Paul Romanowski: I think anytime you see rates like they have been in the capital markets, a bit in flux, then we’re going to see some headwinds from our developers, from less capitalized builders. And it will create some opportunities, but we feel like we’ve got a good plan and open communications with our vendors, our trades and our lot suppliers to continue to work through those processes.
Operator: Your next question is coming from Anthony Pettinari from Citi.
Anthony Pettinari: Congratulations on the transition to David and Paul. I’m wondering, understanding your entire offering is fairly affordable, I’m wondering if there’s a specific buyer type you’re seeing as kind of best positioned to weather higher for longer rates. Are your move-up buyers meaningfully outperforming first-time buyers? Are you seeing more buyers move down market to more affordable offerings? I’m just wondering what you’re seeing there and if you’re making any sort of strategic shifts to target a different mix of buyers.
Michael Murray: I think our buyers are focused primarily on affordability. And for us, the way we deliver that affordability is through the monthly payment process. And that’s obviously been a big driver for the rate buydowns, but also introducing smaller product footprints. De-amenitizing some of the homes a bit and letting people do things to improve their homes after the closing when their financial position perhaps has changed and they can afford a little more. But it’s continuing to hit a price point relative to median income, so that we can find a place to work in that family’s budget.
Jessica Hansen: And we still really like over half of our business being first-time homebuyers because despite what’s happening with interest rates, those buyers need a place to live. They don’t already own a home, so they’re not a discretionary buyer. They’re in the market looking at buy versus rent opportunities. So, if we can stay competitive with the rental market on that front, we’re going to continue to capture first-time homebuyer market share.
Anthony Pettinari: Just following up on something Mike said, I think this time last year, you elected not to give very detailed full-year outlook for 2023 with the volatile rate environment. I guess big picture, can you talk about what is giving you confidence to provide more detailed guidance now with mortgage rates near 8%? Is it just the experience of kind of managing through higher rates and the success of the buy-down? Or are you seeing something different with the consumer? Just wondering how you could contrast where we are now versus 12 months ago?
Michael Murray: I think 12 months ago, we were facing two big issues. We were still trying to solve the production supply chain challenges and our cycle times were very elongated. So we had a hard time determining exactly what homes we’re going to finish and deliver. And that was also a big interaction with the rate buy-down process because we can only buy rates down for certain forward amount of time in a cost-effective manner, and so being able to pinpoint when those homes would deliver into the buy-down environment. You touched on the second point with the rates. Yes, we start facing some rate uncertainty and increases, but we have been able to manage through that over the past 12 months, and the team has delivered a really strong year.
Operator: Your next question is coming from Ken Zener from Seaport Research Partners.
Ken Zener: I’d like to take a step back just to bridge three CEOs, if we could here. So it was 10 years ago – David, congratulations – that you got on the call. At the time – and it’s going to be about margins. Don talked about at the time 20-10-10, so 20% gross margin, 2 turns. David, as we all recall, when you came on shortly thereafter, Express, obviously, a great product. And you guys pulled gross margins down to – guidance in the 19%, 21% focusing on asset turns, consistent with Don’s comments, and it’s been great. Now, Paul, I certainly want to give you a chance to give your fingerprints on this. Could you comment on those prior – well, CEOs’ comments, why it’s different today and perhaps tie that into your to top rising comments on your exposure to non-top 50 markets. That’s my first question.
Paul Romanowski: Well, the team that’s at the table is a team that was at the table last quarter last year and the prior several. We have a great position and are aligned as a company, not just from this group, but with our regional leadership and our division leadership. And we have continued to focus on returns community by community. And we have the benefit now of a wider footprint across the geographic area that we’ve expanded on, which is going to continue to provide strength for us and supply as we continue to expand in those markets. So the short version is we feel really good about where we are. I don’t feel the need to put a stamped footprint or fingerprint on something unique and different because we have a strong team and a great operation in play, and a good playbook that we are executing on every day.
David Auld: Ken, I was going to try to stay off this Q&A. Everything – you go back 45-year history, the goal of the company is to be the low-cost provider of affordable housing and create opportunities for first-time homebuyers to get in a home. And everything we’ve done through those years has been to position the company a little bit better and a little bit stronger. And the awakening of 2008, 2009 and 2010, I think, created a discipline in operations that made the transition from margin to return pretty much an industry standard today. You listen to other builder calls and everybody is talking about returns, cash flow, deleveraging and derisking their land pipeline. I don’t see that changing. The industry has matured, the market share consolidation by the publics, the difficulty of putting lots on the ground, the difficulty of building houses, restrictions on capital, all of those things are forcing a discipline on the industry and allowing the – what I think the national builders to gain market share quarter after quarter after quarter after quarter.
