Good afternoon. My name is Alex and I will be your conference operator today. I'd like to welcome everyone to the KB Home 2021 Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the Company's opening remarks, we will open the line for questions. Today's conference call is being recorded and will be available for replay at the Company's website, kbhome.com through April [ph] 03. Now, I'd like to turn the call over to Jill Peters, Senior Vice President, Investor Relations. Jill, you may begin.

Thank you, Alex. Good afternoon, everyone, and thank you for joining us today to review our results for the second quarter of fiscal 2021. On the call are Jeff Mezger, Chairman, President and Chief Executive Officer; Matt Mandino, Executive Vice President and Chief Operating Officer; Jeff Kaminski, Executive Vice President and Chief Financial Officer; Bill Hollinger, Senior Vice President and Chief Accounting Officer; and Thad Johnson, Senior Vice President and Treasurer. During this call, items will be discussed that are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future results and the Company does not undertake any obligation to update them. Due to factors outside of the Company's control, including those detailed in today's press release and in filings with the Securities and Exchange Commission, actual results could be materially different from those stated or implied in the forward-looking statements. In addition, a reconciliation of the non-GAAP measures referenced during today's discussion to their most directly comparable GAAP measures can be found in today's press release and/or on the Investor Relations page of our website at kbhome.com. Before I turn the call over to Jeff, I will note that year-over-year comparison should be considered in the context that our performance in the 2020 second quarter was significantly and negatively affected by the broad economic downturn and the extensive public safety measures put in place across the country beginning in March due to COVID-19 pandemic. And with that, here is Jeff Mezger.

Thank you, Jill and good afternoon. We delivered healthy results in the second quarter marked by one of the strongest quarters for both operating and gross margin performance in some time. Operationally, our divisions are doing an excellent job of navigating this environment of demand strength and well-publicized supply chain constraints as we effectively balanced pace, price and starts to optimize our assets and manage our production. With our full year coming into better view, we are poised for continued return-focused growth, expanding our scale to about $6 billion in revenue and generating a return on equity of roughly 20%. As for the details of the quarter, we produced total revenues of $1.44 billion and diluted earnings per share of $1.50, which is an operating income margin of 11.3% driven by several factors. In addition to strong market conditions, we're benefiting from solid performance in our [newer][ph] community, operating leverage from both the increase in our community absorption rate as well as overall higher revenues, disciplined management of our SG&A cost and the ongoing tailwind from lower interest amortization. Our profitability per unit grew meaningfully on a sequential basis to nearly $47,000. We achieved or surpassed our expectations across our financial metrics although deliveries were at the low end of our range as some of our delivery shifted into the third quarter due to supply shortages and municipal delays. That said, with the benefit of local scale in most of our divisions, we are relying on our long-standing relationships with subcontractors and trade partners to mitigate delays. With the progression of our work in process and our success in accelerating starts we are confident in our ability to achieve full year deliveries of between 14,000 and 14,500 homes. Our balance sheet is solid, as we work through the bulk of…

Thank you, Jeff and good afternoon, everyone. I will now cover highlights of our financial performance for the 2021 second quarter and provide our current outlook for the third quarter and full-year. During the quarter, we generated improvements in all our key achieved profitability measures and continue to enhance our balance sheet strength and liquidity. With our operations performing well we leveraged 58% growth in housing revenues to generate a 216% increase in operating income for the quarter. In addition, our net orders reached their highest second quarter level in 14 years. Based on our robust financial results and net order performance, we're once again raising our outlook for the remainder of 2021. Our housing revenues of $1.44 billion for the quarter increased from $910 million in the prior year period reflecting a 40% increase in homes delivered and a 13% increase in overall average selling price. Considering our current backlog and construction cycle times, we anticipate our 2021 third quarter housing revenues will be in the range of $1.5 billion to $1.58 billion. For the full year, we're projecting housing revenues in the range of $5.9 billion to $6.1 billion. We believe we are very well-positioned to achieve this topline performance due to our strong second quarter net orders and ending backlog of over 10,000 homes, representing nearly $4.3 billion in any backlog value. In the second quarter, our overall average selling price of homes delivered increased to nearly $410,000, reflecting strong housing market conditions, which enabled us to raise prices in the vast majority of our communities, as well as product and geographic mix-shifts of homes delivered. For the 2021 third quarter, we're projecting an overall average selling price of $420,000. We believe our ASP for the full year will be in the range of $415,000 to $425,000.…

[Operator instructions] Our first question comes from the line of Matthew Boulay with Barclays. Please proceed with your question.

