Good afternoon. My name is John, and I'll be your conference operator today. I would like to welcome everyone to the KB Home 2024 Second Quarter Earnings Conference Call. Currently, 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 July 18, 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 second quarter of fiscal 2024. On the call are Jeff Mezger, Chairman and Chief Executive Officer; Rob McGibney, 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, and good afternoon, everyone. Our performance in the second quarter was solid with key metrics that were above the high end of our guidance ranges. In addition, we achieved positive year-over-year comparisons for both net orders and net order value. We believe we are well positioned to achieve our goals over the remainder of 2024 with a backlog of committed buyers valued over $3 billion and meaningful improvement in our build times. As for the details of our results, we generated total revenues of over $1.7 billion and detailed earnings per share of $2.15. Our margins were healthy with over 21% in gross and above 11% in operating income margin. This performance along with the cumulative benefit of ongoing quarterly share repurchases, including an additional $50 million during the second quarter, drove our book value per share up 14% year-over-year. Longer-term housing market conditions remain favorable, supported by an undersupply of new and resale homes, solid employment, wage growth, favorable demographics and rising household formations. However, during the second quarter, we did see volatility return to the market correlated to the rise in mortgage rates. Periods of rate increases create uncertainty for consumers, which can delay their purchase decisions. Despite this, the desire for homeownership is strong and the appeal of a personalized home is clear as we generated a higher mix of sales of built-to-order homes in our second quarter than we have in several quarters. Personalization is a key differentiator for our company, and its appeal is even stronger as our build times are normalizing, and as most large production builders have migrated to an all-spec model, particularly for first-time buyers. We are affordably positioned in our served markets with products that include features that we know buyers value based on our survey data. Our…

Thank you, Jeff. I will begin by providing additional color on our order results. At 5.5 net orders per community, our monthly absorption pace was above our average second quarter level of the last decade. This is notable given the volatility in interest rates during the quarter moving above 7% and the fact that we raised prices modestly in the majority of our communities, helping to offset the cost of mortgage concessions. As Jeff mentioned, our cancellation rate remained low, improving slightly as compared to the first quarter to 13% of our gross orders and stable at 10% of our backlog at the beginning of the quarter. These levels are below our historical averages, which indicate to us that buyers have confidence in their purchase decisions. Mortgage concessions in the second quarter were flat as compared to each of the prior two quarters with roughly 60% of our orders having some form of mortgage concession associated with them. While we believe that we could lower our use of these incentives as the spring selling season unfolded, given the strength of the market conditions early in the spring, the move-in rates impacted demand to an extent, and we continued using mortgage concessions to support our buyers. As we had anticipated, we accelerated our starts in the second quarter on a sequential basis. We started nearly 4,300 homes ending the quarter with about 7,700 homes in production. Together with the backlog of 6,270 homes, we believe we are well positioned for the second half of 2024 and we are beginning to shape the early part of our fiscal 2025 as well. Moving on to build times. We achieved a significant sequential improvement during the second quarter. And as a result, our starts are now being completed in about five months. We are…

Thanks, Rob. During the quarter, we invested over $275 million to acquire land and another $390 million to develop lots that we already own. In total, an increase of nearly 70% year-over-year. We are accelerating our land investment in 2024 as we position the company for future growth while remaining diligent with respect to our underwriting criteria, product strategy and price points. We are also mindful of macroeconomic conditions, and we will remain flexible in adjusting our pace of investment as market conditions warrant. We grew our lot position by 17%, ending the quarter with over 65,500 lots owned or controlled, of which roughly 39,900 were owned. Of these owned lots, over 16,000 are in a finished condition. We are pleased with the composition of our portfolio, including the quality of the locations, geographic mix and cost basis. Our focus is on capital efficiency, developing lots wherever possible in smaller phases and balancing development with our starts pace to manage our inventory of finished lots. We currently own or control all the lots that we need to achieve our delivery targets for 2025 as well as the majority of our deliveries in 2026. As we have stated in the past, our divisions have road maps in place to reach at least the top five position in each of our served markets. For those divisions that are already top five, the next step is to achieve a top three ranking and for those divisions currently in the top three in their markets, we have targeted growth plans in place. Overall, we feel we have significant upside opportunities through taking share in the markets we serve. We continue to generate a strong level of cash flow and are taking a balanced approach in allocating this capital. We are reinvesting in our growth…

