Title

Presentation

Taylor Morrison Home Corporation beats earnings expectations. Reported EPS is $2.37, expectations were $2.06.

Operator: Good morning, and welcome to the Taylor Morrison Third Quarter 2024 Earnings Conference Call. Currently, all participants are in listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at the time. As a reminder, this conference call is being recorded. I would now like to introduce to you, Mackenzie Aron, Vice President of Investor Relations. Mackenzie?

Mackenzie Aron: Thank you, and good morning, everyone. We appreciate you joining us today. Before we begin, let me remind you that this call, including the question-and-answer session, will include forward-looking statements. These statements are subject to the safe harbor statement for forward-looking information that you can review in our earnings release on the Investor Relations portion of our website at taylormorrison.com. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, those factors identified in the release and in our filings with the SEC, and we do not undertake any obligation to update our forward-looking statements.

In addition, we will refer to certain non-GAAP financial measures on the call, which are reconciled to GAAP figures in the release. Now I will turn the call over to our Chairman and Chief Executive Officer, Sheryl Palmer.

Sheryl Palmer: Thank you, Mackenzie, and good morning, everyone. Joining me is Curt VanHyfte, our Chief Financial Officer; and Erik Heuser, our Chief Corporate Operations Officer. As always, I will focus my remarks on an update on the market and our strategic priorities. While Erik will discuss our land portfolio and thoughts on the retail market, and Curt will provide our detailed financials and guidance. I am proud to share the outstanding results of our third quarter, which clearly demonstrates the benefits of our diversified consumer and geographic strategy, as well as our team’s execution and amid continued interest rate volatility, economic uncertainty and hurricane-related disruptions. To begin, in the third quarter, we delivered 3,394 homes at an average price of $598,000, producing over $2 billion of revenue with a home closings gross margin of 24.8%.

Coupled with strong SG&A leverage and improved financial services income, this generated over 50% year-over-year growth in our earnings per diluted share to $2.37 and a 15% year-over-year increase in our book value per share to approximately $54. Once again, both our closings volume and gross margin exceeded our guidance, which I am particularly proud of considering there were two hurricanes during the quarter including Hurricane Helene during the critical final two weeks. Thankfully, our communities withstood the storms, winds and rains well with minimal damage reported. However, consistent with our robust safety protocols, we shut sales offices and construction sites, three days in advance of the storms and then required several days for cleanup and recovery, resulting in nearly two weeks worth of disruption.

Most notably, the excess water has the greatest impact on land under development. With Florida, the Carolinas and Georgia, representing a combined 35% of our total communities, these storms impacted a sizable portion of our portfolio. As a result, I believe our better-than-expected third quarter closings and gross margin are all the more impressive, particularly given our resort lifestyle communities outsized contribution to revenue and margin. While there will be some temporary timing delays due to the storms, I believe the most lasting impact will be related to the heightened risk of shrinking availability of homeowners insurance, specifically in coastal markets. Fortunately, for our customers, we are able to offer well-priced coverage via our wholly-owned subsidiary, Taylor Morrison Insurance Services, which as of the third quarter had a 59% capture rate.

Because of the strong construction quality of our newly built homes compared to older existing homes and careful site selection generally away from coastlines, the average premium of our insurance policies is typically lower than the market and has increased to a lesser degree. While we are closely watching the evolving market dynamics, we do not expect a meaningful change in insurance availability and are pleased that insurance has generally not been an obstacle for our buyers. Turning now to the quarter. Homebuyer demand was generally solid in most markets, led by the East and Central regions, while the West Coast was more mixed. As I shared on our second quarter call, we have begun to see traffic recover in June and July, which translated into improving order volume throughout the third quarter, with activity ending on a high note in September.

In total, our net orders increased 9% year-over-year during the quarter, driven by a monthly absorption pace of 2.8 per community. While still early in October, demand has generally been healthy and consistent with seasonal trends even with the impact of yet another hurricane in Florida. By consumer group, our third quarter orders consisted of 33% entry level, 43% move-up and 24% resort lifestyle. On a year-over-year basis, orders were strongest in our resort lifestyle segment with 20% growth, even as this Florida heavy business for the Brent of hurricane-related disruptions. Meanwhile, our move-up sales increased 8%, while the entry level was up more modestly at 4%. Since the Federal Reserve announced its long weighted rate reduction in September, mortgage rates have been somewhat range bound in the mid-6% range as the market largely anticipated the move.

On the sales floor, we continue to lean primarily on customizable finance incentives in lieu of base price adjustments to address each consumer’s unique circumstances as needed. This approach allows us to better maintain our community’s home prices and protect our gross margins, all while improving our customers’ purchasing power. Importantly, our use of relatively costly mortgage forward commitments to secure below-market interest rates has remained at just around a third of our third quarter closing, half of which are for first-time buyers. Many of our buyers instead prefer to allocate their incentive dollars towards closing costs or temporary buy-downs. This is one reason why our consumer diversification supports our strong gross margins.

In addition, our margins reflect the sizable lot and option premium revenue we earn primarily on to-be-built homes. On a per home basis, this combined revenue averaged $101,000 in the third quarter or 17% of our average closing price. This contributes to several hundred basis points spread between our to-be-built and spec home margins, again reinforcing the benefits of our diversified approach. In the third quarter, to-be-built homes accounted for 40% of our sales, down from 45% a year ago. In addition to the margin benefit, we have found that by offering both to-be-built and spec homes we are better able to compete for sales against builders with more limited options. Our online tools have been a great option for home shoppers looking to take more control of the buying process.

Following the National Association of Realtors new rules governing the way realtors get paid and by whom, we are seeing more customers opt for self-service within our online home reservation system. In fact, the third quarter brought record highs for the year in online reservation with a conversion rate of 58% and a 17% contribution to sales. Realtor participation on our online tools reservations continues to trend downward with meaningful improvement year-over-year. Taking a step back, we continue to believe that the housing market remains severely undersupplied with a multimillion unit deficit due to years of underbuilding relative to household formation. While the existing home market has started to loosen with resale listings gravitating back towards historic norms, especially in Florida and Texas.

We believe our communities and product have not been meaningfully impacted given a substantial portion of the listings are not truly competitive, as Erik will discuss in just a moment. At Taylor Morrison, regardless of the ever-shifting macro backdrop, we believe that our ability to drive outsized growth and attractive returns has been permanently strengthened since expanding our company’s scale and refining our operational capabilities over the last many years. This is reflected in the long-term targets that we introduced earlier this year, each of which are meaningfully more strong than our historic norms. These targets include a 10% annual home closings growth and annualized low 3 absorption pace, low to mid-20% home closings gross margins and mid to high-teen return on equity.