Hey, good afternoon. Congrats on the results. Thanks for taking the questions. First one on the pricing relative to resell at a market level, Jeff you gave some great color there on the LA Ventura markets. Curious if you could expand a little bit on that point because I think it is an important point, but perhaps you could maybe walk around some of your markets, just any other interesting anecdotes or quantification on how your product is comparing versus resale in this clearly an environment where resell prices continue to move much higher? Thank you.

Sure. Well, thanks for the question and the comments, Matt. It's a different story in every sub market as you know around the country, but the pricing on resale homes in most of the sub-markets we're in is moving pretty dramatically, primarily because there's no inventory on the resale side either, but a lot of the head-line coverage of home building has been talk about how much our prices have moved and they ignore how the resale pricing, which is our biggest competitor is moving as fast if not faster and we're sensitive to affordability as I shared in my comments and we're also always mindful of how are we positioned versus the resale market. Whatever our prices are up in the submarkets we operate in the resales are up a similar level, if not higher. And in many cases, we're actually enhancing our position. So a specific city doesn't come to mind. I can tell you in general, every city we operate in, resale price is moving as quickly, if not quicker than the new home side where builders are mindful of affordability and while we're opportunistic, we may not be as opportunistic as resales because we're mindful of that.

Wonderful. That's really great color there. The second one, obviously in an environment of production constraints, you talked about I believe you said 8,500 starts year to date. And correct me if I'm wrong, but if that equates to roughly six to seven starts per month per community, should we think of that as kind of your ongoing production capacity? And therefore, could you continue to sell at that pace if demand is there as you mentioned seven selling pace this past quarter or conversely, should we think of some more normal seasonality in general to demand perhaps rearing its head again this year? Thank you.

Yeah, Matt, it's an interesting topic and you've followed us for a while. And if you go back over the evolution of the past few years in our business, we worked hard to lift our margins and get our margins back up to normalized levels and we've now done that. There were years when we put a cap on how many we would sell and opted for just margin, until we could get our margins up and when we did that, our construction machine had the capability to build more houses, but we were pushing on the price and the margin pedal a little harder. Over the last year, obviously incredible demand and a strong selling environment and we've been letting out the string if you will on sales because our margins are strong and improving and we have the capability to build more. So I felt it was important to communicate in my comments that we're not selling out ahead of starts. We're selling and starting that up a comparable level around the system. And my hunch is that everybody will have a different crystal ball, wouldn't surprise me if the sales slow a little bit through the summer. I think we slowly revert back to a normal home sales environment. I don't know what we'll do each month of the third quarter but we don’t need to do seven to hit our growth target but if we're in a community where the market is strong and we have the ability to start that many homes a month and we're lifting our margins, we will take advantage of the opportunity. So to wrap that up, we may not sell at seven in this quarter, we'll see how the market conditions are and how things operate. But we have the capability to build at that level and again I thought it was important to make sure every – the investor will understand that our construction machine has more capacity than we had demonstrated in the last few years.

Thank you. Our next question comes from Stephen Kim with Evercore ISI. Please proceed with your question.

Thanks a lot guys. You said that you're -- I think you said you ramped your production to be about 18.5% which I guess is, basically what you started this quarter times four. And you said that you're basically starting in line with your sales pace. So just want to make sure that I'm clear on that. It suggests that you're not trying to in any way change the point at which you sell the home to be later in the construction cycle at all. You're very happy where it is. So roughly, where is that level right now? At what point relative to the starts would you say that you are selling your homes?

Yes, good question Stephen. The cycle time, as we call it, we're averaging today 45 to 60 days from contract to start and five months, a little over five months depending on the city for the build times. So it's seven to 7.5 month cycle from contract to close. We continue to really prioritize, sell it, get the loan approved, let the buyer pick everything at the studio and then start the home, and that's our business model. And I believe over the long run that will prove out to be the best returns, the lowest risk, you can take the argument that while you can sell it more down the road if you hold off on releasing it, but we'd rather have certainty of close, visibility of margin and keep the balance to our business. So we're continuing to sell them and then start them. And every city has got a different strategy on how far out you sell to set up your pipeline in your construction within that city.

