Michael Rehaut: Thanks. Good morning, everyone. Just wanted to drill down, if possible a little bit on the demand trends over the last couple of months. And I know you don’t typically go too far down the rabbit hole in terms of month-to-month, but obviously with the change in rates, with some of the concerns in the market, any kind of January, February, March, April type of progression. We’ve heard that for example, March — I’m sorry March and April maybe are a little bit more moderate than what we saw in February. I’d love your take on just how the demand trends, how the sales pace has come in through the door maybe versus your expectations and if incentives in the marketplace have changed at all around that.
Bill Wheat: Sure, Mike. We did see at the end of our first fiscal quarter in December, we saw I’d say better than normal seasonality in terms of sales demand and that continued on into January. When we had our call in January, we were still seeing, I’d say, probably a little bit better than normal seasonality into January. And then as we’ve talked many times, anytime you see a lot of volatility in rates, there is always an adjustment period for buyers. And so we saw more volatility in rates in February and March. And so we saw some intermittent periods where buyers were having to adjust, which does affect weekly sales pace. But then as we look up like over the last six weeks or so, we’ve seen that stabilize and are seeing a very good sales pace in line with our overall plans and very pleased that, that’s position us to increase our guide for the year.
Going forward, as Jessica has said a couple of times already, going forward, it’s going to be subject to the rate — what happens in the market with rates, and we’re — in the last week, we’ve seen another period of volatility. So I think we’ll continue to see that the market adjust and we’ll adjust to it as the rate environment changes.
Michael Rehaut: Great. Thanks, Bill. Appreciate that. And I guess just maybe along those lines in terms of the impact of higher rates at points, it seems like if you go back to your guidance last quarter, there was a little bit of surprise that maybe the out quarter for gross margins was a little less than people were looking for and it kind of went back to the higher level of rates and incentives seen in three — in the calendar third quarter. Wondering, obviously, you haven’t given guidance for the fourth quarter, but all else equal, if perhaps you’re having some of the delayed impact of perhaps higher incentives, perhaps more costly incentives, and I know there’s some warehouse buying and delaying of an impact on the incentive front from the mortgage rate buydowns.
If we were to stay at these levels just from the standpoint basically of the buydowns being maybe a little more expensive, all else equal, would that impact be more on your fiscal fourth quarter than your third quarter?
Jessica Hansen: I think right now, Mike, with the number of homes that we’re selling and closing intra-quarter, you’re seeing a pretty good real-time average gross margin. And so unlike a lot of other builders, I think you’ll see more real-time market conditions show up in our results faster. Hard to say split in hairs between Q3 and Q4, but we were really pleased with where our gross margin came in this quarter. And we actually did see an increase in the number of buyers sequentially that we’re able to utilize a mortgage rate buy-down. And in spite of that, we had a slight tick-up in our gross margin. So without giving specific guidance for the remainder of the year because it is going to be dependent on the interest rate environment, it feels pretty good to us right now.
Our costs outside of incentives have generally flattened out on the stick and brick side. We’re still having some categories go up where we have pressure, but we’ve had some success getting categories to go down. We obviously do still have some lot cost inflation we would expect to continue to need to be able to offset. So when we think about really predominantly the next two quarters, it is going to be incentive as the wildcard, and it’s going to be dependent solely on market conditions.
Michael Rehaut: But I think just to make sure we understand then, to the extent that rates have — rates have risen and the cost of those mortgage rate buydowns become more expensive, you feel like a lot of that is already reflected in 2Q and 3Q?
Bill Wheat: I think, again, based on the fact that we are selling more than 50% of our homes intra-quarter, we’ll see how that plays out as we look at the next in the third quarter and the fourth. But we move our rates along with the market. And so really it becomes a question of absorption and pace. We’re going to continue to manage pace and margin to the returns that we want. And if we need to press a little more on the incentives to keep that pace consistent, we’ll do so. But we move our rates along with the market. So it doesn’t necessarily mean we’re seeing significant cost. In the level of those buydowns, it really just starts to stress the buyer when they climb up into the 7% and if they go to the 8% range, then we’ll see a little more challenge in getting buyers qualified. And if it goes that high, I would expect to see our incentives increase to keep our pace.
Michael Rehaut: Great. Thanks so much. Appreciate it.
Jessica Hansen: Thanks Mike.
Operator: Thank you. Your next question is coming from Eric Bosshard from CRC. Eric, your line is live. Please go ahead.
Eric Bosshard: Good morning. Two things if I could. First of all, the gross margin in the quarter was a little bit better. What was different that created that?
Jessica Hansen: I’m assuming you’re talking on a sequential basis?
Eric Bosshard: Correct.
