Good afternoon. My name is John, and I will be your conference operator today. I would like to welcome everyone to the KB Home 2025 Third Quarter Earnings Conference Call. [Operator Instructions] This conference call is being recorded, and a replay will be accessible on the KB Home website until October 24, 2025. And I will now turn the call over to Jill Peters, Senior Vice President, Investor Relations. Thank you, Jill. You may now begin.

Thank you, John. Good afternoon, everyone, and thank you for joining us today to review our results for the third quarter of fiscal 2025. On the call are Jeff Mezger, Chairman and Chief Executive Officer; Rob McGibney, President and Chief Operating Officer; Rob Dillard, 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, an explanation and/or 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. We are pleased with the solid financial results that we achieved in our third quarter, meeting or exceeding our guidance ranges across our key metrics as we continue to navigate the current environment. And with a healthy balance sheet and significant cash flow, our flexibility remains strong. While we continue to invest in new communities to position ourselves for future growth, we are also returning a significant amount of cash to our shareholders. We repurchased more than $188 million of our shares in the third quarter, near the high end of our guided range, contributing to total repurchases of roughly $440 million year-to-date. This total represents approximately 11% of our outstanding share count at the beginning of the fiscal year, which was repurchased at an average price that is below our current book value. We believe this is an excellent use of our cash and highly accretive to both our earnings and book value per share. Including dividends, we have now returned more than $490 million in capital to our shareholders this year. From an operational standpoint, we had some critical achievements in terms of materially reducing our build times, which helped to generate closings that were slightly above our expectations and also continuing to lower our direct costs. These accomplishments were realized while maintaining outstanding customer satisfaction levels. As for the details of our results, we produced total revenues of over $1.6 billion and diluted earnings per share of $1.61. We delivered higher profitability on our revenues than we had projected with a gross margin of 18.9%, excluding inventory-related charges, above the high end of our guided range. With a continued focus on prudently managing our costs and aligning our overhead structure with our delivery volume, we held SG&A expenses to 10% of…

Thank you, Jeff. One of the key operational themes of our third quarter was our strong execution. Our divisions continue to perform well on the fundamentals of our business, maintaining high customer satisfaction levels, consistently improving build times, further lowering direct cost and balancing pace and price to optimize each asset. In addition, we successfully opened 32 new communities during the quarter. The significant progress we made in continually reducing build times during the third quarter helped to drive better financial performance from capturing slightly more deliveries than we had planned. Traffic in our communities was steady, and our cancellation rate was stable at 17%, supporting net orders at an average absorption pace of 3.8 per month per community. We continue to utilize a simplified approach to sales, focused more on offering a transparent price rather than incentives to provide the most compelling value that is competitive with resale pricing. By advertising the true base price on our website, we let buyers know exactly what to expect before they ever visit a community without the need for back-and-forth negotiations to uncover the real deal. It is a clear upfront way of doing business that makes the home buying process easier and more straightforward. As a result, we believe we draw more traffic to our communities than we might otherwise attract if our pricing was dependent on incentives. In the third quarter, pricing in our communities was as stable as we've seen this fiscal year, with 70% of our communities experiencing steady or increased prices and the other 30% price reductions as we continue to balance pace and price to optimize our assets. We are encouraged by the stabilization and believe our communities are well positioned in the current market. In terms of affordability, it has improved compared to the start…

