our guidance of full year deliveries to an updated range of 6,300 to 6,500 homes. We are also increasing our expected average sales price to an updated range of $670,000 to $680,000 We expect our full year homebuilding gross margin to be in the range of 23% to 23.5 percent and we anticipate our SG and A expense ratio to be in the range of 10.5% to 11%.

Speaker 3

Lastly, we estimate our effective tax rate for the year to be approximately 25.5%. With that, I will now turn the call back over to Doug for some closing remarks.

Speaker 2

Thanks, Glenn. In closing, I want to express my sincere gratitude to the entire team as we celebrate 15 years since the founding of Tri Pointe Homes. Their work and relentless pursuit of excellence are the foundation of our success. Their commitment to our values and dedication to our mission are the reason we once again earned certification as a great place to work in 2024, an honor we are particularly proud of. I remain confident in our company's future and the broader industry landscape.

Speaker 2

We have a clear vision, a robust strategy and the right team in place to capitalize on the opportunities ahead. While we navigate the inevitable challenges that arise, our unwavering commitment to continuous improvement ensures we emerge stronger every year. With that, I'll now open the call for questions. Thank you. Operator?

Operator

Thank you. We will now conduct a question and answer Our first question comes from Stephen Kim with Evercore ISI. Please proceed.

Speaker 4

Yes, thanks very much guys. Congratulations on the good numbers this quarter.

Speaker 5

I was wondering if you could

Speaker 4

talk a little bit about incentives specifically. I think last time you spoke with us, you'd indicated they really hadn't risen as of late April. Curious how they've been trending through the quarter and kind of they're trending now. And if you could also talk about your absorption pace. I think you talked about how there's some seasonality there that typically slows in the summer months and so forth.

Speaker 4

Do you could you give us a sense for kind of like how you generally think about absorption rates as you get into the fall? Do you typically see a reacceleration? And maybe talk to us a little bit about what your what you see as a normal seasonal pattern through the year?

Speaker 2

Yes, Stephen, this is Doug. How are you doing?

Speaker 5

Great.

Speaker 2

As we reported, our incentives for the quarter were a tad bit below the Q1. And I'd say market conditions are acting very much like we had planned. We typically see summer choppiness. And then the one thing that you have to add into your planning is the national election, which happens every 4 years. So we add that into our playbook.

Speaker 2

So sometimes that will require more levers to be pulled as you go through the summer months. And then in the fall, it starts picking up. Obviously, if rates tick down in September as anticipated, that will help too. So everything is actually working just as we plan.

Speaker 4

That's encouraging. And if you could talk a little bit about maybe specifically in the area of specs, it seems like when we look at your land holdings, if I'm not mistaken, your land holdings in owned lots I think was down, but your inventory I think is up. Just given what we're seeing in terms of your backlog turn, it sort of implies that your spec activity has increased. Curious if you could sort of talk about that. Is that how much of that is in your view sort of a semi permanent kind of change?

Speaker 4

Maybe are there geographic mix issues there? What's kind of driving the if I'm right and leaning into spec activity?

Speaker 3

Hey, Stephen, it's Glenn. That's a good question. I wouldn't say we've changed our spec strategy this quarter. It's roughly the same. I think about 61% of our orders were on spec homes this quarter and our start spec strategy has been about the same.

Speaker 3

It's somewhere between 60% to 70% of our starts are on spec. And that's been pretty consistent for us over the last couple of years. I think what you're seeing in a little bit of an inventory build it's just getting ready for the year end deliveries, right? We always deliver more homes in the back half of the year and those homes are started and underway.

Speaker 4

Got you. Any geographic issues there or factors or other maybe price point mix because I know your ASP

Speaker 3

has been trending up pretty nicely? It has. That's just mix, but nothing really to point out there. I think all this is done on a community by community basis and I don't think any geography sticks out one way or the other. I think it's all kind of like Doug said going according to plan.

Speaker 4

All right. Sorry. Sounds great guys. I'll turn it over to the other questioners. Thanks.

Speaker 3

Thanks, Stephen.

Operator

The next question comes from Mike Dahl with RBC Capital. Please proceed.

