Welcome to Lennar's Second 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 David Collins for the reading of the forward-looking statements.

Thank you, and good morning, everyone. 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 our earnings 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 now like to introduce your host, Mr. Stuart Miller, Executive Chairman. Sir, you may begin.

Very good. Thank you, and good morning, everyone. Sorry about the delay. We had a lot of people joining. Wanted to make sure if people had an opportunity to get in. I'm in Dallas today together with Jon Jaffe, our Co-CEO and President, and we're joined remotely from Miami by Rick Beckwitt, our Co-CEO and Co-President, Diane Bessette, our Chief Financial Officer, David Collins, our Controller and Vice President, and Bruce Gross, our CEO of Lennar Financial Services. As I said, they are all in Miami, so there will be a bit of coordination here. As usual, I'm going to go ahead and give a macro and strategic overview of the company. After my introductory remarks, Rick's going to walk through our markets around the country, comment on our land position. Then John's going to update supply chain, cycle time, and construction costs. And as usual, Diane will give a detailed financial highlight, along with some limited guidance for the third quarter to assist in forward thinking and some guidance for the year. And then we'll answer questions, as many as we can. As usual, please limit yourself to one question and one follow-up so we can get as many in as possible. So let me go ahead and begin by saying that we are quite pleased to report that the Lennar team has remained focused on production and pace, cash flow, inventory turns, and return on capital, and we have again produced strong and consistent results for the quarter. Our second quarter results are consistent with the stabilization we have seen in the current economic environment, as well as consistent adherence to our core operating strategies that we've discussed on prior quarterly conference calls. As it relates to home building, the economic environment has stabilized as customers have adjusted…

Thanks Stuart. As you can tell from Stuart's opening comments, the housing market has continued to normalize and recover as buyers have become more comfortable with higher mortgage rates. Tight inventory levels in the resale and new home market propels demand for available new homes and we offered a combination of attractive pricing and compelling mortgage rate programs to capture that demand. While many of our markets are performing well, in all of our markets we are regularly adjusting base prices and incentives to maintain our targeted sales pace. Our strategy has been to maintain our targeted start phase, continue to sell homes, and adjust our pricing to reflect market conditions. In that sales with starts, we have used dynamic pricing model and the Lennar machine Stuart just previewed to continuously find the market clearing price of each of our homes on a community by community basis as quickly as possible. We fundamentally believe that our price to market strategy reflects our balance sheet first focus where we can maximize starts and sales, increase market share, generate cash flow, and keep our home building machine going. With this end, John will discuss the operational and cost benefits of maintaining our start phase. Our second quarter results reflect the successful execution of our price to market strategy. During the quarter, our new sales orders increased 1% from the prior year and 26% from the first quarter with the first and second quarter seasonal change exceeding our historical average over the last three years. New orders increased sequentially in each month during the quarter. Our sales pace for community averaged 4.8% in the second quarter, down 4% from the prior year, but up 23% from the first quarter. Our second quarter new sales price decreased 11% from the prior year and was…

Thank you, Rick. As Stuart and Rick discussed, Lennar's operations have continued the steady execution of maintaining our starts and sales pace. Our strategy is to price homes to market so our construction machine can operate smoothly without the disruptions of stopping and restarting. This strategy enabled us to reduce our direct construction cost as expected, delivering gross margin improvement in the quarter. While we achieved some gross margin benefit in Q2 from cost reductions, a greater amount of cost reductions will impact margins equally in Q3 and Q4 based on the timing of when homes were started. As noted, our quarterly starts and sales pace were 5.3 homes and 4.8 homes per community respectively. Utilizing the Lennar machine, we focused on the orderly selling of homes at the right pace, so homes are sold prior to their completion. This process allowed us to not build up excess finished inventory as we ended the second quarter with approximately one inventory home per community, consistent with our Q1 ending inventory level. Our strategy of maintaining starts also plays a major role in gaining access to the labor we need and is the foundation for our previously stated objectives of lowering construction costs, reducing cycle time, and achieving even and flow production. While Lennar starts were down year-over-year for the first half of 2023, industry-wide start levels were down 100% more than Lennar's. We've heard from our trade partners how important it is to them that we have maintained starts in all of our communities and all markets. Our production-first strategy has had a dramatic effect on Lennar being the builder of choice for trades. At many of our trade partners, Lennar represents over 70% of their business. These trade partners saw little to no decrease in their work while at the…

