Welcome to Lennar’s Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the presentation, we will conduct a question-and-answer session. Today’s conference is being recorded. If you have any objections, you may disconnect at this time. I will now turn the call over to Alexandra Lumpkin for the reading of the forward-looking statement.

Thank you, and good morning. Today’s conference call may include forward-looking statements, including statements regarding Lennar’s business, financial condition, results of operations, cash flows, strategies, and prospects. Forward-looking statements represent only Lennar’s estimates on the date of this conference call and are not intended to give any assurance as to actual future results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties. Many factors could affect future results and may cause Lennar’s actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These factors include those described in yesterday’s press release and our SEC filings, including those under the caption Risk Factors contained in Lennar’s Annual Report on Form 10-K most recently filed with the SEC. Please note that Lennar assumes no obligation to update any forward-looking statements.

I would like to introduce your host, Mr. Stuart Miller, Executive Chairman. Sir, you may begin.

Very good. Good morning, everyone. Thanks for joining us. This morning, I'm here in Miami joined by Diane Bessette, our Chief Financial Officer; David Collins, our Controller and Vice President; and of course, Alex, who you just heard from; Jon Jaffe and Rick Beckwitt, our Co-CEOs and Co-Presidents are on the line also, but they will be participating remotely for the Q&A. As usual, I'm going to give a macro overview and strategic Lennar plan. After my introductory remarks, Rick is going to talk about our markets around the country. Jon will update on supply chain, construction costs, land strategy, and as usual Diane will give a detailed financial highlight and will give some rough boundaries for the fourth quarter to assist in go-forward thinking and modeling. And then, we'll answer as many questions as we can. And as usual, please limit to one question, one follow-up. So, let me begin and start by saying that once again, the Lennar team has turned in an excellent third quarter result, which continues to enhance our positioning for the evolving market conditions. Throughout our third quarter, we continued to manage the still constrained supply chain and workforce and delivered over 17,200 homes with a gross margin of 29.2%, and the net margin of 23.5%. These deliveries continued to drive very strong cash flow and bottom-line earnings as we continue to refine our already efficient operation with SG&A of 5.8% for a 120 basis-point improvement over last year. With strong bottom-line earnings of $1.47 billion or $5.03 per diluted share, driving strong cash flow, we've continued to fortify our balance sheet. After paying down $575 million of maturing senior debt without replacement, we ended the quarter with $1.3 billion of cash, nothing drawn on our revolver and a 15% debt to total capitalization…

Thanks, Stuart. As you can tell from Stuart's opening comments, the overall housing market has been reacting to significant increases in mortgage rates, continued inflation and a volatile stock market, all of which has impacted affordability and homebuyer confidence. While we continue to have some strong markets, in our more challenging areas, we've had to adjust prices and increase incentives to regain sales momentum. Our sales strategy has been to find the market clearing price for each of our homes on a community-by-community basis as quickly as possible and price our homes accordingly. This has required a detailed understanding of traffic trends, inventory levels, community and product-specific pricing, financing programs and buyer sentiment. During the third quarter, our new sales orders declined by 12% from the prior year on a 1% lower year-over-year community count. While our cancellation rate and sales incentives picked up during the quarter, our sales orders and sales pace per community increased sequentially each month as we successfully executed our pricing strategy in more and more markets. To put some color on this, our sales pace per community in June, July and August was 3.7, 3.9 and 4.5, respectively [Technical Difficulty] for the quarter. To achieve this, we lowered our base new order sales price and increased sales incentives in many communities. On a company-wide basis, new sales order incentives increased during the quarter from 2.3% in June to 6% in August and varied significantly by market and community. Based on these combined adjustments, our new net order sales price declined 9% sequentially from the second quarter but was up 1% from the prior year. This pricing strategy produced enough new gross sales to offset cancellations company-wide as our third quarter cancellation rate was 21%, which is slightly above our historical average. Our pricing strategy has…

