Alan Ratner: Understood. Appreciate that. Thanks a lot, guys.
Pablo Shaughnessy: Thanks, Alan.
Operator: We will go next to Stephen Kim at Evercore ISI.
Stephen Kim: Thanks very much, guys. Yes, lots of interesting stuff here, encouraging news. Let me – let’s start with the – with your orders. I’m kind of curious as to whether or not we whether you think that absorptions per community over the course of the next year or so, can be higher than the roughly $2.4 billion per month over the course of the year that you did pre-pandemic. And you talked about a production capacity of $27 to 28,000, up from what you said last time. But I’m curious, does this assume any continued improvement in cycle times or is this literally if things just stayed exactly the way they are right now?
Ryan Marshall: So Stephen, let me start with absorptions per community. Going back over the last several quarters, you’ve heard me talk about, we’re not going to be margin proud and that we are going to work and take market share and turn our assets. And I think you’ve seen us do that. I highlighted in my prepared remarks today, that we’re very pleased with the absorptions that we turned out – the absorbent for a community that we turned out of the first quarter. And we were able to do it at outstanding margins as well. So I think we were successful on both fronts there. Going forward, we are going to continue to follow that same approach. We think it’s really important to continue to turn the assets and to continue to have high – reasonably high absorptions per community.
And we will combine that with what has been historically best-in-class margin profile. And so we think we’ve got a lot of the elements of our playbook and our strategy working well. In terms of the second part of your question, remind – cycle times. So Stephen, for our total year delivery, what we’ve highlighted is that we’ve got a production universe in process with – what’s in process and what we expect to start, it will give us a universe that will allow us to potentially close up to 27,000 to 28,000 homes. We have assumed the cycle times that we are currently seeing. So we have not incorporated any improvement. We have seen improvement, and we’ve incorporated that. We haven’t incorporated further improvement. And certainly, we’ve got lofty goals that we’re endeavoring to claw back even more cycle time, but that’s going to take a lot of hard work by our teams and our trades and suppliers.
Stephen Kim: Great. And if I could sort of just follow-up on that last point, that production capacity of $27,000 to $28,000 is an encouraging number, obviously. And yet, your starts this quarter were a little on the lighter side relative to what we had been thinking. And certainly much lower than what you’re expecting to close next quarter. So can you talk a little bit about why the start number was kind of where it was? And what gives you confidence that, that number can rise from here? That would be very helpful. Thanks.
Ryan Marshall: Yes, Stephen, it’s a multi-month kind of program that we look at in terms of the – our starts cadence and what we put into the ground I think it’s widely well known that the first 3 months of the quarter tend to be more difficult on the weather side, especially for our businesses in the Midwest and the Northeast. So probably a little bit of an impact on the number being a tad lower, but our forward plans in terms of our starts cadence, that’s all wrapped up into the 27,000 to 28,000 unit range kind of production guide. So I’d probably look at everything in its entirety, not just what we started in Q1, but what was in backlog, what was in production, what we started in Q1, plus the kind of implied Q2 start rate. I think that all that all works into the way that we’re running the business.
Stephen Kim: Okay. So I’m hearing there that you expect 2Q starts to increase. I don’t remember – Bob, did you actually give a starts forecast for 2Q, because that would be helpful if you had it?
Ryan Marshall: That’s not a number we provided, Stephen.
Stephen Kim: Okay. Okay, that’s all I have. Okay, thanks, guys.
Operator: We will go next to Anthony Pettinari at Citi.
Anthony Pettinari: Hi, good morning. Cancellation rate came down pretty sharply quarter-over-quarter. I’m just wondering, was there a particular month where that step down was most significant or was it pretty smooth throughout the quarter? Just wondering if the kind of normalization in cancellation rates is maybe more of a change in overall biopsychology or maybe just reflects kind of the backlog working itself through, any thoughts there?
Pablo Shaughnessy: Yes. There wasn’t – it wasn’t a cliff. It was a pretty consistent cadence. And I think your point is a good one. The consumer has I think, largely now oriented themselves around the stability and rates that Brian talked about, they are moving, but they are not moving anywhere near as much as they were in the back half of last year. Couple that with the fact that most of the backlog and folks that signed contracts back when rates were much lower and got to a much higher rate at the closing table and the kind of the shock and cancellation impact from that has largely worked through the system. So I think the combination of those two things has the current contracted customer base and people signing contracts today are less sensitive to those rate movements than we saw in the back half of this year.
And I think that’s why you’ve seen the can rates. And candidly, the reason we provided it, we had less total cancellations in the first quarter than we did in the fourth, I think for all those reasons.
Anthony Pettinari: Okay. Okay. That’s very helpful. And then just from a big picture perspective, when you look at the quarter and think about the drivers of your gross margin beat versus your expectations. Was it primarily stronger pricing or executing on the cost side, maybe without cutting it too finally, I’m just wondering what sort of surprised you the most around the quarter?
Pablo Shaughnessy: Yes, I’d like to tell you it’s cost, but it really wasn’t. I mean that was for the stuff that we closed in the quarter, those costs were baked in. We’re working with our trades to find efficiencies going forward. Lumber was obviously a benefit, but we knew that. So that was in our guide. I think it really – and we highlighted this in our remarks, it was reflective of the sales environment. It was the relatively strong demand. It was our ability to manage our incentive load. So we’ve had a national mortgage rate buydown program in effect since the beginning of the year. And what we’ve been able to do is use that as another selling tool. And so for some people, it’s, hey, get my rate as low as you can get it.
For others, I want my rate down a little bit, and I want you to help you with closing costs. The nice part is that, that incentive replaced the incentives that we were offering before as opposed to added to it. And then you couple that with the fact that we highlighted that we were able to stop reducing prices and actually started to increase prices in more than half of our communities. Now these aren’t massive increases, but it’s the psychology of sales that relative strength was better than we had forecast in our guide for the quarter and showed up in the margin for the quarter.
Anthony Pettinari: Okay, that’s very helpful. I will turn it over.
Pablo Shaughnessy: Thanks, Anthony.
Operator: We will move next to Michael Rehaut at JPMorgan.