This year, with just two months to go, we expect to meet or exceed each of these metrics with double-digit closings growth to approximately 12,725 homes at a gross margin of around 24.3% as 2024 has shaped up to be another milestone year for our company. As we head into 2025, we are confident that our long-standing emphasis on capital-efficient growth will yield another year of strong performance, supported by strong tailwinds driving the need for new construction and our favorable positioning as a diversified homebuilder. With that, let me now turn the call over to Erik.

Erik Heuser: Thanks, Sheryl, and good morning. I will begin with the topic of resale competition, which continues to bear close monitoring in light of rising listing levels in a number of markets. For perspective, the total number of resale listings in our operating MSAs increased over 30% since the beginning of the year. However, when including existing home sales in the analysis, the average months of supply in our MSAs is up to 3.2 from 2.1 months a year ago, but has actually declined from 3.4 months to 3.2 months since the beginning of the year. We believe this metric more fully reflects market dynamics as it accounts for both supply and demand and remains below historic norms. Beyond these high-level observations, we are most focused on understanding competitive resale supply at the community level and how consumers may evaluate these listings as compared to our product.

As I discussed on last quarter’s call, our teams had analyzed the true competitive sets for communities in Florida, Texas and Arizona with encouraging conclusions. At that time, I shared that for this sample set, the average months of resale supply surrounding our communities was nearly 20% lower than that of the overall MSAs. And only 19% of the resale homes within a 3-mile radius of those communities would likely be considered truly competitive with our homes after taking into account square footage, price, product type and vintage factors. Of note, we believe our community’s amenities would likely further improve our product’s appeal. We have since updated the analysis and found that the competitive set still represents just 19% of currently listed homes for these Florida, Texas and Arizona communities.

In addition, since last quarter, we expanded the analysis beyond these key markets to cover all of our areas of operations across the country, and I am pleased to report that through this broader lens, the conclusion is even more favorable with only 17% of current resale listings likely to be considered truly competitive from our tested national portfolio. We believe that a normalizing resale market should be expected over time but we will continue to examine relevant MSA, submarket and asset level impacts. Moving to land. Our owned and controlled lot inventory was 83,579 homebuilding lots at quarter-end. Based on trailing 12-month closings, this represented 6.6 years of supply, of which only 2.7 years was owned. Of these lots, 58% were controlled via off-balance sheet structures, up from 53% at the end of 2023 to the highest level in our history.

Our use of capital efficient investing tools is grounded in our strategic focus on generating enhanced returns on our invested capital. And we are well on our way to achieving our near-term goal of controlling at least 60% to 65% of our lot supply. In support of this effort, I am pleased to announce that we have secured another land banking facility that provides $1 billion of aggregate off-balance sheet financing with significant return benefits. After vetting the field of prospective partners for this vehicle, we chose Kennedy Lewis, a leading credit-focused investment firm given execution confidence and terms that we believe are advantageous in navigating a rate environment, which continues to exhibit some degree of volatility. From an investment perspective, we allocated $323 million to homebuilding land acquisition and $270 million to development of existing assets for a total spend of $593 million during the quarter.

This brought our total year-to-date land investment to $1.8 billion, leaving us on track to spend around $2.5 billion this year. The high end of our prior range. Approximately 40% of the spend is allocated for development. The total amount of land spend, though, will ultimately be somewhat dependent on our ongoing use of off-balance sheet financing through the end of the year. Based on our strong land pipeline and development time lines, we expect our community count to continue to expand into 2025 and beyond from an anticipated year-end outlet count between 330 to 340 as we remain very well subscribed for the near-term. And lastly, I’ll provide a brief update to our evolving Yardly build-to-rent business, which develops amenitized rental communities of one to three bedroom cotter style homes and individual backyards for all.

We have our next two wholly owned communities under contract for disposition by year-end, which is expected to generate cash flow of around $85 million. With our disposition activity to increase in the coming years as communities reach completion and achieve targeted occupancy levels, we will provide a greater guidance on our Yardly projections early next year. With that, I will turn the call to Curt.

Curt VanHyfte: Thanks, Erik, and good morning, everyone. To dive into the specifics of our third quarter, reported net income was $251 million or $2.37 per diluted share. This was up from 54% from $1.54 a year ago, driven by a sharp increase in homebuilding revenue, a strong gain in our homebuilding gross margin and healthy SG&A leverage. Driving our top line growth, our closings volume increased 29% year-over-year to 3,394 homes. This more than offset a 2% decline in our average closing price to $598,000 to produce a 26% increase in home closings revenue to $2 billion, resulting in an upside to our prior guidance, our closings volume benefited from improvement in construction cycle times and a greater number of spec homes sold and closed during the quarter.

In addition, we closed nearly 60 homes in the Bay Area during the quarter that had been scheduled for the fourth quarter as the energy utility company resolved delays sooner than anticipated. From a production standpoint, we started 2,864 homes or 2.8 per community per month, consistent with our sales pace. Inclusive of these starts, we ended the quarter with 8,490 homes under production of which 3,349 were specs, including 623 finished units. Based on our homes under production, we expect to deliver around 3,400 homes in the fourth quarter. For the full year, this equates to total expected closings of 12,725 homes as compared to 11,495 homes in 2023. From a pricing perspective, we expect the average closing price of our deliveries to be around $600,000 for the year, including approximately $610,000 in the fourth quarter.

Turning now to margins. Our home closings gross margin was 24.8%, up from 23.8% in the prior quarter and 23.1% a year ago. Compared to our expectations, our margin benefited from a number of factors, including favorable mix, fewer incentives and better-than-expected cost leverage from higher closings volume. For the fourth quarter, we expect our home closings gross margin to remain healthy at around 24.5%, which would result in a full year margin of approximately 24.3%. This is up from our prior full year guidance of around 24%. It is also worth highlighting that our gross margins have remained consistent in a tight range over the last two years despite significant movement in interest rates over that time. This is in contrast to greater volatility in industry margin trends, reflecting the pricing resiliency of our diverse portfolio.

