Thank you for standing, and welcome to the PulteGroup Inc. Q4 2023 earnings conference call. I would now like to welcome Jim Zeumer, Vice President of Investor Relations, to begin the call. Jim, over to you.

Thanks, Mandeep. Good morning, and let me welcome participants to today’s call. We look forward to discussing PulteGroup’s strong fourth quarter and full-year financial results, the period ended December 31, 2203. I’m joined on today’s call by Ryan Marshall, President and CEO, Bob O’Shaughnessy, Executive Vice President and CFO, and Jim Ossowski, Senior Vice President, Finance. A copy of our earnings release and this morning’s presentation slides, have been posted to our corporate website at pultegroup.com. We’ll post an audio replay of this call later today. . Please note that consistent with this morning's earnings release, we'll be discussing our debt ratio on both a gross and net basis. A reconciliation of our adjusted results to our reported financials is included in this morning's release and within today's webcast slides. And finally, I want to alert everyone that today’s presentation includes forward-looking statements about the company’s expected future performance. Actual results could differ materially from those suggested by our comments made today. The most significant risk factors that could affect future results are summarized as part of today’s earnings release and within the accompanying presentation slides. These risk factors and other key information are detailed in our SEC filings, including our annual and quarterly reports. Now, let me turn the call over to Ryan. Ryan?

Thanks, Jim, and good morning. I'm excited to speak with you today about PulteGroup's outstanding fourth quarter and full-year financial results. Over the past few years, we have faced macro challenges ranging from COVID, to supply chain disruptions, to skyrocketing mortgage rates. Through it all, we've remained disciplined and consistent in running our operations, but when needed, have quickly adjusted key business practices to position PulteGroup for ongoing success. The benefits of this approach can be seen in the strength of our reported results. Bob will detail our Q4 performance, so let me highlight several of our key operating and financial achievements for the full year of 2023. By strategically increasing our spec production, we had more inventory available to meet the demand of first time home buyers and those consumers worried about mortgage rate volatility. Increased house inventory was a critical support to PulteGroup delivering 28,600 homes in 2023, and record home sale revenues of $15.6 billion. In the face of increased costs for land, labor, and materials, we carefully managed product offerings, pricing, incentives, and absorption paces to maintain high profitability, while ensuring we continue to turn our assets. The result, we reported outstanding full-year gross margins of 29.3%, which helped drive a 6% increase in earnings per share to a record $11.72 per share, and a 27% return on equity. We also continue to efficiently increase our land pipeline as we completed transactions to put approximately 40,000 new lots under control. Inclusive of these lots, 53% of our total land pipeline is under option, either with the land sellers or through our expanding land banking structures. Since making the decision to expand our use of land banking starting 15 months ago, we have placed approximately 25 communities representing $1.5 billion worth of future land and development spend…

Thanks, Bob. Successfully navigating our business through the past 12 months of rising interest rates has been challenging. The same could be said about the past 24, 36, and 48-month periods as we battled through COVID and the global collapse in supply chains. I am extremely proud of how our entire team responded to these events and the exceptional operating and financial results PulteGroup has delivered over an unprecedented period. Looking back over the five-year period of 2019 to the just recently completed 2023, we grew volumes 5% annually and delivered just under 135,000 homes. To support our growth during this period and for future years, we invested almost $19 billion in cumulative land acquisition and development spend. Through our disciplined land investment, operational focus, and organizational expertise, we capitalized on market conditions to grow earnings per share over this period at a compounded annual growth rate of 34%, while delivering an average annual return on equity of just over 26%. It's this type of strong financial performance during an extended period of market volatility that has prompted increased discussion about the need to reconsider how the large homebuilders are valued. I think that if you want to be valued differently, you must demonstrate a fundamental change in how you operate the business and the results you deliver, not just for a year or two, but over an extended period of time. What's different about the past five years is that while investing $19 billion into our operation, we also generated almost $7 billion in net cash flow from operations during the sustained period of growth. In fact, we recorded only one year of negative cash flow from operations since shifting our focus in 2012 from just topline growth, to driving high returns over the housing cycle. We paid off $1.1 billion of debt, while cutting our leverage by more than half, to end 2023 with a debt to capital ratio of 15.9%, and a net debt to capital ratio of 1.1%. And we returned $4 billion to shareholders through stock repurchases and dividends. I'd add that the reality is, we've been operating our business in just this way for really the past 10 years. I know stocks reflect performance, so I believe that if we can continue to both grow our business and deliver ROE that remains among the industry leaders, while generating positive cash flow and maintaining a low risk profile, that our stock price and shareholders will ultimately be rewarded. Let me now turn the call back to Jim Zeumer.