Thanks, Rick. This morning, I will discuss our sales and inventory management focus, our land strategy, and give an update on the status of the supply chain. I'd like to start by laying out a few additional thoughts on the detail that Rick just walked you through. As discussed, this quarter was all about the daily process of adjusting home prices to find market clearing values in each individual community. As noted, our starts and sales pace for the quarter were 4.4 homes and 4.0 homes, respectively. This gap between starts pace and sales pace comes from the time it takes to make the pricing adjustments necessary to be perceived as value by the consumer. Finding that value proposition is a process that takes several weeks and is ongoing. In other words, once market pricing is found through discovery, the market often experiences further adjustments, and a new value proposition must be discovered. As we went through the process of finding clearing prices in communities, this informed our decision-making, which enabled broader pricing adjustments, leading to our improved sales pace across our entire platform for the month of August. As Stuart noted, our operators use our dynamic pricing model to help them understand the timing of inventory as it moves through the construction process. This tool gives us visibility into sales pace and associated pricing by community and even by plan, allowing us to maintain our starts pace without building up excess inventory. Our inventory position at the end of the quarter was just over 500 completed unsold homes or 0.4 homes per community. Next, I want to discuss our land focus in the third quarter. As expected, we focused a lot of attention on reassessing every land deal in our pipeline along with updating our underwriting. Based on our…

Thank you, Jon, and good morning, everyone. So Stuart, Rick and Jon have provided a great deal of color regarding our homebuilding performance. So therefore, I'm going to spend a few minutes on the results of our other business segments and our balance sheet and then turn to Q4 guidance. So, starting with Financial Services. For the third quarter, our Financial Services team produced operating earnings of $99 million, excluding the recording of a onetime litigation accrual. And then looking at the details, our mortgage operating earnings was $64 million compared to $80 million in the prior year. As we've indicated for several quarters, the mortgage market continues to be extraordinarily competitive for purchase business. As a result, secondary margins have been decreasing. This decrease in earnings was partially offset by an increase in interest rate lock commitments. Total operating earnings were $33 million compared to $26 million in the prior year. Final earnings increased primarily as a result of higher volumes and an increase in revenue per transaction. Our Financial Services team continues to rise to the occasion each and every quarter to assist our homebuilder divisions to properly service our customers. And then turning to the Lennar Other segment. For the third quarter, our Lennar Other segment had an operating loss of $118 million. This loss was primarily the result of a noncash mark-to-market loss on our publicly traded technology investments, which totaled $86 million. As we have mentioned before, we are required to mark to market many of our technology investments that are publicly traded, and that valuation will fluctuate from quarter-to-quarter. However, we believe these technology partnerships provide significant operational efficiencies for both, our homebuilding and Financial Services platform and greatly improve our customers' experience. And then looking at our balance sheet quickly, as you've heard…

Thank you. [Operator Instructions] Truman Patterson with Wolfe Research, you may go ahead, sir.

Hey. Good morning, everyone. Thanks for taking my questions. So, you all have been pretty open about the fact that you intended to throttle the incentive level to really drive volumes, and the orders down 12% is I think a good result in the current environment. So your order ASP fell 9% sequentially. All four regions looked like they ticked lower. I'm just hoping you can help us understand how much of that 12% decline was a function of base price cuts, incentives, et cetera? Was it the overwhelming majority, or was there some product mix shift in there?

Why don't I let Rick take that? Go ahead. I'm going to play a role of traffic cop here because we are in remote locations. So go ahead, Rick.

So as I mentioned in my commentary, there was about a 4.5% incentive that was priced in the quarter. Some of that was a base price change with a slight mix adjustment as we closed a more significant amount of entry-level homes during the quarter.

Okay. Perfect. So, that 4.5% increase captures both, the incentive level and the base price cuts. All right. Thanks for that. And you all now have increased your option land 63% of your portfolio. It's been a pretty rapid shift over the past couple of years. And you mentioned that you reassessed every deal in your pipeline, and you're working with partners to improve underwriting standards. Could you help us understand if you've actually been walking away from deals at an accelerated pace? I noticed your option lot declined in the quarter. Could you discuss just the willingness of your partners to work with you all? And any chance you might be able to help us quantify what portion of controlled deals might be on the watch list or at risk?

So, let me give a broad thought process on that. There is -- there are a couple of buckets you got to think about. Some of the shorter-term deals that we have been working through that we own home sites in, those home sites continue to be valuable assets that we're working -- that we're putting into production and generating an attractive margin on even in current market conditions. We will continue to build through those communities. That's one of the benefits of shorter-term deals is they generally will work through and still generate an attractive margin. In every land deal that we have in our pipeline, we are going back and doing the re-underwriting on -- not just onetime, but on a pretty regular basis, given the movements in market conditions. And so, the answer to your question is we will walk away from programs that we have or land that we have under contract that no longer meet the underwriting criteria and where we have the ability to walk away at an attractive cost. We're just not going to go forward on deals that no longer meet the underwriting criteria. And that is the benefit that comes to bear, given the way that we've migrated our land program over the past couple of years. So, over this past quarter, there are deals that meet the stringent underwriting criteria and deals that don't, and those that don't, fall out of the filter, and we've walked away and we'll come back another day. So, we've probably walked away from something in the nature of 10,000 home sites just over this past quarter. Is that it, Diane?

