Good morning. My name is Chris, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the PulteGroup, Inc. Q3 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. To withdraw your question, please press star one again. Thank you. Jim Zeumer, Vice President of Investor Relations and Corporate Communications, you may begin. Great. Thank you, Chris, and good morning. I want to welcome everyone to PulteGroup's Earnings Call for our third quarter ended September 30, 2022. Joining me to discuss PulteGroup's third quarter results are Ryan Marshall, President and CEO, Bob O'Shaughnessy, Executive Vice President and CFO, and Jim Ossowski, Senior Vice President of Finance. A copy of this morning's earnings release and the webcast slides that accompany this call have been posted to our corporate website at pultegroup.com. We'll also post a replay of today's call later today. As always, I want to alert everyone that today's presentation includes forward-looking statements about the company's expected future performance. Actual results could differ materially from those suggested by the comments we make today. The most significant risk factors that could affect future results are summarized as part of today's earnings release and within the accompanying webcast slides. These risk factors and other key information are detailed in our SEC filings, including our annual and quarterly reports. Now, let me turn the call over to Ryan Marshall. Ryan. Thanks, Jim, and good morning. I suspect that throughout this morning's call we will find ourselves delineating between the favorable demand environment that existed earlier this year, which drove PulteGroup's third quarter earnings versus the more challenging market conditions we're encountering today. Stating the obvious, the primary difference between the two periods is that mortgage rates have more than doubled since the start of the year to upwards of 7%. Our Q3 earnings reflect the benefits of the strong demand and pricing conditions that existed at the end of 2021 and into the first few months of 2022. The favorable demand and pricing dynamics which existed at the time are reflected in the 15% or $71,000 increase in the average sales price of closed homes that we reported for our third quarter. Further, even with tight labor and a difficult supply chain, we were able to leverage this pricing gain into a 360 basis point expansion of gross margin and an almost 50% increase in earnings to $2.69 per share. Bob will provide more details on our third quarter results in a few minutes, but it is important to acknowledge the success and recognize the efforts of the entire PulteGroup organization in delivering these great results. If our income statement demonstrates prior demand strength, third quarter order and cancellation rates show the more challenging market dynamics we are operating under today. As we move throughout the quarter, you could almost see demand ebb and flow with the movement of interest rates. Softness in July's home buying demand eased as mortgage rates fell in August. The positive trend in demand was short-lived, however, as interest rates surged higher in September in response to Federal Reserve actions and hawkish commentary from Chairman Powell. The pullback in demand was widespread across geographies and consumer groups as potential homebuyers moved to the sidelines, some because they could no longer afford a home and others because they were unsure if now is truly the best time to buy a home. The impact of consumers dealing with issues of financing or fear also extended to our backlog as cancellation rates increased to 24% in the quarter. While there are a number of factors influencing housing demand, the rise in mortgage rates has likely had the most significant impact on today's consumers. Based on their commentary, expectations are that the Federal Reserve will continue to aggressively raise rates to control inflation for at least the remainder of 2022, and then likely hold rates higher for longer. Given these market dynamics, we continue to meaningfully adjust our operating practices as we adapt to today's more challenging market conditions. On the sales side, we are working closely with our divisions on a market-by-market and even community-by-community basis to find pricing where buyers are able and are willing to transact. When demand first began to slow in response to higher rates, incentives in most of our markets were focused on mortgage rate locks and buydowns. As mortgage rates have moved even higher, incentives have extended to other areas, including more aggressive discounting of standing inventory and price reductions. As we move through the third quarter, absorption paces were choppy, but on average slowed as the quarter progressed. This trend continued into October, although ongoing adjustments to incentives and pricing are gaining some traction with consumers. We've told our divisions to be strategic in their decision-making, that we need to intelligently find the market and turn our inventory. The reality is that we can't be margin-proud, but rather we need to protect our share of sales within the markets. Housing is front and center in the Federal Reserve's battle against inflation. As the Fed clearly desires, new home sales rates and selling prices are in the process of adjusting lower in response to higher interest rates. With home sales slowing, we are adjusting how we approach ongoing land investment. At the end of the second quarter, we controlled 130,000 lots