Great. Thanks, Ryan. We're now prepared to open the call for questions. So, Mandeep, if you would explain the process, we'll get started.

[Operator instructions] Our first question comes from the line of Carl Reichardt with BTIG. Please go ahead.

Thanks. Morning, guys. Hope you're doing well. Ryan, I wanted to ask a little bit more about January. Could you maybe expand on how business has been, and what I'm really interested in is, have you seen enough traffic or sales rates to start to think about more broadly pulling incentives down or even starting to raise base across the footprint?

Carl, so Bob highlighted in the prepared remarks that we - specifically in Q4, October, November, were really below expectations, and it was driven by high rates. We had a great December, highest month in the quarter in terms of absolute sales and absorptions per community. So, that was certainly an anomaly for typical December seasonal patterns. And the strength has really continued into January, Carl. So, we’re feeling pretty good about how the year is starting. In terms of kind of where it sets us up for reduced discounts, increased prices, we're going to watch it closely, and I think we've demonstrated through past behavior that we're always looking to find the sweet spot between pace and price. It won't come as a surprise to you, Carl, that affordability with the buyers remains a challenge. And so, I think we're going to have to be thoughtful about what we do on both the incentive and the price increase front, but we're feeling pretty good about how the year started.

All right. Thanks for that, Ryan. And then I'm going to ask a couple of questions just on move-up. Obviously, the entry level business has been strong for volumes. Move-up, a number of your peers have kind of shifted some of their investments more towards the low end. That's been going on for quite some time. Can you talk a little bit about how that - how you look at that business this year? Is there any alteration in mix in terms of communities and whether or not maybe your CAN rate in that business is improving faster than the other businesses? We're trying to see if the existing housing market's unlocking enough that you can start to see even more strength in that particular segment. Thanks.

Yes. Carl, our move-up business performed incredibly well in the quarter. We had, on a year-over-year basis, the growth was north of 70%. So, I think that segment performed very well. The margins out of our move-up, as well as our Del Webb business continue to be some of our best gross margins. So, we're seeing real financial strength there also. And then in terms of kind of community mix, Carl, we're kind of right in line with where our long-term strategic targets are in terms of kind of that part of our business being about 35% of our overall mix. So, we feel pretty good about where that business is positioned. Bob O’Shaughnessy: Yes, just maybe another point of clarification that not only were the sales strong, it was our strongest absorptions on a same-store basis. So, that consumer actually has performed well, to Ryan's point, strong margins and absorptions.

Thank you, Bob. Thanks, Ryan.

Our next question comes from the line of Matthew Bouley with Barclays. Please go ahead.

Good morning, everyone. Thanks for all the details and for taking the questions. Question on the high-level growth algorithm that you gave, Ryan, around the kind of 5% to 10% growth annually. Talking the low end of that this year because you walked away from some deals in 2022. So, my question is, is this kind of sort of a one-year hold, so to speak, and do you have the lands that you need today to kind of get back to your algorithm by 2025? Or how should we think about getting to that level of growth going forward? Thank you.