Thanks, Rob. With respect to our lot position, we own or control over 65,000 lots, 42% of which are controlled. Our footprint is focused on markets that we believe are positioned for long-term economic and demographic growth, and we've been selective with our land positions in these markets. Our lot pipeline is healthy and at a sufficient level to support our community count growth targets. We regularly review the land deals in our pipeline to ensure that the rationale for each deal is still sound. During the third quarter, we canceled contracts to purchase approximately 6,800 lots, representing about 45 communities that no longer meet our underwriting criteria. We feel we have ample opportunity in our served markets to add to our controlled lot count with lots that have better economics and terms. And with our lot position at quarter end, we can wait until we find better prospects. One of the key benefits of our build-to-order approach is that it provides visibility into the need and timing for replacement communities based on each community's pace and expected sellout date, which is beneficial in our effort to be capital efficient. We are also developing lots in smaller phases wherever possible and balancing development with our starts pace to manage our inventory of finished lots. We remain consistent in our balanced approach toward allocating the healthy cash flow that our business generates. We are achieving our priorities of positioning our business for future growth, managing our leverage within our targeted range and rewarding our shareholders through share repurchases and our quarterly cash dividend. We are maintaining our land investments at a level that will support our current growth projections and invested $514 million in land acquisition and development in the third quarter with almost 80% going toward development and fees on…

Thanks, Jeff. I'm pleased to report on the third quarter 2025 results. As Jeff and Rob stated, we're managing the business with discipline in an effort to drive employee engagement, customer satisfaction and long-term shareholder value. We believe that we are well positioned to deliver solid results in the present operating environment with our dedicated customer focus, leading brand, transparent pricing strategy and differentiated built-to-order product. In the third quarter of 2025, we generated total revenues of $1.62 billion. Housing revenues exceeded the midpoint of our guidance range at $1.61 billion, an 8% decrease from the prior year. We delivered 3,393 homes in the quarter, which exceeded the midpoint of our implied guidance, largely due to reduced build times. While we experienced consistent traffic at our communities, net orders totaled 2,950, a 4% decline. Lower orders and improved build times, which reduced backlog more quickly and efficiently contributed to a 24% reduction in our ending backlog to about 4,300 homes. In the third quarter, our overall average selling price was relatively consistent on a year-over-year basis and decreased 1% to $475,700. Mix was a factor as lower average selling prices in the Central and Southeast regions were largely offset by increases in our West Coast and Southwest regions. Housing gross profit margin was 18.2% and adjusted housing gross profit margin, which excludes inventory-related charges, was 18.9%. This strong margin performance exceeded the high end of our guidance range, mainly due to our continued success at managing costs. Adjusted housing gross profit margin was 180 basis points lower than a year earlier due to pricing pressure, higher relative land cost and geographic mix, partially offset by lower construction costs. SG&A expenses as a percent of housing revenues were 10%, a 20 basis point increase from a year ago, primarily due to…

Yes. Thank you. We'll now conduct a question-and-answer session. [Operator Instructions] And the first question comes from the line of Stephen Kim with Evercore ISI.

Appreciate all the commentary and guidance. Yes, and good results here in a tough environment. I did want to ask you a little bit about the order ASP, if I could. It was -- it's kind of been down pretty significantly sequentially. I know you've talked about the simple -- more transparent pricing model. But I was curious, I think you gave a comment that 70% of your communities had stable to increasing prices. And I wanted to square that with the 4% sequential decline in the order ASP. So maybe help us understand sort of maybe how we can reconcile that and what your outlook is for the order ASP as we get into the fourth quarter and into next year. Is this level of ASP a level you're generally comfortable with? Or do you still think it has downward movement?

Well, a lot of where it's going to head is going to depend on market conditions and where things are headed. And we talked in our prepared remarks about optimizing each asset. We're going to continue to do that. We've also had success on moving costs down as well as some of this has been shifting down. But I think a lot of what you're seeing in the ASP is just mix driven. If you look at year-over-year, we've got more deliveries coming out of the Southeast and a lower percentage coming out of California. And then there's mix -- sorry, out of the West. And then there's even mix within the West, too, where we've got ramp-up in deliveries coming out of Boise and Seattle that have some lower ASPs generally than the rest of California. So, Steve, I think a lot of what you're seeing there is mix. And as far as comfort with the ASP, obviously, we're focused on the margin piece of that. So to the extent we can continue to drive cost down and offset any decreases that we've had to do, we'll be happy with that.

