Landsea Homes Corporation

Please stand by. Your program is about to begin. If you need assistance on today's conference, please press star zero. Good day, everyone, and welcome to the Landsee Homes Corporation fourth quarter 2024 earnings call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing the star and one on your telephone keypad. You may withdraw yourself from the queue by pressing star 2. Please note, this call may be recorded. I'll be standing by should you need any assistance. It is my pleasure to turn the program over to Drew McIntosh, Investor Relations.

Good morning, and welcome to Lancey Holmes' fourth quarter of 2024 earnings call. Before the call begins, I would like to note that this call will include forward-looking statements within the meaning of the federal securities laws. Lansi Holmes cautions that forward-looking statements are subject to numerous assumptions, risks, and uncertainties, which change over time. These risks and uncertainties include, but are not limited to, the risk factors described by Lansi Holmes in its filings with the Securities and Exchange Commission. We do not undertake any obligation to update forward-looking statements. Additionally, reconciliations of non-GAAP financial measures discussed on this call to the most comparable GAAP measures can be accessed through Lansi Holmes' website and in its SEC filing. Hosting the call today are John Ho, Lansi's Chief Executive Officer, Mike Forsum, President and Chief Operating Officer, and Chris Porter, Chief Financial Officer. With that, I'd like to turn the call over to John.

Good morning. Thank you for joining us today as we go over our results for the fourth quarter and full year of 2024 and provide an update on our operations. In the face of challenging headwinds for our industry, Lancy Homes made progress on a number of fronts in 2024. The company made further strides towards becoming a large-scale homebuilder in several key markets across the country. Our goal is to be a top 10 homebuilder in each of our markets, and we see a path to realizing that goal over the next few years. During 2024, we generated home sales revenue of $1.5 billion on new home deliveries of 2,831, both records for our company. We expanded our presence in the state of Texas by acquiring DFW-based and Taurus homes, giving us a foothold in a key market with great long-term fundamentals. We also fortified our operations in our existing markets by opening new communities and acquiring lots for future projects with an emphasis on affordability and functionality through our high performance home series. Our growth has been fueled by a mix of organic expansion and M&A activity, and we continue to see opportunities on both fronts to grow our market share. 2024 was a pivotal year for our company, and we are excited about what the future holds in 2025 and beyond. In terms of the fourth quarter, Lansi generated strong top-line growth of 22% year-over-year, driven by new home delivery growth of 41%. While we are pleased with our team's execution and success in delivering such a high volume of homes in the quarter, the combination of persistently high mortgage rates and buyer hesitancy pinched profitability as we were compelled to increase incentives to compete and move inventory. We also made the strategic decision to reduce our standing inventory and generate additional cash rather than hold onto aging specs heading into the new year. We felt that this was the appropriate path forward, both in terms of our positioning ahead of the spring selling season, our goals for our balance sheet. During the quarter, we generated $47.8 million in cash flow from operations. Net new orders in the fourth quarter came in at 636. representing a 60% increase over the fourth quarter of 2023. Our high-performance homes continue to sell well against the competition and provide our company with a differentiated platform rooted in innovation, energy efficiency, and sustainability. We also benefited from the investments we've made in our online presence, where buyers can utilize tools such as a 360-degree virtual home tours and interactive floor plans to find the perfect home for their needs. It also gives our salespeople important insight into prospective buyers so that they can make an effective pitch about why a Lansing home is right for them. We are firm believers that technology can enhance the value of a new home and also plays an important role in our sales and marketing efforts. During the fourth quarter, we executed a secondary offering on behalf of selling stockholders that achieved the dual goals, diversifying our shareholder base and reducing our ownership concentration. by increasing our public flow. Following this transaction, our biggest shareholder, Lansi Green, reduced its stake in our company to 17%, down from 54% at the beginning of the year. We feel that the concentrated nature of our shareholder base was an overhang for our stock and believe that the quality and stability of our new shareholders will be a long-term positive for our company. Looking ahead to 2025, we are excited about the prospects for our company, given our unique product portfolio, the long-term outlook for our markets, and our positioning within those markets. Clancy has demonstrated an ability to enter markets and quickly scale our local operations. We expect to have similar success in our newer markets. Our high-performance home series is an important differentiator for our company and allows us to draw a distinct contrast with our competitors when competing for new home buyers. We feel that this is an important selling tool given the competitive nature of our markets. While affordability remains an issue for our industry, we believe that there is a strong desire for homeownership in this country and a structural lack of housing supply that should serve as a tailwind for new home construction for years to come. We also think that the recent trend of large public builders taking market share will continue given the cost of capital advantage and scale benefits associated with production home building. As a result, we believe the long-term outlook for our industry, and especially Lansing Homes, remains positive. With that, I'd like to turn the call over to Mike, who will provide more detail on our operational results. Thanks, John, and good morning to everyone.