Thank you, Jeff, and good afternoon, everyone. I will now cover highlights of our 2024 second quarter financial performance and provide our current outlook for the third quarter and full-year. We are pleased with our second quarter execution that produced financial results exceeding our expectations across all key metrics amid a volatile and uncertain mortgage interest rate environment. Alongside our healthy topline performance and double-digit operating margin, we generated robust cash flow, enabling us to reinvest in our business, return capital to our stockholders through common stock repurchases in a higher quarterly dividend and end the period with over $1.7 billion of liquidity. Our housing revenues of $1.7 billion for the quarter were down 3% from the prior year period, reflecting a 4% decrease in the number of homes delivered, partially offset by a slight increase in our overall average selling price. The number of homes delivered in the second quarter represented a backlog conversion rate of 61%, the highest second quarter rate since 2013 and a significant improvement from 52% for the year earlier quarter due to both our improved build times as well as the lower cancellation rate in the current period. Based on our current construction cycle times and backlog, we anticipate our 2024 third quarter housing revenues will be in the range of $1.65 billion to $1.75 billion. Additionally, based on housing market conditions and anticipated continued improvement in our build times, for the full-year, we expect to generate housing revenues in the range of $6.7 million to $6.9 million, an increase of $100 million at the midpoint versus our prior guidance. In the second quarter, our overall average selling price of homes delivered increased to $483,000 from $479,500 in the prior year period, reflecting shifts in geographic and product mix. For the 2024 third quarter,…

Thank you, sir. We will now be conducting 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, just kind of trying to do this quickly, the back of the envelope math. It looks like the outlook would sort of imply that fourth quarter revenue of about, call it, $1.9 billion, so call it, 14-ish percent sequential step-up from the third quarter. And it seems like gross margin will be relatively flat third quarter to the fourth quarter in the way you're thinking about it. So the first question is are we thinking about that correctly. And why would there not be a little bit more leverage on the gross margin front? What are the kind of the puts and takes there?

Right. First of all, yes, you are thinking about it correctly. You did the math on the fly pretty accurately. On the leverage, we're facing a lot of things on the gross margin side. As we talked about earlier in the year, we, like most people, had an expectation of rates actually coming down and being able to reduce some of the mortgage interest rate incentives that we've had out there that unfortunately has not happened as of this point, and that put a little bit of pressure on the back-end margins. We are seeing some mix shift in deliveries in the back half of the year, but honestly, we're pretty happy that we've been able to raise incrementally the full-year gross margin outlook for the company despite some of those headwinds. And we're continuing to work on all the factors that go into it. Obviously, pricing has been more difficult, but despite that, we've had some limited price increases in the majority of our communities during the quarter. And the largest headwind right now is just on this mortgage rate side, but we've been powering through that pretty well, and we're actually fairly pleased with the outlook for the second half of the year and especially being able to incrementally raise some of those guidance points as we look towards the end of 2024.

Yes, makes sense. Okay. And then on the land front, the owned and controlled lots, I think as of last quarter, you had what you needed to satisfy 2025 deliveries and now you're talking about through the majority of 2026. I guess the first part of that is how would you sort of frame your confidence in the near-term demand. Is that – are you feeling better about that versus just kind of building the pipeline? And secondarily, I mean, should we expect you to sort of take your foot off the gas at this point? Or how are you thinking about future land spend?

John, good question. It's really a pedal and a break. Demand remains very solid right now, as we shared in our prepared comments. There is sensitivity to affordability, and we are not strained from our underwriting approach, targeting the median incomes, what type of products in that submarket can allow us to accomplish that. So there's a healthy tension in that land isn't readily available in all locations to achieve that type of a strategy. So we're finding enough deal flow to expand our investments, and we are not looking at it right now as if we would slow that down. We are, however, remaining diligent in our standards. So for the year, we think our land spend will be up pretty significantly year-over-year, and we're comfortable with the investments we're making and the returns we expect on this.

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

[Indiscernible] take on the longer-term outlook for growth. I think you sort of talked about what you're expecting here in the next quarter or so – a quarter or two. But from a longer-term perspective, can you give us a sense for what kind of volume growth or revenue growth, you are setting your land strategy up to be able to achieve?