Thank you, Jon and good morning, everyone. Stuart, Rick and Jon have provided a great deal of color regarding our home delivery performance. So therefore, our usual, I am going to spend a few minutes on the results of financial services and reemphasize some of our balance sheet accomplishments. And then provides some high level thoughts for Q3. So starting with financial services, for the second quarter, our financial services teams had operating earnings of $112 million. Looking at the details of the mortgage and federal operations, mortgage operating earnings were $82 million compared to $74 million in the prior year. The increase in earnings was driven by a higher profit per loss to loan due to higher secondary margins, which was partially by lower loss volume. Title operating earnings were $33 million compared to $30 million in the prior year. Title earnings increased primarily as a result of higher volume and a decrease in cost per transaction as the team continues to focus on gaining efficiency through technology. These valid results were accomplished as the result of great synergies between our home building and financial services team, as they successfully executed together through the developing market. They truly operate under the banner of one-Lennar. So now turning to the balance sheet. There's a constant drum beat at Lennar to be laser focused on returns on invested capital and cash flow. This quarter, we were unwavering in our determination to turn our inventory and generate cash by increasing production as we've priced homes to market to deliver as many homes as possible. The drum beat continued with our determination to preserve cash and increase asset efficiency with a judicious eye towards land spend. As we noted, we spent approximately $1.2 billion on land purchases this quarter of which approximately 90%…

Thank you. We will now begin the question-and-answer session of today's conference. [Operator instructions] Our first question comes from Kenneth Zener from Seaport Research Partners. Please go ahead.

As I understand the benefit of your even flow process, you're able to decapitalize your balance sheet, lifting inventory turns, which is consistent with our inventory turns equal alpha thesis. So my first question is, what do you consider to be the most efficient or targeted start pace long-term, giving starts equal orders, relative to 2Q's 5.3 pace that you set your margin shock absorber to, in your words?

Let me start by saying, Ken, that it's a combination of -- even flow is a combination of going asset light, but it's also a very focused program on our building partner relationships, enabling consistency and predictability relative to our trade partners to enable us and them to become the most efficient versions of ourselves. So your question is what is that start pace? And the start pace is a program that we think about putting in place as we evolve our understanding of performing and underperforming communities, their relationship to sales and closings. And a lot of this is data-driven and evolving. So there isn't a number that we can give you. It's more a concept that we are solving to and iterating to and using a lot of data feedback loops to come to numbers that make sense across a broad spectrum of 40 divisions, 40 geographies all working in sync. Jon?

I would also add that it's very dependent upon community specifics and market specifics in terms of what's the right pace. So it might be a very different pace for Dallas than it is, say, for Seattle. And we very carefully measure that balance market by market so that we can match a sales pace and start pace according to market demand, land availability, labor availability.

I appreciate that there. It sounds like there's several layers to peel.

Yes, there are. And by the way, let me just say, it's handled with an every other day meeting and not just data feedback loops, but interpersonal feedback loops that are constantly in motion. But go ahead.

Right. No, no. It sounds like you have to be actually responsive to the trade in part. So second, considering your non-WIP inventory, owned lots fell about 20% year-over-year to 1.7 years, very impressive. And Diane, I'm very glad that you report and adjust out inventory units. So my question is, to what level can owned lots go to in your even flow framework, given Rick's 90% finished lot purchase comment, if I heard that correct. And are you willing to kind of offer a goalpost for FY '24, perhaps implied cash flows, given you've been dropping almost 0.2 years' owned. Sequentially, it's very impressive.

Sure. Thank you. And Rick, why don't you go ahead and take that question?

We have a target out for 2024, yes. All I know is, as Stuart mentioned in his comments, Jon, myself and Stuart are laser focused on our asset-light balance sheet and continuing to improve the percentage of homesites we control versus own. We've developed some incredible relationships with our land partners and with our land banks that really have facilitated us to improve on these metrics.

And I guess I might add, while we're not there yet, our goal -- as we continue to be asset lighter and have less years owned, our goal would be to have our net income equaling our cash flow. And we're not there yet, but we're working towards just replacing what we're delivering. So that's the longer-term goal.

And let me just say that, look, we've set out a goal in terms of becoming an asset-light model. We report outwardly to all of you our progress along the way. But inwardly and in the background, we are working on not just relationships but structural programs to enhance the ability, to manage an asset-light model and to continue to improve it. Where we will actually end up, we're not going to lay out timeframes and numbers, but you can expect that there is going to be continuous improvement in the space.

