Good afternoon. My name is John and I'll be your conference operator today. I would like to welcome everyone to the KB Home 2023 Fourth 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 lines for questions. Today's conference call is being recorded and will be available for replay at the company's website, kbhome.com through February 9, 2024. And now I would like to turn the call over to Jill Peters, Senior Vice-President, Investor Relations. Thank you, Jill, you may begin.

Thank you, John. Good afternoon, everyone, and thank you for joining us today to review our results for the fourth quarter of fiscal 2023. On the call are Jeff Mezger, Chairman, President and Chief Executive Officer; Rob McGibney, 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 various factors, including those detailed in today's press release and in our 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 measure of adjusted housing gross profit margin, which excludes inventory-related charges, and any other non-GAAP measure referenced during today's discussion to its most directly comparable GAAP measure can be found in today's press release and/or on the Investor Relations page of our website at kbhome.com. And with that, here is Jeff Mezger.

Thank you, Jill. Good afternoon, everyone, and Happy New Year. We finished the year strong with a fourth quarter performance that exceeded our guidance across our key financial metrics. We produced total revenues of $1.7 billion and diluted earnings per share of $1.85. Our outperformance on closings at just over 3,400 homes was driven primarily by our continued improvement in build times along with a strong backlog of buyers who are committed to a timely closing when their home is completed. With respect to margins, they remained solid at just under 21% in growth and 11% in operating income margin. In addition, we returned nearly $180 million of capital to shareholders, primarily through share repurchases. These results contributed to a healthy financial performance for 2023. We delivered more than 13,200 homes driving revenues of $6.4 billion and diluted earnings above $7 per share. Our top line, together with an operating margin exceeding 11% and the repurchase of 11% of our shares outstanding at the start of the year contributed to 15% growth in book value per share to over $50. The strength of our results is notable when considering that our initial 2023 revenue guidance was about $5.5 billion equating to roughly 11,400 deliveries given the uncertainty in market conditions at the start of the year. As our new fiscal year gets underway market conditions are improving with rates having declined and consumer confidence increasing all while resale inventory remains low. We believe our company is well-positioned given shorter build times, a solid backlog, normalized cancellation rates, and planned community count growth. The same factors that characterize the market today low inventory levels, solid employment, and wage growth are those that we believe will sustain the longer-term health of the housing market. Demographics, have been and will continue to be…

Thank you, Jeff. I will begin by providing some additional color on our fourth quarter and net order results and discuss the steps we took to help buyers address higher mortgage interest rates. Our business strategy remains consistent in optimizing each asset on a community-by-community basis, balancing pace price, and margin. As a component of that strategy, we elected not to chase the sales target at significantly lower margins during the fourth quarter amid the rapid rise in interest rates and their impact on affordability. Mortgage rates on the average 30-year fixed loan were approximately 60 basis points from the time of our last earnings call in September to their peak in late October. To put it in perspective, this has the same effect as a nearly 6% increase in the purchase price of a home, an impactful change that would have been costly for us to offset, particularly in a slower demand period. With our built-to-order model, we work from a large backlog, which allows us to thoughtfully execute our sales strategy without the pressure of having to cover inventory at any price to achieve our quarterly delivery plant. We worked with buyers as they adjusted to the rising rate environment during the fourth quarter, and took steps to promote targeted rate buy-down programs. Roughly 60% of our orders had some form of mortgage concessions associated with them, including rate locks. This is an important tool, especially for our built-to-order buyers as we provide customers the ability to lock the rate upfront. As a result, there is a higher degree of confidence, both for buyers and for us of the likelihood of closing even if rates continue to rise. Our lock program comes with a one-time float-down option that customers can utilize if rates decline between the time of…