Yes.

Yes. And Rick, Jon, do you want to weigh in on that?

I would just add that we have extremely strong relationships with a lot of land partners. And relative to your question, we are able to work with them to either adjust timing, to restructure, to change pace. And that combined with, as Stuart described, just a constant refresh analysis just keeps us very current so that the land we are acquiring is turning into starts very quickly with very acceptable margins. And if it doesn't fit that criteria, we're finding the appropriate alternative solution for the asset.

Susan Maklari from Goldman Sachs, you may go ahead.

My first question is, Stuart, you talked a lot about cash generation. And as we do think about the overall market moderating, can you talk to some of the changes in the business today relative to the past cycle? What that will mean for your ability to generate cash as we think about things changing on the ground, and the areas that you're really focused on investing in, in order to position the business for that eventual recovery, and where you see Lennar going over time?

Great question. Historically, if you look at the composition of Lennar, many of the builders, we've migrated away from those longer-term land positions that have really stuck us in the mud as the market has gotten slow. And because we have basically converted our land asset to short-term assets, those assets will turn over as we continue to produce through the current market conditions. And so -- and we'll replace those assets with land assets that are repriced, given the current market condition. So that's a structural change in Lennar specifically and in the industry more broadly that I think is going to be very cash generative. There are a number of things that work against homebuilders in downtime. One of them is long-term land, and that's been mitigated. The second thing I'd say is when you're growing a homebuilding company, one of the big cash users is the growth component. We're constantly buying land and putting more sticks and bricks in the ground to accommodate growth. As you migrate to a slower growth level or a zero growth level, that in itself is cash generative. So now, short-term land position plus migration to a no-growth environment, both very cash flow positive, and then the one anomalous component is the cycle time that is derived from the supply chain impairment that we've been dealing with. That has added about 25% more cash use inventory buildup relative to normalized times. As we've noted before, we've added about 2 months to our generally 6-month cycle time. And I think that's an industry kind of average. And that two months ultimately is going to find its way to resolution. We will see a reversion back to a normalized kind of cycle time in production. And that also should be tailwinds, winds at our back in terms of generating cash as we have a normalization, might take place this year, might take place over the next couple of years, but it should generate cash as we go forward.

Okay. That's very helpful color. And then following up, affordability is obviously a key focus as rates rise and the macro changes. Can you talk to some of the benefits of your underlying operations and how you're able to sort of drive that narrow band between the tensions that exist on the cost side relative to what the consumer needs and the ability to get those first time kind of home buyers into a house?

Well, listen, I'm going to have Rick and Jon both speak to this. Let me just say as a general overview along those lines, the three of us just left a two-day session with our trade partners. And the partnership that exists among our operating groups in the field and our trade partners really came to light as we had straight conversation about what the market is doing and partnership and recognizing that we've all got to find a way to reconcile costs to enable affordability in the sales price of the home. That goes to our land partners as well as to our trade partners. I think that across the industry, everybody recognizes that there's going to have to be a cost reconciliation as interest rates go up. It's clear that there's going to be more increase in interest rates that we're going to be dealing with. So, we've got to band together to make the machine work, and that means a cost structure that enables affordability. Rick, Jon?

Yes. It's exactly what you said, Stuart. It's a combination of us reducing sales prices and having the margin impact, and you saw that we executed on that during the quarter. We've discussed with our trade partners that there needs to be a sharing. Everyone made a lot of money during the up cycle, and it's time to work as partners to restructure the cost side on both the labor and material side. And in addition, as Stuart walked through the land side of the business, there's going to be some adjustments in land pricing. So, it's the collective of all three of those that we will do in order to execute the strategy to keep the sales momentum going.

The only thing I would add is that we're also -- during this time, as Rick highlighted, we have to find the right price to match the affordability perspective and reality that our customer has is -- we look very carefully at our product offering to see where we can do some significant value engineering as well as introduce smaller, more efficient product into certain markets. So we continue to move down the price curve and meet the place where affordability for the consumer intersects with mortgage payment and home prices.

Yes. I guess, the bottom line, this is a dynamic situation. And the execution part of that is alignment. You hear alignment with me, Rick and Jon, and we've conveyed that to the Lennar organization, to the trade partners and to our land partners as well that work has got to be done, and everybody is at work.

