You didn’t exceed the higher end of your order range, right? So it’s not like you sold out of a lot more communities. It sounds like you had ran into some, maybe more difficulty sort of getting that last bit to open the community than you expected. Could you elaborate on what is happening there on the community development side? Is it just generally getting a lot harder than you would have expected?
Jeff Mezger: Stephen, in general terms, I can say it is harder and it’s interesting as the labor base has reset and the supply chain has settled down. If there is an area where labor is still tighter, it’s in the land development side. I think in part it’s because of the push-pull with all the federal money being spent on infrastructure, and a lot of our contractor base has been — they’re getting stretched because of all the government work that’s going on. And between that and processing times are taking longer to get permits out of the city to start development than we projected early in the year. So both of those are planning components, it’s not because we oversold and sold through necessarily faster. We just had a lot of communities that rolled over and with how our year ends in November, if we get a community ready to open in November, it would be a ‘soft opening’ and we’ll wait till January to hit it harder in a better selling environment.
So that will play into it as well. I don’t know, Rob, if there’s anything else you want to add on?
Rob McGibney: I think that covers that, and we also touched in our remarks in the beginning some of the issues with electrical equipment specifically transformers and that’s out there as well. We’ve got a number of communities that we know it’s coming, we just don’t know when. They’re generally ready to go outside of waiting for those to be installed and energized. So it is getting more challenging, whether it’s that or just getting things processed in the municipalities, but we are confident about the communities that we’ve got coming and they’re going to start showing up here as we move forward.
Operator: Thank you. And our next question comes from the line of Alan Ratner with Zelman & Associates. Please proceed with your question.
Alan Ratner: Hey guys, good afternoon. Thanks for taking my questions. Jeff, last quarter you kind of made a comment that you wouldn’t be surprised to see maybe a better-than-seasonal back half of the year and I think one of the comments you made at the time was that you were starting to see, kind of month-over-month improvement in the demand for Built to Order products. I think specs were definitely more desired maybe later last year earlier this year and you were starting to see a little bit of a shift there. The third quarter order results and the guide for 4Q kind of implies more of a normal seasonal pattern, which is nothing — nothing wrong with that. I’m just curious if you think about the comments you made last quarter. Has anything changed as far as the buyers kind of relative demand between Built to Order and spec that might be causing that subtle shifts in the guide versus your comments?
Jeff Mezger: Well, I think our — the customers in Q3, we actually shifted to more Built to Order sales and less inventory, but in part it’s because we had less inventory to sell, I think. It’s still a situation where there is no inventory in the markets that we are in at our price points. There is a lot of cities where inventory still quoted in weeks, maybe a month and a half and then you think, okay half of those listings aren’t even habitable, it’s like a teardown that’s available for sale. So there’s not a lot of inventory choice for the customer today and I think that’s part of what’s — you couple that with the demographic demand and you have a lot of people that need a roof over their head and not a lot of houses to choose from.
And then in between you’ve got rates that have been slowly picking up and it’s a math equation and we stay on top of it, but at some point that customer say — may say, I don’t want to buy and I’m going to wait for a better time. And then you got to go find — find the next customer. So I think you phrased it the right way, Alan, in that as these rates have continued upward, I think it has a broad effect on what I’ll call a more normal seasonal pattern is what we are expecting. In part, we just don’t know where rates are headed from here. They could go up, they could go down, they don’t seem to be in sync necessarily each month with what’s going on with the T-bills and the tenure and whatnot. But, I would say we are expecting a seasonally normal fourth quarter.
Alan Ratner: That’s helpful. And I appreciate that, and certainly recognize the rate environment has changed. So I appreciate you talking through that. The second question, maybe this one’s better for Jeff K. Just on the ’24 revenue guide, I didn’t do the exact math here, but it sounds like that’ll be up 5% or 10% year-over-year. If I’m doing the math correctly, I think your backlog, at least in new units, is going to be down probably about 20% entering next year. So is there any way you can kind of parse out that revenue increase between price, better cycle times and an order growth in ’24 just to kind of give us a rough idea of where that direction of growth is coming from?
Jeff Kaminski: Sure, sure. So a couple of things. We are looking to rebuild community count as we go through the year, as I talked about in the prepared comments. And you can see sort of the cadence on that a bit. I mean, it’s a little early to call it by quarter at this point, but we are looking, we’re relatively flat going through the end of the first quarter and then starting to increase sequentially. So obviously with a higher community count, a building community count that always helps your sales and in turn your deliveries. Construction cycle time is a pretty big one for us. We are looking to hang on to the gains that we’ve already experienced and we had a really, really solid third quarter performance along those factors and looking to have a really nice fourth quarter as well.
And just by holding those gains, it pulls in additional units into the year, both into ’23 and assuming you hold on to those gains into ’24 as well. So those are probably two largest factors affecting it for ’24. And if you back up and look at the big picture for a minute, it’s pretty early, obviously, to forecast for full year. We haven’t even sold units in the third quarter yet, really, and we’ll be updating that again as we get into the first quarter. We always like to give our first kind of look or expectation during this quarter’s call and then we’ll refine it as we go from there.
Operator: Thank you. And the next question comes from the line of John Lovallo with UBS. Please proceed with your question.
John Lovallo: Good evening, guys. Thank you for taking my questions. And this one sort of dovetails, Jeff, off of the answer to the last question there from Alan. The four to five month cycle time that you guys think about it is kind of normalized. We had 35 days of sequential improvement in the quarter. I guess the question is, is the low-hanging fruit, if there is such a thing, kind of taken care of at this point? I mean, how quickly could you get back to that four to five months? I mean, could we expect another decline very similar to what we saw sequentially in the fourth quarter?
Jeff Mezger: Rob, you want to take that?
Rob McGibney: Yeah, John, I would be surprised. We’ve had some pretty significant gains over the last couple of quarters and I think we get into an area where we see some amount of diminishing returns just on the improvement that we are able to make. But we do have our eyes and our sights set on getting back to that four to five months and we are only 30 days away from that. So I don’t think it’s going to take us a long time to get there, but I would be surprised just looking into this next quarter that we see that same kind of improvement like another month off of cycle time, but certainly over the next two, three quarters, driving to get towards that old historical build time of four to five months.
John Lovallo: Okay. That’s helpful. Thank you. And then, I’m not sure if I got the numbers right here, but I think for orders you guys — you talked, three to four for the absorption, so 2,070 to 2,760, I believe, were the numbers. I think, it’s a fairly wide range and it’s understandable given some of the uncertainties out there, but I guess what I’m trying to understand is what sort of drives the high or low end of the range? I mean, what are the variables? Is it really just contingent upon interest rates, and if that is the fact — the big factor if rates would remain where they are today, would that put you in position for the higher end of that range, or do you need rates actually fall from here?