Great. Yes, that's really helpful. So just so I'm clear, you're definitely taking a strategy where you do not want to follow some other players in the market who are deliberately selling homes later in the construction process, feeling that while you may theoretically be under pricing the market near term, but longer term, the risk-reward favors the consistent strategy. I just want to make sure that that's actually that's -- that I'm saying that properly.

Yes, that is our view Stephen. I'd rather know when we start the home, we know what the margin is when we start the home, our costs are locked. So you have a little risk between the contract and the start is something weird happens on your cost structure. And you may give up a point or two a price versus down the road, but you're also not exposed to that nasty incentives word, if you get the home completed and it hasn't sold and we've seen that movie. So we like knowing when we start the home, it's going to close. And we know what the margin is and it's predictable for our contractor base and it helps us in our forecasting.

Thank you. Our next question comes from Truman Patterson with Wolfe Research. Please proceed with your question.

Hey, good afternoon, everyone. Just wanted to touch on some affordability, very strong margins, strong pricing. It looks like, as of the fourth quarter, you're getting more than enough pricing to cover all the spot cost today and lumber has come back in or at least lumber futures have come back in. If inflation levels are off in the back part of the year as you're attempting to bring on more communities, how should we think about pricing? Are you all going to step off the gas a little bit to try and maintain affordability or is it truly just kind of pricing the market without really concern for potentially rising interest rates?

Yes. When a community is open Truman, we'll price it to the opportunity. We -- before we open a community, we create interest while we call and intend, we can figure out where demand is and where the price can be and if it's above your pro forma, you'll take the higher price and you'll run. And so we're opportunistic once we're open in that submarket. When it comes to the investment in the new community in a submarket, we're very mindful of affordability and household incomes and needs to be attainable and we can move around with lot size or the size of the homes that we offer in a model park to get close to that median income and then if you open up and demand is stronger you take advantage of the opportunity. So it's per community and its pricing to market not to -- not necessarily to cost. So if we can be opportunistic, we'll take it.

And then I don't know if there is any way you can help us out with this to quantify how deep the buyer pool is. I know you all have interest list or waitlist. Have you seen those change at all compared to maybe a few months ago? Are you seeing any buyer push back or fatigue from recent price increases? Just trying to understand how deep that buyer pool is?

Yes. So I shared in the comments Truman, the markets are very strong today, and we may spend two to three months developing an interest as before we grand open a community and within that two or three months period, you can get hundreds of people on a waiting list and the early entry to the waiting list then are going to see the prices move more than the later entries on the waiting list, and we've had some cases where somebody is pretty cloud and okay we opened for sale and they don't like the price, and they say, never mind, I don't want it. But there is many people buying and saying, I'll take it, let's write it up today as the prices have increased, but as I shared in my comments, as we're releasing lots for sale today at the higher prices per phase release, we're not seeing a tapering in demand. It may be off a little bit from the strength that was in March, but in March it was really, really strong and now it's just really, really strong. It's a very good market environment out there today.

Thank you. Our next question is from Alan Ratner with Zelman & Associates. Please proceed with your question.

Hey guys, good afternoon. Thanks for taking my questions. Jeff, first question, I just want to clarify. So I think you made a comment earlier on that from the time you start the house you have kind of certainty of costs. And then you said afterwards that your typical timeline is about 45 to 60 days from contract to start. So am I thinking about that right where in that, call it 60 day window, if there are cost increases like that that's the variability on your margin? And I guess the follow-up to that is, I'm hearing some builders are starting to build in some like cost escalator clauses into sales contracts in case cost do go up a lot. So curious if you're doing that to protect yourself against any cost in that window?

We're not putting escalators in the contracts with the customer. Our division do factor in contingency in their budgets and all that when we're pricing the products. So we can absorb, I'll say some of the costs, I mean the lumber run off was much stronger and quicker than anybody anticipated. Now it's coming back down, but in our larger businesses with scale that are good at, going from contract to start, we didn't see much, if any margin erosion from contract to start in that 45 to 60 day windows in a smaller business where we may not have the scale, you're a little more exposed but as Jeff just shared in our guidance, we've been able to not only cover that cost but increase our pricing more than the cost where we expect over the second half of the year to continue to expand margin from what we just reported. So we're -- it's in a pretty good puts right now.