Thanks, Rob. Switching gears to our mortgage joint-venture, KBHS Home Loans. 87% of the mortgages funded during the quarter were financed through our JV, which is more than 10 percentage points higher year-over-year. This is a positive development as higher capture rates help us manage our backlog more effectively. The average cash down payment was 16% consistent throughout the year, equating to roughly $78,000. The household income of our KBHS customers averaged 127,000 and had an average FICO score of 741. The highest credit score reported for the past several years. It was one-half of our customers purchasing their first home, we are attracting buyers with strong credit that are able to qualify at elevated mortgage rates while making significant down payments. We spent approximately $485 million to acquire and develop land during the quarter contributing to a full-year investment of $1.8 billion. The majority of which was spent on developing land we already owned. In 2024, we expect to accelerate our investment activity to support our future growth, while remaining diligent with respect to our underwriting criteria, product strategy, and price points. As to our land position, it stood at roughly 56,000 lots, owned or controlled at quarter-end of which 40,800 are owned. About 65% of these owned lots were tied up in 2020 or prior before the run-up of in-land prices. We remain focused on capital efficiency, developing lots in smaller phases, and balancing development with our starts phase to manage our inventory of finished lots. We believe we are well-positioned as we currently own or control essentially all the lots we need to achieve our delivery growth targets through 2025. Our objective remains to achieve at least a top-five position in each of our served markets and all our divisions have a roadmap in place to achieve…

Thank you, Jeff, and good afternoon, everyone. I will now cover highlights of our financial performance for the 2023 and fourth quarter and full year, as well as comment on our outlook for 2024. In the quarter, we produced solid results with housing revenues exceeding the high end of our guidance range and an operating income margin of nearly 11%. In addition, our robust cash flow supported significant share repurchases along with $483 million in land investments. Entering our 2024 first quarter, improving housing market conditions and our well-positioned portfolio of open-selling communities have generated strong momentum with significantly higher net orders in the first five weeks compared to the corresponding year-earlier period. In the 2023 fourth quarter, our housing revenues were $1.66 billion compared to $1.93 billion in the prior year period, reflecting a 10% decrease in the number of homes delivered and a 5% decline in overall average selling price. Though fourth quarter deliveries were down relative to our 2020 results, we achieved our third consecutive quarter of sequential cycle time improvement, which contributed to the higher-than-expected number of homes delivered. Looking ahead to the 2024 first quarter and the full year, we anticipate improved housing market conditions and continued favorable supply-chain trends. As a result for the first quarter, we expect to generate housing revenues in a range of $1.4 billion to $1.5 billion. For the 2024 full year, we are forecasting housing revenues in a range of $6.4 billion to $6.8 billion, supported by our backlog of sold homes, projected net orders per community, reduced construction cycle time, and expected growth in community count. In the fourth quarter, our overall average selling price of homes delivered decreased to approximately $487,000, due to both mix shifts and the impact of pricing adjustments and other homebuyer concessions such…

Thank you, sir. We will now conduct the question-and-answer session [Operator Instructions]. And the first question comes from the line of John Lovallo with UBS. Please proceed with your question.

Hi guys, thank you for taking my questions. The first one is, it appears that the sort of slight downshift in home sales revenue. The outlook from $6.5 billion to $7 billion to $6.4 billion to $6.8 billion was driven by the lower 4Q orders. So the first question is, is that, is that correct? If that is correct rates are down about 50 basis points from when you gave that initial guide. So is there not enough time during the first half of the year? Just sort of makeup to 300 to 400 home Delta to sort of stay on that $6.5 billion to $7 billion trend?

Right, yes. I think I can take that. So, yes, thanks for the question. When we look at the change in the full year, it wasn't terribly significant move, it is about 2% at the midpoint, or about $150. You are right in saying, it was about $70 million a pull-forward into the fourth quarter and what happened in the fourth quarter, we had higher deliveries than we expected and land sales were a little bit lighter than what we were planning for. So our year-end backlog came down a little bit more than what we were anticipating when we provided that guide, but I would term it, John mostly as just refinement of the full-year guide. We do believe there is upside. We're trying to forecast the year based on the improved conditions that we have today, not necessarily looking at continued improvement as we go through the year. We're very encouraged by the start of the year in the first five weeks sales -- five weeks of sales that we've seen and remain optimistic about our potential in 2024.

Okay, that's helpful. It seems like a little bit of conservatism maybe. In terms of the gross margin is expected to be about 21% in the first quarter and then 21% for the full year, I mean, are you expecting a relatively flat gross margin in each quarter, and if so what would drive that consistency versus the normal kind of second-half step-up that we would expect?