Speaker 6

Good morning. Thanks for taking my questions. Just to stick with Steve's kind of questions around your comments on June, July, I guess there's on one hand you're saying that you're seeing the seasonal slowing on the other you're saying that traffic and orders improve the last few weeks as rates ticked down. Can you just help square that up? I know you typically see your pace down for 3Q versus 2Q, but relative to your normal seasonality, is it your intent to message that July may be tracking better than your normal seasonality or how would you characterize?

Speaker 2

Hey, Mike, it's Doug. No, it's normal seasonality. So as you look into the Q3 pattern and we plan, like I said, this seasonal pattern, I don't see anything different than I've seen previously. And you can't make a quarter out of 3 weeks or 3 weeks of the year either. So we're very bullish where we stand today and there's very strong demand between the millennials and Gen Zs.

Speaker 2

But it's normal during the summer months. And then as I mentioned, and I'm sure a lot of you are familiar with the national election also creates it's almost creates an additional summer month to be honest with you. So it just takes a few more levers to get people across the goal line and very normal. And again, everything we plan in our business going forward.

Speaker 7

Hey, Mike, this is Tom. Just to add on to that, relative to the comments regarding improvements positivity around a declining rate environment. And so we do see some short term fluctuation in that. But overall, as Doug said, normal seasonality is what we're experiencing.

Speaker 6

Okay. All right. Thank you. Second question just in terms I mean, there's been puts and takes around your community count. Obviously, that's always tough to predict your position for some nice growth over the next couple of years.

Speaker 6

But in the near term, your closed assets, a pace you're open. Can you just update us on how you're thinking about the back half? Sorry, if I missed it in the opening remarks, but just the community count trajectory and then remind us on that updated basis regional SKUs where you're having more or less success right now?

Speaker 3

Yes. Mike, this is Glen. I'll take that one. Community count, everything is all our openings that we plan for the year have opened. So it's just we've closed out of a few more communities than we originally thought just with some strong absorption paces in certain markets.

Speaker 3

And I think originally we thought we had guided that we were going to be roughly flat year over year this year when it comes to ending community count. I think we might be a little bit down from that. I think now we'll be in somewhere in the range from 140 to 150 communities to end the year. But again, that has nothing to do with openings. That's all just kind of closing out some communities a little bit faster.

Speaker 3

And so the community count pipe into next year. And like you said, there will be some community count growth into next year and the year after as well.

Speaker 6

Given that lower ending base and the faster closeouts, is there any comment you can make about 25% and just level setting around what you think for 25%?

Speaker 3

We had said last quarter that we're going to see roughly 10% community count ending community count growth in 2025. And I think we still feel good about that compared to where we're going to end this year. And so yes, the community pipeline is still there. It's just it's some like you said, it's hard to predict when it comes to close out. So that's all that's driving that towards the end of the year.

Speaker 6

Okay, great. Thanks guys.

Operator

The next question comes from Alan Ratner with Zelman and Associates. Please proceed.

Speaker 8

Hey, guys. Good morning. Nice results in the quarter. First question, I'd love if maybe you could just drill in a little bit in terms of what you're seeing across price points and segments within your consumer. Any notable shifts during the quarter?

Speaker 8

I guess I'm especially interested in given the volatility in rates, did you see any more elasticity among more of your first time buyers move up and kind of where things sit today?

Speaker 3

Not much difference there. It's a pretty good mix. When you look at let's look at absorption pace for the quarter for instance. It was fairly consistent between entry and move up and active adult. And so it was pretty consistent.

Speaker 3

You look at margins, they're fairly consistent across those regions. Because again, I think our entry level is more of a premium entry level. And so it doesn't require maybe the level of incentive as you see as some entry level builders out there. So it felt pretty even out there.

Speaker 9

And I'll add to that, Alan. The order segment mix was just slightly higher for move up this quarter, but very slight. I mean, typically, it's fairly even for us between premium entry level and move up.

Speaker 8

Great. Thank you for that Linda and Glen. Second question, I guess this is probably more for Glen on the debt pay down. Just curious how you're thinking about the reduction there in interest expense that's probably about $25,000,000 annually if I'm doing the math correctly. And I know that won't filter through to the P and L immediately given the capitalization of interest.