Looking ahead, we continue to expect our gross margins in the foreseeable future to remain above historic averages in the low to mid-20% range. This outlook reflects increased production and operational efficiencies, greater cost leverage from our scale and a lower capitalized interest burden from our reduced debt levels. Our net sales orders increased 9% year-over-year to 2,830 homes. This was driven by a 5% increase in ending community count to 340 outlets and a 4% improvement in our monthly absorption pace of 2.8. It is worth highlighting that this quarter’s sales pace was well above our pre-2020 third quarter average of 2.2. As we have discussed on recent calls, we are targeting an annualized sales pace goal in the low 3 range. This is one of the drivers of our improving returns and reflects our growth in higher pacing entry-level price points and pivot away from large third-party developed master plan communities.

Year-to-date, our average pace of 3.2 is consistent with this goal. Our cancellations remain within normal ranges and below industry average at just 9.3% of gross orders as we continue to benefit from a diversified consumer base, diligent pre-qualifications and meaningful average customer deposits of $54,000 per home. SG&A as a percentage of home closings revenue was 9.8%, down from 10.4% a year ago. For the year, we continue to expect an SG&A ratio in the high 9% range. During the quarter, Financial Services revenue was $50 million with a gross margin of 45%, up from $40 million and 42.2% a year ago. Driving these results, our Financial Services team achieved another exceptional capture rate of 88%, reflecting the success of its effective incentive tools, strong customer service and close partnership with our homebuilding teams.

In the third quarter, our buyers financed by Taylor Morrison Home Funding had an average credit score of 754, down payment of 23% and household income of $180,000. Turning now to our balance sheet. We ended the quarter with liquidity of approximately $1.2 billion. This included $256 million of unrestricted cash and $946 million of available capacity on our revolving credit facility, which was undrawn outside normal course letters of credit. Our net homebuilding debt to capitalization ratio was 22.5%, and our next senior note maturity is not until 2027, providing us with financial flexibility. We expect to end the year with a net homebuilding debt to capitalization ratio of around 20%. During the quarter, we repurchased 1 million shares of our common stock outstanding for $61 million bringing our year-to-date investment to 4.2 million shares and $258 million.

This leaves us on track to meet our target of repurchasing a total of approximately $300 million this year. Based on our share repurchases completed and settled through the third quarter, we now expect our diluted shares outstanding to average 106 million in the fourth quarter and 107 million in the full year. As is our normal practice, this guidance does not reflect the potential of any future share repurchases that may occur over the remainder of the year. Our capital allocation priorities include investing in our business, maintaining a strong liquidity position and returning excess capital to our shareholders in the form of share repurchases, all with a focus on generating attractive returns on our equity and invested capital. To that point, I am pleased to share that our Board of Directors recently authorized an increase in our share repurchase authorization up to $1 billion.

This new authorization is effective through December 31, 2026. As this expanded authorization suggests, we remain strongly committed to taking advantage of our healthy cash generation, which we continue to enhance with our asset lighter land investment approach to repurchase our shares in an increasingly programmatic manner. Now I will turn the call back over to Sheryl.

Sheryl Palmer: Thank you, Curt. To wrap up, let me emphasize that our strong third quarter results, including our better-than-expected closings volume, healthy sales and strong and steady gross margin are a testament to the benefits of our diversified consumer and geographic strategy. While the macro backdrop remains choppy with headwinds from interest rates, the upcoming election and broader economic unknowns weighing on consumers’ confidence and sense of urgency, we believe we are well positioned to continue to take advantage of what is still an undeniably strong underlying need for new construction. As we shared, we are not experiencing meaningful competition from resale listings nor has homeowners insurance become a significant impediment for our buyers, although, we will continue to closely monitor these issues and adjust as necessary.

We have long invested in core locations that are designed and underwritten to meet the needs of our customers with product offerings and pricing strategies that ensure our sales paces, pricing and incentives are appropriately aligned to optimize our margins and ultimately, returns. As always, our approach is refined at the community level. As we wrap up 2024, our results are tracking firmly ahead of our expectations coming into the year with strong upside to our closings and gross margin, and I’m confident that the positive momentum will continue into 2025 and beyond, based on our land pipeline that is concentrated in quality locations meant to perform through the ebbs and flows of housing cycles. With that, I’d like to share my appreciation to each of our homebuilding and financial service team members for another outstanding quarter.

For those directly impacted by the hurricanes, I am especially thankful for your efforts to keep each other, our customers and our communities safe, all while still delivering outstanding results. The generosity and tenacity of our team never ceases to amaze me. Now let’s open the call to your questions. Operator, please provide our participants with instructions.

Operator: [Operator Instructions] Our first question comes from Trevor Allinson of Wolfe Research. Trevor, your line is now open. Trevor, can I ask to check your line is locally muted? We are going to move on to the next question. Trevor, if you can resubmit a question, we cannot get around to answering it. Our next question comes from Michael Rehaut of JPMorgan. Michael, your line is now open.

Michael Rehaut: Thanks. Good morning, everyone. First, I’d love to dive into the comments you’ve made so far around competition and incentives. And the results that you were able to post this quarter and guide for the next quarter so far is in pretty good contrast to most builders that have reported so far and even last month in terms of seeing fewer incentives during the quarter, and really not kind of – we’ve heard, for example, yesterday, one of your peers talk about increased competition in Texas. So I’d love to kind of understand, number one, where your incentive levels are at – where they were, let’s say, at quarter end versus at, at the beginning of the quarter of the third quarter, how that’s trended?

And specifically in Florida and Texas, you alluded to the higher inventory and the fact that a lot of that really doesn’t compete directly, but you still have sizable positions in a lot of key markets that have experienced some increased incentives. And I just wanted to dig down a little bit in terms of even if your product doesn’t compete directly, the differences that have allowed what appears to be your incentive level is holding or even maybe declining a little bit.

Sheryl Palmer: Okay, Mike, I think you threw about a half dozen questions in there, but I’m going to – maybe the best way to go about it is – and I appreciate the question. I really do, is maybe to take a little spin – maybe I’ll start kind of macro and then take a little spin around the country for you. But I think you need to ground ourselves even though there’s a lot of noise that we see in headlines that we still are truly working on an undersupplied environment. And we are seeing resale inventory down compared to what we saw the first of the year, and I’ll let Erik jump in just a moment and talk through that in a little bit more detail. But when I look at our markets, on average, we’re still seeing – our particular submarkets, we are seeing a reduction compared to the national averages.