Lansing Homes closed 937 homes in the fourth quarter of 2024, resulting in a record year for deliveries and home building revenue for a company at $2,831 and $1.5 billion, respectively. The top contributors to that delivery total were Florida, followed by Arizona and Texas. Our Arizona team grew deliveries 38% and revenues 40%. We also saw 118 deliveries in Colorado, and between opening Austin and acquiring our DFW portfolio in April, we enjoyed 414 deliveries out of Texas. We are making great strides balancing our portfolio between our core markets of California, Florida, Arizona, and Texas. We continue to see a healthy construction environment in all of our markets, as build times have significantly improved compared to a year ago. Our sales pace in the quarter averaged 2.7 homes per community per month, a 23% improvement over the fourth quarter of 2023. Markets with the best absorption paces during the quarter were Colorado, followed by Arizona and Texas. We remain committed to generating between 3 to 3.5 sales per community per month. Financing incentives remain a key driver of demand, and most buyers are looking for ways to offset the impact of higher mortgage rates and property tax and insurance increases on their monthly payments. While this has been a great sales tool when selling against the existing home market, it has had a detrimental effect on our margins. Overall, these incentives were about 280 bps higher in the fourth quarter than in the third quarter. To combat this margin pressure, we have been aggressively re-vetting the labor and material components that go into our projects and reducing costs where possible. Lot cost inflation has been a driver of margin pressure and we have engaged our land partners about the cost of future lot takedowns. We have seen some previously tied up land deals hit the market again And we are optimistic that this is the sign of underwriting discipline from our peers and a reset of expectations from land sellers. Additionally, we are in a very good position with our land. At year end, we owned or controlled 11,000 lots. This represents just over four years of supply based on our last 12-month sales. 44% of these were owned and 56% of these were under control through some sort of option contract. As we have said, we are pushing to a more land-like strategy and anticipate shifting this percentage to 25% owned and 75% controlled by the end of 2026. As John mentioned, we sold a significant number of specs in the quarter to reduce our standing inventory and rebalance our community profiles as we head into the spring selling season. During the quarter, we opened four new communities and closed out 11 communities, primarily in as we position for growth in 2025. In 2025, we should expect our community count to grow in the low single digits for the year. The improvement in cycle times over the last year has diminished the need to operate with a higher level of spec inventory, as we can now deliver a build to order home in around five months. While we continue to have move-in ready homes for sale in each of our communities, We are taking a more balanced approach when it comes to spec versus build to order. As such, we have moderated our starts this quarter to be more in line with our desired levels and ultimately get closer to our 50-50 target of specs and build to order. This should also help our efforts to improve margins given that build to order homes typically carry better margins. Overall, I am pleased with how we ended 2024 and how we are positioned heading into the spring selling season. We are excited about the new communities coming online this year and feel that our existing communities will benefit from a more balanced approach to spec inventory. Our high performance phone series continue to stand out from the competition, both in terms of quality and value, which we feel is a key advantage as buyers become more discerning. The markets we build in remain economically vibrant and continue to benefit from job growth and in migration from other parts of the country. Given these positives, I remain optimistic about the long-term outlook for our company. With that, I would like to turn the call over to Chris, who will provide more detail on financial performance and give some forward-looking guidance for the coming quarter. Chris?