Right. We had a relatively steady trend in 2023, a little less variability than what you normally see. It's been a pretty choppy market as you know. So we're trying to base everything of sort of current sales rates, current backlog margins, and what we're seeing embedded in the orders right now. Our current backlog margins are actually a little bit higher than our guide, but we always like to have a little bit of room there in case there's some contingencies related to either quick-moving units or continued for incentives or whatever. So, yes. I would expect to see a relatively consistent gross margin profile for the year at this point in time. That said, we still have a lot of sales to make for the back half of the year and we'll have a better visibility of that as we get more into the spring selling season to see how that variability can go on the gross margin side. But we like the favorable economic trends you're seeing mortgage rates coming down, solid employment growing economy, pent-up demand for housing, the resale inventory tightness, all of those to me suggests opportunities to reduce concessions, which would be pretty much right to the gross margin line, to the extent we're able to do that if market conditions continue to improve.

Thank you. And our next question comes from the line of Stephen Kim with Evercore ISI. Please proceed with your question.

Great, thanks a lot guys. Lot to like here. Obviously, strong performance and the market help you out but clearly, it's clear the market is, help you out here in the first five weeks, but you also executed very well. So congratulations on that. My first question relates to just the absorption rate. Implied you didn't really get obviously an order number, but certainly, it sounds like 2024 in terms of sales per community per month is, I don't want to put words in your mouth, but it certainly seems like it's going to be based on your closings guide but at least as good as what you saw in 2023 and maybe probably better. And so in that regard when we look at your historical absorption rate. In the past, you were very comfortably in the four-plus range on average for the year. You got as high as in the six’s in 2021 and I'm kind of curious where you feel comfortable with where absorption rates can ultimately settle out. And the reason, I am curious about this is, because if I look way back into the early 2000s, for example, your absorption rates were substantially higher at seven per month, and that kind of a thing. So just curious if you could give us some commentary about where you think a sort of sustainable level for absorptions is for your company given the way, it's configured today.

Steve, I can start. First, thanks for the recognition on our -- the job we did in Q4. We have over the last five years or six years, we've gone through kind of a whipsaw. We came out with returns-focused growth we were working on lifting in our margins. So we kept our absorptions at four until we got our margins higher than our margins are higher and we keep using the term, optimize the asset and every community is a different story, but I would expect that it's probably around five on average. As we looked at 2023, we were soft coming into the year and that picked up. Then it softened again later in the year. So we fully expect our absorptions in 2024 will be higher than 2023 for the year. So, I would think five a month market runs, we could go higher than that, but it's on per community analysis, how many last we have left is easily replaceable. How do you run it, how big is the community, I think five is probably a good number.

All right. That's really helpful. I appreciate that. And then your commentary about the margins and the incentives and all that. You've talked about the fact that the first five weeks here have gotten off to a good start. And the way you're talking about the incentives or the concessions it sounds like you haven't really had not really reduced those concessions yet and you think you may as you go forward. Can you help us understand what it is that you think would be the trigger for reducing incentives? Would it be in fact absorptions let's say any in the late 1Q, early 2Q kind of getting into that five threshold in absorptions or would it be something else?

Yes, Rob, do you want to take that you can walk through, what we're doing and where we're trying to get to?

Yes, so Steve, you're right, we haven't really done anything different than what we were doing in Q3 as far as concessions that we were offering. Obviously, you heard from the prepared remarks, we've seen a big uptick in sales. So that is how we're going to manage it, we always talk about optimizing each asset, balancing base price and margin, and if we -- as we go through Q1 or into Q2 when we start to see that at a community level get above what we think is optimal for that we're going to, we're first going to reduce those incentives, take it to price, we're going to be looking to lift margins on all those communities, where we're seeing that happen, and we're encouraged early by what we're seeing here in the first part of Q1. So that seems pretty realistic for us.

Thank you. And the next question comes from the line of Alan Ratner with Zelman and Associates. Please proceed with your question.