Yes, that's helpful. I mean, I guess what I'm hearing you say, Rob, is that nobody should read into the sequential order price decline as a leading indicator of a step down in the margins. There's really more mix effects going on. So I appreciate that. Speaking about the demand, we've kind of had a number of weeks here where the mortgage rate has sort of moved down pretty meaningfully. I was wondering if you could comment on sort of what you've seen. We've heard that there's been a pickup in traffic pretty much across a lot of builders we speak to and people are kind of waiting for the conversion into sales. I was wondering if you could comment on what you are seeing with respect to the conversion of traffic and whether or not you would be more inclined at this point to push price if demand comes in stronger or if you would be more inclined at this point to maybe push volume given the fact that you've pulled your volume down a lot most recently?

I guess the way that we would react to it really depends on the community. If it's a community, we've got a lot of runway in front of us, we see an opportunity to get higher volumes with more demand we'll probably be less aggressive on price and get a little more volume. If I contrast that with some of the, we call them jewel box communities we've got in California that are infill type communities that are difficult to replace. We're going to continue leaning on price and margin. As far as the way the buyers have reacted, I mentioned in my prepared remarks, it's a huge impact to the buyer in terms of affordability. I mean, $30,000 of purchasing power at our ASP is big. We've seen traffic stay steady. Orders have been good, but I wouldn't say that we've seen a big uptick yet or maybe the uptick that we would expect to see from such a change in mortgage rates. And I think to some extent, buyers are in maybe a bit of a wait-and-see mode. maybe waiting for rates to come down further. Maybe they were waiting around for the actual Fed event expecting that to have some immediate impact on rates. But the thing that we're focused on is really our messaging and the way that we're approaching this in the sales offices. And with our build-to-order model, we're really talking to all of our customers about their ability to buy a built-to-order home. And if they believe rates are coming down in the future, then it's perfect because we've got a onetime float down option for them. And if that happens, they can take advantage of that. And I think that's something that is unique to our approach, and we're leveraging that everywhere we can.

Our next question comes from the line of John Lovallo with UBS.

The first one is, if we think about sort of the third quarter gross margin beat versus expectations and about 20 basis points on the high end and maybe a slightly lower-than-anticipated fourth quarter gross margin. I'm curious if there was some toggle on delivery timing or mix between the quarters relative to internal expectations, given the fact that the full year gross margin is maybe up a touch from where you had thought before.

Yes, John, that's a good question. It's something we think about a lot, but it actually wasn't really in play there. I mean the real drivers there were -- there was some mix there, but it was really, really strong performance on the construction side and getting the right products sold. So we feel really good about how the third quarter ended from a margin perspective. we're being really thoughtful about what fourth quarter is going to do as we're still working through inventory and transitioning to more BTO.

Understood. And then maybe with that in mind, how should we sort of think about the year-over-year and sequential movement in stick and brick costs in land into the fourth quarter? And to the extent that you can comment on what you're expecting in 2026, that would be helpful.

Yes. In fourth quarter, we're not expecting like a trend shift from the third quarter in terms of the year-over-year impact of land or sticks and bricks. Like I think that we've been able to offset most of that with construction productivity, but you're seeing that kind of having an impact on the margins for sure. I think going forward, we think that there's still opportunity to continue to offset that. And as Rob said, from a community-by-community perspective, there's a lot of play in price there as well.

Our next question comes from the line of Rafe Jadrosich with Bank of America.

If we go back historically on this third quarter call, you've sort of given an outlook on the out year revenue, at least like a preliminary view. I understand that that's a pretty volatile environment. So it might be a little bit tougher right now. But can you maybe just help us and maybe puts and takes like kind of going into next year as you shift back to BTO, just how we might think about the revenue outlook for next year or if you're still providing that?