Next, we'll go to the line of Susan Maklari from Goldman Sachs.

My first question is, it sounds like the supply chain is slowly improving, and you are seeing healing happening there. But it does feel like it's, in general, still fairly fragile. Are there lessons that you learned in the last couple of years that you can apply as the start pace does pick up from here, so that you can make sure that you're not running into some of those same challenges that you faced and therefore, maintaining those inventory turns, maintaining that cash generation that you're looking to do.

Jon, why don't you take that?

Susan, first, let me say that from Lennar's perspective, it really feels like the supply chain disruptions are behind us with a few minor exceptions. And perhaps that's, as I noted in my remarks, due to our size and scale, working with manufacturers that are running at an extended period of time of full capacity. But there are definitely lessons learned as. We had to scramble through the supply chain disruptions, we learned how to work differently with our manufacturers, providing them different types of forecast, more visibility into what's coming as well as how we can create local distribution for them that really cuts down the lead times. And so there's no question, there's lessons learned. And that really is reflective of my comment of the intense focus on the look forward that we hope is going to drive improved results in '24 and beyond.

I feel that your question really is, have we altered some of the landscapes in the way that we stockpile parts and programs? I think that there are definitely things that we have seen and learned as we've gone through the challenges of the supply chain. I think that Rick and Jon together have been working with our trade partners to think about how we prevent those same kind of log jams or bottlenecks from taking place again. And that's an evolving picture. Can we point to specifics right now? Probably not as much as you'd like us to, but it is something that we're focused on.

Okay. That's very helpful color. And then I guess staying on the topic of cash generation, when you think about Diane's comments to Ken's question around free cash flow conversion, it implies that you're going to have really some very impressive levels of cash. How do you think about the allocation of that capital? You bought back some stock this quarter. You paid down debt. But long term, how are you thinking about the shareholder return piece of that? And where that sort of fits relative to where we are today?

Yes. Great question. We're very focused on that. As you can imagine, we do see increased cash flow accumulating. And Diane won't let me tell you to what extent, but it's greater than where we are right now, and that sets up opportunity. It is -- capital allocation has become a very strategic part of our thinking process. We consider regularly the relationship between debt retirement and stock buyback. For now, we are taking an opportunistic view of stock buyback in that we are -- we have basically been focused on a steady-state level of repurchase, but that could grow over time as we look opportunistically. And we are also looking at other strategic possibilities that will reveal over time. We're not asleep at the switch. We recognize that the accumulation of cash is a bit unusual within the industry. We're not uncomfortable with it, and we're being very thoughtful about it. That will evolve over time.

Okay. Thank you for all the color and good luck.

Next, we'll go to the line of Stephen Kim from Evercore ISI. Please go ahead.

My first question is going to also focus a little bit on the balance sheet side. And I guess, specifically, in the wake of the regional bank trust, we're hearing that there's this window of opportunity that's opening up to maybe acquire some attractively positioned lots or even operations from some of the smaller, less well-capitalized builders, allowing builders such as yourself with a big war chest to accelerate market share gains. And I'm curious, could you weigh in on that? Are you seeing that as well? And if you are, can you take advantage of these kinds of opportunities, these emerging opportunities while maintaining your asset-light program by utilizing your existing off-balance sheet structures? Or is it reasonable to think your own lot count might move up a little bit before moving down again later? Or that you would need to create some other structures in order to accommodate it? If you can just give us some sense of how you're thinking about that relative to this window of opportunity that we're hearing about.

So Steve, these are focal points that are well right in the middle of our radar screen. I think that we're a bit early stage in some of the questions and considerations. I think that some of these questions are more applicable immediately in the land development side of the business, where land developers who are not part of Lennar are definitely feeling some stress. I think that the capital accumulation that we have in cash on our books is a strategic opportunity for us to participate and make sure -- and making sure that there is even flow by some of the participants, either through partnership or other structures. In terms of some of the homebuilders, I think that there is still capital available for those that are operating in the production world. Whether that changes over time, we certainly have a front seat at the table in terms of being able to act where the right opportunities fit. We've done it before. We're not afraid to go forward. Your question about off-balance sheet structures is a really important one, because many know that we've spent an awful lot of time and are spending a lot of time on creating systemic solutions for what I think of as kind of an opco-propco type configuration. There is no question that the structures that we have worked on can be constructive relative to some of the dysfunction that is in the market right now, and we're working in those directions as well. So I guess the best answer to your question is a broad one, and that is all of the above, it's all on the table. We are uniquely positioned to be able to participate. And all of it will be focused on building production trajectory, production consistency in growing the core business, the manufacturing homebuilding business. As we go forward, we have the latitude of balance sheet to be able to do that in a lot of different ways.