And then as Erik said, as you get deeper, it even becomes more of a reduction. I also think you have to look at the average resale inventory, Mike, and it’s significantly older than obviously and has a different set of challenges than what consumers are able to get in the new home market, and we’re just seeing a strong preference for new. But as I kind of think about and walk across the country, I’ll start in Florida because that seems to be where many questions are lying. And we talked a lot about the hurricanes, so I don’t think I need to spend more time there. But when I look at just pace, some of our highest paces in the portfolio were actually in Florida. I’ll point to Orlando and Tampa that are strongly above our company averages.

Orlando continues to be a very strong first time market for us. When I think about Naples, we had very strong community growth. We had more than 30% sales growth and one of our strongest margins in the country. Tampa has also, like I said, strong paces, but community count down a bit. So sales were modestly down but also very high margins above company average. And interestingly enough, with that sales success, Tampa doesn’t benefit from the same active adult penetration that we see in other parts of Florida. So very exciting. Sarasota, also very strong sales in what I would consider a non-seasonal part of the year, so very committed buyers, low cancellations, discounts down significantly from back prior quarters and tied with Naples with one of our highest margins.

Jacks a growing business for us or not getting the benefits of scale yet, but delighted with the land pipeline that we see coming to market. Likely be one of our highest growing businesses next year. If I move to Texas, despite Austin’s kind of news, I think the team has done a tremendous job. Sales were up nearly 20%. Absorptions were up nearly 30%. And closing that margin performance just under the company average in that competitive environment. So I actually think the market has adjusted really well. And it’s always been a strong market for us. It’s certainly gone through a reset, but I expect that returns. Dallas, a whole new business for us with outsized growth this year and continue to expect that in the coming years, nearly a doubling in size year-over-year for us this year.

And just given the size and strength of the Dallas market, I’m excited about the growth there, allowing us to compete with, I would say, at a very different level. And if I round out Texas with Houston, another great story. We’ve been talking about the repositioning of that market, self-developed lots, ASP down for us in Houston about $100,000, probably the most meaningful reposition in the company, but our paces are up significantly and our discounts are down about 50% year-over-year. Mike, I don’t have the data specifically to look at discounts through the quarter as we did talk about, September was our strongest month from a sales standpoint. Let me just round out the country really quickly, and then I’ll make a couple of comments on affordability.

Southeast, Charlotte, one of our strongest paces in the country and the highest margin in the country, followed by Raleigh, also with strong paces, margins and growth this year, about 30%. And Atlanta, another great market for us where we’ve really positioned strong community count growth and our highest orders growth in the organization. I said it from my prepared remarks that West was mixed. And I think that’s a fair comment. Phoenix remains very strong, pace is strong, discounts down, really the strongest margin we’ve seen there in a couple of years. If I go to California quickly, similar commentary for Bay and Sacramento to Phoenix, both very, very steady. Southern California, I’d probably point that out to be one of the more competitive land markets we’ve seen.

And that market just has always run a little bit more hand to mouth for us. I would say Denver and Pac Northwest, a little bit more impacted by inventory, probably two of our most rate-sensitive markets, but I’m encouraged by the traction. Seattle is a healthy market. We just wish we had more communities open. And I’ll finish up with Vegas, very steady. That’s an interesting market for us where we’ve had this very large Old William Lyon asset in Pahrump. And it’s been dragging the business down for a number of years, but the team has repositioned that. And we’ve really found good traction, which has really changed the trajectory of that business. And then I’ll finish up with our newest market being ND. As you would expect, right after we acquired a little bit slow as we got – worked our way through integration, quickly the team getting real traction.

I’m very excited about our team there, continue to see opportunities on the land front. And as we initially shared, we couldn’t be more excited with just the entry. It’s one of our lowest ASP markets, and so we think it really positions the company really, really well. And then maybe the last comment, and I’ll finish up, Mike, is you asked about just incentives and rates. And I think everyone understands where we are from a market standpoint and what’s happened to rates and the volatility we’ve seen. But actually, when I look at where we are today, and I look at the impact of our incentives and our ability to serve our consumers with what I would call very proprietary strategy on really personalizing the needs on an individual basis. I really think that’s what you’re seeing in the impact on our margin.

We use forward commitments and similar tools to benefit our customers. But we do it on a very personalized level. So it can be not just for a spec that needs to close in 30 or 45 days, but it can be on a to be built that might not close for six months or seven months. And our toolbox just has a plethora of programs. But as I said, the proof is in the margin because when I look at the average cost of those, what I call, very expensive forward commitments. Honestly, when I put it across the business for the quarter, the impact of those forward commitments was only about a point in a quarter, very similar to what we’ve seen in past quarters. So I’ll stop there. Hopefully, I got to all of your questions.

Michael Rehaut: That was fantastic, Sheryl. I appreciate it. And I’m – one of my New Year resolutions coming up will be to be a little more succinct in my questions. Just secondly, I appreciated the highlighting of your relationship with Kennedy Lewis. I know those guys well. I was wondering if you could kind of step back and just kind of review where you are in the lot optioning journey. How any growing impact with Kennedy Lewis or other land bankers will impact your margins and returns over the next, let’s say, three years and what you’re expecting from incremental cash flow generation?

Erik Heuser: Yes. Hey Mike, it’s Erik. Happy to take that. And yes, as I mentioned, we’ve added the field and Kennedy Lewis is a well-respected and good firm that we feel comfortable with. And I appreciate your framing of the question in that it has been an evolution. As we acquired companies, if you take a step back to, I think, 2019, our percent control was all the way down to 21%-ish. And so we worked really hard to drive that up. To where it is today at 58% and looking to continue to climb that up to at least 60% to 65%, we’ll call the ball as it evolves. In terms of cost, we are really mindful in being somewhat surgical in the application of land banking to the right deals. And when we do that, we did have a prior vehicle that one, the trade-off between margin and return for everything with the net vehicle averaged about 175 basis points of margin impact for about a 6% lift in return.

The cost of this just given interest rates is slightly higher. And so we do expect the margin impact to be slightly higher, still under 2% for the assets being deployed, but still a really good turn in terms of kind of a 3.5x in terms of return benefit. So as you think about that blending into the business, obviously, that’s not going to hit the entire business, but just the proportion of land banking. Today, the percent of control, that’s kind of rolling through land banking is 20%. That probably will elevate a little bit. But you can kind of see how that would blend into the business over time.