under options. Given the more challenging demand conditions we face today. We are re-underwriting our land deals using price, pace, and cost assumptions based on current market conditions with a view towards assessing whether expected returns still achieve or exceed our required hurdle rates. As a consequence of these reviews, in the third quarter, we canceled agreements accounting for approximately 19,000 lots, or 14% of the lots we held via option at the end of the second quarter. In taking these actions, we walked away from almost $800 million of future land acquisition spend. No one wants to write off $24 million of deposits and pre-acquisition spend, but the flexibility to exit these transactions reaffirms the strategic importance of building more optionality into our land pipeline. Homebuyer demand clearly moved lower as the third quarter progressed, with the dramatic and ongoing rise in interest rates likely being the biggest concern for most consumers. However, there are certainly other factors at play, including inflation, fear of recession, or increasing concerns about job loss. Given all of these considerations, it is easy to understand why consumers have moved to the sidelines. Having said that, people still desire homeownership and are prepared to buy when they find a compelling offer. Operationally, we are appropriately taking a more defensive posture for at least the near term as we work to navigate today's more turbulent conditions. We believe this approach is appropriate today and appreciate that stability, whether talking about mortgage rates, the stock market, or inflation may be what people will need to move off the sidelines and become homebuyers again. Let me now turn the call over to Bob for a more detailed review of our Q3 operating and financial results. Thanks, Ryan, and good morning. There's a lot to review this quarter, so I'll dive right in. Home sale revenues for our third quarter totaled $3.8 billion, which represents an increase of 16% over the same period last year. Higher revenues for the quarter were driven primarily by a 15% increase in our average sales price to $545,000. The year-over-year increase in average sales price of $71,000 was driven by improved pricing across all buyer groups, as first time was up 20%, move-up gained 16%, and active adult was up 15%. Unit closings in the quarter increased by 1% over last year to 7,047 homes. It's worth noting that approximately 200 closings that were slated for the third quarter were delayed due to Hurricane Ian as we shut down or slowed operations across a number of our Florida and Carolina markets ahead of the storm. On a year-over-year basis, the mix of homes delivered in the third quarter changed slightly as 36% were first-time buyers, 38% were move-up buyers, and 26% were active adult buyers. In the prior year, 31% of homes delivered were first-time, 44% were move-up, and 25% were active adult. The shift in mix to more first-time is in alignment with our strategy of having approximately one-third of our business in the first-time buyer space. Net new orders in the third quarter totaled 4,924 homes, which is a decrease of 28% from last year. The year-over-year decline in orders reflects softer demand, resulting primarily from higher interest rates as our absorption pace fell to 2.0 homes per month, down from three homes per month for the same period last year. Along with a slower pace of sales, our reported net new orders in the third quarter were impacted by a significant increase in cancellations. Our cancellation rate for the third quarter was 24%, which compares with 10% in the third quarter of last year and 15% in the second quarter of this year. In the quarter, orders among first-time buyers increased 3% over the prior year as sales benefited from a double-digit increase in community count and the availability of quick move-in homes as the majority of our spec production is in our Centex communities. Orders from move-up buyers were lower by 45% than the prior year, while active adult orders decreased by 31%. Changes in community count did not materially impact order rates among either of these buyer groups. During the quarter, we operated from an average of 823 communities, which is up 7% from last year. The increase in community count is consistent with our previous guidance and reflects both new store openings and the slower closeout of existing communities. Average community count for the fourth quarter should increase slightly to 840. At quarter end, our backlog totaled 17,053 homes, which is down 14% from the same period last year. While unit backlog is lower, the dollar value of our backlog increased 3% over the prior year to $10.6 billion due to the rise in our average sales prices. We ended the third quarter with a total of 23,010 homes under construction, which is up 22% over last year. Of the units under construction, 65% were sold and 35% were spec. Consistent with comments made on prior earnings calls, we've been working to increase our inventory of spec homes, primarily in our Centex communities, to better serve first-time buyers. We continued starting specs in the third quarter as we've continued to see buyer preference for homes that can close in 30 to 90 days across all buyer groups. At quarter end, we were still well below our commonly used metric of one finished spec per community. However, with 8,000 specs in production, we believe we are well-positioned to meet demand and to compete effectively in our markets. Having