Rafe, and we're not going to give guidance on this call for next year. But directionally, we shared we're going to have an uptick in community count in time for the spring selling season. And with rates coming down and improving affordability at some point in time, that has to have a favorable impact, and we just don't know when or how strong it will be. So, our expectation is that as we look ahead to next year, affordability improves, community count is up. We'll be setting up a solid year again. And as we shift to more build-to-order and work through the last of the inventory, we expect that our margins will improve over time.

That's helpful. And then just on the fourth quarter, the guidance implies, I think, pretty good leverage on SG&A or at least better than normal seasonality. Can you talk about, one, do I have that right? And then maybe what's driving some of that improvement sequentially as you go into the fourth quarter?

Detail on that?

Yes. It's not really leverage as much as it is actually the gross number is expected to be down 15% on a year-over-year basis quarterly. And a lot of that is just kind of the fixed costs we've taken out of the business and how the yearly kind of total compensation scheme is going to play through the SG&A profile.

Our next question comes from the line of Alan Ratner with Zelman & Associates.

Thanks for all the detail so far and nice performance in a tough market. I would love to chat a little bit about the goal or the target to get back to your more historical BTO share. I think this is a market where a lot of builders that have historically been more heavy on BTO have seen that share decline, and there's a lot of spec inventory out there that you're competing with. And I'm just curious, as you move towards that pivot, have you made any headway there yet either throughout this quarter or maybe even thus far in September in terms of the mix of your orders? Is it skewed a little bit more towards BTO? And I guess from a profitability perspective, can you talk about the current margin differentials between your BTO business and specs today?

I can make a few comments, Alan, then I'll pass it to Rob McGibney. We were 70% or more sold as recently as 2022. And if you look at what the industry has dealt with, starting in 2022, that's when the supply crunch hit, build times really extended. We got as high as 11 months to build in many cities. And it's hard to have a compelling build-to-order story when it's 11 months out, the buyer can't even lock a rate that long. So you can't tell them what their rate or their payment will be, and they're not going to hang around 11 months to get their personalized home. So we had to do something, and we opted to introduce more inventory into our WIP. And frankly, over the last couple of years, that's been the hardest houses for us to sell because our culture and our wiring as a sales team is to focus on the values of build-to-order. And past that then rates start to run up and it compounded the problem a little bit more for us. So rates have come back down. Our build times have come right back down to historical. It's a far more compelling value. And we're just not going to introduce a lot of inventory into the ground. We're going to focus on the build-to-order side. We've seen some incremental improvement in the build-to-order mix. And we're just -- we expect to see a lot more as we get into '26. So margin-wise, Rob, do you want to add any more comments or you want to get into the margin difference?

Yes. We mentioned in our prepared remarks that the margin difference is some -- depending on the community and the plan, it can be from 250 to 400 basis points. So it's a significant difference. And today, as Jeff mentioned, we're in an environment where we have the inventory because we started it, and we've got to take a balanced approach to moving through that. But as we look forward, especially as we bring on new communities, we're focused solely on BTO. And so I think it's not going to be an overnight change, but over time, and I think we'll make really good progress towards that as we get into the early part of '26. We expect to shift back to that 70-30 or better ratio at higher margins.

Got it. That's really helpful, Rob. And then in terms of the 4Q margin guide, I think if I'm doing the math, it's down about 70 bps sequentially. Given your comments about pricing being pretty stable through the quarter in the majority of your communities, should I interpret that sequential decline is more kind of flushing through some of the remaining spec you have and that mix headwind and then hopefully, as you get into '26, that reverses?

A couple of things, Alan. There's a lag effect from sale to when everything runs through into revenue. So a lot of the deliveries were on houses that were sold in the spring selling season when it got pretty competitive out there. So there is a lag, and you're seeing more of that than you are an assumption that we're going to go deeper on inventory. In fact, we stated in our prepared comments, we're not going to chase the units by "dumping inventory with a heavy discount. We'd rather be prudent with it and strategic and take our time and cover the inventory in the better selling season in January, February and March. So, I can't remember what the other part of his question was. I was going to kick it to you. Was it...

The margin differential.

Yes.

