John Lovallo: Yes. That makes a lot of sense. Okay. And then you guys returned $83 million back to shareholders in the first quarter, generated a similar level of cash from operations. I mean as we move forward here, can we sort of think of matching cash flow with repos and dividends over the next few quarters, particularly considering no real debt due until 2025.
Hilla Sferruzza: Yes. I mean, that’s exactly a function of cash, like Phillippe mentioned earlier, the timing of land development acquisitions is kind of just based on when deals are closing. So it’s not necessarily a function of operating cash flow, but it is a function of prior year profitability. So if you look at it, we’re on target to do like in the 20s of last year’s net income and return to shareholders – return of capital to shareholders. That’s kind of more of our target rather than the timing of when a deal is closing on the land side.
John Lovallo: Understood. Thanks very much guys.
Phillippe Lord: Thank you.
Operator: Thank you. Our next question is coming from Susan Maklari from Goldman Sachs. Your line is now live.
Susan Maklari: Thank you. Good afternoon everyone. My first question is you’ve commented on the target of taking the ASP down over time. And the guide does imply that sequentially we will see a bit of a slowdown in there. But I guess when you think about that relative to the pricing power and the level of demand that you talked to on the ground, how are you thinking about those two factors coming together? And any thoughts on how that ASP will come through over the longer term?
Phillippe Lord: Yes. The ASP, our forward-looking ASP guidance is predicated on the land we’re buying. So if we’re buying less expensive lots that can allow us to produce our product in a more affordable part of the market long-term, which is what our core strategy is, that’s driving the ASP decline. But that doesn’t mean we’re not taking pricing when the market is elastic in that affordable segment of the market, which it has been and was very strong in Q1. So there are two different concepts. One is the land we’re buying and the other is what the market allows us to do.
Susan Maklari: Okay. All right. That makes sense. And then I guess, can you just comment a bit on what you’re seeing in terms of just overall cycle times and input costs in terms of some of the sticks and bricks and anything there as we think about the forward quarters?
Phillippe Lord: Yes. As Hilla said in her opening comments, cycle times are the best they’ve been in a long time. We’re kind of where our target is. Production capacity is really stable. We’re hitting our timelines. I’m not sure how much more there is, but capacity is real strong. So if there’s more to take out of our cycle times, we will. And then direct costs are also really quite stable. We have, given the size of our business at this point, we have really strong relationships that are producing great cost structure for us. Lumber has ticked up a little bit, but we’ve been able to offset that in other areas and the categories of the business. So as we look out into 2024, we’re modeling stable cycle times and stable direct costs.
Susan Maklari: Okay. All right. That’s great color. Thank you. Good luck with everything.
Phillippe Lord: Thank you.
Operator: Next question today is coming from Alex Barron from Housing Research Center. Your line is now live.
Alex Barron: Yes. Thank you. I was hoping you guys could elaborate a little bit on your average buyer. Well, first of all, what percentage of the buyers are actually first-time buyers? And what does that average buyer, entry-level buyer looks like, right? What’s their cycle? What’s their down payment, what’s their average income, that type of thing?
Phillippe Lord: Hilla is pulling up some more details for you. So just give us one second, but I’ll kind of reiterate what Hilla said earlier. Our FICO scores, our DTIs, everything is pretty much the same as it was. It’s been the same for a long time. We’re obviously targeting a more qualified entry-level buyer. But for the most part, these are their first homes. But they have really high income levels, and they’re looking for as nice a home as they can buy in a certain price point. But hang on. Hilla will tell you the exact metrics.
Hilla Sferruzza: Yes. Our first time buyer, they don’t declare themselves the first time buyer, you can only look at back data and back into whether they’re a first-time buyer or not, but our first-time buyer is about two-thirds of our business right now.
Alex Barron: Okay. And I was kind of interested just to see what type of income level do these people have?
Hilla Sferruzza: Yes, I don’t know if we’re sharing the income, but you can probably back into it because the DTIs are averaging 41, 42, and we’re sharing that the LTV is in the mid-80s, so you kind of take our ASP back into what the loan amount is with an 85% LTV, you can probably back into their monthly – their average monthly income.
Alex Barron: Generally?
Hilla Sferruzza: Yes.
Alex Barron: Okay.
Phillippe Lord: We’re not seeing our particular consumer not be able to qualify and afford our home. We don’t have to do rate buydowns and rate locks to qualify them. It’s more of a psychological – we want a lower rate on a 30-year mix. It’s an incentive versus a qualification.
Alex Barron: Got it. And then if you can elaborate on a comment you made about the cost of incentives being lower than the forward commitment if it was like a short close if you can elaborate on that because my thought was that the forward commitment was supposed to be the lower form?
Hilla Sferruzza: So a forward commitment, there’s a lot – we don’t need to get into all the dynamics of how a forward commitment works. We can talk about that off-line. But there’s a lot of benefits using a forward commitment. You can both buy and get some locked in rate to give you an advantage that if rates are moving on you during that period of time, you have that amount locked in. You’re not trying to lock it in based on today’s date. The way that we choose to do rate locks it also disregards your LLPA, the low-level price adjustment. So it’s agnostic to what your own creditworthiness is. However, if you’re doing something spot rate for a short period of time, if you have good credit, that’s going to be cheaper. So we have an opportunity because our sales to close cycle time is so short, we have an opportunity for certain customers to go out into the market if the rate is favorable that day and just buy a rate lock and/or buy down for them at that point of sale that could be cheaper than a forward commitment.