Michael Rehaut: Great. Thanks so much.

Sheryl Palmer: Thanks, Mike.

Operator: Thank you very much. Our next question comes from Trevor Allinson of Wolfe Research. Trevor, your line is now open.

Trevor Allinson: Hi, good morning. Can you hear me?

Sheryl Palmer: Yes, we sure can, Trevor. Good morning.

Trevor Allinson: Okay. Okay, great. Thank you. Appreciate it. Thank you for taking my questions. First, just wanted to ask a question about consumer segments moving forward. I think you guys talked about the benefits of your more balanced portfolio. And if we look at consensus for next year for mortgage rates, they’re still to move below 6% in 2025 to help with affordability, but then you also have potential for rate lock to loosen to some degree. Current homeowners have very healthy equity positions. So just given your more balanced approach in that environment, which consumer segment do you think would perform best?

Sheryl Palmer: Which will perform best? I thought you were going to a different place, but will our balance look like. Actually, I have confidence, I think, for different reasons in each of the groups. If I think about the first timers, Trevor, obviously, as rates – it’s the largest population, right? And as rates continue to moderate, I think it really helps that consumer. I mean today, the affordability issues with this consumer are real and the differential that we’re seeing between for that consumer rent versus a purchase is fairly significant. So I think as we can bridge that gap. I think that will only continue to bring more of that consumer to the market. Those same slightly different dynamic for the move-up. I think as the market improves, I think if the move-up consumer today has any challenges.

It’s about making sure they can sell their existing home to qualify for the new home. So I think, once again, as rates move down, it helps that consumer. And the active adult just doesn’t have that same concern about rate. It’s more about lifestyle, where they want to live? How they want to live? And making sure they can get what they need. So I – assuming markets stay steady, I expect that consumer to continue on. In fact, you’ll continue to see our portfolio across the country, including more of our Esplanade active adult physicians. But I don’t know that I could prioritize one. Erik, Curt, do you feel any difference?

Curt VanHyfte: No.

Erik Heuser: We like the blend and side of the diversified portfolio and so.

Sheryl Palmer: That’s right [ph]. Yes

Trevor Allinson: Okay. Yes, makes a lot of sense. And then thinking about your current inventory levels, I think you mentioned 623 completed specs. I think they can take you about 1.8% [ph] per community. And I think last quarter, you were more like 1.4% [ph]. Can you just talk about how you feel about your current completed inventory levels, especially in a more volatile interest rate environment that we’re at right now? And do you expect keep a similar level of completed inventory here moving forward? Thanks.

Curt VanHyfte: Yes, Trevor, I can take that one. Yes, we’re right at about 1.8% for the quarter. And so when we look at kind of our total spec kind of sales velocity relative to be built, we’re hovering right around that 50% to 60% range here in the last several quarters. So when we think about that, coupled with the fact that our overall inventory as a percentage of our units under construction is still below 40%. And plus with the fact that the entry level is still a third of our business. We still feel real good about that 1.8%. And I expect us to kind of hover around that. That might ebb and flow based on kind of what we see from a cycle time improvement perspective. But generally speaking, at the 1.8%, we’re comfortable based on kind of the trajectory of the business, and what we’re seeing from a kind of a spec to to-be-built kind of ratio and the fact that the entry-level consumer is going to be part of our business on that consistent kind of third part of the pie, so to speak.

Sheryl Palmer: Yes. And the only thing I’d add, Trevor, which I think is kind of exciting is, when we used to talk about specs, we fully focus them on the first-time buyer. Today, our specs in the quarter, 75% of specs – of our first-time buyers bought a spec. So 25% still want it to-be-built. It actually flips on its head when you think of the active adult, which used to be all to-be-built. But since we moved to our Canvas program, and we’re able to put these really nice curated packages together for the consumer that mirrors what they would do. We’ve seen a pickup there. So 37% of our active adult sales in the quarter were spec. So as we’re seeing this meaningful shift in spec purchases, it’s really helpful to have this inventory.

Having said that, I think one of the strengths that we saw across many of our markets was to have that choice of to-be-built. I look at a market like Phoenix, where 75% or 80% of our sales came through to-be-built. So it’s really that strategy of being able to provide by consumer set exactly what they need.

Erik Heuser: And to your point on the consumer, sure, we do ask the buyers, why did they ultimately buy the spec home. And about half say, it was because they simply like the home and home site, and so there wasn’t kind of a disproportionate requirement for incentive. It was as we built the right thing for them. So we do look for that percentage to approximate our spec.

Sheryl Palmer: Which is great.

Trevor Allinson: Thank you. That was very helpful and good luck moving forward.

Sheryl Palmer: Thank you.

Operator: Thank you very much. [Operator Instructions] Our next question comes from Matthew Bouley of Barclays. Matthew, your line is now open.

Matthew Bouley: Good morning, everyone. Thanks for taking the questions. I wanted to go back to the question around incentives, because as you mentioned, kind of the pricing resiliency of your portfolio being the diversity of the portfolio has kind of stood out relative to what’s been more volatile industry margins. I think, Sheryl, you mentioned kind of the ability to personalize individually is helping there, but I just wanted to dig in a little bit more because it seems like what happened with your incentives is a little bit different than what we’ve seen from your peers. So I guess the question is if there’s kind of a more forward look on incentives, maybe what are you seeing around new orders coming in relative to your prior closings?

Is there any way to think about maybe early 2025, if there’s still some more incentives to kind of flow through there? Or just any more color on sort of what’s different with what you guys are doing versus what we’re seeing elsewhere? Thank you.

Sheryl Palmer: Well, I appreciate the recognition. I really do, Matt. It’s interesting because obviously, we’ve seen over the last few weeks, we’ve seen a lot of noise around incentives going up. When I look at our incentives in the quarter on our closings, it was actually the lowest quarter of incentives we’ve had in about two years. And without being really, really redundant, I do recognize the affordability issues out there. But when I look at our buyer sets, I look at the credit metrics, I look at their financial situation, it remains really healthy and actually better than any quarter we’ve seen in the last year. When I look at the cushion, I’ve talked about for a number of years, the cushion of great impact for both our conventional FHA buyers, which is why as we’ve seen in the last five or six quarters.