Yes. Matt, thanks for the question. We feel really good about how we position the land pipeline. We've been investing for growth for a number of years, and we've been trying to do it in a very responsible way specific to having less owned and more optioned land. The fact that over the last 15 months we've made significant headway with our land banking platform, has helped with that. So, we really like the number of lots that we have under control at 225,000 plus or minus. And we like the ownership structure, or the way that we or the way that we've controlled those lands. We think it's a really capital-efficient structure. Specific to your growth target number, yes, we’re going to be at the lower end for 2024. Beyond that, we feel that we've got the right structure to kind of be in that range for future periods. Bob O’Shaughnessy: Yes, maybe I'd add to that, the land for 2025 is under contract and probably in development right now. And so, we have line of sight to 2024, 2025, even up to 2026. We're still working through some of that, but we've - you can see from the approvals that we've did in this most recent quarter or for the year, 40,000 lots, no issues from our perspective in terms of lining up that type of growth rate.

Got it. Okay. That's super helpful. Thanks, guys. Second one, back to the gross margin question, I think you're guiding 2024 margins to be down at roughly 70 basis points from where you exited the fourth quarter. I think I heard you say, Bob, that it's kind of flat pricing and then you've got some headwinds in land, labor, and materials. I'm just curious if you kind of unpack that a little bit and maybe specifically focus on the land side, how are you kind of thinking about those headwinds to the margin, and how does that kind of play into that guide in 2024? Thank you. Bob O’Shaughnessy: Yes, fair question, and I think we laid it out this way. To try and answer that question, I'll give you a little more color. We see pricing flat during the year. Now, you might see different pricing at different consumer groups. The first time is the most affordability challenge, and that's where we saw actually the biggest decline in the current quarter. But we think pricing is relatively flat through 2024. We see modest, call it, 2% to 4% house construction cost increases kind of mid to upper single-digit land increases, which is what we've experienced this year. And so, when you kind of mix that all together - the one other point I guess I'd offer to clarify is, we're assuming incentive loads stay about the same at the 6.5% that we saw in this quarter. So, when you marry that all up together, a little bit of a decline year-over-year, but still 28% to 28.5%, pretty strong margin performance.

Perfect. All right, thanks, Bob. Thanks, Ryan. Good luck, guys.

Our next question comes from the line at John Lovallo with UBS. Please go ahead.

Hey guys, thank you for taking my questions. The first one, just maybe talking about January again, curious how orders looked versus normal seasonality, if you will. And I think first quarter absorptions typically rise, call it, 40% to 45% sequentially. Is there anything that would preclude that from happening in your opinion outside of rates maybe in the first quarter of this year?

Yes, John, we didn't give a specific increase out of December. We kept more of our commentary around the qualitative side of things, which I'd reiterate, we're very pleased with how things are performing in January, and we'd expect that strength to continue. So, we continue to be in a situation where there's low supply. Affordability has definitely gotten better. You heard Bob's comment about kind of what we've assumed with our incentive load. So, yes, I'd expect us to have a strong Q1. The one thing - other thing I'd offer that's probably of note is we're starting to see some real signs of life in our western markets. Those have been - that's been a part of the country that was slow for the majority of kind of 2022 and most all of 2023. But in the last 30 to 45 days, we’re really starting to see those markets pick up, which is a welcomed outcome.

Makes sense. And then on the share buyback, that was encouraging to see, and I think could be a good driver of returns as we move forward here, over the past few years, I think you guys have done about $1 billion per year. The authorization now is closer to $1.8 billion. How are you thinking about 2024 buybacks relative to the past few years? I mean, should we expect north of a billion?

Honestly, I'm going to defer. We typically do - we report the news on that. I think you highlight, we've done about $1 billion a year the last couple of years. We have $.8 billion in cash. We have offered that we project about $1.8 billion of cash flow from operations in the current year. So, our capital allocation priorities don't change. We've said we're going to increase our land investment to $5 billion. That's up about 16% year-over-year. We increased our dividend 25%. That's not a huge cash element, but still, I think reflective of our confidence in the business. We do have $.8 billion of authorization. And like I said, we'll report the news. You saw this year we bought back $100 million of our notes because it was attractive. The rate environment has made that a little less attractive, but we always look at liability management as part of the equation. So, really no change to our capital allocation priorities.

Okay. Thank you, guys.

Our next question comes from the line of Stephen Kim with Evercore ISI. Please go ahead.