Okay, that's helpful. Yes, I just wanted to understand the kind of the timeline there. Second question, you guys have been entering a handful of new markets lately and I think you mentioned Boise on the call today and Boise is a fascinating market, it's probably one of the hottest, if not the hottest in the country at least in terms of price appreciation. So I'm curious as you enter these markets and maybe pick on Boise and specifically, how long have you been looking at that market and how do you get comfortable with kind of starting to buy land in a market that has seen the type of run-up in home prices, and I'm assuming land prices as well over the last 12 months or so?

Good question Alan. I'd compare to Seattle. If you look at what we did in Seattle, everybody said Seattle very land constrained. You can't get scale and it's very expensive and we have a very good team out there that are very seasoned in the Seattle land market with a lot of connections and we were able to introduce product, there was price well below where the new homes were offered competitive with resale and we quickly grew market share through our ability to penetrate the market in that approach. So we're well below the median new home price in Seattle today and running very strong margins. And as we look at Boise the person that we've had there pursuing the land activity is a seasoned veteran in the market, been there a long time, and we're doing the same thing. We're targeting affordability and approaching it a little bit different than a lot of local builders who have moved up scale in their footage and moved up in their pricing and are chasing price. We're coming in underneath. So we think it's a good time in a real good opportunity for our business model to go into Boise where nobody really operates there lately.

Thank you. Our next question comes from Deepa Raghavan with Wells Fargo. Please proceed with your question.

Hi, good evening, everyone. Thanks for taking my question. Jeff, can you comment on how much of your delivery was pushed out to Q3, you mentioned the timing issue there. You also mentioned -- you also called out some municipal delays and supply chain. Could you elaborate on that as well?

Sure. Well, as far as deliveries that was less than 100. I don't know that we have the exact number, but somewhere in that range and I would say that we took the Board in the second quarter for a lot of things that went on, where our build times extended a little bit and we've now adapted to that and adjusted in our looking at things and that's why we -- based on how our WIP is today and how we're projecting out our completions, we're confident in the delivery numbers that we shared. I'll talk about municipal delays, what we're seen issues has the cities ramp back up, where inspectors don't show up to do final inspections for many days, from when they were supposed to and/or we've seen some cities where utility companies are seeing a lot of delays in setting meters or showing up to put in the undergrounds and we chose the utility companies than with the municipal delays. So crude analogy is like whack a mole. In the cities, we operate in, every city has a little different menu of things that are coming up, whether it's the lumber drafting show up today or supposed to where the installation didn't show up or the inspector didn't show up or we can't get garage doors today and it's all those things you have to manage through and navigate when you're in a building supply constrained environment. And we have good teams out there and think we adapted and adjusted and that's why we're still confident with the numbers we gave for the year.

Okay, got it. Does that include -- does that increase your cycle time versus a few months ago, or is that still similar shift to problems on the -- because you set back a moral example.

Different problems and added a few days to our build time. Nothing dramatic, just a few days here, a week over there in the city. But one, if you lose three days, it's more than 100 units at our scale. So you have to keep working to compress your build times.

Thank you. Our next question comes from Susan Maklari with Goldman Sachs. Please proceed with your question.

Thank you. My first question is you mentioned in your comments that you're studio options and your lot premiums are adding about $45,000 per home. Can you give us some sense of how that compares historically where that's been? And you mentioned that there is upside to that over time. Can you talk to how you think about where that can get to and the benefit that that can drive in margins over time?

Good question Susan. The way we separate the two. And if you go to the studio, the primary focus for us with the studio is how to sell houses and give people choice and make -- allow them to personalize that. That's job one. Job two, along the way you can make additional profit and keep finding ways to make more money in the studio. What I wanted to make sure that in the comments, what is third and you heard it, while our base pricing has gone up, the percent of base out of the studio has held steady. So if a year ago, our ASP was 370 or 380 and there was 9% of base and now we are 420, it's still 9% of base. So buyers are spending more in the studio. And it's a combination of what they're selecting and also with our frequencies we can gauge what's the strongest interest for the buyer and if it's something that they can't go shop at Home Depot, because it's custom for that floor plan, we can get a higher margin there and that's what we're looking at now to mine more margin, which is resulting in a little more studio revenue. So I would expect that over time as if our base pricing continues to go up, there will still find ways to keep the studio at about 9% of base. So it's an increment. And on the lot premium side, our company goal right now is 2.5% of base. So it's very...

I'm having trouble hearing you.

My smartwatch won't come in. So we -- and if you are having trouble hearing me, by the way. So in the lot premiums we've targeted 2.5% of base and we've ranged in some years, we've been as low as 1.25% quarter 1.5% and then there's years we've done 2.5%. We're not a 2.5% today. So we think we can at the least get to our stated goal and that's what we're working on.