And our rate that we actually qualified and completed the transaction on for our consumers as rate was down for both FHA and conventional buyers. I’m not running from the affordability issues because there are challenges for first-time buyers, and it’s not just rate, it’s not just price. It’s – they don’t have equity to bring to the table. They don’t have savings, just the general inflation in life. And it’s real, but without being redundant, the ability that we have to separate ourselves with our proprietary strategy on personalizing the needs allows us to use these buydowns differently. And I think it’s really showing up in our results and in our margin. And so do I expect some fluctuation from quarter-to-quarter if rates move?

I’m sure that’s the case. I just don’t expect it to be quite as dramatic as the range we’re seeing across the marketplace.

Matthew Bouley: Okay. No, that’s great and very helpful color there. And then maybe for my second one, I just wanted to touch on SG&A. Just the guide for the year, you’re talking to the high 9s, which is obviously pretty similar to what you did last year. Although you’re growing revenues nicely this year and presumably, that’s probably around some of the new community openings and all that. So I’m just curious, as we think going forward, you’re talking about the kind of 10% delivery growth beyond as we get past this year, should we start to look at maybe some more potential to find more leverage on that SG&A line given the growth outlook you’ve got? Thank you.

Curt VanHyfte: Yes, Matt, I can take that. Yes, to your point, we are guiding still to the high 9% range this year. And while we haven’t necessarily guided SG&A for next year at this point in time, but to your point, with that expected growth in the top line, we do expect to see improved leverage over time to kind of go along with that growth. So because why growth, you’re not going to find additional leverage in the business. So that is definitely in our line of sight and stay tuned until next quarter, and we’ll provide more detail specific to 2025 relative to that metric.

Matthew Bouley: Great. Well, thanks everyone, and good luck.

Sheryl Palmer: Thanks, Matt.

Operator: Thank you very much. Our next question comes from Mike Dahl of RBC. Mike, your line is now open.

Mike Dahl: Good morning. Thanks for taking my questions. Sheryl, I appreciate all the commentary so far from you and the team. Just specifically on October, since there are a lot of moving pieces around the storms and then this move in rates you characterize demand is healthy, but seasonal. Can you be more specific about the sales pace that you’re seeing in October, just given some of the moves in rates and some things from peers looking a little bit softer?

Sheryl Palmer: Yes. I can try. The first week of the month, as you know, Mike, and as I mentioned in my prepared remarks, I mean, we had a number of communities without power and we were closed. So honestly, I’ve been more than pleased with the sales trajectory that we’ve seen a shock, we were writing deals in Florida when our sales offices were closed, and we didn’t have power. And then when I look across the country, it’s – as I mentioned when I did my tour around the country, every deal, there’s more competition out there. On the inventory side, consumers are calling. They’re trying to understand what the rate opportunities are. I think we carry an advantage with our to be built across the country. We’re absolutely seeing that in our active adult positions.

We’re seeing it in markets like Phoenix, where it’s a high percentage of our business. But having that choice for the consumer is keeping our paces. As I said, very consistent with seasonal trends. And honestly, given the impact of the storms and the lost days in the market, we’re pleased, quite pleased.

Mike Dahl: Good to hear. And the second question is, I appreciate your comments around kind of the insurance environment in Florida, which is obviously critical. I’m wondering, you guys do such extensive kind of consumer research and mapping and sentiment work. The other key thing is really like after a stretch of storms, not just can I afford it, can I get insured, but do I want to live here. And so from that standpoint, in terms of desirability, is there anything you’re working on in terms of trying to gauge whether or not you’re seeing. I know it’s maybe early, but is there something you’re doing now or planning to do in terms of kind of gauging any changes in consumer sentiment around desirability of some of these coastal markets that you guys have fairly meaningful exposure to?

Sheryl Palmer: Yes. Well, I’ll just give you 1 quick stat, and I’ll let Erik jump in because I appreciate your comments on the research, and I think you’ve got some really interesting stuff to share. But when I look at our overall insurance and we look at what have the increases our buyers have seen on new. It’s just somewhere between 5%, 6% year-over-year increases. If you compare that to what’s being seen in the refill market, that really led to our comments that it has not been an obstacle for our customers, and that would be inclusive of Florida. But I think some really interesting sentiment about what we see when these storms happen.

Erik Heuser: Yes, I mean, Mike, every storm is different and the impact is different, and we want to be sensitive to some of the things you see on TV and everything and what folks have gone through. But we did, to your point, one of the things that we can look at is the rearview mirror. And so we found a study that, again, this isn’t a predictor of the future. But it basically said that the historic population growth of Florida is, give or take, 2% over a number of decades, that relative to the U.S. is kind of compared to kind of 0.5%. So outsized growth in terms of population. But what happens to that growth in a year after a major storm. And the year after a major storm, that kind of 2% growth rate goes to 1.7%. So it does dip but still significantly greater than kind of the U.S. average and then to kind of bounce back to a normalization.

And so again, I want to be sensitive to the impacts and every storm is different, and we’ll continue to monitor it. But from a rearview mirror perspective, it does seem like if you move to Florida, you kind of understand. I’d also highlight that new construction is superior to resale, both from a flood perspective as well as win perspective, and where we build particularly doesn’t tend to be exactly on the coast where some of these – where you see some of the bad video coming through so.

Sheryl Palmer: We’re still bullish overall on Florida, I think would be the punchline. It continues to be a good market. It continues to be a priority, certainly in our resort lifestyle. And it’ll be interesting to see what the shoulder season looks like going into the spring, but early indications are good.

Mike Dahl: Okay, great. Thanks for that color.

Sheryl Palmer: Thank you.

Operator: Thank you very much. Our next question comes from Alan Ratner of Zelman & Associates. Alan, your line is now open.

Alan Ratner: Hey, good morning. Congrats on the strong results and continued progress. Great to see.

Sheryl Palmer: Thank you.

Alan Ratner: So Erik, I’ll throw question at you first. I love the analysis you guys do, and I appreciate you updating that to cover the whole footprint on the competitive landscape versus resale. I’m sure you didn’t do that analysis for the whole new home market, but I’m curious if you have any general thoughts when you look at the 17% that’s competitive to your product. Would you say that’s fairly indicative of the new home market as a whole, meaning just the location, the type of product that builders are building is generally unique and differentiated to the resale market? Or would you say this is more specific to Taylor Morrison than you guys, whether it’s location or product type or amenities? However, you kind of bucket the variables that Taylor Morrison is really unique to both the resale market as well as the new home market as a whole?