Steve, it's a ground-up build in every market. And I shared the targets we have for the scale we want in every city, and we're working on that and we're making inroads more into the top five and more into the top three and several that have the opportunity possibly over the next year or two to be number one in their market. So it's more about the market share in each city. With our investment strategy and how we're allocating capital, we think we can fuel growth in over 10% a year of community count range around the system. That probably means, on average, 14% to 20% revenue growth between a little bit of price and the continued community count growth. So if we do all that, you'll hit 10% to 20% revenue growth, and your bottom line growth would be a little higher than that. But it's built ground up with a strategy in each market, and we don't have limits on the divisions right now on what we'll invest. It's up to them to go find the deals that pencil.

Yes. Got it. That's great. That's exactly what I was looking for. And so that kind of leads to my second question, which relates to absorption. I guess that those kind of numbers suggest that you expect absorptions here to [indiscernible] reached higher. You talked about [indiscernible] absorptions a little above historical levels. [Indiscernible] and whether or not we can expect this to – why we can expect this to be kind of a new normal? Are larger [indiscernible] factoring into some of the increase in absorptions or are there other things that we should be thinking about there?

Steve, as you know, it's a balance. And what – we heard about 20% of your question. It was really a bad connection, but I'll take a shot at it. We're balancing things to optimize each asset, and we've been talking that way for quite a while. And our margins are higher now, and we have a nice profit equation working. And in areas where the land is easily replaceable, we'll go for more absorption than the 5.5. If it's an infill location in California, we'll go for the best margin we can because you can't replace it and you take your time to optimize profits. But as we build our strategy of growth with the community count we're targeting, we'll assume current absorption rates. And if our margins were to move a little higher because there's no inventory, which I think they could over time, if our margins move higher, you'd see a higher absorption rate along with it. But at the same time, we've kind of got a floor on our run rates at around 4, 4.5 per community. And so you can do the math and toggle between community count growth and any unit growth we get, but it will always be to optimize the asset.

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

Great. Thanks everyone. Thanks for taking my questions. Good afternoon. Wanted to first kind of zero in a little bit on how you felt demand has progressed throughout the quarter and even so far into the third quarter. Rates – obviously, rate came up a bit throughout the first month, month and a half, have come down a little bit more recently. Has this impacted – you kind of alluded to earlier maybe incentives being elevated a little bit more in terms of mortgage concessions or other areas of closing costs perhaps. Just wanted to get a sense for how demand and pricing has progressed? And any take on the last several weeks with the most recent move-in rates?

Mike, I'll ask Rob to answer that question relative to the rhythm and the demand, but just to clarify one thing, it's not that concessions are up. They've held steady. We expect that they may go down a little bit as the year unfolded because of the stronger conditions we saw in March and early April before the rates came up at about the time of our last call. So we're not seeing concessions go up this time. They're just not going down the way we thought they would. Rob, do you want to give some commentary on the demand through the quarter?

Sure. In terms of the second quarter sales, I would say the business performed very well on a portfolio basis. We mentioned we hit 5.5 net orders per month per community. But in addition to that, each one of our regions on an individual basis achieved 5 a month or more every single month of the quarter, and we really didn't see much change. We do expect to see things slow down, as it always does seasonally as we move into the summer here, but demand really across our footprint and from month-to-month was fairly consistent and as Jeff mentioned, not really a change in the incentives that we had to offer to drive that. It's just we didn't get the mortgage rate pullback that we thought we might, and they remained relatively flat over the last couple of quarters.

Okay. No, that's very helpful. I appreciate that. I guess secondly, would love to just get your thoughts on how to think about gross margins maybe a little bit longer term. And you look at what you did from 2013 to 2018, 2019. You averaged about 18%. You've kind of been more consistent in the last year, 1.5 years around 21%, mid-21%. What's changed in your view that's kind of allowed you to hold on to this higher level? And I don't want to put words in your mouth. So two factors have come to mind but want your thoughts on the sustainability of the current margins. And if you decide to continue to shift perhaps a little bit more to option lots, which sometimes carry a lower gross margin, if that, any potential strategy shift might impact that going forward?