It is -- a fair amount of it is still mix, Alan. You're totally right. And some of it is like market conditions, but really a lot of it is just the mix.

And our next question comes from the line of Matthew Bouley with Barclays.

You have Elizabeth Langan on for Matt today. I was wondering if you could touch -- you mentioned that you've had success in lowering direct costs. I was wondering if you could touch on what those direct costs are and like if there are any categories that you would call out where you're having a little bit more success with that?

It's really across the board. Clearly, lumber costs have come down. So that's been a tailwind for us. It's a fair lumber is a pretty large component of the overall construction cost, but it's certainly not just limited to the commodity side of it. across many -- I'd say probably most of our markets, we've seen starts come down pretty significantly over the last several months, and we're using that as an opportunity to work with our trade partners. And they're hungry for work, which gives us an opportunity to drive down costs lower as we feed starts into the system. So on the cost side, whether it's -- really, we're looking at all of the direct costs. When sales prices get pressured, we're looking for any opportunity we can to lower costs, whether that's direct or SG&A. But I'd say, overall, it's pretty broad-based across all of the direct cost components that go into our homes. And there's part of it that's just renegotiating because market conditions have changed and starts have come down and part of it is true value engineering and changing the product that we build. So I'd say it's probably a pretty even split between those components of the improvement that we've seen.

Okay. And just to kind of follow up on the general dynamics of those negotiations. Is that something that would carry on into 2026 in terms of seeing those benefits? Or is it something where it's more real time and so you might see depending on the demand and if there's a recovery in starts next year?

Yes. The more recent reductions we've seen in lumber, that's going to show up in our deliveries in early next year. The rest of it, I'd say we're -- it's not ever something that we stopped focusing on, but the market isn't always willing to accept that. A few years ago, we were going through labor and supply chain crunches, we were still trying to fight the lower direct costs, just weren't making much headway. But we've been able to have more success with that now. And it is somewhat dependent on market conditions. But while starts and volumes are down, we're going to keep working to leverage that into lower cost. If there's a really healthy spring selling season, I would expect that we're going to have less success. But at the same time, our house prices are going to be going up. So, that's how I view it.

Our next question comes from the line of Mike Dahl with RBC Capital Markets.

Just first, a follow-up on the recent demand dynamics. Just to kind of put a finer point on it, this is normally a time of year where you see some seasonal ebb in your absorption pace. So when you say that demand was steady through the quarter, you haven't necessarily seen an uptick in 4Q to date. Can you be more specific about what your -- maybe what your monthly sales pace cadence has been, including how you're tracking in September?

Yes. Mike, as we shared in the comments and you look back through the third quarter, it was pretty consistent for us. June was the best month, but July and August were close. So we would -- depending on timing of openings and sell-outs and all that, orders were pretty consistent. So, I would say it was stable for us through the quarter. We haven't seen much of a shift yet in September. So it's only two weeks for us. So, I don't want to make any comments on September, but it's more of the same.

Okay. Got it. And then, Jeff, I guess, bigger picture, when you think about the timing of this shift in, hey, let's get back to the build-to-order and coupled with your comments around we don't know when the inflection will be, but we do think there's one out there. It seems like that strategy when you're going into next year with the backlog that in unit and dollar terms looks like it will be down pretty meaningful. It seems like that strategy is really reliant on there being some reasonably good inflection in demand next year. Otherwise, you might have kind of a pretty big gap out year in your revenues. So, I don't know if you want to address that a little bit more, but also then a specific question would be if mortgage rates don't come down because we have seen an uptick then over the past week or so. So, if you don't get the relief, would -- as you go into next year, do you pivot back? Or how do you think about that strategy if we don't actually get the type of relief you're looking for?