Erik Heuser: Yes, hard to comment, Alan. I would like – I would think that to some degree, there would be a correlation to where new homebuilders are building in the product and kind of the defined superiority. But at the same time, we’re pretty proud of our locations and our core location kind of selection. So tough question to answer. I know what ours is. I would think there’d be some degree of correlation, but I also think that we take a lot of pride in our positions.

Sheryl Palmer: Did you just for the sport of it Erik, when you look at the list of all the communities across the country we did, it feels like where the improvement is not quite as strong is in that very first time buyer has very first-time buyer positions. So maybe it’s harder to differentiate there than it is as we do our move-up and our active adult where the communities really do change things. Is that fair?

Erik Heuser: I think that’s fair, Sheryl. And Alan, yes, we definitely didn’t cherry pick these either. I mean, we’ve got a pretty – in a good way, we’ve got a pretty strong degree of variability on kind of what that 17% average – 17% averages too. And so to Sheryl’s point, those where you’ve got a little bit more direct competition from resales and maybe direct from other builders is smaller stuff, lower-priced stuff.

Sheryl Palmer: That’s it.

Alan Ratner: Got it. Yes. And Sheryl, that’s kind of where I was going with it. I didn’t want to lead the witness. So I appreciate you throwing that thought out there because I was kind of cross my mind when I was listening to the data point from Erik. So second question, I guess if I had to poke any hole at any of kind of the various metrics right now. If I look at your balance sheet, inventory dollars year-over-year are up almost 20%, which is obviously more than the growth rate in your overall business, whether it’s orders, closings, top line, et cetera. And I know at least a portion of that is going to be based on the pivot towards more spec, which makes sense. But at the same time, inventory turnover has come down a touch.

So as you look forward over the next year or two years. How should we think about inventory dollar growth now that you’re banking more land, obviously, very focused on asset efficiency should we expect that growth rate to begin to subside a little bit and maybe even kind of flat line? Or would you say it’s still going to grow kind of in tandem with the broader business of plus or minus 10%.

Curt VanHyfte: Yes. Great question, Alan. I’ll take a stab at it. I think generally speaking, yes, if you look at our balance sheet year-over-year, our inventory is up pretty significantly. Part of that is part of our growth strategy. that we kind of went through at the beginning of this year. So that’s kind of what’s driving that today. Yes, our spec inventory is up a little – our total house inventory is up as well. But as we look forward in our crystal ball, we’re going to continue to focus on a more asset-light kind of land portfolio as well, which will help us from that standpoint. And then we’ll always make sure from a house inventory perspective, that it’s appropriate for the business that we’re looking – that we’re forecasting. So I would say it’s going to moderate and be appropriate relative to our business and what we’re projecting on a go-forward basis.

Sheryl Palmer: But also setting us up for a strong spring.

Erik Heuser: Yes. Yes.

Alan Ratner: Got it. Great. Well, thanks a lot, guys. Appreciate it and good luck.

Sheryl Palmer: Thanks, Alan.

Operator: Thank you very much. Our next question comes from Carl Reichardt of BTIG. Carl, your line is now open.

Carl Reichardt: Thanks. Hey guys. Just one clarification on the gross margin this quarter. The beat relative to your expectations, you mentioned mix, was that geographic mix, i.e., those Bay Area homes that closed? Or was that something related to like move-up resort lifestyle mix that help?

Erik Heuser: Carl, it was more geographic mix kind of as to what we said in our prepared comments with that Bay asset. The West overall, based on the assumptions that we had going into kind of the guide closed a few more houses generally speaking, overall, but a lot of that was in the Bay.

Carl Reichardt: Okay, great, thanks. I figured that. Okay. And then a bigger picture question. So Sheryl, we’ve got as part of your long-term goal set this mid- to high teens return on equity number. And you’re already sort of doing that in the mid-teens. So if we think about – to Alan’s last question, better inventory turns coming, margin stabilizing at higher levels, some still some upside to cycle times improving, more buybacks. It starts to make me think that there shouldn’t be too many reasons why ROE couldn’t exceed high teens going forward. What do you think that the ceiling on that might be? And do you expect that you could reset that goal higher? Do you see a 20% plus ROE in Taylor Morrison’s future? And if so, what are the elements that would help get you there beyond what you’re already laying out? Thanks.

Sheryl Palmer: Yes, that’s a good one, Carl. Obviously, when we put a goal like that – because is intended to be a multiyear. Yes, yes. It’s intended to be a multiyear goal, and it takes you through the volatility of different parts of the cycle. But having said that, I think it’s a very fair acknowledgement on your part that with all the work that we’ve done in the business and the journey on the land light and some of the other operational efficiencies, I think it’s very realistic. A little early to set to reset the goal when we do our Investor Day, the first quarter, we’ll probably have a more explicit kind of discussion around what that looks like over through and over the next five years and the strategies that will get us there.

But I think the way you’re thinking about it is completely accurate. The company is in a very different position. And we laid out a goal of 60% to 65%, which were on the controlled, which we’re already at. We’re working on a lot of other things that I think will continue to enhance that. So without giving new goals or new guidance, I’d say, I think the way you’re thinking about it is correct.

Carl Reichardt: Great. I appreciate that, Sheryl. Thanks for squeezing me in, guys. Thanks.

Sheryl Palmer: Thank you.

Curt VanHyfte: Thanks, Carl.

Operator: Thank you very much. [Operator Instructions] Our next question comes from Buck Horne of Raymond James. Buck, your line is now open.

Buck Horne: Hey, thanks. I appreciate it. I know we’re going over time, so I’ll try to be brief. But congrats on the great quarter and the circumstances, I wanted to dive in on land spend. Since your land spend is up pretty significantly year-over-year. I mean you’re closing in on being up – I think, correct me if I’m wrong, almost 40% year-over-year. I’m kind of wondering how that measures against maybe what you’re seeing in terms of lot cost inflation right now? How is that trending? What kind of expectations are you thinking in terms of just what land prices are doing on a year-over-year basis? And I guess the secondary question to that is just really like how should we think about the acceleration of community count. At this point, it’s not a matter of if, but when does that really start to take off in 2025? Or is this going to be more of a 2026 acceleration?