Thanks, Mike. Good morning, everyone. As Mike and John mentioned, we experienced record top-line deliveries in revenue for the quarter and for the year. Pre-tax income for the quarter was $6.5 million, bringing us to $26.7 million for the full year. Net income for the fourth quarter was $3 million or $0.08 per deleted share. And adjusted net income was $9.1 million or $0.25 per share. In the quarter, we recorded $7.9 million of purchase price accounting, which equated to $0.16 per share. We expect to continue to see the impacts of purchase price accounting for the next couple of years with approximately $21 to $22 million amortized through 2025. Gross margins were 12.5% in the quarter and 14.7% for the full year, slightly below our guidance as incentives continued to rise as the quarter progressed. Discounts and incentives for the quarter were just over 8%, about 300 basis points higher than the fourth quarter of 2023, and 280 basis points higher sequentially from the third quarter of 2024. We continue to see competitive pressures on interest rate offerings, but have seen those abate some after the end of the year. the 10-year Treasury has settled in around 4.5% range, and we are seeing the market offer lower mortgage incentives than they were in the fourth quarter. Our adjusted gross margin was 18.4% in the fourth quarter and remained just over 20% for the year. We expect incentive levels to remain elevated through 2025, with the actual costs fluctuating with the overall mortgage rate environment. After the first of the year, we have consistently consistently seen rate buy-downs in the 4.99% to 5.25% range for quick move-in homes as we kick off the spring selling season. As Mike mentioned, we are also seeing a slight shift back to more built-to-orders where fewer incentives will need to be offered. However, as we look into the first quarter, we would anticipate incentive levels to be in the 7% to 8% range. We also saw good performance this year from Lansing Elements. which provides mortgages, insurance, and title services for our buyers as it generated $2.2 million of profitability for the year. I am also very pleased with our SG&A leverage for the quarter as we continue to focus on expense reductions and leveraging our high volume. SG&A as a percentage of home building revenue in the quarter came in at 12.5%, a 40 basis point improvement from the same time last year. For the full year, we saw 150 basis point improvement from 2023 at an overall rate of 13.5% of home sales revenue. Separating out just our G&A expense, this ratio as a percentage of home sales revenue improved from 8.7% in 2023 to 6.9% in 2024. And on a total dollar basis, our G&A was up only $700,000 on a year-over-year basis and that included adding the Antares acquisition and about $8.5 million of one-time expenses through the year, including capital markets fees, acquisition fees, and severance costs. You will recall that during the second quarter, we took efforts to gain efficiencies in the operations through both headcount reduction as well as streamlining our reporting structure and eliminated 30 positions. We are seeing those efforts pay off. Our tax expense in the fourth quarter was $3.3 million, bringing our total for the year to $8.1 million for an effective tax rate of 30.5%. This year, fewer homes qualified for the new, more rigorous 45L tax credits. As the rules for 45L tax credits continue to tighten, we expect to have fewer of our homes qualify in 2025 as the cost to achieve is much larger than the overall tax credit. For 2025, we expect our tax rate to be between 25 and 26%. Now, turning to our balance sheet, we ended the fourth quarter with $241.8 million in liquidity, $57.2 million in cash and cash equivalents, and $184.5 million in availability under our revolver. During the quarter, we generated $47.8 million in cash flow from operations, which helped reduce our leverage ratios. a goal we've been discussing since our acquisition of Interis earlier in 2024. Additionally, this year, our 11% $250 million private notes become prepayable with a 7.33% premium. Our current high-yield notes are trading around par for 8.78%, so we will look to refinance the private note when it opens and reduce our interest costs close to 200 basis points on a go-forward basis. With interest costs representing about 4% of our gross margin, this savings should begin to show up starting later this year. Additionally, this will extend our maturity profile with any new notes maturing in 2030 or later. At the end of the year, we maintained 51.8% debt to total capital and improved our net debt to total capital another 150 basis points sequentially from the third quarter to 47.7%. Now, looking forward to the first quarter, we anticipate our new home deliveries to be between 600 and 700 at an average sales price between $475,000 and $500,000, with gap gross margins of 13% to 14% and adjusted gross margins between 18% and 19%. For the full year, we anticipate new home deliveries to be in the range of 3,000 to 3,400 units, which at the midpoint represents a 13% growth over 2024. We expect the ASPs of these deliveries to be in the range of $500,000 to $525,000. Additionally, we expect GAAP home sales gross margin for the full year to be similar to 2024 at around 15% and adjusted gross margins to be around 20%. This guidance assumes incentives stay elevated for the year and is based on our best estimate as of today with current market conditions. As inflation, incentives, and interest rates continue to change, overall results could change accordingly. That concludes our prepared remarks, and now we'd like to open up the call for questions.

