John Lovallo: Makes sense. And then on the share buyback, that was encouraging to see, and I think could be a good driver of returns as we move forward here, over the past few years, I think you guys have done about $1 billion per year. The authorization now is closer to $1.8 billion. How are you thinking about 2024 buybacks relative to the past few years? I mean, should we expect north of a billion?
Ryan Marshall: Honestly, I’m going to defer. We typically do – we report the news on that. I think you highlight, we’ve done about $1 billion a year the last couple of years. We have $.8 billion in cash. We have offered that we project about $1.8 billion of cash flow from operations in the current year. So, our capital allocation priorities don’t change. We’ve said we’re going to increase our land investment to $5 billion. That’s up about 16% year-over-year. We increased our dividend 25%. That’s not a huge cash element, but still, I think reflective of our confidence in the business. We do have $.8 billion of authorization. And like I said, we’ll report the news. You saw this year we bought back $100 million of our notes because it was attractive. The rate environment has made that a little less attractive, but we always look at liability management as part of the equation. So, really no change to our capital allocation priorities.
John Lovallo: Okay. Thank you, guys.
Operator: Our next question comes from the line of Stephen Kim with Evercore ISI. Please go ahead.
Stephen Kim: Yes, thanks very much, guys. First question relates to your land on the balance sheet. I think that your cashflow guide seems to suggest, at least for my modeling, a modest rise in your own lot count, while you keep a year supply of owned lots fairly stable. I was wondering if that’s right, and if there’s any opportunity or desire to actually reduce your land holdings in years further.
Ryan Marshall: Yes, Stephen, so a couple things there. We are increasing our land spend in 2024 from $4.3 billion to $5 billion. Our mix of developed spend versus land acquisition spend will continue to probably be about 60% development, 40% land acq. And then our long-term desire is to have 70% of our land control via option. We highlighted in the prepared remarks, this year we moved that from 48% option to 53% controlled via option. So, we’re – I think both in – we demonstrated through results over the past number of years as well as kind of articulated long-term goals, we want to be land lighter. We’re going to continue to do it the right way, all with an eye toward delivering a lower risk model that’s very capital-efficient as well.
Stephen Kim: Well, I guess, Ryan, I mean, you gave most of that information in your opening remarks, so I appreciate that. But I guess the gist of my question, trying to incrementally understand what your plans are a little bit more is to try to understand the actual amount of owned lots. Are you looking to get to your 70% option versus owned mix by keeping your owned lot count kind of flat, or your supply flat with where you are, or are you actually looking to reduce that in addition to increasing your option lot exposure to kind of get to that 70% eventually?
Ryan Marshall: Yes. Stephen, in terms of years owned, we’d expect to probably keep that right around the level that we’re at, maybe a slight decrease. And then ultimately, we would start to flip from a years owned to years option. You’ll see a little bit of a trade in that mix.
Stephen Kim: Okay, that helps. And then when you talked about land banking and continuing to increase that, could you describe for us the – when you think generally about what you’re seeing in the market in terms of pricing, in terms of the way these negotiations are going with your land bankers, what kind of anticipated haircut to gross margin do you typically get when you go from just sort of buying versus doing a land option? And what’s the benefit to your inventory turns that you typically think about? So, what’s the tradeoff basically in your mind, some rules of thumb for us?
Ryan Marshall: Yes, I don’t know that there’s kind of a hard and fast answer to that, Stephen. It depends on the mix of the business that we’ve got. In terms of margin, it can be a couple of hundred basis points on a relative basis. And in terms of inventory turns, certainly it’s going to be more efficient than a bulk raw transaction. But it depends on the life of the asset. So, it in Del Webb, it’s going to be very different than it is in the Centex business for us. So, I wouldn’t want to paint that with too broad a brush.
Stephen Kim: Okay, that’s fine. I appreciate it. That’s fine. I appreciate it. Okay, thanks guys.
Operator: Our next question comes from a line of Joe Ahlersmeyer with Deutsche Bank. Please go ahead.
Joe Ahlersmeyer: Yes, thanks very much. Good morning, everybody. Just a question on the assumption on the incentive load in the gross margin guidance. I’m wondering if that represents more just a state of conservatism right now, waiting to see what happens with rates further, or if it’s more about your philosophy as rates fall that you might allow that to flow through to affordability and drive volume versus letting it be a big margin benefit. If you could just talk about that tradeoff.
Ryan Marshall: Yes, Joe, we’ve – I think the reason we’ve assumed that the incentive load stays about where it is just because affordability continues to be challenged. So, we’ve got low supply but interest rates are relatively higher. And because of low supply, I think there’s still some pressure on prices being elevated historically. So, we talked a lot in 2023 about how successful we were in helping to solve some of the affordability challenges with the incentive dollars that we put toward the forward mortgage commitments. We’ll continue to use that as a tool in 2024. Now, as rates fall, we think the cost of those forwards mortgage rate commitments will become less. We’ve made an assumption that we reallocate some of those incentive dollars to other things that help to solve the affordability challenge and get a buyer into their home.
So, is it conservative? Time will tell. I think what you’ve seen from us historically is, we’re not afraid to raise price. We’re not afraid to cut discounts, and we’re always looking to optimize pace and price. You’ve also heard me talk the last several quarters, we’re not going to be margin proud. So, we’re doing things to be responsive to what the market is, to derive an outcome that yields the best return for our shareholders. And you’ll see us actively managing all things, pace, price, incentives, forward, more forward mortgage commitments, et cetera.
Joe Ahlersmeyer: Understood. Thanks a lot for that. And I appreciate your comments about the valuation. Sounds like you think that cashflow is a bigger part of that potentially even than just percentage of option lots or any metric on the land side about the cash flow. I tend to agree. And so, just wondering if you are internally starting to think about your leverage in the context of cash flow or profits, and not so much on what it makes up relative to your inventory balance. It’s kind of thinking almost more like a manufacturer or distributor, because right now you’re net debt is at about 13 days of operating profits. Just thinking about the potential for using more debt going forward. Thanks.
