Phillippe Lord: Yes, I think what’s happening to our stock price today would make us interested in buying some more shares right now.
Operator: Our next question is coming from Stephen Kim from Evercore ISI.
Stephen Kim: I found it interesting that you did — you’re not including a pullback in incentives or pricing power even though you think that you’re seeing some signs that might allow you to do that. I was wondering if you could describe for us if there’s any difference between what you’re seeing in the market, let’s say, this is like I guess February now versus what you were seeing in the market last year. I think and particularly with respect to your customers coming out of a sort of a high mortgage rate environment, kind of like what they were coming out of late 2022? If you could sort of compare contrast what you’re feeling in the market today versus, let’s say, a year ago?
Phillippe Lord: It’s two different environments. Last year, we were coming out of a huge spike in rates and it was the first-time rates had spiked in a long time. So, there was definitely — buyers were really not accustomed to that. So, I think this time around as rates elevated in the fourth quarter, buyers were much more accustomed to it. And as we roll into the spring right now, it doesn’t feel like we’re convincing buyers that it’s a good time to buy. They already feel like it’s a good time to buy. It’s just about connecting them with the right home. So, I’d say buyer psychology feels a little bit different. I would also just say nothing is happening right now in January that we didn’t expect. During the fourth quarter when rates were elevated, we were still selling houses and it just felt seasonal to us frankly.
In an elevated rate environment, we knew we had the tools to help people get into the payments through our rate buy downs. So, January is off to a great start. We kind of expected it to be off to a great start. And I think buyers are just, at this point accustomed to a higher rate environment and they’re also accustomed to the fact that they’re not going to find product on the existing home market and they’re coming to the new home communities to buy a home.
Stephen Kim: Hilla, I think at one point when we met up over the last couple of months, you had talked about the leverage you get from an incremental unit, I think what you talked about, absorptions going from, let’s say, four, if they were to go to five in a community, let’s say. You were suggesting that you could have the benefit you get to sort of levering the overhead was very significant. I was wondering if you could just sort of remind us, again, of what the sensitivity or the incremental margin would be for you guys on if your absorption, let’s say, moves from four to five?
Hilla Sferruzza: Yes. So, I don’t have the math at my fingertips for four to five in the number of communities that we have obviously. But typically the fixed component as our overhead between the first quarter and the last quarter of the year, we get an extra 100 bps of leverage. That’s how impactful selling and closing the incremental homes becomes for us. So that’s why events like our flash sale that we just had a big nationwide sale in January, getting those incremental sales even if they come with a little bit more of an incentive end up yielding better total margins because the incremental volume compensates for that. So, there’s a fairly material portion of our fixed overhead that’s a function of our reported gross margin and we can leverage better on higher volume.
That’s why you really saw us not take our foot off the gas in October and November even though rates were high. We had pretty darn good volume. The 3.6% for the quarter was probably better than what we had expected with the interest rate environment, doing what it did, the first two months of Q4, obviously it pulled back in December, but we continued to push on the sales because we knew that those incremental closings coming both in Q4 and Q1 were going to help us better leverage total margin.
Phillippe Lord: And this is Phillippe. Just to amplify, our mindset around pace versus price has changed. We used to think how do we balance those two out. Now it’s pace and pace and price if we can get it. So we’re always focused on the incremental pace. We’re going to drive the volume, the market share in our business, our manufacturing operating model, and then — when we can get price and margin too, we’ll take it. We’ve been operating in three years of unprecedented conditions and we’ve been able to get both. But at the end of the day, it’s not balancing the two out. It’s getting pace. And then if we can get margin on top of pace, we’re going to go get it.
Operator: Thank you. Our next question is coming from Michael Rehaut from JP Morgan.
Michael Rehaut: I just wanted to clarify, Hilla, at the end of your comments kind of throughout that in the first quarter you expect $70 million of a hit in your financial services from…
Hilla Sferruzza : It’s 7, not 70. 7.
Michael Rehaut : 7. Okay.
Hilla Sferruzza : You said two 7. Sorry, I misspoke.
Michael Rehaut : I’m sorry. You said two seven?
Hilla Sferruzza : No. Just, seven. The number 6, 7, 8. 7.
Michael Rehaut : Okay. Thank you. So that actually kind of pushes the — so not too material then. I guess the question then is, when I’m doing the math on fiscal ‘24 and I take the midpoint of your revenue and home closing gross margin and SG&A. I’m getting right at the high end of your EPS range. And so, assuming my math is correct me, if it’s not, please tell me. But what am I perhaps missing there? If there’s anything below the line or if there’s just an element of conservatism, love to get your thoughts on that.
Hilla Sferruzza : Yes, there’s nothing else below the line outside of that, that loan charge will take in the first quarter on unwinding some rate locks. So I think your math is right. We can definitely take a deeper dive on the modeling offline. But yes, I think your math is right, just making sure that both Phillippe and I mentioned in the prepared remarks that you’re going to see some shift in geography into our lower ASP markets and that’s driving part of the pullback in EPS temporarily as we ramp-up. We think that these are the high growth markets that we want to be in an affordable price that’s the most attractive to today’s consumer. But in the meantime, as we shift to the lower ASP before the impact of the higher volume pick in with the community count growth, there’s going to be a temporary dip in 2024.
Michael Rehaut : Okay. No, that’s helpful. And then I guess just as a follow-up. Kind of looking past ‘24, I obviously understand, we might be reluctant here. But number one, the ASP shift that you’ve described into the low 400s, it seems like we’re thinking that you do the math on the closings, and the revenue, you’d be around 410 plus or minus. Just want to make sure we’re thinking about that, that shift would primarily or predominantly occur in ‘24 and there wouldn’t be any incremental spillover in ’25. And also at the beginning of the call, you kind of said that you expect community count growth to meaningfully accelerate in ’25. Just in terms of the right way to think about that, if you’re growing year-end mid to high-single-digits this meaningfully accelerate. I assume that would mean some type of low-double-digit rate, if 24% is already mid to high. Just want to make sure I’m thinking about some of those parameters correctly.