achieved our targeted level of spec within our production universe, we have now lowered our spec starts and will manage our production to maintain the balance of our spec and dirt inventories. With an emphasis on build-to-order production for move-up and active adult consumers. Based on the homes we have in production and current sales rates, we now expect closings in the fourth quarter to be approximately 8,000 homes. The decrease in expected deliveries relative to our prior guide reflects the challenging sales environment, higher cancellation rates, and the ongoing impact of Hurricane Ian on our Florida operations. To the last point, while damage to Pulte communities in Florida and the Carolinas was limited, municipal resources are appropriately being diverted to the repair and restoration of services at the expense of getting power to new homes and communities. Based on the mix of homes we expect to deliver in the fourth quarter, we anticipate the average sales price on closings to be in the range of $560,000-$570,000. At the midpoint of our range, this would be up 15% over last year. Please note that all the guidance we provide on this call, including ASP, reflects our current best estimate, but cancellation rates and pricing dynamics as we move through the quarter could impact our actual results. For the third quarter, our home building gross margin was 30.1%, which represents an increase of 360 basis points over the third quarter last year. Referring back to Ryan's opening comments, our third quarter gross margins benefited from the strong demand and pricing conditions that existed at the end of 2021 and into the first half of 2022. These conditions supported the double-digit price increases we show in the quarter and allowed us to cover higher material and labor costs, including elevated lumber prices. The strength of demand in that period can also be seen in our sales discounts, which were only 1% for homes closed in the third quarter. By contrast, discounts on new orders taken in the quarter increased 180 basis points over last year to 2.5%. It's worth noting that this increase in discounts is in addition to the higher financing incentives we've discussed during our Q2, or Q2 earnings call. Financing incentives on new orders in the third quarter were 1.9%, which is approximately 80 basis points above last year and our historic average. Given the demand and pricing dynamics we are currently experiencing in the market, in addition to the increase in incentives needed to attract sales, we currently expect our fourth quarter home building gross margin to be approximately 28%. This would represent an increase of 120 basis points over last year, but would be lower sequentially and is down from our previous guide. Given the changing market dynamics, our procurement teams are already having discussions with suppliers and trade partners in an effort to identify opportunities to reduce our land development and house construction costs. However, at this point, any savings we are able to realize would benefit our business in 2023. In the third quarter, our SG&A expense was $350 million, or 9.1% of home sale revenues. This compares with prior year SG&A expense of $321 million, or 9.6% of home sale revenues. The company remains on track for full-year SG&A to be in the range of 9.2%-9.5%. Given the pullback in buyer demand and expectations that market dynamics will remain challenging for some or all of 2023, we are taking needed actions to better align overheads with current demand. For the third quarter, higher gross margin and greater overhead leverage helped PulteGroup generate an operating margin of 21%, which represents an increase of 410 basis points over the prior year. Turning to financial services, our operations continue to face extremely challenging market conditions. In the third quarter, our reported pre-tax income totaled $28 million, which is down from $49 million last year. In the quarter, lower loan origination volumes, driven in part by a lower capture rate, and decreased profitability per loan were the primary drivers of the decline in pre-tax income. Capture rate for the quarter was 77% compared with 85% last year, as our mortgage business seeks to be competitive but not to chase unprofitable business. Our tax expense for the third quarter was $183 million, which represents an effective tax rate of 22.6%. Our taxes in the third quarter include federal energy-efficient home credits, which were extended as part of the Inflation Reduction Act that was enacted into law in August of this year. In total, PulteGroup's reported net income for the third quarter increased to $628 million, or $2.69 per share. The company's prior year net income was $476 million, or $1.82 per share. In the third quarter, we continued our share repurchase activity, buying 4.4 million shares, or another 2% of our outstanding common shares, for $180 million, for an average price of $41.20 per share. Through the first nine months of the year, we have repurchased approximately 9% of the shares we had outstanding at the beginning of the year for $975 million. Along with buying back stock, we invested $1.3 billion in land acquisition and development in the quarter, of which 56% was for the development of existing land assets. As Ryan discussed, in response to changing market conditions, we are re-underwriting every land transaction based on current price, pace, and cost dynamics. We ended the third quarter with approximately 232,000 lots under control, which