Hey guys, Happy New Year. good afternoon, and thanks for all the great detail as always. Yes, my first question in a similar vein on the incentives, it doesn't sound like you really got kind of played that incentive game in the fourth quarter and I think that makes a lot of sense given your sales strategy and whatnot, but clearly, other builders did, which I think is now perhaps maybe why orders were a bit lighter than you were expecting coming into the quarter. We have seen, maybe more of the spec builders begin to dial back those incentives that they were offering into year-end. And if so any idea kind of how much net pricing has moved the year-to-date from some of your competitors that did play that discounting game?

Robert, it's also for you.

Yes, I really haven't. I mean we're seeing some change in behavior, it's kind of hard to track what's going on with individual builders and they'll have certain deal of the day, deal of the week type things, but we do expect to see incentives overall come down as we move forward, just based on the uptick in demand that we've seen. We did do a little more in Q3, especially towards Q4 or towards the beginning to generate some additional net orders but as rates got to that 8% kind of threshold we saw buyers really pull back and it just didn't seem prudent to chase sales with that going on in the market. We continue to start homes and we're happy as we look back on it now as that's the approach that we took because we're seeing better sales obviously. We didn't think the margins and sales are really picking up. So that's been our approach.

Got it, okay, makes sense. Maybe a little bit early, but more the expectation into the spring, but that should come down. Second question on the margin guide and Jeff I appreciate kind of the commentary there. I'm just curious what your underlying assumptions are on costs because obviously, lumber was a big tailwind in 2023 versus 2022, you kind of mentioned some of the moving pieces there. I would imagine beginning of the year is kind of typically when you start to get some price increase announcements from your trades and they're probably seeing and hearing the same things you guys are as far as lower rates. So has that involved in the suppliers, the trades to try to push the envelope a little bit on cost yet or are they still kind of content with the current level then what's your expectation there for the year?

First of all, on the suppliers. I mean, we haven't seen any significant change in behavior from the supply base. Pretty early, I'd say on the market recovery and in mortgage rate declining to see that. As we forecast margin would generally look at current pricing, current costs as we go forward, and assuming current market conditions. So if things get better, there is more upside and we've just talked about concessions a little bit with the last couple of questions. One of the other important thing under concessions is to the extent they are tied to mortgage rates. So the buying rate is down to X percent, for example, loan rates go less cost of that concession. So even if we were to maintain some of those incentives out there they'd be less costly to us and less of a hit to gross margins, which is a real favorable. So anyway, coming back to the cost side. Yes, it's, I think it's still a bit early on to see. Hopefully, we will see from a similar supply base, aggressiveness on that. We did see costs coming down quite nicely over the next 12 months and to the extent, those costs are baked into the backlog, those are already included in the forward guide and I'm just assuming kind of business-as-usual from there.

Thank you. And our next question comes from the line of Matthew Bouley with Barclays. Please proceed with your question.

Good afternoon, everyone. Thanks for taking the questions. So you guided your ending backlog or you've got your deliveries, the ratio ending backlog to deliveries of 40%, which is very normal versus pre-COVID times as you mentioned it's a lot better than the past couple of years, of course. So just cycle times, where they stand today kind of get you there, or would you still need some further improvement in cycle times in order to get to that number relative to where your backlog is today.

We've built the year met based on current cycle times. So if we can continue to compress and Rob has got a lot of plans at play in order to do that as it could help us but we have spent steady-state when we're making our projections for.

Yes, got it, okay. Thank you. And then so I think in terms of spec. I think you said 30% of your production was unsold. Correct me if I'm wrong, but I recall in years past that may be a little higher. You might have been closer to more like 20%, today it is a little higher-than-normal. Can you remind us if there is any margin differential on the kind of spec homes versus the build-to-order and how you're thinking about any margin impact from mix of higher-spec in 2024?

Yes. Matt, we typically run about 25% unsold and we are up at 30%, it's about 300 units. So it's not a crazy number. And as the year unfolds, we'll see how our orders are on the built-to-order because we like the predictability of the delivery with a predictable margin and it's -- we are just saying it's far better. Typically, our inventory sales are running 2% to 3% points lower than built-to-order. So we would much rather prefer to keep running our business where we have for the last 15 years, but there is a certain phase where you have the starts to maintain in order to have your scale and your franchise in that city with a contractor base and we'll keep, and we'll get all the sales we can, the BTO sales for our X films, and inventory will do that.