Yes, thanks very much, guys. First question relates to your land on the balance sheet. I think that your cashflow guide seems to suggest, at least for my modeling, a modest rise in your own lot count, while you keep a year supply of owned lots fairly stable. I was wondering if that's right, and if there's any opportunity or desire to actually reduce your land holdings in years further.

Yes, Stephen, so a couple things there. We are increasing our land spend in 2024 from $4.3 billion to $5 billion. Our mix of developed spend versus land acquisition spend will continue to probably be about 60% development, 40% land acq. And then our long-term desire is to have 70% of our land control via option. We highlighted in the prepared remarks, this year we moved that from 48% option to 53% controlled via option. So, we're - I think both in - we demonstrated through results over the past number of years as well as kind of articulated long-term goals, we want to be land lighter. We're going to continue to do it the right way, all with an eye toward delivering a lower risk model that's very capital-efficient as well.

Well, I guess, Ryan, I mean, you gave most of that information in your opening remarks, so I appreciate that. But I guess the gist of my question, trying to incrementally understand what your plans are a little bit more is to try to understand the actual amount of owned lots. Are you looking to get to your 70% option versus owned mix by keeping your owned lot count kind of flat, or your supply flat with where you are, or are you actually looking to reduce that in addition to increasing your option lot exposure to kind of get to that 70% eventually?

Yes. Stephen, in terms of years owned, we'd expect to probably keep that right around the level that we're at, maybe a slight decrease. And then ultimately, we would start to flip from a years owned to years option. You'll see a little bit of a trade in that mix.

Okay, that helps. And then when you talked about land banking and continuing to increase that, could you describe for us the - when you think generally about what you're seeing in the market in terms of pricing, in terms of the way these negotiations are going with your land bankers, what kind of anticipated haircut to gross margin do you typically get when you go from just sort of buying versus doing a land option? And what's the benefit to your inventory turns that you typically think about? So, what's the tradeoff basically in your mind, some rules of thumb for us?

Yes, I don't know that there's kind of a hard and fast answer to that, Stephen. It depends on the mix of the business that we've got. In terms of margin, it can be a couple of hundred basis points on a relative basis. And in terms of inventory turns, certainly it's going to be more efficient than a bulk raw transaction. But it depends on the life of the asset. So, it in Del Webb, it's going to be very different than it is in the Centex business for us. So, I wouldn't want to paint that with too broad a brush.

Okay, that's fine. I appreciate it. That's fine. I appreciate it. Okay, thanks guys.

Our next question comes from a line of Joe Ahlersmeyer with Deutsche Bank. Please go ahead.

Yes, thanks very much. Good morning, everybody. Just a question on the assumption on the incentive load in the gross margin guidance. I'm wondering if that represents more just a state of conservatism right now, waiting to see what happens with rates further, or if it's more about your philosophy as rates fall that you might allow that to flow through to affordability and drive volume versus letting it be a big margin benefit. If you could just talk about that tradeoff.

Yes, Joe, we've - I think the reason we've assumed that the incentive load stays about where it is just because affordability continues to be challenged. So, we've got low supply but interest rates are relatively higher. And because of low supply, I think there's still some pressure on prices being elevated historically. So, we talked a lot in 2023 about how successful we were in helping to solve some of the affordability challenges with the incentive dollars that we put toward the forward mortgage commitments. We'll continue to use that as a tool in 2024. Now, as rates fall, we think the cost of those forwards mortgage rate commitments will become less. We've made an assumption that we reallocate some of those incentive dollars to other things that help to solve the affordability challenge and get a buyer into their home. So, is it conservative? Time will tell. I think what you've seen from us historically is, we're not afraid to raise price. We're not afraid to cut discounts, and we're always looking to optimize pace and price. You've also heard me talk the last several quarters, we're not going to be margin proud. So, we’re doing things to be responsive to what the market is, to derive an outcome that yields the best return for our shareholders. And you'll see us actively managing all things, pace, price, incentives, forward, more forward mortgage commitments, et cetera.