Sure. So yes, just a few comments on the margins. So when you look at the company, scale helps a lot. Not only on leveraging some of the fixed costs that are included in margin but particularly on the supplier side, materials, labor, et cetera, in the market. So that's why there's such a focus within the company, within the company's divisions on achieving a large scale in each of our served markets. So that's been a very favorable factor for the company. Number two, as you know, Mike, we've done a tremendous amount of work on our capital structure over the years and particularly back to the period that you mentioned, our interest amortization is way down compared to prior, and that's a direct improvement in margin. That just went right to the margin line, and that is very sustainable and in fact, some future potential there as well as our inventory balance continues to grow, our debt levels stay either constant or slightly decreasing, and we have a really nice capital structure now. And now with our new Ba1 status with Moody's and the recent upgrade that we also received, we're in really good shape on the capital side of things and the interest side of things, so that's good. So as far as sustainability goes, if you look at 21% low-20s, let's call it, margins, I think they're very sustainable and in fact, things that we can build upon as we achieve higher levels of scale in our served market as we grow the total company topline. And as we move forward with some of our supplier and cost strategies, I certainly think margins are sustainable and could even expand from here. So we'll see as we go. I think the single largest tailwind that we could experience is just reduction of incentives. As you know, we're not really an incentive-based company. We've been playing that game for a while in the face of these higher interest rates in order to generate affordability for our buyers. But us along with most people don't think these rates are here to stay for the long-term. And although they may not reach the low levels that they once were at, there's a fairly sizable margin pickup that could be gained just from seeing that go away. So those are the – I guess, my high-level thoughts on that margin question. As far as option lot strategy, we're not seeing much change internally from a margin point of view on that side of things. We'll take the option lots if they're out there and available. If they're not, we're pretty focused on just expanding community count and developing our own lots as we go. So we'll see how that shakes out. But overall, pretty pleased with margins. Very pleased with the expansion and the sustained higher level that we've been experiencing in the last few years. And hopefully, we can build upon those in the future.

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

Good evening. You have Anika Dholakia on for Matt today. Thanks for taking my questions. So first off, I think you said that build times are now at around five months, which is within your target historic four to five range. Just wondering if this is still the target range or maybe if there's further to push on this and then what levers you're taking to get there? Thanks.

Rob?

So yes, we're at five months. Not satisfied with five months. We've been faster than that in the past. We've talked about a range of four to five months. We've had many businesses that have built in faster than four months. So we're not going to take our foot off the gas on that. I think there are still opportunities out there. We have some divisions that are performing much better than others, so that's an opportunity to kind of get the underperforming divisions aligned with the better performing ones but also proactive things that we're doing and we've been talking about for several quarters like simplifying our product and building in a cadence, driving cost out, just an overall simpler formula. That combined with really things getting back in rhythm with the supply chain now being much more stable, the systems, the processes that we've used for years are working as they should. And I think that's going to create additional opportunities for us to keep driving build times down and reap the benefits that, that provides for our business.

Got it. Super helpful. Thanks. And then my second question, you guys talked about the resiliency in buyer demand. I guess, more specifically, what trends are you maybe seeing in consumers utilizing the Design Studio and like around options and upgrades? Any thoughts on that would be helpful? Thanks.

It's very interesting, and it's why we always like to share the credit profile of the buyers. When you think we're 50% first time and the average income is over $130,000 and they're putting $77,000 down with a high FICO, it's a very well-heeled first-time buyer. Having said that, the size of the homes has not moved much for many quarters, and the studio spend has been very consistent. What they're selecting in the studio can move around some, but the dollars that they're spending in the studio has been pretty consistent for the last eight to 12 quarters. So not seeing really any change in consumer preference even with the higher prices that we've been operating at.

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

Hey guys, good afternoon. Nice quarter, and thanks for all the details so far. First question, and maybe this is digging in a little bit to the regional trends a bit, but we have seen – you mentioned, obviously, rates have stayed higher for longer than expected. I think probably the one other macro development that may or may not be surprising is we have seen resale inventories moving higher in certain markets at a pretty decent rate, albeit off of incredibly low levels. And if I look at your order performance by region, the Southeast kind of stands out a little bit, roughly flat sequentially, orders, and normally, you would see a 20% to 30% sequential uptick in your second quarter. And that also kind of overlaps where we've seen some pretty decent increases in resale inventory. So was just hoping you can kind of discuss a little bit what you're seeing on the resale front. Do you feel like you are seeing more competition in certain markets? And if so, what are you doing to respond to that?

Rob, do you want to take that?