Thank you. And our next question comes from the line of Michael Rehaut with JPMorgan. Please proceed with your question.

Hi, thanks, good afternoon, and thanks for taking my questions. First, I just wanted to zero in a little bit again on the first quarter gross margin. Looking for a roughly flat or even slightly up result or positive may roughly flattish results. It's actually in a positive contrast to typically when you have first quarter lower revenue then you are expecting lower revenues sequentially 4Q versus first, sorry, the first quarter versus 4Q. In the past, you kind of pointed to some negative operating leverage and we've seen a sequential contraction of gross margins anywhere of 100 basis points, 200 basis points at times over the last five years, six years, seven years. I was wondering kind of what happened to that negative operating leverage. If there had been any differences in mix or other drivers because normally I think we would have expected some type of sequential step-down.

Right. Yes, that's a good question, Mike. A couple of things. One, you're not seeing quite the same magnitude of change between our fourth quarter and first quarter, as we have in certain years. So, I think it's about a couple of 100 million bucks or so at the midpoint, which isn't a tremendous impact on the leverage but there is some leverage off here but fundamentally, it's just offset by other factors. And where we see the backlog coming through with the mix of deliveries that we expect in the first quarter that slightly higher margins than we've been tracking too. We didn't think we'd hit an inflection point in the fourth quarter with the low point of margin, which we have seen and we do expect, even though it's only up incrementally still up and hopefully we'll out in the rearview mirror for us. So those are really two main factors, just a mix of the business. And I think the other thing is, we used to have a fairly large mix impact between the fourth quarter and first quarter between West Coast and somebody of the divisions. That's been moderated a bit, as we've been trying to rebalance the business and frankly, some of the margins in the other regions have come up over the years, quite nicely. We're just not seeing that same type of impact on the first quarter.

Right. Okay. No that's helpful, Jeff. I appreciate that. I guess secondly on the SG&A guide. Looking forward to be about flattish or maybe up 10 bps year-over-year and that is against the revenue range that is flat-to-up 7%, I'm just kind of curious, let's, for argument sake, I know the midpoint is obviously maybe up 3%, 3.5% perhaps you just kind of thing relatively modest revenue growth, not a lot of operating leverage, but to the extent that we were to see the higher end of that range up 7%. Would it be fair to assume or expect some level of modest SG&A leverage on that scenario or kind of are there other factors that are kind of depressed that for fiscal 2024?

Sure, yes. So for starters we always estimate the leverage impact on both the gross margin, the fixed costs included in the cost of sales and the impact on gross margin as well as our SG&A percentage. we always basically calculate those at the midpoint of the ranges. So as we have been on the top line, you should be incrementally better on those two metrics, which is the case. As far as the uptick like as I mentioned in prepared remarks, we're in a different situation this year in January than we were last year. We had a -- we're really facing stiff headwinds of these mortgage rate increases. Not quite sure how the year was going to sort out. We did way better than we thought we were going to during the let's say February-March of last year and where the year ended up and we had a little different approach on expenses, you always get a little more tighter on expenses, you're a little slower in replacing openings, sometimes you freeze headcount regardless of what's happening with the underlying positions and this year we're in more of a growth-minded mindset. We anticipate growth in community count, we want to go to business and continue to take share. We're really happy with what we've seen on cycle times, and our ability to take customers from order to close in a much shorter period of time. So we're just in a more optimistic environment internally as we look at the market and we look at the company. And then also, I mean, if you want to grow the business, you have to invest in the business, so we are putting a few more dollars into various areas in order to support that growth. So that's, I'd say at a high level, those are the drivers. When you really look at it. I mean, a lot of this year almost rounding, it's 40 basis points. $6 million or something midpoint, so it's not a, not a huge, huge issue. Like I said, on a growth mindset, the community count going up or going to spend some money on, particularly, advertising and marketing supporting those new openings in our openings are up significantly as we plan on today. we were up about 50% over the prior year. So we have a lot of work to do and we want to support it with the right level of expense.