is down 11,600 lots from the end of the second quarter of this year, due in large part to the deals we elected to terminate. At quarter end, 50% of our total land pipeline was controlled via option, and we continue to work toward our long-term goal of getting 65%-70%. While we have terminated a number of transactions, there are land positions that we have under control that we still project to achieve or exceed our required rates of return. As a result, we currently expect to close on such transactions and expect full-year land investment to be approximately $4.8 billion, which is in line with our prior guide. Given the change in buyer demand and the resulting impact on the turning of our own land inventory, we currently expect that our land spend will drop materially next year. While we are still in the planning process, our preliminary estimate is that land acquisition and development spend in 2023 will drop by $1.5 billion to approximately $3.3 billion. Of this spend, we expect that upwards of two-thirds will be for the development of existing land assets. We will provide more details on next year's planned land acquisition and development spend during our Q4 earnings call. We ended the quarter with $291 million in cash and had $319 million drawn on our revolving credit facility. Our drawings under the revolving credit facility were driven primarily by our land acquisition and development spend, an increase in our house inventories as we moved homes through production, and the delay in closings related to Hurricane Ian. Our debt-to-capital ratio at quarter end was 22.5%. Wrapping up, the higher interest rates being orchestrated by the Federal Reserve are achieving the Fed's objective in terms of slowing demand and negatively impacting price appreciation in the market. While conditions have gotten tougher, I am confident in PulteGroup's competitive position and in our ability to successfully work through this phase of the housing cycle. Now, let me turn the call back to Ryan. Looking at the tables in this morning's press release, you can see that on a year-over-year basis, our net new orders were lower across the country, although we continue to see relative outperformance in Florida, Texas, and the Southeast. Generally, we are faring better in markets where buyers can still find affordability. In contrast, conditions in our Western markets are clearly more difficult as price appreciation, generally higher selling prices, and the spike in mortgage rates have forced buyers to pause their buying plans. The softer demand conditions that we experienced in the third quarter continued into October and have likely gotten even more challenging with mortgage rates now pushing 7%. Running a home-building company during this part of an economic cycle is complicated, but we are fortunate to have an experienced leadership team that knows how to operate the business. We are taking action to impact the critical areas of the business, including finding price at a community level where we can sell homes. We will do the best we can to protect backlog, but we won't sit on inventory. With the right level of home inventory to meet demand and to compete effectively, we are aligning starts with the ongoing pace of sales and remain committed to our build-to-order model. We remain disciplined in our approach to land acquisition. It's hard to cancel a land deal that you've worked on for months or even years, but if the returns no longer pencil, then we will walk away. We will work intelligently with our suppliers and trade partners to adjust costs given the new market pricing dynamics, and we will continue to evaluate and adjust our overhead spending d ue to changes in current and expected construction volumes. For all the defensive actions we are implementing, I remain constructive on long-term housing demand. While we expect the coming quarters will be difficult for the industry, long-term dynamics for housing remain positive. If the Federal Reserve just pauses, or if the stock market doesn't swing 5% in a single day, or if inflation starts to ease, that might go a long way toward giving consumers enough confidence to get back into the market. While we wait for conditions to stabilize, we will be aggressive in managing our day-to-day business to sell homes, efficiently run our operations, intelligently manage land investment, and work to deliver high returns. I want to recognize our employees for their tremendous work in delivering a great third quarter. I also want to call out our teams impacted by Hurricane Ian. You have done tremendous work taking care of each other and the communities you serve. Before opening the call to questions, I want to provide a quick comment on the second press release we issued this morning. After a 30-plus year career with our company, John Chadwick, PulteGroup Executive Vice President and Chief Operating Officer, has announced his plans to retire in 2023. John has had an amazing career with our organization and has been instrumental in its success over the years. I know I speak for our board and our entire company in wishing John all the best in retirement. Brandon Jones, Senior Vice President, Field Operations, has been named to replace John effective January 1, 2023, as Chief Operating Officer. Brandon began his Pulte career 18 years ago as the Director of Operations in Arizona and has held a series of field positions of increasing responsibility, including Division President in several markets and Area President of