Okay. That's very helpful.

Yes. They're driving additional margin opportunity in the future for us.

Yes. Okay, all right. And then, obviously you've seen some delays in bringing some of these communities online. I know you mentioned that you still expect to grow your community count double-digit next year. But as we think about the puts and the takes sort of coming expect that there is actually maybe some upside to that 10% target that you've given us for 2022. How should we think about…

We certainly have the lots and the communities in the queue to create upside from that. We committed to exceed 10%. So there could be upside of all those, it's such a difficult number to guide those how quickly you sell out changes dependent on the city and the price points and what's going on there and the delays in the second quarter. All those communities are opening and in June, for the most part. So we missed the community number but it's by a couple of weeks. So, it's not -- and we guided to it and thought we're going to get there. So we didn't see to that and are back hard at it right now. And if you look at our business and our cadence nice increase in our backlog, we have the backlog today to support -- we're already selling into backlog to support the revenue guide that we gave and set us up for a nice momentum into '22 and then the community count growth set up to sustain nice revenue growth for '22.

Thank you. Our next question comes [indiscernible]. Please proceed with your question.

Hi. This is Maggie [ph] on for Mike. Question sense of how your sales pace trended sequentially. On an absolute basis could you give us month to month during the quarter and maybe any comments on what you've seen through the first three weeks.

I don't know that we have it by week or the trend through the month, Maggie, but during the whole quarter. We didn't see demand lighten up at all from March through May and you've seen demand is very good right now.

Got it. And one more for 3Q you're expecting gross margin of about 21.7% and to get to your full year step up into 4Q. So could you give us any puts and takes there? I mean, is that primarily volume price cost dynamics that you're foreseeing?

I think as far as the progression goes for the remainder of the year, it's just more a reflection of what we've been seeing in the markets as we've been selling into our third and fourth quarters. The third quarter represents probably the first quarter that will see the brunt of the lumber price increases hitting full quarter deliveries and likewise in the fourth quarter. So that's a challenge that we had to overcome in order to continue that sequential increase. We just had five consecutive quarters of increasing gross margins and we just guided to two additional quarters of increasing gross margins which if we achieve it'd make seven in a row which we're quite happy about and proud of. So everything is going to go in the right way for us. We're seeing expansion in our selling margins right now, we're seeing expanded margin contained within our backlog. As I mentioned, we are seeing the additional cost pressure from the lumber price spike annual starts that will be generating the third and fourth quarter deliveries, but it will be overcome by other factors. We do expect to see continued good news out of amortized interest and we've seen that also continue at least for the past couple of years and we think we have some runway ahead of us on that one. And a lot of favorable trends right now as far as the margin goes. And it just really supports our focus toward increasing our returns and we think the two levers of increasing our scale and expanding our gross margin are the key items with that return expansion goal and target that we have and we think we're very well supported by that. We're very happy to -- and we're very happy to increase our estimates for the current year up to around that 20% range for ROE and expect to be able to continue to build on that. So margins very, very important and very key for us and we're seeing some excellent trends and, like we said, definitely expect to see them continue into the foreseeable future.

Thank you. Our next question comes from Mike Dahl with RBC Capital Markets. Please proceed with your question.

Thanks for taking my questions. I wanted to ask one more on the affordability side. Jeff, I think you mentioned early on that in your internal tracking you're seeing stability in the affordability-based metrics or affordability-related metrics that you're looking at. I think you slated square footage as one. But could you just elaborate a little bit more about what you're looking at internally and -- when you're referencing the stability there?

Well, in part it's how deep that demand is, Mike, versus the supply that's out there. So if we have a 100-lot community and we have an interest list of 300 or 400, when you open it there is quite more demand than there is supply and buyers are moving right along when we release lots and saying, I'll take that one at that price. And the buyer profile that we have is -- it's very interesting to me. You think of the high mix we have of first-time buyers of 64% and our average borrower through our JV, which is 75% of our sales, a good indication, they are putting $50,000 down. And the FICO score has actually went up in the quarter. The quality of the buyers today are strong and we're not seeing any issues with qualifying payments right now versus income. There is a very strong buyer out there. We're not -- we're not seeing any indication that affordability is stressed. If that does start to appear then we'll quickly pivot to smaller product and move on some lot sizes and move with the demand like we've done in the past. But right now the demand is way outpacing supply.