Erik Heuser: Yes. Hey Buck, it’s Erik. I will start with kind of the environment. It’s competitive out there. I don’t know that it’s pretty rare for me not to say it’s not competitive. Demand typically is higher than supply in the land market. And that’s kind of translating into – and this is kind of internal and external kind of a 10%-ish plus or minus appreciation level in land and development costs, which honestly is pretty manageable. I think that gravitates to kind of a long-term norm and something, as we as a company kind of evolve and experience the efficiencies that we’ve experienced as we continue to scale as well as kind of some help from the general market, able to cover that off. So I would say, while very competitive, never easy, I would say that level of appreciation is actually pretty, pretty manageable as we sit today.

Sheryl Palmer: And I would just add on the community count. Even though, Buck we’re not once again giving 2025 guidance yet. But with the spend happening this year, the way I would think about it is we’re going to have good growth next year. It gets outsized from there because, obviously, the stuff we’re bringing in today is not – most of it or all of it will not be opening next year. Finished lots are pretty extreme in today’s environment are pretty unusual. So from a multiyear growth, it’s – I think you’ll see it relatively outsized, and you’ll start seeing it come in late next year and certainly in a very strong way in the subsequent years.

Buck Horne: Got it. Got it. Very helpful. And just one real last brief one is a comment that was made yesterday just in terms of feedback from the field in recent weeks, are you seeing any signs that buyers are hesitating or kind of pushing back on their home purchase decisions because of the election? Is that having any sort of impact, do you think, on consumer behavior in this particular cycle?

Sheryl Palmer: Yes, it’s interesting. We do a lot of research and Erik might be able to go deeper. And then we see some of the stuff from kind of other local market research. It’s all of the above. We would assume that it’s affecting the – what we call our resort lifestyle buyer, a little bit more very in tune to what’s going on some research suggests the first-time buyers also taken a pause. It’s everything. It’s affordability, it’s interest rates. Our rate is going to drop. So you hear all that noise. But honestly, it’s our sales team’s job to get with that customer and help them overcome that and explain to them why this is the time to buy. We can’t just take that as it’s okay, it’s a pause. We’ll get better next month. Our sales team, I’m so proud of the work that they’re doing and that’s what they do on a daily basis. But there’s always some noise in the consumer’s mind. And this period is no different. I mean we have some specifics, right, Erik?

Erik Heuser: Yes. And I would say, Buck, that our sales folks are saying that they hear a lot of it. It’s in a lot of the conversations. But I think what folks are most interested in is just what is the impact relative to the economy, their job. Their paycheck and rates, right, and affordability. So I think while the word election might come out, I think it really translates to those issues and concerns. And then I would just very briefly point to, again, an external study that we just paid attention to that kind of looked at prior elections and really the five months that lead up to November in election years and nonelection years. And really, how has that impacted levels of sales of housing demand and transactions and really hard to find a direct correlation among the two. So – so again, this one might be different and folks are talking about it, but it doesn’t seem to be really translating into immediate impact.

Buck Horne: Got it. Appreciate all the color, guys – good luck.

Sheryl Palmer: Thanks, Buck.

Erik Heuser: Thanks, Buck.

Curt VanHyfte: Thanks.

Operator: Thank you very much. Our next question comes from Ken Zenner at Seaport Research Partners. Ken, your line is now open.

Ken Zenner: Good morning, everybody. I appreciate your time. I would like you kind of baseline given the… Hello? Hello?

Sheryl Palmer: Hi. We’re here. Ken, we’re here. Can you hear it?

Ken Zenner: Thank you. All right, I can hear you. Hello?

Sheryl Palmer: Yes, keep going. We’re here. We can hear you.

Ken Zenner: Okay. So could you just baseline as we move towards this land banking, your percent of closings today that are coming from third-party finished acquired lots. You mentioned 20%. I wasn’t sure if that’s going to be 20% of your option lots are currently land banking structure or if that’s where your target is going to be? And I think you talked about a margin differential and a return component of around 200 basis points. If you could just clarify those questions, so we can see the trend as it unfolds. Thank you so much.

Curt VanHyfte: Yes. Hey, Ken.

Erik Heuser: Yes, so as we look at the deals that are coming through the business, about 20% are finished, which I think was one of your first questions. What are we acquiring that might be finished? Land banking, the 20% to 25% that I referenced is really as a percent of the control. So call that of the 48,000 lots. And so that probably will elevate a little bit, but we’ve got a lot of different tools. And these evolve over time as we think about risk return and cost. And so we use joint ventures and joint development agreements, land banking, seller financing is probably our most successful and low-cost tool and then just normal course takes and terms. In reference to your kind of cost and return trade-offs, the reference was really less than 2% of cost as you translate that to gross margin impact for really 3x plus to return as measured at the deal level by way of IRR.

Ken Zenner: Thank you so much.

Erik Heuser: You’re welcome.

Sheryl Palmer: Thanks.

Operator: Thank you very much. Our next question comes from Alex Barron of Housing Research Center. Alex, your line is now open.

Alex Barron: Yes. Thank you. I wasn’t sure if I missed it, but did you guys talk about your build time and whether there was any improvement in the quarter? And how much is it versus last year?

Curt VanHyfte: Yes, Alex, I can take that one. We did see some sequential improvement quarter-over-quarter. I think we saw roughly about two weeks of improvement quarter-over-quarter. I don’t have handy with me what that is year-over-year, but we did see a couple of weeks of improvement quarter-over-quarter. The teams have been working really hard at trying to drive some efficiency in the cycle times. A lot of our markets are already at pre kind of pandemic levels. We have a few outliers that are out there, and I know the teams are working really hard at driving those cycle times down.

Alex Barron: Okay. Thanks. And my other question was, what percentage of your closings are using forward commitments versus other tools?

Sheryl Palmer: Yes. About a third and different versions of our forward commitments. But as I mentioned, it’s about third of our total closings in the quarter. It’s been pretty consistent for the last few quarters. Doesn’t mean that there’s not other tools, obviously, because we really personalize it to individual customers’ needs. But specifically, what we call forward commitments would be just under a third.

Alex Barron: Okay. Thank you, Sheryl. Thank you, team. Bye-bye.

Sheryl Palmer: Thanks, Alex. Have a great day.

Curt VanHyfte: Thanks, Alex.

Operator: Thank you very much. We currently have no further questions. So I’d like to hand back to Sheryl Palmer for any closing remarks.

Sheryl Palmer: Thank you all for joining us. We really appreciate the time with everyone this morning and look forward to being able to share our 2024 wrap up early next year. Take care.

Operator: As we conclude today’s call, we would like to thank everyone for joining. You may now disconnect your lines.