That's great. Yes, it's going to be interesting to watch. With respect to your income statement, your -- you gave a 3Q order guide, which we appreciate. And it suggests an absorption rate, sales per community per month above what you achieved in the heyday of 2021 or post-pandemic period, it appears. And I'm curious, are absorption rates benefiting from a sort of mix shift of community types, such as maybe more communities with attached product or larger communities or something like that? And if so, if there is this kind of mix shift that's happening behind the scenes, can you give us a sense for how much further this mix shift can go in a positive direction?

Rick, why don't you take that? And then, Jon.

So I would tell you that the pace that we're looking at going forward, particularly with regards to Q3, is really a reflection of the strategy that we all have implemented with regard to starts. And as we said, we are going to run a production machine. Jon, Stuart and I have really laid out work with our regional teams and division team to develop that community-by-community start base. We are benefiting a bit by some lower entry-level communities in a few markets. But over and above, what it really gets down to is a very disciplined, carefully managed stretch program. And that's why we're comfortable in giving you the visibility that we've given.

Steve, I would add, as Rick is saying, it is really paying attention closely to matching sales to our start pace so we don't build up inventory. And it's not so much going to attach product. It's going to markets that allow us to have a higher sales pace because we're at a lower price point. Many of the Texas markets are a great example of that. We're really able to go down the price curve, but we're doing that in all of our markets, and that allows us to incrementally quarter-by-quarter to increase our sales pace.

And starts base, got you. Appreciate it.

And our next call comes from Truman Patterson from Wolfe Research. Please go ahead.

Wanted to follow up on Steve's question on the third quarter orders guide. That suggests orders, they typically increase sequentially when they normally decline. A few ways of looking at this, clearly, your starts pace, but underlying demand, is remaining healthy and atypically strengthening sequentially or that solid start space that you talked about, available spec inventory is taking market share from traditional build-to-order builders and/or private builder capabilities are more limited today from bank tightening. I'm just hoping -- I'm hoping you all can help us think through this a little bit further.

I'm going to let Jon answer that, but before I do, I want to correct you, Truman. I'm in Dallas. So it is still morning here. So go ahead, Jon.

Truman, so if you look at our strategy, we really accelerated our starts in Q2, recognizing the market opportunity where the industry was pulling back. And given that we didn't have an inventory buildup because of our strategy, we felt there was an opportunity to be more aggressive with starts and take advantage of the lack of resale inventory as well as the lack of new sale inventory. So we feel comfortable that we'll be able to sell at an accelerated pace because we'll have the inventory when the marketplace in general is in providing that inventory with a backdrop of really healthy demand for housing. So that gives us confidence that we'll be able to continue to accelerate our sales pace, managing that start pace.

Okay. Perfect. And then it seems like you all are getting the cost savings that you spoke about previously. But I wanted to follow up on the comment, further improvement in gross margin beyond the third quarter, depending on market conditions. But if we assume that conditions are just stable from here, would fourth quarter gross margins continue to increase just outside of normal field expense leverage on deliveries? Said another way, should you see incremental cost savings sequentially into the fourth quarter, while maybe some modest pricing benefit on an apples-to-apples basis flows through?

Yes. So we decidedly didn't give any broader thoughts on margin for our fourth quarter, recognizing that, number one, we're feeling some leveling. So we're giving you some guidance for our third quarter and some thoughts on production for year-end. I think that the market still has enough proving to do, and it's moving around enough to where we really don't want to go beyond what we've said, and that is depending on market conditions, and we're going to let them evolve. Certainly, yesterday, with the Fed chair pausing, but maybe it's not even a pause, it's -- I think there's a lot of wait and see in terms of where interest rates go and where the market goes and talks of recession and jobs. We're going to wait and see a little bit on that. But as we sit right now, what we've said is that we see our margins continuing to improve as we go through the year. We're not going to give a boundary as to what that actually means. Let's give it some time.

If I could just follow up quickly.

Sure. Sure.

The cost savings, should they just build into the fourth quarter, the cost savings that you've spoken about previously?