Sure. It's a good question. Resale, always our biggest competitor. So we're always focused on it. We've got to stay tethered to resale pricing. We have to have a reasonable premium. But I don't think we've really seen any big changes in demand yet related to resale levels coming up. I mean you talk about Florida and the headline is going to be something like resale inventory levels have exploded. They're double year-over-year. But when you dig into the markets, like I was specifically looking at Tampa earlier today, we're talking about going from, I think, 1.8 months of supply to 3.6 months of supply. So while it has increased and it has become more of a formidable competitor than it was when the supply was less than two months, it's still well below the historical norms. I think historical norms close to six months of supply. That would be considered imbalanced. So definitely keeping an eye on it, probably some impact to our sales in Florida in the quarter, but as I mentioned earlier, all of our regions performed well. Every one of them with sales per month per community above five each month of the quarter, so I wouldn't say that we're seeing a big impact from that yet. It's just something that we will certainly stay tuned into and adjust as needed though.

Perfect. I appreciate that detail. Second question on the land front. So your total lot count increased 18% sequentially, and I got to go back to second quarter of 2004 to find a quarter where your lot count rose by such a meaningful rate. And I know when we've talked about this in the past, one of the things you always highlight is a lot of these deals are either in due diligence or have been kind of tied up or locked in way before it shows up as an increase in your lot count. So I'm not assuming you went out and all of a sudden contracted for 10,000 lots this quarter. But I was hoping you can give us a little color in terms of where are these lots centered, what type of negotiation or pricing, what that has been given the fact that it seems like this growth has all come through option lots as opposed to owned because it is a pretty significant one quarter increase compared to what we've seen historically.

A lot of it, Alan, is the timing of when it's secured. To your point, we could be working on a purchase agreement for three, four, five months, sometimes with sellers hammering out the details before you put the money up and control it and then entitle or whatever you need to do. We've intentionally staffed up our land teams and are working with the division pretty intensively to grow our community count. And we've had fits and starts. Ever since COVID, there's been interest rate rises, COVID demand, no demand, and we pulled some chips off the table a few times to keep the dry powder and let's see where the market's headed. And that did impact our community count over the last couple of years. We're past that now. We see many markets where the dynamics are no inventory and the lots have value. As I shared, we're continuing to be diligent in our underwriting standards. But we're finding adequate deal flow. And it's the healthy tension that I've already mentioned of holding divisions accountable to our standards in underwriting and product and geography and encouraging them to go tie up deals, and the deals then have to hit our returns. So we were successful in the quarter, and it's not the one or two large deals. It's many, many hundred or 150 lot deals that we've secured around the system, and we're seeing growth in all of our markets right now in our lots owned and controlled. So we like the portfolio and the strategy and it's setting up a pretty nice trajectory for 2025 and 2026.

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

Thank you. Good afternoon. Thanks for taking the questions. My first question is I want to go back a bit to the gross margin. You made a comment that you have seen lot premiums and upgrades that are benefiting the profitability of the business. Can you quantify that? And then can you also talk to the potential upside from there as you think about rates coming down and your buyers perhaps having a bit more purchasing power, where that could go over time and how it could benefit profitability?

Sure, Susan. I'll take the second part of that first and then come back on lot premiums in the studios. Like I mentioned before, we're at an unusually high level of incentives out there on this mortgage interest rate. And if we can eliminate that, it's full percentage basis margin improvement for the company, all else being equal. So if we hold costs equal, assuming land values stay equal, et cetera, it's a pretty significant upside for us. So that factor alone, I think gives me some really good feelings about the future potential for gross margins. When you start looking at things like lot premiums and studio, the good news on the studio side is the spend. And even as ASPs have gone up and as affordability, there's been a lot of headlines on affordability, we're still seeing buyers coming to the studio and use our studio process. And as we've talked often in the past, we use our studio mainly as a differentiator on the sales side and to pull more buyers in. We do believe that's part of the reason why we see very high absorption pace per community relative to the peers. But despite that, we still do have incrementally higher margin on studio sales than our base house margins, but it's not an area where we really focused to kind of cream it and add big dollars on that side of it. We'll take it where it comes in. We try to keep our options pretty close to market and go from there. Lot premiums is always a focus area. I think it's a focus area of all builders. It's almost, if you think about a pure profit, there's no incremental cost to one lot versus another lot of developed community. But to the extent you could get lot premiums on those lots, it's incrementally positive to gross margins. So that's really how we look at it on those two factors. And again, on the incentive thing, we're looking forward to getting back to our base business model on how we like to operate the business, which is more or less everyday low pricing without offering huge incentives out there, without discounting our homes and offering the buyers choice and personalization in order to drive an above-average absorption pace for community.