Stephen Kim with Evercore ISI, you may go ahead, sir.

Just first question just from a housekeeping perspective, from calculating your starts, we're probably about 15,700. Correct me if I'm wrong. And then, you talked about inventory, maybe freeing up some cash. I think you said that cycle times, moderating cycle times eventually was 25%, I guess, of the growth. I suppose that was a comment about your sticks and bricks inventory. So, the bottom line is on the inventory, I'm thinking that the cycle time negative impact. Am I right in thinking that you're saying that that's about $1.8 billion of cash that's burdening your current inventory? So that number and then also the 15,700 starts, is that in the ballpark?

So, happy you asked the question that way, Steve. I will tell you that Diane has tried to figure out what the number is. And that specificity is we haven't been able to put our finger on it, but it is in that kind of neighborhood. It's a significant amount of dollars that are tied up because of the cycle time increase.

Yes.

And Steve, you are pretty close, we had about 16,000 starts this quarter, so good math.

Got you. And then in addition to that $1.8 billion neighborhood kind of number, you had also mentioned that you could see your inventory shrink further due to slower growth, more on the land side and that sort of stuff. But I assume that growth comment is temporary. So I'm thinking that near term -- the longer term, the opportunity is probably really on the WIP. [Ph] So, correct me if I'm wrong on that. But I wanted to ask about your standing inventory comment as well. You said, I think, Jon, you mentioned about 500 finished completed -- or finished specs right now. The way I calculate that that's about 2 to 3 times -- where you typically have 2 to 3 times more than that before the pandemic hit and all that on a per community basis. And so, I'm wondering, is this 500 like the new normal for you? Is this a new desired level for you? And if so, why is that if what we've been hearing is true that you're seeing that folks actually fairly actually preferring customers or preferring homes that they can move into more quickly. Just wanted to understand if there's any change in your thinking about managing specs as they get near completion, and why you might be looking to reduce that number in light of customer preferences.

So, it's another good observation. You're absolutely right. We basically run our inventory around about one home per community. And you're right, we're a little bit less than half of what normal has been pre-pandemic. And we do envision that we will grow our inventory to a more normalized level. We might even go beyond that. And the point in raising the low level of inventory is we don't -- we want people to understand, we want everyone to understand that we're not just putting production in the ground and allowing inventory to build up. We have a disciplined approach to sales and making sure that we're clearing inventory. That's what our dynamic pricing model is all about, and we're on it every day. But at the same time, your point that having some standing inventory is a benefit to customers looking for an instant movement. We will -- we haven't been able to have inventory on the ground during the pandemic. It is best practice to have a little bit more than we have right now. And we'll grow to that level, but it will be done in a very-disciplined way. Jon, Rick, do you want to add to that?

I think you really covered exactly what our operating strategy is, Stuart. And Stephen, your assessment of the numbers is right and the consumer desirability especially in a changing interest rate environment for a quick move-in. They can lock in their rate if they buy today and create that certainty for themselves. So, that is definitely an advantage. But we're very-focused, as Stuart highlighted, using dynamic pricing to make sure our homes are sold in time. So, as they come off our construction assembly line, we're able to deliver them to the customer. And that will fall in that range in a more normalized time of about one community per week. It will fluctuate from time to time, but that's our focus.

The only thing I'd add to that, Steve, is as Stuart said in his comments and I mentioned as well, we're very focused on cash generation. Easiest cash to generate is the sale of a completed home. But to the extent that we have standing inventory, we're going to sell that home because we've got homes moving through the production cycle that are going to replace that. Whether it's a half or one, we've continued to refine our pricing strategy to maximize the cash and quickly sell the inventory as it progresses from stage to stage.

And then, just to add -- to go back to your earlier comment, yes, Steve, a zero growth rate would be a temporary condition, not a permanent one. But there's an overhang or an overshadowing concept, and that is we don't want to fight to take. So, we're not going to try to grow when the tape is telling us not to, and that's clearly the case. But as the market comes back and as I noted in my comments, the long-term prospects for housing are strong and good. As the market turns around, we'll be very well positioned with a very strong cash position to be able to lean into market conditions improving as that happens.

Our next caller is Alan Ratner from Zelman & Associates. Please go ahead, sir.

I guess, first, Stuart, maybe directed to you. We've talked in the past about build for rent and that space being a potential kind of countercyclical vehicle in the event of a slowdown in primary demand, which is clearly what we're seeing today. I'm just curious if you could talk to your current BFR business, whether perhaps you're leaning a bit more heavily on that in the current climate. And obviously, with your relationship with the fund and the investors there, what the current appetite is among those investors?