Yes. Well, there's a few components to your question, Mike, and it's a good one. Our backlog will be down at the end of the year. Fourth quarter sales and fourth quarter deliveries obviously influence that, but it will be down a similar range to how much our build time is down. So it actually positions us for similar pull-throughs based on the backlog heading into '26. Every year, as we go into the year, the spring selling season dictates how good or how poor your results may be for the year. And part of -- it's not like we just flip a switch and say we want to be built to order. With the inventory that we put out there, you create competition among yourself with the consumer and your sales teams when you're trying to sell inventory and build-to-order. And with the margin erosion to cover the inventory, it gets in the way of selling build-to-order. And we're already seeing communities where you rotate out of the aged inventory, you're just focused on your core value and your best value to the customer, and it works just fine. So we're really not expecting a trough, as you called it. I think you'll see pretty consistent performance. And depending on the spring, we'll share that with you in the spring time, but that's really what will drive the second half of next year.

And our next question comes from the line of Michael Rehaut with JPMorgan.

This is Andrew Azzi on for Michael Rehaut. I just wanted to drill down a little bit in terms of the inventory charges and such, if you could comment on the land environment and your ability to find new lots for future growth, especially as the industry kind of developing a stronger appetite for the land-light model?

Well, as we shared, the land markets are rolling over a little bit. We're seeing some cities where prices have come down a little. You definitely can get more terms, meaning you can close with a better entitlement in place. so you can get to turning the dirt and developing the lots quicker. So that's a good thing. So that's helping us on the land market. Relative to what we shared in the quarter on the abandonments, we walked on deals that we've had tied up and with the ships in the market, they don't hit our underwriting hurdles. So we elected to abandon them and write off the entitlement and pursuit costs that we had incurred. And we know that in some cases, we could go back in and buy the same asset with better price and better terms. We've seen some of that already, but that's a future move. But it's our expectation with starts being way down and what went on in the market this year, we think that the land market will be a little friendlier as we look ahead.

That makes a lot of sense. I appreciate that. And are there any kind of markets where you're seeing -- I'd love to kind of drill down to see how things are progressing by markets, if you can make a few call-outs and if you're seeing any -- specifically any increased competition from resale or anything like that?

It's a pretty broad question, but I'll do my best to give you a quick overview here. I'd say just in general, demand across the whole footprint of our business remains somewhat mixed. There's clear areas of strength, some that remain softer and other markets that seem to be improving or stabilizing faster. It's just -- it's difficult to paint any one metro or region with a broad brush in terms of demand, it's just nuanced based on the submarkets within that metro and then there's even another layer of nuance within those submarkets themselves. But in the quarter from a demand or sales perspective, some of our stronger markets were Inland Empire, Riverside and San Bernardino. North Bay and the Central Valley in California was strong. Las Vegas, Houston, Charlotte, all posted pretty solid demand during the quarter. A couple of the more challenged ones were some of our higher-priced communities, I would say, in coastal California. Seattle was a pretty difficult market for us in Q3, but that tends to follow a little different seasonal pattern, and we've seen demand improve there more recently. Denver is one of the markets that's more challenged. You just had home prices that surged big time with -- after COVID and the incomes didn't keep up, and you've got supply there meaningfully up. I think the good news there in other markets like that, we're seeing starts come down significantly, 15% to 20%. So I view that as positive as the industry in general, showing some discipline by not adding further supply to some of those weaker markets. You mentioned resale inventory in Florida and Texas, I think we were the first ones, just the states where we saw resale and new home inventory increase. And we responded to that with targeted price adjustments and then cost reductions that supported better absorption. And if you look at Florida, I think our orders in Q3 were actually higher than in Q2. So seeing some signs, I think, of stabilization there and the work that we've done has resulted in better absorption. So now we're focused on lifting price where we can. We've actually found, in some cases, we've gone above what we needed to. So in order to optimize those assets, we're now increasing price. Texas is pretty similar, but again, it's different by metro. Houston, it's remained relatively strong, really didn't have the run-up that we saw in San Antonio and Austin where prices moved up, and we've got more resale building -- the resale was building higher there. But I think Texas and Florida in general, I would say, are stabilizing markets, and that's a good sign for us, and we're seeing that as a result in our communities as well.