At this time, if you would like to ask a question, please press star 1 now on your telephone keypad. To withdraw yourself from the queue, you may press star 2. Again, that is star 1 to ask a question.

We'll take our first question from Matthew Boley. of Barclays.

Good morning. You have Elizabeth Langen on for Matt today. Thank you guys for taking the questions. I just wanted to start off asking about incentives. You mentioned that you're expecting them to come down to 7% or 8% in the first quarter, which would be down a little bit from 4Q. Is that a reflection of you're mixing more towards the build-to-order homes from the Or is that based on what you're seeing in the market right now in terms of trends and demand?

Elizabeth, this is John Ho. I'll take that first, and then I'll have Chris give some specifics. It's both a combination of what we're seeing that's happening in the actual markets in the first couple of months of the year. We're seeing that incentives trend down, both in terms of the total incentives and also the cost of those mortgage rate buydowns. In addition, you're right, as we shift our portfolio in our offering in our communities where we're offering both the SPAC quick move-in homes as well as bill-to-order, the bill-to-orders have a higher margin with them. And we're not offering the same kind of typical mortgage incentives with that offering. So it's a combination of both.

Okay. Thank you. That's helpful. I'm sorry.

No, that's okay. I would just say just adding to that is that that we've actually seen offerings, like I said, between $499 and $5.25 now. And with the 10-year settling out at kind of $4.50, we saw the spike in the beginning of January, but since then it's really kind of settled out. And so the cost is more stable as well as we're buying at $499 to $5.25 now.

Okay, got it. That's helpful, Kyler. And then just kind of staying on the margin topic a little bit, could you speak more about what you're expecting in terms of like land? I know that you said that that inflation has been kind of a pressure, and just anything around underlying building costs, and if you have anything, any quantification you could give us around tariffs, that would be really helpful.

Sure. Hi, Elizabeth. It's Mike. I'll field that question. Let me just sort of tackle the macro around the tariffs, immigration, those questions that have been coming to us pretty routinely recently. So as of right now, we're not seeing really any real impact that's a result of tariffs. For the most part, our contractors, vendors, suppliers have already sort of forward committed to their material purchases that are coming into our house before. many of these tariffs were going into place. Also, by result of the distribution or the disruption to the distribution chain that came out of COVID, many of our suppliers now have multiple channels in which to access materials as opposed to before where they were single sourcing many materials from one single location, maybe one single foreign location. For the most part, we have not seen really any big impact as a result of tariffs from that standpoint. Also, we've already had our spring selling season starts underway. Those started last year, and we're kind of moving into what would be the second level of starts coming here late spring, early summer. We may see some impact then, but as of right now, we're not seeing a lot of pressure. And the same with labor. We're seeing labor, outstanding labor conditions on all of our communities and all of our regions. We haven't had any real, any issues coming from our trades and concerns around that. So, from our standpoint, we still see a sort of a clear path as it relates back to those big macros. As John had mentioned, and I think I talked as well, is we're consistently looking at every way to squeeze out costs out of our homes without sacrificing any of the elements around our high-performance home value proposition. And so we're in constant communication with our trades where we're looking for different ways in which to do it. We're also getting more micro-pricing around our actual houses, getting really focused around premiums, lot premiums. view premiums, these things that you can incrementally enhance your margins, as well as other ways in which speed is also very helpful. So we're really thrilled about our teams and how they're now cycling through their production housing that they've got going through in this five-month period of time. Frankly, beating the cycle time by one month has real real value to our costs and our margins. And so we're looking under every rock, through every crevice, everywhere we can to find different ways in which to enhance our margins going through this cycle, which is, you know, I think we have an amazing team and outstanding home builders at our local locations, and they're doing a great job on that.