I think, again, this is something that we're going to wait and see a little bit, see how demand patterns continue forward. But our constructive relationship with our trade partners really enables us to maximize. What we have found in this past year is that commitment to the consistency and the predictability of volume is really working to everybody's benefit. And I would say that -- again, not to get too far over our skis, as we look ahead, we continue to see consistency in the trajectory, but we will have to wait and see how they actually flow through.

Perfect. I think we're seeing it in the results, and good luck in the coming quarters.

Thank you.

Our next question comes from Alan Ratner from Zelman & Associates. Please go ahead.

Nice quarter. I do have a question on some of the more near-term demand drivers. But Stuart, you did kind of bring up AI in your prepared remarks. And I know you guys have always been at the forefront of innovation in housing. And frankly, you don't hear AI mentioned a lot when it comes to housing. So I'm just curious if you're able to share any specifics in terms of where you see AI impacting your business going forward? And any steps the company has taken to be at the forefront of that?

Yes. So Alan, I wanted to be very careful with the use of that catch phrase that seems to be incendiary relative to stock prices when people are using them. I don't want to get out over our skis, but I did want a daylight that. The machine that we described that we are engaging is really a data-driven approach to so many components of our business. And I think that we have -- we've done a tremendous amount of work. If you look at our digital marketing program, you look at our dynamic pricing model, both of them, we've talked about for many, many quarters for years. And these are data-driven approaches to the way that we're engaging the customer acquisition componentry of our business. It's a very integrated set of systems that is dependent on feedback loops. And any time that you find a process that becomes data-driven and the data improves to the point that it's actually relevant, at some point, there are large learning models that can be helpful in enhancing productivity. These are the areas where we are leaning in. I mentioned that we brought on a strategic Chief Technology Officer in Scott Spradley. And all of this is a coordinated program of taking steps at a time to improve the ingestion of data, to use the data more constructively and then to bring it to its next level where we're actually driving productivity gains within our business. We'll have more to report. In the meantime, if you find yourself in Miami, come on by. We'll show you what we mean. We have visualized it, and you can understand what we're doing.

Great. Looking forward to checking that out, and I appreciate the additional information there. Second, on the pricing side, would love to just drill an air a little bit. So volume has continued to come in ahead of initial expectations. Your closing guide for the year now is about 10% above where it was 6 months ago. You're expecting orders to be up sequentially, which understood is a function of your start pace but you're probably not starting homes, unless you think there's demand for them. Yet when I hear your pricing commentary, it seems a bit more muted than I would expect, frankly, as far as more stability as opposed to maybe some pricing power returning to the market. So I know you've always been very articulate about your belief in the housing shortage at affordable prices, which I think is the key distinction there. And I'm curious if your decision at this juncture to not be more aggressive raising price is a function of your views on perhaps if prices were to go up or reaccelerate that, that would kind of take demand out of the market? Or is it just more of a conservatism stance around wanting to take market share in this still kind of choppy environment right now?

Listen, that's a great question. I think we'll all speak to that. Let me start by saying, we've been very thoughtful about this, and we're thoughtful about it on a day-to-day basis. We view the fact that at the affordable level, as you properly point out, there is a housing shortage. You hear it when you speak to mayors and governors across the country. You don't hear it as a national expression as much. But at the local levels, the need for workforce housing is a dominant need, and it's become a social imperative. So thinking about where we fit into the equation, and I don't want to make too much of this, but we have focused on saying, look, there's a void that needs to be filled. There's a needed an appetite. And what we're going to do is instead of driving price, we are going to drive pace and hold price. And that relationship between price and pace is something that Jon, Rick, myself, Diane, we talk about it all the time. It's the focus -- it's the whole focal point of the machine that we talk about. And at the core, we're recognizing that from the national landscape and the local landscapes, they need the volume, the supply is constrained, and therefore, we're focusing more on pace than we are on price. And we're focusing on consistency and predictability of pace so that we can rationalize costs at the same time. Rick? Jon? Whoever.

Stuart, I think you answered it well. It's really that consistency and cadence between starts and the sales that really keeps our machine going, and it makes us incredibly efficient. We're very focused on keeping our products affordable. In many cases, that's working hand in hand with our mortgage company and our mortgage in determining what that mortgage payment needs to be in order for us to transact. So it's a very careful and methodical approach. And if prices move, they move, but we're going to start and deliver the number of homes that we've targeted on a community-by-community basis.