Understood. Thanks a lot for that. And I appreciate your comments about the valuation. Sounds like you think that cashflow is a bigger part of that potentially even than just percentage of option lots or any metric on the land side about the cash flow. I tend to agree. And so, just wondering if you are internally starting to think about your leverage in the context of cash flow or profits, and not so much on what it makes up relative to your inventory balance. It's kind of thinking almost more like a manufacturer or distributor, because right now you're net debt is at about 13 days of operating profits. Just thinking about the potential for using more debt going forward. Thanks. Bob O’Shaughnessy: Yes, that's an interesting question. I'm not sure we can think like a manufacturing company completely. The risk profiles are different. But having said that, I think there are - based on the strength of the operation, based on the cash flow that we've consistently shown despite growth, which historically is not the way this industry has behaved, we believe there is an opportunity for people to think a little bit differently about the equity. In terms of how we manage the leverage on the balance sheet, a lot of that will have to do with our opportunities to invest in the business and what we do on the share repurchases. But even you look at the rating agencies, they've been slow, but they've been responsive to kind of I think seeing the value in the business model and also the way the debt gets looked at. So, would we use more debt for something? Without question, if it were for the right thing.

That's helpful, Bob. Thanks so much. Take care.

Our next question comes from a line of Michael Rehaut with J.P. Morgan. Please go ahead.

Thanks. Appreciate it. wanted to circle back just on incentives and where we are today and to the extent that there's the potential for those to decline, how we should think about the impact on 2024. So, when you talk about, I think assuming in 2024, 6.5% of a load rate for incentives, and I believe you said that was similar to the fourth quarter, if you could just remind us where you were in the fourth quarter versus the third and earlier in the year. And to the extent that perhaps incentives ticked down a little bit in the first quarter of 2024, should we be thinking that that would be a 3Q or a 4Q impact? Just trying to get the sense there of the lag.

Yes, Mike, I'll take the first part of that, and then I'll have Bob do the last piece. So, we're up 50 basis points from Q3. We were 6% in Q3, 6.5% in Q4. In terms of what that means for 2024, I think I addressed it on a prior call. We're going to actively be managing our incentive load, but we've shared with you what our assumption is in kind of current form. If there's an opportunity to peel those back, we'll do it and we'll certainly share that with you. In terms of kind of the quarters that it would impact, right now about 50% - somewhere around 50% of our sales are spec. so, those are closing in kind of the following quarter. Spec sales now would either be late Q1 closings or early Q2 closings. If it's a dirt sale, Q1 closings typically end up being Q3 or early Q4 closing. So, we factored all of those assumptions into the margin guide that we gave for the year, which is 28% to 28.5%, just to repeat that. And then Bob, I don't know if you have the incentive load for Q1, Q2. I think that was the only piece I didn't answer. Bob O’Shaughnessy: Yes. It was about 6% in each of the first, second, and third quarters, and it was 4.3% in the fourth quarter of last year.

Great. No, that's helpful. Thank you for that. I guess secondly, I'd love to kind of shift a little bit to the SG&A side. I think you gave guidance for the first quarter, but you've been running last couple of years plus or minus around 9%, low 9%. Obviously, we've heard a little bit about higher commission rates coming back maybe in a more choppy market at points in the past year or so. Overall solid market, but still we've heard a little bit about commissions maybe coming up a little bit. How should we think about SG&A and the potential for further leverage over the next couple of years against the growth algorithm that you talked about? And if commissions, let's say are stable from here, could we see an 8% at some point or getting closer to an 8% number? Would just love your thoughts on that.