Thank you very much. I'll pass it on.

We'll take our next question from Carl Reichert of BTIG.

Hi, guys. Thanks for taking the questions. I appreciate it. Hope you're well. I may have missed this, so I'm sorry if I did, but can you talk a little bit about the delivery performance this quarter relative to guide? I think we're about 10% light or so. Was that all a function of sales-related issues, or did you have some kick into the first quarter, which also looks a lot higher than we expected?

Yeah, Carl, I'll take that one. This is Chris. Yeah, a lot of it was just really back-end loaded, and so some of that did kick into early January. And so that was primarily what the difference was along the way. We pushed. We had a record quarter on closings, and so they were mashed into the last minute of the year, and we did have some that shifted over into the first quarter.

Okay. Thanks, Chris. And then you guys talked about some sort of goals for selling three to three and a half per month per store. I got to go back, I think, to 21 in the model to find a time when you did that. And obviously, that was an awfully good year for everyone. So what is the pathway to get from where you are now on a sales per store basis to that number? Is it a function of smaller product or more focused on turns? And then how have you tracked relative to that goal set so far in 2025?

Carl, this is Mike. So again, that number is a number that we set forth. It's somewhat aspirational to some degree, but we believe that that is a natural rhythm of any community on a single family detached community on average. We will have some that are a little bit higher, some that could be a little bit lower. But generally, we feel like the even flow of a community should be roughly around three net sales per month per community. And that's where we go, and that's where we drive our pricing towards against the competition. That's where we look at when we're in construction and we're setting our starts. That's generally what we do is just, again, to have sort of a goal out there and going forward. We're slightly shy of that on average for the community because some are a little bit longer, some are a little bit longer. shorter in that goal. There's also the component of a task product, which doesn't necessarily always relate specifically to that because when you're starting a building, you may have eight units at one time, and then you're kind of absorbing in the building as you're going along. So, again, I just want to sort of emphasize that to us, that is sort of a guiding light as opposed to a direct number that we need to hit because we want to be able, again, have the teams focus on the goals that are out there in that 3.8. We are doing all things that are within our toolbox to be able to achieve that goal, including, again, the incentives that Chris has talked about, our cycle times, our footprints are shrinking a little bit to make them more affordable. But at the end of the day, Carl, what we're really just doing at this point is just making sure that we're continuing a vibrant sales pace at every single one of our communities to get through this part of the cycle, to reduce our spec level inventory, to cycle through the land that we have right now, to generate cash, and to take that cash and redeploy it back into new land positions that will take us out in 27, 20, and 29. That's really the goal. For us and for me, having done this a long time, we do not look at phantom margins. We believe in cash generation. This is a business that You have to be generating cash. You have to keep moving through and so we are really focused on the sales side of this and doing what we need to do to continue to move through our inventory and the land and those things I just talked about so You know for us I Guess we just we're not going to we we don't want to be the last one to move on us We want to be first movers. We're going to stay focused. We're going to be forward-leading, you know in our markets and and continuing, and that 3.0 sales pace is really the goal to continue to do that and that sort of thing.

Yeah, Carl, I might just add on to what Mike was saying. If you look at for the year, Arizona, California, and Colorado all had over three on their average selling pace. Florida and Texas, Texas just coming online in Austin and just working through the Antares acquisition for a full year. So, you know, we've got those stronger ones already over that three that Mike was talking about. And so we've got to just work on Florida and Texas to get there as well.

Okay. I appreciate that, guys. Thanks so much. We'll take our next question from Jay McCandless of Whitbush.

Hey, good morning, everyone. So the first question I had, the fiscal 2015, closing price guidance was better than we were expecting. Is there some pricing power in there, or is that all just going to be mixed, you think?