Okay. That's helpful. Thanks. My second question just relates to some of the new market entries and also I guess broader capital allocation. You've now entered three major markets organically which is kind of an interesting choice if you look at history of what public builders often do and it coincides with a period where just given the dynamics in the land market we would expect that some M&A activity would potentially pick up. Could you just talk about how you're evaluating the organic versus M&A decision when you're looking at these new markets? And is an M&A potential avenue for you as you look at additional ones?

While M&A is certainly an additional avenue. And as things come along we do engage with people that are seller, the companies. The premium is not light. So you're absorbing a premium. Then you have the integration risk and -- as we look. So we'll always look at those but what we're -- we feel right now, we have a nice growth trajectory in our organic growth in our existing markets where we're nowhere near maxed out on where we can take our existing business. So we have the ability to bolt on these softer market entries at the same time and let them mature. And just like our Seattle example where it took a couple of years and then you have revenue and then you have real revenue and profits and it becomes a real driver in your Company profitability and that's how we look at Charlotte and Boise. We have the -- with our current growth trajectory, we have the capacity to continue to grow and bring these markets along at a little slower pace, but you avoid any big premium and the integration issues and it's typically a better quality entry. It just takes a couple of years longer but we'll also look at M&A. So we're not opposed to anything. We're continuing to look at ways to grow our top line.

Thank you. Our next question comes from Alex Barron with Housing Research Center. Please proceed with your question.

Yeah. Thanks guys and good job on the quarter. I was just kind of curious as far as the sharp price increases we've seen so far this year, especially this year to date and how you guys are thinking about that, particularly like do you have a measure on what percentage of your buyers are coming in from other states that might be driving these prices up the way they have?

I don't have it on the call, Alex. I don't know how much we really track that, what percentage of buyers come from California or New York or wherever they source from. I do think that that's part of it, but I think the bigger driver right now of prices, the strong demand in all the markets and no supply. It's the classic lack of supply and I think it's going to take time to correct that. And the California out-migration that you hear so much about I think is overstated. I think there is some of that, but there has been some of that for three, four decades. People have been moving to Arizona, Texas, Nevada -- out of California are moving to Florida from New York. I think it's more just core demand and a lot of it in all the cities that we operate in today.

Got it. And what's your sense if the lumber costs start to go down and supply chain issues start to resolve themselves? Is it your sense that pricing is going to stay up here and margins are going to expand or is it your sense that somehow the prices are going to start to work your way back down as -- in other words, will builders pass along some of the cost savings when they will start to happen?

Yeah. But I think will be taken it to margin that it will depend on the competitive landscape in each city and when I say the competition is not just new, it's used homes. But our hope and expectation is, we'll take it to margin.

Thank you. Our final question comes from Jay McCanless of Wedbush Securities. Please proceed with your question.

Thanks for taking my questions. The first one I had with the land that you're out-buying today, when do you anticipate that land will go into service? And maybe could you talk about what you're assuming for HPA as you move forward on land buying?

Is HPA home price appreciation, Jeff? Yeah, we don't assume any appreciation price. We take the view that it's got to work today and if prices go up, costs probably went up whether you're not going to get more margin over time, that's typically how it happens. So we don't underwrite with inflation. We own and control everything for '22 and a good chunk of '23, 80%, 85%, 90% of '23 today. So the things that we're looking at probably are late '23, if not into '24. So there are ways out. So the things we're bringing to market today we probably controlled two years ago for the most part.

Okay. That's helpful. The other question I had, at the beginning of the prepared comments, Jeff, you talked about how KB is flexed up the starts and the ability to start more homes inside the company. But then can you relay that back to the -- basically just raising the lower end of the guidance and not taking the guidance up further? Was that comment to mean that you ramped up starts so you could maintain the pace expected at the beginning of the year? Just want to figure out how those two comments relate with each other.

Well, our bill times a lot of the starts in May are probably kicking into even December deliveries. I think you'll continue to see an evolution of our -- the benefits of our community absorptions flow through, not just coming out of the fourth quarter, but into the first quarter of next year and beyond. We've actually been raising the revenue guide each quarter, I believe.

Yeah, the midpoint is up $100 million.

Yeah. So we are lessening as we go, Jay.

Ladies and gentlemen, this concludes today's teleconference. Thank you for your participation. You may now disconnect your lines.