Yes, Mike, we've - I think we've always been thoughtful in how we spend SG&A dollars. We have historically made some extra investments in the quality of the homes that we build and deliver and the customer experience that we provide for our homeowners. And then we - and we invest incremental dollars in the culture of our workforce. So, we’ve tried to maintain balance within the SG&A structure as well. We're not trying to run kind of the leanest and the lean - on the lean end, we're also not trying to overspend. I think we're trying to be very balanced. In terms of the leverage for 2024 specifically, we've kind of given the guide, which will put us kind of in the low nines. And that's really reflective of kind of what Bob guided too on the average sales price, which we're expecting to be flat. And against that, you've still got wage inflation for kind of our internal employees running close to 3.5%, 4%. So, there's some pressure. There's pressure on the SG&A front that we're not necessarily getting the benefit of on the ASP increase side. So, in terms of kind of where it goes into the future, time will tell, but we’ve given the best visibility that we can for 2024. Bob, I don’t know if you - anything you'd add on SG&A. Bob keeps us honest, I'll tell you that. We're not overspending anywhere, at least not under Bob's watch.

Great. Thank you.

Our next question comes from the line of Sam Reid with Wells Fargo. Please go ahead.

Hey, thanks so much, guys, for taking my question here. Wanted to drill down a little bit on the first-time buyer. You guys have given a lot of good color on pricing. It does sound like price did move lower for this buyer group a bit again during the quarter. Maybe help us unpack the relative split perhaps between higher incentives for this buyer group as you try to make these homes more affordable versus perhaps some of the other affordability levers that you might be pulling, like smaller floor plans, et cetera. Kind of any color here would be appreciated. Bob O’Shaughnessy: Yes, I would tell you, if you look year-over-year, pricing at 422 to that buyer is down 6%. Year-over-year is down about 1% versus the trailing quarter, so the third quarter of this year. And I would tell you it is largely incentive-related. And so, we're not - we haven't in the last three months or the last 12 months, had a radical redesign of the product that we're offering to people. Communities, when they get entitled, you have product approvals. So, to a degree, you can see people saying, I want the smaller floor plan. I would tell you, that's not the driver of the price change. It is the incentive load that we've introduced. So, it's that 220 basis points, which for that buyer is about, call it, $8,000. That's the price decline.

No, that's helpful. And maybe one more on pricing here, just from a slightly different vantage point. You guys have given good color in the past on option and lot premiums and the impact on ASP. I want to say it's been around $100,000 or north of $100,000 across your entire mix throughout 2023. Curious as to where that trended in Q4, and maybe give us a sense as to your outlook for that piece of the price component into 2024.

Yes, in the fourth quarter, it was $105,000 per unit, so it's down about $4,000 versus the prior year. And so, I think that speaks to the sales team, and I give them a lot of credit. Where we've needed incentive has been less around options and lot premiums and more oriented towards financing. So, we didn't see a big change there, which I think is a real positive. It also is - interestingly, for that move-up in active adult buying, we've highlighted the relative strength from them in this quarter and the relative pricing strength there. So, just like our first time was down about 6%, our move-up pricing was actually flat quarter-over-quarter, and our active adult was actually tough 3%. And I think it's reflective of the way we go to market, the way we sell the lots that we've got, the options that people put in houses. So, our teams are still doing a really good job of providing value for that which people desire.

Helpful color all around. I'll pass it on, guys. Thanks.

Our next question comes from a line of Ken Zener with Seaport Research Partners. Please go ahead.

Morning, everybody. I've got two very simple questions. First is on land banking. What percent of closings do you expect to be from finished lots once you reach your 70% option owned scenario generally?

It's an interesting question. Certainly, the land banking would be finished lots. But for the optionality that we have with individual sellers, many of those were self-developing. And so, I don't - I don’t know, Jim, if you …

Yes. My - and this is a, a little bit of a guess, Ken, roughly 20% to 25% of our total closings, once we get to 70/30, will be finished lots. The rest will - there'll be a lot of optionality in there. But to Bob's point, a lot of our options we take down as raw land chunks, and then we self-develop those. They’re still highly efficient. It's just a different form of an option structure.

Right. I assume that's kind of reflecting your entry level exposure as well. Second question is, talk to options. Again, could you update us what percent of your ASP is coming from options? And then comment on the margin benefit you get from that, if you could, so we could discern your operating construction, operating construction costs versus your strategy of bringing in these options. Thank you.

Sorry, I want to make sure I understand the … Bob O’Shaughnessy: The $4,000, the $105,000 you just gave.