Yeah, I think, Jay, Chris, I think it's a little bit of both. So we've been able to look at pricing, you know, on the top line, but also you've got with some of the better pricing on the mortgage incentives, which is a contra-revenue side of things, that automatically goes into ASP as well. So it's kind of a double-edged sword there.

Great. And then, Mike, the land that you're seeing come back to market, could you maybe give us a little more color around that? I mean, are these deals that were maybe tied up for only a few weeks or a few months, or is this some longer-dated stuff that you're seeing come back to market? And I guess what are you seeing with the pricing from the land sellers as they're trying to get it resold?

Yeah, Jay, I think it's a mixed bag and it's everywhere. Whether it's in Florida, Texas, Colorado, Arizona, not necessarily California, but mostly within large land sellers who are selling multi-parcels out into the market, bringing in builders. And I think what's going on is that there's a real strong discipline going through the market right now not to be in a position whereby you can't have clear product segmentation and those kinds of offerings. And so what we're seeing is not a run to the full acquisition of those parcels. When the numbers are settling out, excuse me, I'm battling a cold here. When the numbers settle out and the builders are identified, we're seeing leftover parcels in many of these master plan communities that did not make the first sale come back to the market and a recalibrated price. And I think that that's really good. It's keeping things very clear and distinct and making sure that each builder is going to be able to get a very defined value proposition when they're doing these parcel acquisitions. So that's what we're seeing a lot of. It's timelines are short-term, long-term. It's kind of all out there. As you know, also, this industry is turning to land bankers. And land bankers are also part of this conversation and part of the mix in terms of the evaluation. So, in many ways, we do have a new partner that's helping us to look at opportunities along the way. And to the extent that they're also hesitating, we're also finding that, you know, there isn't that sort of strong momentum going into communities sort of blindly. If we can't be able to have a financing partner, that's willing to help us to stay land light. There's also some walkaways that are going on as well, and we're seeing that from our competition too.

Okay, got it. That's very helpful. Thanks, Mike. And then just wanted to ask, you know, it sounded like you guys closed out a bunch of Florida communities. Maybe talk about what you're seeing from demand there, and is that another, is that a theme maybe playing through the guidance for the first quarter that you guys are trying to move through. Some of the communities are just given, there seems to be a significant amount of new and existing home inventory, especially in the middle of Florida at this point.

Right. Well, overall, there's still strong, strong demand throughout the country, at least in the markets in which we're in. There's a strong will to be a home buyer, a homeowner. It's still there. It's just the challenge around affordability, qualifications, as you would expect in the entry-level home buyer. So for us, that's the constant conversation within our company in terms of how to be able to bridge that between the desire of our buyer profile and the ability to deliver them a house in which they can acquire. So we're always focused in on that. As it goes back to Florida, particularly, and what is going on in that market, I would say it's the same. We still have great traffic at our communities. We're having great conversations with the buyer prospects. We are doing a good job in converting them either online or through our on-site sales presence. But it is, as Chris has identified many times here today, that it's really about the incentives in which we can deliver to them to be able to get that price point down or that monthly mortgage rate down And then, you know, I think a little bit of it now, we're also being challenged around insurance premiums that are coming on, property taxes are going higher because this is sort of the two-year cycle in which the county assessors are out now looking at values. And so, you're seeing a little bit of a pop there. So, you know, it's just really, it's just a lot of pressure around affordability. But if we can find the great tool and do it in an affordable way, that we can get that mortgage down to where they need to be. We have still a lot of demand out in the markets in which we're operating in.

And just thought about this from what you said on insurance.

Have you guys been able to quantify how much on a percentage basis people's homeowner's insurance is going up in Florida or even some of your California communities yet?

Yeah, you know, it's a great question, and we're looking for data to come flowing in, but that's sort of the new thing now that seems to be poking its head up, and we're trying to get our arms around that, but I don't have anything specific for you.

No, understood. Okay, thanks, guys. Appreciate it.

And once again, to ask a question, please press star 1 now on your telephone keypad. We'll move next to Alex Barron of Housing Research Center.

Yes, thank you. Good morning. I was hoping you guys could share some statistics around your starts, you know, this quarter versus a year ago, and also your spec levels this quarter versus a year ago.

