Alan Ratner: First of all, on the suppliers. I mean, we haven’t seen any significant change in behavior from the supply base. Pretty early, I’d say on the market recovery and in mortgage rate declining to see that. As we forecast margin would generally look at current pricing, current costs as we go forward, and assuming current market conditions. So if things get better, there is more upside and we’ve just talked about concessions a little bit with the last couple of questions. One of the other important thing under concessions is to the extent they are tied to mortgage rates. So the buying rate is down to X percent, for example, loan rates go less cost of that concession. So even if we were to maintain some of those incentives out there they’d be less costly to us and less of a hit to gross margins, which is a real favorable.
So anyway, coming back to the cost side. Yes, it’s, I think it’s still a bit early on to see. Hopefully, we will see from a similar supply base, aggressiveness on that. We did see costs coming down quite nicely over the next 12 months and to the extent, those costs are baked into the backlog, those are already included in the forward guide and I’m just assuming kind of business-as-usual from there.
Operator: Thank you. And our next question comes from the line of Matthew Bouley with Barclays. Please proceed with your question.
Matthew Bouley: Good afternoon, everyone. Thanks for taking the questions. So you guided your ending backlog or you’ve got your deliveries, the ratio ending backlog to deliveries of 40%, which is very normal versus pre-COVID times as you mentioned it’s a lot better than the past couple of years, of course. So just cycle times, where they stand today kind of get you there, or would you still need some further improvement in cycle times in order to get to that number relative to where your backlog is today.
Jeffrey Mezger: We’ve built the year met based on current cycle times. So if we can continue to compress and Rob has got a lot of plans at play in order to do that as it could help us but we have spent steady-state when we’re making our projections for.
Matthew Bouley: Yes, got it, okay. Thank you. And then so I think in terms of spec. I think you said 30% of your production was unsold. Correct me if I’m wrong, but I recall in years past that may be a little higher. You might have been closer to more like 20%, today it is a little higher-than-normal. Can you remind us if there is any margin differential on the kind of spec homes versus the build-to-order and how you’re thinking about any margin impact from mix of higher-spec in 2024?
Jeffrey Mezger: Yes. Matt, we typically run about 25% unsold and we are up at 30%, it’s about 300 units. So it’s not a crazy number. And as the year unfolds, we’ll see how our orders are on the built-to-order because we like the predictability of the delivery with a predictable margin and it’s — we are just saying it’s far better. Typically, our inventory sales are running 2% to 3% points lower than built-to-order. So we would much rather prefer to keep running our business where we have for the last 15 years, but there is a certain phase where you have the starts to maintain in order to have your scale and your franchise in that city with a contractor base and we’ll keep, and we’ll get all the sales we can, the BTO sales for our X films, and inventory will do that.
Operator: Thank you. And our next question comes from the line of Michael Rehaut with JPMorgan. Please proceed with your question.
Michael Rehaut: Hi, thanks, good afternoon, and thanks for taking my questions. First, I just wanted to zero in a little bit again on the first quarter gross margin. Looking for a roughly flat or even slightly up result or positive may roughly flattish results. It’s actually in a positive contrast to typically when you have first quarter lower revenue then you are expecting lower revenues sequentially 4Q versus first, sorry, the first quarter versus 4Q. In the past, you kind of pointed to some negative operating leverage and we’ve seen a sequential contraction of gross margins anywhere of 100 basis points, 200 basis points at times over the last five years, six years, seven years. I was wondering kind of what happened to that negative operating leverage. If there had been any differences in mix or other drivers because normally I think we would have expected some type of sequential step-down.
Jeffrey Mezger: Right. Yes, that’s a good question, Mike. A couple of things. One, you’re not seeing quite the same magnitude of change between our fourth quarter and first quarter, as we have in certain years. So, I think it’s about a couple of 100 million bucks or so at the midpoint, which isn’t a tremendous impact on the leverage but there is some leverage off here but fundamentally, it’s just offset by other factors. And where we see the backlog coming through with the mix of deliveries that we expect in the first quarter that slightly higher margins than we’ve been tracking too. We didn’t think we’d hit an inflection point in the fourth quarter with the low point of margin, which we have seen and we do expect, even though it’s only up incrementally still up and hopefully we’ll out in the rearview mirror for us.