How much of it is options? Bob O’Shaughnessy: No, I think …

Right. Your total ASP, you have a certain option exposure more at move-up and adult - active adult, but could you talk to the margin impact of that as well? Thank you.

Yes. So, of the $105,000 of option and lot premium, $80,000 is options, $25,000, that's lots premium. I could say for instance, lot premiums are pure margin. I'm not sure that that's fair, right? Pricing doesn't really work that way. But in terms of the option spend, typically it's going to have a relatively rich margin mix, call it, 50%. And so, it is accretive to the overall margin. And the way we try and go to market, Ken, and I don’t know if this answers it better, we put a base price house that we think is kind of market standard and what people can and should expect to pay for that house. Then we start talking about, okay, which lot do you want? What are you willing to pay for that lot? That's what generates the $25,000. And then, okay, now in the house, if we're offering optionality - and we don't for everyone, right? So, for the Centex buyer, we may have curated packages or no choices at all. But for the folks that can do structural options for fit and finish, that's what's driving that $80,000 in incremental revenue.

Thank you very much.

Our next question comes from a line of Alan Ratner with Zelman & Associates. Please go ahead.

Hey, guys, good morning. Thanks for all the details so far. A question on cycle times. So, congrats on the improvement there. Sounds like you expect to see further improvement in 2024. Curious to get to the 100-day target from 130 where you're at right now, you guys are targeting 5% growth. We've heard some other builders may be a little bit higher than that. Is there a level from a labor perspective where if builders try to push starts more significantly, that you think cycle time improvement might stall a bit? Are there any constraints that you could foresee, or is the unleashing of kind of the normalization of the supply chain just kind of independent of whatever the start pace might look like in 2024?

Yes, it’s a fair question. Based on the total amount of production that's happening, I don't see the industry stressing the labor availability. I'm not suggesting there's a whole bunch of excess labor running around out there, but at least for the big builders, I think we've got great trade relationships, and I think we'll continue to get, not only schedule performance, but the labor on our job sites. I think the pressure likely comes on dollars before - or more so than time. If we're running into labor pinches because of a volume increase, I think it's probably dollars more than time. A lot of the decreases that we'll take, it'll be because we're getting things on a predictable schedule like we used to pre-COVID. So, that's working better, which allows us to take some kind of dead days out of our schedule that we had - we built in for things to go wrong or for time when we were just literally waiting for material to show up. So, it’s a little bit of that, a little bit of, we're just getting back to the cycle times that we had pre-COVID. So, we trimmed out about 30 or so days in 2024, or in 2023, rather. We think we can get another 30 or so days by the end of 2024, and we'll be back largely in line with pre-COVID cycle times.

Great. Appreciate those added thoughts, Ryan. And then I guess in a similar vein, was curious if you could just give an update on the ICG growth plans there and kind of how that's been trending and what your current thinking is as far as additional market expansion, if there is any.

Yes, Alan, it continues to go well. We have two plants today. Both are focused in the southeast part of the US. Our growth plans are still largely on target. Still largely on target to have approximately eight factories. So, we haven't announced anything new. Similar to our share buybacks, we'll probably report the news on that as opposed to give forward-looking forecast.

And I guess if I could sneak one in on that, I mean it's hard for us to conceptualize what impact that has on your business, and obviously it's concentrated in a handful of markets right now, but are there certain kind of metrics that you can share with us, whether it's cycle times or costs, margin, et cetera, that you can kind of demonstrate on a case study basis, how that's contributing to your business right now?

Yes, Alan, so that's - we haven't given a bunch of guidance on that just because it is concentrated into a couple of markets, and we don't feel it's appropriate to extrapolate the entire enterprise yet. As we get further down the path, we'll share more. Conceptually, it's exactly what you highlighted. We're getting cycle time improvements. We're getting better quality, and there are some raw material cost savings that we believe we're getting as well.

I appreciate that. Thanks a lot.

Our next question comes from the line of Susan Maklari with Goldman Sachs. Please go ahead.