Thank you. And our next question comes from the line of Jay McCanless with Wedbush Securities. Please proceed with your question.

Hey, good afternoon, and thanks for taking my question. The first one I had, it seems like you have more tailwinds this year between the cycle time getting better and it sounds like incentives may be coming off a little bit, but could you talk about why you're not expecting any improvement in the full-year gross margin for 2024 versus 2023?

Yes, we like I said, we forecasted based on current cost current conditions, and the current market, even though it's an improved market, we didn't look forward and say let's assume a large increase, a significant increase in margins in the third quarter and fourth quarter reflecting, for example, a reduction in concessions and customer incentives. We didn't want to take that type of an outlook into the forecast based on a relatively short period of time improvement, we do expect that improvement to happen. We do anticipate that we'll see that improving market condition, but at this point in time, we just wanted to be a little bit cautious. We've taken that in the future guidance numbers and leave it up to you guys. I mean, if you have a more bullish outlook on the space and you're ready to make that stand right now then you can adjust as you think appropriate. But right now we're forecasting based on what we're seeing in the backlog, what we're seeing in the current sales rates, the type of incentives that we need today to book our sales, and our visibility is only about 40% of the year right now to what is the backlog. So the spring selling season. It's also what I mean I think next quarter's call we'll be able to dial in on a lot of these metrics more precisely and hopefully, give you a little bit more detail on what's going on in the markets and what we talked a lot about the improvements that we're seeing continue as we get through the first quarter and the spring selling season.

My second question, could you talk about how many communities, you were able to raise prices during the quarter? And as part of that as kind of a two-parter. Was the price action in terms of competition from the other builders, was it as frenetic as what you saw in 2022 or in the fall of 2022, or was it a little more well-behaved this year?

Rob?

So we didn't have as much pricing action during Q4, which is what we talked about it in Q3. I think we had 60%, 65% of our community's price increases because of mortgage rates going up, the way that they did that just wasn't in the cards. The market wasn't there. We work as we optimize each community and asset we aren't seeing the need to raise prices to slow down absorption. So, we, I think price increases, maybe it was about 25% of our communities, fairly small increases in the range of 5-K or 6-K during the quarter. Most of what we saw from other builders was incentive action, not necessarily price moves.

Thank you. And the next question comes from the line of Susan McCleary with Goldman Sachs. Please proceed with your question.

Thank you. Good afternoon everyone and thanks for squeezing. My first question is, can you talk a bit about the just the level of activity you're seeing in the design centers, anything that's changed there as we've seen the move-in rates?

Susan, I'm not sure. I heard the earlier question, I heard you say design centers. I didn't hear the rest of it.

Yes, I'm sorry, I'm on a train, and so I don't, can you hear me better now?

Yes.

Okay, yes. So just wondering if there was any change in the input of the trends that you were seeing in the design centers through the quarter and even into the first couple of weeks of this year, just given the move-in rates.

Now they are very similar to what we saw last year. And frankly, the last several years of spending in the studio has been very consistent. It's moved to more what I'll call value items, more permanent things that's not necessarily finished, but room layouts and optional islands and things like that, less jacuzzis, and sort of those stuff, but the spend has been very consistent.

Okay. And then I guess any thoughts just as we think about this year's priorities for uses of cash and you talked about still having some availability on the buybacks in there and just how you're thinking about that relative to perhaps land spend and some of the other larger buckets.

Well, as you can tell from our balance sheet, Susan, we are in a very strong position right now. And first and foremost, we're always going to be growing the company and that's where our first dollars would go, but what we saw as 2023 evolved there was a lot of idle cash, I'll call it a nice problem to have, with the cash that was needed to fuel our growth and position us and we were opportunistic and bought back a lot of, lot of our stock and we then somewhat programmatic about it for a few years now. We intend to continue to be active and the level will be determined based on all the factors Jeff rattled off in the prepared comments and how are we doing on land spend and how is our liquidity position, how do we look what's the stock price and that will influence our behavior, but we do intend to stay in the market and continue to buy stock.

And the next question comes from the line of Alex Barron with Housing Research Center. Please proceed with your question.