Great. I'm going to ask Rick to jump in after. I'm going to give a first comment and say that I do believe that single-family for rent is going to continue to grow and be a meaningful part of the housing market. I've learned over the years that SFR has always been a part of the market more dominated by the mom-and-pop participants. Now, it's been professionalized, and more institutional buyers are a significant part of the market. But that part of the market has pulled back as interest rates have gone up, as prices have come down and it has moderated. So, it is still a very small part of our production and our sales program overall. And I have no question that as prices moderate, the SFR business will push in and become more of a significant part of the recovery. So Rick, do you want to fill in some of the thoughts and numbers there?

Yes. Stuart, as you mentioned, as rates have risen, several of the SFR players use leverage that's floating in order to underwrite and finance their deals. Accordingly, some of the investment in that space has slowed down, but rents are continuing to maintain. And as a result, they'll get -- they'll ultimately get their embedded yields that they're looking for. For us as a company, we had about 1,000 homes that we sold to the single-family rental space in the last quarter. It's probably underestimated because there were some additional sales in our communities that other folks are investing in and renting that aren't captured in that number. But it was about 1,000, and our SFR program itself was a little bit more than 700 during the quarter.

Let me just add to that and say that embedded in your question, I think, is the question of what percentage and are we ramping up the Quarterra part of our SFR program. And the fact -- the reality is that our program has taken a very-disciplined approach to stepping back and waiting for the market to kind of reconcile itself. So, contrary to what you might have thought, we're probably selling less to our own program and more to other SFR programs outside of Lennar.

Okay. No, that's really helpful. And thank you for that disclosure there. It's very helpful. I guess, second question just on the kind of the monthly cadence you described. I think, given the 4% increase in incentives/base price reductions, combined with the fact that in August, we obviously saw mortgage rates pull back temporarily, it's not too surprising to see that kind of be the strongest month of the quarter. I think you mentioned that September was kind of following a similar trajectory, which, I guess, I'm a little surprised given the continued increase in mortgage rates or the reemergence of mortgage rates since the end of August. So have you further increased incentives or gotten even more aggressive on price reductions to kind of combat that move we've seen in rates, or are you still seeing that momentum continue in spite of the higher rates?

Let me clarify something. So for Q3, our incentives were about 4.5%. There was probably about 3% that was base price reduction on top of the incentive with the balance being somewhat mix oriented to a lower price point. As we move into [indiscernible], we actually have been fairly consistent with where we were in the -- in the third quarter and in August. From a pricing standpoint, we're just slight -- ticked up slightly from an incentive standpoint. Our actual net sales price is up higher than it was in August. That might be mix. And from a cancellation rate, we're right on top of where we were for the quarter. So, we are -- and from a sales pace standpoint, we're very consistent with where we were in August. So, we haven't seen any dramatic changes. I think what this is really demonstrating is we really fine-tuned our sales execution strategy.

Got it. That's great to hear.

We are finding the market, and we are finding the market primarily with primary buyers. And as we find the market, there's demand out there, but the demand needs affordability. So, that's basically what's happening.

To that point, Stuart, if I could sneak in one more. It sounds like many of your competitors have been a bit more reluctant to be as aggressive as you have on the pricing side. So I'm curious if you're seeing more builders of late kind of respond in force to try to match what you guys are doing and presumably one or two of the other larger builders are doing, or is there really a clear divergence right now in terms of strategies out there, some builders trying to hold on to margin as long as possible and others trying to find the market as you guys are doing?

Look, it's a mixed bag. There are some builders that are going along with the program that we have in place. There are a lot of others that have different strategies. The smaller builders are reacting a little differently than some of the larger builders. And that's just -- that adds to the choppiness of the market condition. All I can tell you is that market by market, we know exactly what the competitors are doing. We see the inventory buildups where they're happening. We see the migration to sell to price, hold and wait and ultimately, falling off the cliff and saying reconciliation. Each of these plays out in each market. That's why we emphasize our dynamic pricing model to each of our divisions because that's what keeps us tuned into the competitive field, exactly what's happening and making the judgments that are necessary. I think Rick said it really well. This is an art, not a science. And we are playing the game in each market that exists by knowing what the competitive field is and reacting to it.

John Lovallo with UBS, you may go ahead, sir.

Thank you for taking my questions, guys. The first one is, can you just help us on the sequential walk in gross margin from 3Q to 4Q? It's about 270 basis points at the midpoint. How much is base price reductions? How much is other incentives, rising costs? And how much of an offset is sort of the typical seasonal operating leverage?