Thank you. Good morning, everyone, and thanks for fitting me in. My first question is just around the specs. You mentioned that you had about 44%, I think of your production that's in spec. As you think about the year and the way that the demand may come together, any thoughts on where that may move, or how you're thinking about it longer term?

Yes, Susan, I wouldn't anticipate a massive change from the percentage. We're probably on the higher end of the range that we'll have in spec right now. Specific to the fourth quarter, we put more spec starts in the ground than what we sold, and that was intentional. We wanted to have some additional inventory going into the spring selling season, which we have. So, as we move throughout the year, probably right in line with where we're at or a tad lower.

Okay, that's helpful. And then when we think generally about the potential for rates to come down this year, and that possibly driving some increase on the existing home side of the market, any thoughts on what the implications of that could be, especially perhaps on the move-up and the active adult parts of the businesses, and any initiatives you have relative to that?

Yes, Susan, with the rate cuts that are forecasted, I don't see it being at a level that's going to unleash a tidal wave of resale inventory. So, is it better than where we're at today? Certainly. Will that start to free up some resale inventory? I think so. And I think that's probably helpful against the backdrop of, we continue to be under-supplied in the country. So, on balance, I don't think it has much impact at all on what we're projecting for our business in 2024.

Okay. Thanks for the color and good luck.

Our final question comes from the line of Rafe Jadrosich with Bank of America, where we've reached the time allotment for this morning's call. Please go ahead.

Great. Thank you, and thanks for taking my questions. Can you - in terms of the additional 30 days of build cycle improvement you're expecting for 2024, can you talk about what the build cycles are in homes that you're starting today? Like, are you already at that 100-day level, and is that improvement embedded in your cashflow guide?

Yes, Rafe, it's a fair question. The homes that we're starting today will deliver in kind of late - so homes we’re starting today will deliver in Q2 basically. So, no, we're not at the 100 days yet. Now, that being said, there are some markets and some communities where we’re at the 100 days, and in fact, we were at the 100 days last year. When you blend it all together, we think it'll be Q4 before we're at the 100 days that we've highlighted as our goal. Bob O’Shaughnessy: And Rafe, our guide does factor in what we see in terms of cycle times during the year, the cash flow guide, to your question.

Got. Thank you. That's helpful. And then you gave really helpful color in terms of the land inflation you're expecting in your gross margin for 2024, and you have the land you have the land that you need through 2025. On the land that you are contracting today, what are you seeing in terms of inflation? Is it at a similar level or are you actually seeing that come down? And then can you kind of help us understand the difference between development cost inflation relative to what you're seeing for raw land?

Yes, so - sorry, I forgot the first part of the question.

You spoke about the land inflation in the …

Oh, I think I got it. I'm sorry. Yes, we - listen, it's interesting. Land prices don't come down very often. They're sticky. And we've seen, and we've highlighted sort of sequential increases in lot costs. I would tell you that the land we're seeing today is consistent with that. Prices are pretty robust and it's a pretty competitive landscape out there. We underwrite to return. And so, it's - we look to see, can we get return out of that. So, I think no change honestly in the land market. In terms of the inflationary aspect, what we are seeing is that that labor constraint influences the development of land, just like it does building of houses. And with general cost inflation that we were seeing last year in particular, it was influencing the spends of type. Everything that we do to do the development of the communities was running pretty hot too. So, again, we've highlighted, we think it's going to be a little bit more expensive in terms of our lot increase this year for 2024. And again, I think that just reflects all the activity that was going on and some of the cost inflation that we saw in 2023 feeding into our lots this year in 2024. The good news is, the vertical, we're seeing a pretty benign in that market, whereas that had been running pretty hot last year obviously. So, the slowdown in inflation, we feel it now in the house. Hopefully, we'll feel that a little bit later and land. It would be an opportunity for us, for sure.

Great. Thank you. Appreciate all the color.

I would now like to turn the call over to Jim Zeumer for closing remarks.

Appreciate everybody's time this morning. We'll certainly be available over the rest of the day if you have any additional questions. Otherwise, we'll look forward to speaking with you on our next earnings call.

This concludes today's call. You may now disconnect.