Yes. Okay. That's helpful color. And then maybe thinking about the consumer at a higher level. There's been a lot of different data points that have come through and comment some various companies across the consumer landscape in the last couple of months or so. And even your competitor this morning made some comments about consumers perhaps being under more financial stress. It seems like that's in contrast to the stats that you gave around your buyer in your prepared comments. I guess when you step back, how do you think about the health of the consumer and the buyer that's coming through today? And has that changed at all? Are you seeing anything different in there? And how do you think about the profile of the business as perhaps rates start to come down and we expand that pool of demand?

I think you touched on it, Susan. I was – we quote – Rob quoted in his script the income levels, the FICO score and how much they're putting down. I observed it's a well-heeled first-time buyer. But their debt loads are up. You see it in all the statistics. Credit card balances are higher. Car loans, whatever it is, there's a lot of pressure in their cost of living outside of home ownership. So we are very sensitive and in tune to doing what we can to help improve affordability. And I think if rates came down, it would help a lot of things, but we don't assume rates are going to come down anytime soon, so you have to navigate through it. And where we're benefiting is the buyer demand is strong enough that you're able to operate your business pretty successfully with this higher credit profile customer. But I think we would say, too, that they're a little more credit challenged, and there's a little more debt burden than there was a couple of years ago.

Thank you. And our final question comes from the line of Jay McCanless with Wedbush Securities. Please proceed with your question. Jay, your line is live.

Thanks for taking my question. I guess, Rob, could you talk more about what was going on in the Southeast and also in the West region during the quarter? I know you said absorptions were pretty solid relative to the overall average, but the orders were down there. Is that a function of communities? And do you expect to catch up on the community side in those regions later this year?

Part of it is a little bit driven by community count in Florida, and I do expect that to catch up. We've had just some general delays in getting communities open. There's not communities that are going away but just get pushed out a little bit. So I don't know, JK, if you've got the specific stat, but I think it was community count was down sequentially there a little bit. But overall, demand in both regions remained relatively strong. When we talk about the Southwest, Las Vegas continued to have the highest sales rate we've had in the community, Inland Empire did really well in the West, all of California really. Texas performed very well. Those businesses are back in sync, the normalized can rate, actually lower than normal. That drove a better net sales result. So outside of the uptick in inventory in Florida that we've been reading about, which I think is still well below the historical norms, I don't really see any storm clouds out there for us. But as I mentioned before, we'll continue to monitor and watch it.

Got it. And then just on gross margin, it sounds like you're getting a decent amount of pricing, not big pricing but enough to cover mortgage concessions. It also sounds like you might get a positive product shift with more California in the fourth quarter. I guess why not be a little more aggressive on the gross margin guide, especially for the full-year? What's holding you back there?

Jay, we forecast gross margins based on our backlog, and it's one of the advantages of a BTO business. We have a lot of visibility into the future. And for the sales, particularly in the spring selling season, which will mainly deliver out in the fourth quarter, the mix of business and the mix of sales and the mix between the divisions that we see, basically, we roll them all up, and we're telling you what we're seeing right now in our backlog numbers and what we anticipate selling through move-in-ready homes in the third and fourth quarter that deliver out before the end of the year. So there's not tons of guesswork there. We've been pretty consistent in gross margin, in our estimates and really have been coming in closer to the high end of our ranges now for the past several quarters. And we're pleased with the consistency in the business and what we're seeing and how things are progressing. And we'll keep you guys updated as we go. So we lifted the full-year range up very incrementally right now, and we'll continue to monitor it. We did expect, at the beginning of the year, to see a similar pattern to what we're seeing now but for different reasons. We thought we'd get a little more help on the interest rate side and be able to do things with incentives and pricing that we have not been able to do because of the macro, but we've been able to offset that through other initiatives within the company, and we're pleased with that.

And ladies and gentlemen, that does conclude today's teleconference. We thank you for your participation. You may now disconnect your lines.