Speaker 8

But I guess as you think about the go forward, should we expect that to be kind of a straight drop down to your GAAP gross margin? Or do you think about that differently in the sense of now maybe even being able to compete more aggressively for land against builders that have a lower interest burden and maybe it doesn't it's not a one for one on margin, but maybe facilitates growth a bit easier?

Speaker 3

Yes, Alan, good question. It is about $25,000,000 $26,000,000 annually savings. And you're right, it'll take maybe a year and a half till you see that impact to margin. And I think there will be a slight positive impact to margin, although we are also utilizing land banks to grow our controlled lot percentage. And so that cost hits margins as well.

Speaker 3

But it gives us the opportunity to delever in and to be opportunistic with our balance sheet and our leverage where it's at. I don't know if we're it allows us to pay more for land. I mean that's on the margin. I think we have a really good underwriting process and we stick to that. So I don't think that really factors into it.

Speaker 8

I appreciate it. Thanks guys.

Operator

The next question comes from Carl Reindig with BTIG. Please proceed.

Speaker 10

Thanks. Good morning, everybody. Just on regional color, I wondered if you could talk about just within California strengths in terms of the specific metros. And then the central region absorptions are down, what, 35%, 40% year on year. And I'm kind of wondering if you're thinking through a more aggressive pricing, more incentive strategy in that particular region just given the softness relative to the rest of the business?

Speaker 7

Good morning, Carl. Good questions. This is Tom. On California, we continue to be encouraged by activity throughout all our markets there. But specifically, Southern California has been very strong noted by the Inland Empire.

Speaker 7

You can see the volume of activity that we're having there. The Bay Area continues to go well. I'd say as is typical, we see first changes in the Sacramento market and we have had a little softer Q2 in Sacramento than anticipated. And we'll continue to focus on balancing pace and price and making sure we've got the right tools in our toolbox to continue our order pace.

Speaker 2

Carl, this is Doug. On the Central region, when you look at probably the 2 softer markets that we've been having to pull more levers at, it is definitely Colorado and Austin. The resale market has definitely peaked up in the Austin area. Houston still is very strong. Dallas had some weather issues.

Speaker 2

So it's actually coming back very strong as we get into June and the early part of July. So I think if you would ask me my 2 primary markets that we focus on with the right levers to pull would be Austin and Colorado. That would be my assessment. Okay.

Speaker 10

Thank you, Doug. Thank you, Tom. And then just to Glenn, back on the issue of next year's community count. Is your anticipation Glenn as you look at it that there'll be any kind of a meaningful mix shift in terms of regions or addressed price points, so entry level versus move up next year? Or do you expect the mix in 2025 to look roughly similar given that we got some new markets coming, some growth in some in the Carolinas, etcetera?

Speaker 10

So I'm just thinking about that in terms of pricing for next year. Thanks.

Speaker 3

Yes, good question. Not significantly, Carl. I think you will see a slightly more mix in the Central and the East as there is a good community count pipeline in places like Houston and Dallas and Charlotte and Raleigh. But it's not going to be a big meaningful mix shift.

Speaker 10

Okay. Thanks, Glenn. And by the way, congratulations Linda on your promotion too. Thanks all.

Speaker 9

Thank you, Tom.

Operator

The next question comes from Jay McCanless with Wedbush Securities. Please proceed.

Speaker 11

Hey, thanks for taking my questions. The first one, just wanted to stay on that inventory comment for a minute, Doug. And is the inventory existing and new, I guess, in Austin and Colorado, is that more harmful or more of a threat to your entry level communities or you move up communities in those markets?

Speaker 2

The inventory hi Jay, how are you doing? The inventory in Austin is really on the resale market as you can pull up the data, it's definitely peaked up. So that is a competitor now to us in the new home market. Most of the builders and we focus on core locations and in our core locations, we're still doing very well. And builders typically have less new home inventory.

Speaker 2

If you actually look at the inventory levels in DFW, for example, you'll see new home inventory a little bit higher and the resale market is still very locked in. So it's kind of a tale of 2 different analysis there.