Sure. I think that, as Mike said, this is Chris Porter. As Mike said, the starts are really Pacing with our order and really what we're trying to do as well is we had a push at the end of the year to get some of the standing inventory sold and then also drive more of our build to order platform. So we really paced our starts specifically this quarter. And if you remember this time last year, really the industry was all about going full spec. And so you've seen that start to change slightly. If you look at our backlog, about roughly 40% of that is closing out longer than what we would consider a quick move in home. And so we're seeing some movement towards that objective overall.

Okay.

Yeah, I get the directionally, but I was hoping you guys could have any numbers if possible.

Sure. Well, this is Mike, Alex, and I'll just sort of backtrack off of what Chris was talking about, is if you were a year ago looking at our strategy around spec starts versus Delta order, we were generally releasing, if you were to say, a construction start of 10 lots. we would have probably have gone off with a 10 to 20 bill to order and then the 90 to 80% or 9 to 8 lots would have been on spec. We are now moving towards a 50-50. In other words, we would like to see roughly around 50% of that 10 lots being done bill to order before we release to go into spec. So we're moving towards a more traditional balanced approach between taking spec inventory against the bill to order so that we don't find ourselves in the end where we have inventory that's moved its way through its production cycle, and then we're finishing up at the end of the month or the end of the quarter with more near-term finished inventory that we are going to have to more heavily discount to probably or incentivize to move along. So with the cycle times reducing that I had talked about earlier, we are kind of within that window now where the buyer is looking at that timeframe is within their range in terms of understanding about where rates may or may not be. But the feeling around that is we have a higher level of comfort about where rates may or may not be in which we have to buy them down. But it's also exciting for them because now they're getting to do a little bit more customization, personalization, those things in our design center. If you were looking a year ago, we had very few people going through our design center because we actually had spec'd out those houses. Today, you're seeing a real heightened activity going through a design center where people are choosing their floorings, choosing coverings, doing those kinds of things to bespoke their houses. And that's very helpful, again, in terms of adding extra revenue and extra profit into the business. So we like that.

Right. Yeah, that makes sense. Now, in terms of, you know, the change in margins that were actually achieved versus expectations a quarter or two ago, What changed? Because it doesn't seem like the mortgage rates changed a lot. Was it just that the competitors were offering very low interest rates and you guys had to sort of match to stay competitive? Or what kind of change in your mind versus a quarter or two ago that caused margins to go down, not just for yourself, but it seems for the whole industry?

Yeah. Hey, Alex, this is John. Yeah, you're right. Going into the end of the year, unsold finished spec inventory was definitely elevated across the markets, particularly in markets like Florida and Texas. As we got into the end of the year, with mortgage rates increasing, obviously with a lot of volatility in the market, getting homebuyers off the fence to commit to purchasing a home required more incentives. And Chris shared on the call in the his remarks was, you know, our incentives increased about 290 basis points sequentially from quarter to quarter, so that had the biggest impact on margins. A lot of that unsold inventory has cleared, and everyone's unsold spec inventory is now, you know, has decreased somewhat from fourth quarter going into first quarter. We're also seeing a lot, including ourselves, right, our shift to being Building more of these bill to order so that's going to help You know the competitive pressures to have to provide those kind of incentives As across the board in a lot of these markets particularly for Texas Arizona less incentives And in some cases even some price increases given that there's less inventory

Okay, that makes sense. If I could ask one last one on the purchase accounting adjustments, is that likely to abate in 2025?

So, we'll have probably kind of in that mid-$20 million range still that will amortize throughout 2025. It's primarily related to the Texas acquisition. So, as we continue to take down lots and sell homes there, Any of the inventory that we purchased last April will have some sort of purchase price accounting on it. But we would anticipate kind of that $20 to $23 million being amortized throughout the year.

Okay. Thank you so much, gentlemen. Have a great year. And it appears that we have no further questions at this time.

Thank you everyone for joining our call. We look forward to speaking to you again first quarter 2025 earnings call.

This does conclude today's conference. You may now disconnect your lines and everyone have a great day.