Thanks, guys. In the last couple of years with the rising rates. Lot of builders look more towards offering spec homes and I guess it was understandable, but now that rates are going down, are you guys seeing more demand for build-to-order, is there any way you can gauge or measure that?

Well, Alex, we always felt heavily to build-to-order, and it was certainly the case in our deliveries in the fourth quarter as well. It's kind of interesting to me the debate rages on build-to-order versus spec. If you look at our delivery cadence and our revenue. One of the values of build-to-order with a backlog is consistency in your results. And if you look back over the last two years to three years, our deliveries quarter-after-quarter-after-quarter are in a very narrow range we've been 2,800 to 3,400. No, broader than that from Q1 to Q4 from 2021 to Q1 2023, so it speaks to the consistency that we've been able to produce. Irrespective of what people say about once a better selling approach and we still maintain that we get better margins, we have predictability, we can align our land development with our pace of sales and starts. And it's just a far better rhythm and a better way to run the business. My expectation as you look forward in 2024, we have some inventory to sell and we always will but we will tell heavily 70% built to order.

Great. Best of luck.

Thank you. And the next question comes from the line of Joe Ahlersmeyer with Deutsche Bank. Please proceed with your question.

Hey, thanks a lot everybody for the question. I'll actually just dispatch my questions into one here given the time. The first one on the percentage of your land that you own and put under control before land inflation. Can you just speak to maybe the development cost inflation that may have come in after that or will continue to come in after inflation too cold in that part of the process? And then two, if you could just maybe provide a little additional detail on this California tax credits surprise?

Rob, you want to talk to the development costs. And then Jeff will talk about tax.

Sure, yes. On the development cost, the vintage of our lots, we've got the majority of our lots going back to Warner before. So our land basis is solid. We have seen development costs increase and there has been a lot of work, whether it's new-home communities being built or the government work that's going on spreading that trade-based pretty. And so there was some pretty significant increases, inflation, and the development cost. We think that that's settled down now but it's kind of settled at a higher baseline. Although we combine where we are, our current development costs on those communities plus our land basis. We're in really good shape for our portfolio of communities and how it all balances out.

Okay, yes, in relation to the tax credits, the energy credit, it was pretty specific it was on the homes that have been built in California really affected the 2023 energy credit relating to those homes. It came from a little bit of clarification from the IRS in early fourth quarter were they talked about, where they actually changed the standard for ENERGY star specific to California to a higher standard than we see in other states. So we are assuming the national standard for all of our operations including our California operations. But once this new guidance came out we had to make the adjustments to the rate or to the energy credits, which take the rate up. I think it was actually rounded up percent but it was less than 1% impact on the tax rate for the year.

Thank you. And our final question will come from the line from Jade Rahmani with KBW. Please proceed with your question.

Thank you very much. Could you provide any regional commentary on how demand is holding up specifically on California as possible? Also, Phoenix and the Sunbelt markets. Thanks.

Rob, you want to take.

Sure, yes. Since then we've seen rates come down really the pickup in demand has been pretty widespread across our portfolio. The West California has remained strong really they've done really well, don't have anybody that's a big concern as far as sales pace or demand out of the West Coast to California. Really across the whole portfolio, Texas, Florida, the demand pickup that we've seen since rates started coming down is really influence sales and a positive direction. So, no real outliers to speak of there and optimistic about sales here as we progress throughout Q1.

Thank you. And as a follow-up, the Sunbelt market has really high multifamily supply right now. Any concerns about competition? With that. Are going into the spring selling season.

Yes, let me take that, Jeff.

Yes, yes go. Yes. I mean, as far as you know, there are a lot of multifamily completions coming online. We're seeing the starts of those multi-family units come down, I mean they are a competitor to some extent and we're primarily focused on the resale, That's always our biggest competitor. Resales have been down somewhat, it's created an opportunity for us for new homes, especially on our personalized homes and we have to stay connected to what's going on with rents because that's an alternative, but we don't really see that as our primary competitor. We think people say they want the American dream. They want to own a home and we're trying to make those homes at affordable as we can for them to get them into a new one.

And ladies and gentlemen, this concludes today’s teleconference. Thank you for your participation. You may now disconnect your lines.