Speaker 11

So when we were all left together on the Q1 call, you guys talked about an absorption in April at 3.9%, but you finished the quarter at 3.6%. Could you maybe walk us through what happened during the quarter when things really slowed down and what type of absorption numbers you're seeing so far in July?

Speaker 3

Yes, Jay, good question. April, it was actually fairly consistent throughout the Q2. April was 3.8, so pretty close to that 3.9 that we talked about. And then May June were both at 3.5. I think when you saw rates kind of tick up a little bit in May is when you saw a little impact to pace.

Speaker 3

But for us, we plan our business somewhere in that 3% to 4% range and 3% to 5% still a nice healthy absorption pace. And then like we said, July is going into kind of normal seasonal patterns. It's a little early to say on absorption. But right now, it feels good and normal like we said.

Speaker 5

Okay. All

Speaker 11

right. Could you also tell me, Glenn, what percentage of communities during the quarter you guys were able to either hold or take price?

Speaker 3

Yes. It was roughly a little over 50% of communities we were able to slightly raise pricing either through a combination of base price increases or lowering of incentives. So a little over 50% of our communities.

Speaker 11

Okay, great. That's all I had. Thanks guys.

Operator

The next question comes from Alex Barron with Housing Research Center. Please proceed.

Speaker 5

Good morning, everyone. Thanks. Yes, I was just wondering more along the lines of the pattern, I guess, of the deliveries this year. This quarter, I think you guys were above your guidance, next quarter sequentially down. And then I guess the full guidance implies back up in 4th quarter.

Speaker 5

So I was just kind of wondering what's been driving the pattern or the timing of delivery that way, which is somewhat unusual from historical?

Speaker 3

Hey, Alex, it's Glenn. Good question. It's normal to see our highest deliveries in the Q4. So I don't think that's out of the norm. Think what you're seeing in the Q3 is just a little dip we had.

Speaker 3

We came into the Q2 and the Q1 with a good spec pipeline. And we were really successful kind of selling and closing homes within those quarters. And so I think that's what kind of led to the outperformance in the second quarter. And then so and then you're filling back up that pipeline and backlog and then you'll see the normal higher deliveries into the 4th quarter.

Speaker 5

Got it. And in terms of starts, did you give that number? I don't know if I missed it.

Speaker 7

No, we didn't give that number, Alex, but we're right around almost 1900 starts for the quarter, which was right on our pace. Got it. And about 62% of those

Speaker 5

Sorry?

Speaker 7

And about 62% of those were specs for those starts.

Speaker 5

Okay, got it. Thank you so much. Have a great rest of the year. Thanks.

Speaker 3

Thank you.

Operator

We have a follow-up from Jay McCanless with Wedbush Securities. Please proceed.

Speaker 11

Hey, thanks for taking my follow-up. I did want to ask with the gross margin guide that you put out for the quarter or for 3Q and for the full year, could you talk about what type of lot cost inflation you contemplated in that guide? And any insight color you could give us as to how you're thinking about lot cost inflation going into next year would be appreciated.

Speaker 3

Yes. Obviously, the lot costs are factored into our guidance. And I think going into next year, we don't think it's a huge contributing factor. I mean, lots are actually going costs have gone up, but they always go up. I think we talked about last call that we're seeing anywhere from 5% to 10% in lot costs.

Speaker 3

So we haven't given guidance for next year, but obviously there's always that new community mix that has some impact.

Speaker 2

Yes. And Jay, this is Doug. I would add, I mean, the lot costs for next year are all known. We own and control our deliveries for 20 25. So, and actually a majority of our delivery forecast for 2026.

Speaker 2

So the lot cost is not a variable in our business plan. It's pretty well known that variable will be direct costs, revenues, indirect costs, stuff like that. So land that we're looking at today is a variable for really late 2026, but really 2027 and beyond.

Speaker 11

Great. Thanks for taking my follow-up.

Speaker 5

All right. Thanks.

Operator

Thank you. There are no further questions at this time. I would like to turn the call back over to Mr. Bau for closing comments.

Speaker 2

Well, thanks everybody for joining us on today's call. We look forward to chatting with you all next quarter and I hope you enjoy your summer months. Thank you.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a great day.

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