Jeff Kaminski: Yes. We think there’s a tremendous opportunity on that side, Paul. Thanks for pointing that out. It could be €“ not could be, it is in the hundreds of millions of dollar range. As far as timing goes, that’s a difficult thing right now because it’s really going to rely on supply chain conditions and actually achieving the build times that we’re targeting. It has proven to be sticky and a large issue for not only us, but for the whole industry for quite a few quarters now. But eventually, we’re going to get back to the type of performance that our company is used to in terms of both backlog conversion level with inventory out there and the dollars we have tied up in it, and we think it’s a tremendous cash flow opportunity for us on a go forward basis.
Paul Przybylski: Okay. And I think you mentioned you were developing smaller phases in your newer communities, I would assume you’re also doing that for phase extensions and legacy projects. How does that impact the cost structure and would that present any kind of margin headwind as we move into the 2024, since you’re not €œgetting that volume discount?€
Jeffrey Mezger: Incremental, it’s not significant. A lot of it you get right back in less carry, you’ll have to pay for another move-in for the heavy equipment, 30, 40, 50 grand, whatever. But the development subs are getting hungry too. So they’ve been accommodating us as we go to smaller phases because they want to keep moving.
Operator: And the next question comes from the line of Michael Rehaut with JPMorgan. Please proceed with your question.
Michael Rehaut: Hey. Great. Thanks for fitting me in. Appreciate it. First question, I just wanted to circle back to the gross margin outlook and kind of understand, and I apologize if I’ve missed this. But what drove the upside relative to guidance if it was mixed or if it was better pricing and the backlog, et cetera, obviously different factors can influence that. And in the €“ expectation for 2Q to be reverting back to the 20 to 21, which I think was your original guidance for the first quarter. Just trying to understand also what are some of the drivers there from in terms of the current pricing environment and the cost backdrop?
Jeff Kaminski: Sure. Yes. Just starting with the quarter and the beat on the quarter, we talked about actually last quarter that we had a number of things that we thought was going to drive a sequential decrease. We included things such as the concessions and the mortgage rate buy downs, the construction costs that ticked up a little bit when those homes were started, mix shifts and a little bit lower operating leverage. On the operating leverage side, we actually held pretty steady there. Our sales on a year-over-year basis, or sorry, our revenues on a year-over-year basis were pretty close, so we didn’t lose anything there. So we picked up a bit there. Didn’t see as much on incentives as we had baked in. We have to basically estimate what the incentives would be on quick moving homes and we just didn’t see the need to do as much as what we had baked in there.
Maybe the estimate was a little too conservative, I don’t know, but it was helpful. So most of the variability was really on mix, lower incentives and then doing a little bit better on the spec home deliveries than we had anticipated.