Rick, why don't you take that?

Yes. So, putting cost aside, I would say that half of it was probably sales incentives. 40%, 30% of it was base price reductions, and the balance was probably some cost and mix. Jon?

I think that's right. As we've talked about on prior calls, the second half and the fourth quarter will be our peak construction cost as the highest lumber work through that. And that will start coming down at the very end of the fourth quarter and into the first quarter. So, that makes sense what you said, Rick. And clearly, the biggest driver is what we're doing to adjust to market to keep our sales pace.

Yes. Let me just add to that and say that in addition to pricing and base price as well as incentives management, we're also managing our backlog, recognizing that as prices adjust, we also sometimes have to go back to our backlog. We don't want to turn yesterday's sales and customers into a cancellation. And so, there's some administration of that as well. And so, a lot of moving parts in the walk from third quarter to fourth quarter margins. It's not as linear as just what the new sales are.

Okay. That's helpful, guys. Thank you. And then, maybe switching gears to Quarterra. Third-party equity commitments for the asset management business, I think, were $4 billion last quarter. What has that grown to? And how much third-party capital has been committed to the land strategies?

We haven't put those numbers out, so I really can't put those numbers on the table. We're a bit restricted as to what we can disclose at this point. And we're going to do something more comprehensive and putting together a conference call to really let all of those pieces and numbers be known as we're getting ready to actually go public. So, I say it again, stay tuned.

Mike Rehaut from JP Morgan, sir, you may go ahead.

Just wanted to get a sense directionally for gross margins at least as we think past the fourth quarter. And obviously, I totally appreciate you're not giving guidance for a good reason at this point for fiscal '23. But, as we think about maybe the first quarter or two, and you look at the 4.5% average incentive for the quarter, and you ended August around 6%. So, you're talking about another 150 bps -- if we just kind of held things there and also held costs, and I know you're working hard on costs as well. But is that a good starting point to think about the difference between first quarter '23 gross margins and what you're doing currently that additional 150 bps again, holding other understandably key variables constant?

So Mike, I think the best way for me to answer this is to say that we have decidedly not given guidance for the fourth quarter because there are so many moving parts. We recognize the best we can do is give some boundaries to help the modeling. I think that there -- it gets even more complicated as we go out to the first quarter. So, we're not going to wade into those waters simply because there's a lot moving around. As we sat yesterday and listened to Chair Powell lay out kind of his thinking for the way forward, it just helps us recognize that that we're living in a dynamic environment that's going to change a lot of things month by month, quarter by quarter. And we're focused on week by week. Our management team gets together every other day to coordinate, to find alignment and to look at the patterns that are revealing themselves real-time in the marketplace, and each market is different. So, I guess, that's a big and long-winded excuse, but we're not really going to weigh in on our first quarter numbers right now.

Okay. I appreciate that. I guess, similarly, at the risk of asking another question that might be hard to answer, but directionally, how should we think about community count in '23? Obviously, this year, you're looking to end with some sequential growth 3Q to 4Q. Given the moderation in sales pace, obviously, delays and such can impact the rate of openings. But is growth how we should think about next year? And if so, any sense of degree of magnitude?

Great question. We've given that a considerable amount of thought. I'm going to turn to Rick in a second on this because this is his favorite topic. But we are thinking about community count growth into next year. I can't prove it right now, but we think that there's going to be some comparable reconciliation in land pricing, which will enable us to find opportunities that will rightsize for current market conditions. But we're going to have to wait and see on that. Rick, could you add to that?

Well, community count is so tricky because it has -- it's impacted by your sales pace and your existing communities, development timing, whether it's internal development or third-party developers and whether they get the communities done at the appropriate time. Sitting here today, we believe our community count will increase in 2023, probably a single-digit, low single-digit increase. And that could be skewed by what happens in the land market because as other builders may walk away from deals that have finished home sites that will look good for us from an underwriting standpoint because of our low-cost structure, we may find some opportunities to add to community. But as Stuart said, it's a tough read right now, but it looks slightly up.

Thank you, Mike. All right. We'll wrap it up there. I want to thank everyone for joining us. These are tricky times, but this is a seasoned management team that's been there -- been here before. We have a game plan, strategy. You can expect that we're going to be adhering to that strategy with certainty and look forward to reporting back as we get to the end of the fourth quarter. Thank you, everyone.

Thank you. This concludes today's conference call. You may go ahead and disconnect at this time.