Our next question comes from the line of Trevor Allinson with Wolfe Research.

I want to ask a question about the Southeast region specifically. Order prices were down almost 6% sequentially, but volumes were actually quite good. They're up about 7% quarter-over-quarter. Rob, I think you were just referring to some of that in Florida. That's quite a bit better than normal seasonality. You've talked about not chasing volume. But was the strategy different in the Southeast in the quarter, just to liquidate some inventory? Or what drove the order ramp there, but a pretty big ASP decline sequentially?

Yes. It wasn't really chasing the inventory. I think that was a market that we saw the resale inventory and new home inventory start to accumulate and sales had really slowed for us in Q2, which was normally our best time of the year. So we took action, and we reduced price. I think that's what's showing up in the numbers that you're seeing. But I think the good news for us is that worked, which now you're seeing the orders come back up as a result of that. It's also, as I mentioned earlier, one of the markets where we've seen the biggest decline in starts. So we've had some of our best results in cost reductions there, too. And now as I'm calling that is starting to stabilize, we've got that combination. And I think we found that we found the market. We've driven cost down and now we're starting to take it back the other way. So I'm not necessarily calling it's an inflection point for the whole state of Florida, but we've been encouraged by what we've seen recently.

Okay. Makes a lot of sense. And then Jeff, I wanted to follow up on your comment about starting to see land prices soften. Can you just talk about how widespread that is? Any specific geographies where that's most common? And can you help us with some sort of number on the magnitude of declines that you're seeing in the markets where you are seeing it.

Well, I would say that there's a slight easing. We're not seeing rapid drops, but we are seeing some easing, and we're -- the power of no is working. We've had deals tied up where we've said no and walked and lo and behold, they come back at a lower price. So it tells you that the land sellers are recognizing it's a little less strong than it was for them, and they need to move their inventory too. And I'd say we're seeing that pretty much across the system. None of them are big magnitudes. They're not market movers, but they are incrementally starting to ease. So we're encouraged with that.

And our final question will come from the line of Susan Maklari with Goldman Sachs.

My first question is on the design studios. As you think about the shift back to more BTO, can you talk about how you can position the design studios? Is there anything that you're focused on from that element of the business in order to help drive that shift and attract the consumer back to that side of the business relative to the specs that are out there?

Yes. Good question. I don't think we need to change anything as far as our approach to the studio. It's just leveraging what we've always done. And we really use the studio as a tool to help us sell homes. And we want to start by offering the best base price we can with a quality home that's designed based on our market survey and the data that we have as kind of a starting point and then really use the studio to let people personalize their home there if they choose to. So I think that there's a lot of personalization options and choices that we offer, and we're always kind of rotating through that to make sure that they stay current and they're up to date with what people want. But I don't really see it as a shift in the way that we're approaching that business. We just want to drive more of the business to build-to-order and leveraging the studio.

Yes. Okay. That's helpful. And then maybe turning to capital allocation. You mentioned the continued focus on shareholder returns, especially the share repurchases. Just any thoughts on how we should be thinking about the magnitude and what we can expect there as we finish up this year and look to the next year and how you're balancing that relative to the budget that you put out for land development and acquisitions?

Yes, Susan, that's a good question. we're very thoughtful about kind of how we're allocating capital. You can see this year, we've been really thoughtful and responsive to ensuring that we can continue to fund growth, but do it in a smart way and ensure that we're rewarding shareholders as well. And the capital return and the cash flow that we're generating right now is really healthy. And so we feel like in the future, we'll be able to continue to reward shareholders at a similar rate, but we haven't quite yet figured out the magnitude. And I think that there's also a component of that, which is market driven by how attractive the land market is. So we feel really good about our land position going into next year and feel really good about how it's set us up for the next three to four years. And I think that, that's going to give us a lot of flexibility in terms of returning capital.

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