I would only add that if you think about our core strategy of being a production-first builder, we have consciously chosen not to limit production and drive pricing to maximize margins. We think we are a better company by being production first and managing sales pace to start pace that drives better returns, better cash flow that drives better returns. And that consistency that we all have spoken about really makes us a much more solid company. So it's a strategic decision that really is reflective in the way that you see our pricing.

Why don't we go ahead and take 1 more question?

Absolutely. Our final question comes from Mike Rehaut from JPMorgan. Please go ahead.

Appreciate you getting me in before the end here. I wanted to just circle back, if I could, on the idea around 3Q orders. I think it's an important distinction in terms of your approach and maybe how that differentiates versus the market. And really, what I'm trying to get at is, you're talking about obviously the orders being driven by your own starts pace and strategy. I'm curious if in effect -- because we've also heard in the last month, maybe 1.5 months of an expectation by a lot of builders to return to normal seasonality. And certainly, historically, your own sales pace has been down about 10% sequentially 3Q versus 2Q. So do you feel that at this point in the game -- and you kind of highlighted the first few weeks of June, do you feel that this approach that you're taking is in fact market -- resulting in market share gains? In other words, that what you've seen over the last few weeks, maybe a month, we've heard a little bit of sequential softening month-to-month, which is typical. So I'm just trying to get a sense of when you talk about your 3Q outlook and your approach to starts, if this is, in fact, kind of an active kind of gain of share relative to what you're seeing across the broader marketplace?

Yes. So I think Jon laid this out a few minutes ago. And what we saw was that the appetite of the market favored ready-to-go inventory, shorter cycle closings, and that many were actually pulling back in that regard. And there are really multiple ways to think about this. Number one, the existing home market, which is generally a supplier of short-cycle ready-to-go inventory is somewhat constrained in that regard. Number two, a number of the builders in the context of the sharp increase in interest rates pulled back. The banking questions have perhaps limited part of the productive machine of the new home market to actually build inventory. We felt that there was an opportunity for us to fill a void. So I guess the answer to your question, Mike, is I think that we do see an opportunity to pick up some of the market share, where the market is not positioned to have that ready to go production or inventory in place available to the market. And we'll have to wait and see in the third quarter if we're right or not. But I think we feel pretty confident that we know where the market is, we know where the strength is, and that's what we've solved for.

I would only add one point, Stuart. I think you covered it well. And that is remember, Mike, we have a lever that the resale market doesn't have. So it starts with the fact that there's record-low inventory in resale, as you know. But we can buy down mortgage rates where the resale market can't. So if we need to accelerate our sales pace when the market is giving us, we have that lever that we can pull, that's at our disposal.

Right. No, no, that all makes sense. I appreciate that. I guess, secondly, and I apologize if I missed this from earlier, but I was just trying to -- I would love to get a sense of current incentives and discounts as a percent of sales. You kind of highlighted over again or a few times during this call, the mortgage rate buy downs. But just holistically, when you look at either buy-downs or other types of incentives or discounts, where are you today versus a quarter ago? And if -- how you're kind of expecting perhaps that trend, especially if ASPs are kind of steady. And you've kind of alluded to in your opening remarks perhaps some consumers having stretched finances, and perhaps the rate buydowns are part of a solve there. But just trying to get a sense maybe how incentives and discounts on a total basis have trended so far this year and how you're thinking about it going forward?

Okay. So Diane, why don't you go ahead and give some color on that? And we'll fill in.

Yes, Mike. So if you look at incentives and what we delivered in the first quarter, it was 10.2%, and that went down to 8.4%. So I think you're seeing a nice sequential decline. And all of that is just tied to being able to make homes affordable for people, so it all tied into the narrative that Stuart and Jon and Rick just went through. As I think about -- as we think about the rest of the year, that -- again, that's kind of our lever, right? It's adjusting prices and it's using incentives to make those homes affordable. So we'll see how that goes. We haven't given guidance, but we definitely saw a downward trend from Q1 to Q2.

All right. Why don't we go ahead and leave it there. Mike, thank you for your questions. And I want to thank everybody for joining us. We're pretty enthusiastic about how our business is navigating sometimes turbulent waters. And we look forward to reporting in our third quarter how things have continued and progressed. Thank you for joining.

That concludes today's conference. Thank you all for participating. You may now disconnect your line, and please enjoy the rest of your day.