our Southeast area. Since being named Senior Vice President of Operations in 2021, Brandon has been managing our construction operations throughout the country, so I expect a seamless transition into his new role. John will remain with the company through April of next year to assist with the changeover. We are fortunate to have a deep and talented bench within PulteGroup, and I look forward to advancing the great partnership Brandon and I have built over the years. Now let me turn the call back to Jim. Great. Thanks, Ryan. We're now prepared to open the call for questions, so we can get to as many questions as possible during the remaining time of this call. We ask that you limit yourself to one question and one follow-up. Thank you. Now, Chris, if you will explain once again how to ask questions, we'll get started with Q&A. Certainly. As a reminder, if you would like to ask a question, please press star then one on your telephone keypad. Our first question is from Carl Reichardt with BTIG. Your line is open. Great. Thanks. Morning, everybody. Ryan, can you talk a little bit. You mentioned October pricing, and in the October you saw some pricing and incentives in certain markets starting to have some traction. Can you expand a little bit on that? Sort of where and what you're doing, where you might be seeing at least a little bit of stabilization and absorption? Yeah. Carl, I appreciate the question this morning. As I mentioned in my prepared remarks, you know, we've worked through the change in market conditions over the last three to four months. Early on our incentives were largely financing related incentives. You know, things that aimed at buying the rate down, extended rate locks, things of that nature. You know, we felt early on that we were getting traction with consumers, especially when you could, you know, provide interest rates that were sub-5%. In some cases, we were able to even get sub-4% with the incentives. As rates have pushed up into the 7% range, we're finding those things to be less effective. We've really focused the majority of our energy on pricing to what we believe current market conditions are. You know, price rollbacks and price drops. We have been strategic in those, Carl. As I've talked about, we've worked to protect backlog as best we can. You know, we really feel it's important to continue to move inventory and to maintain the market share that we've worked so hard to get in the market. It's really those price rollbacks that we've seen get some traction over the last two to three weeks. You know, we do feel, you know, while it's tough, we are encouraged with the activity that we're seeing. All right. Thanks, Ryan. Can you talk a little bit about cap rates by buyer segment and how those might compare currently to what your long-term averages are? Thanks. Yeah, we typically don't give that level of detail, Carl. You know, what we have seen with cans is a little bit of a change versus where we were three months ago. We were seeing churn in the 30- to 60-day. What we have seen is a little bit more cancellation for folks that have been in backlog a little bit longer, and it's that rapid and substantial rate increase from when they signed. At the end of the day, you know, I don't think we're surprised by that, but we have seen a little bit movement from people that have been in backlog a little bit longer. Okay. Thanks. You know, Carl, the one comment I would offer to that, Carl, is we have historically seen the lowest cancellation rate out of our active adult consumer. You know, that's a buyer that's not as heavily dependent on financing. That's been consistent over the years, and the trends that we're seeing today continue to support that. Great, Ryan. Thanks a lot, guys. Appreciate it. Thanks, Carl. The next question is from Stephen Kim with Evercore ISI. Your line is open. Yeah. Thanks a lot, guys, for all the color, and good job in the quarter in a tough market. Wanted to ask you a question related to your strategy in light of the tremendous mortgage rate volatility that we've seen. I mean, obviously in the last couple of months, it's just been volatility to the upward direction. You know, with the spreads over the 10-year Treasury being what they are, there's a lot of thought that, you know, you might see a drop actually in mortgage rates at some point. Tough to predict. You don't wanna, you know, assume that, but I was curious to what degree you're ready for that if it were to happen in the next several months. Do you have a marketing plan to be proactive in the event you do see rates drop? Let's say mortgage rates drop back into the low sixes, let's say. You know, do you have a list of buyers who couldn't qualify today but could if you just had a lower 6% rate? Can you give us a sense for, you know, how big that list might be? Well, Stephen, let me maybe just start with saying, you know, we've got a really outstanding sales and marketing team that has always focused on the basics of working our entire lead funnel. That hasn't changed in good market times or even these more challenging market times. Our ability to get relevant and timely messages out to our sales funnel, I'm very confident in our ability to do that. You know, if we're so fortunate to see rates drop, I know that we can get the right messaging out to let folks know. You know, we really emphasize and push with our local sales professionals as well to maintain the relationships with our lead banks and with our interested buyers at a very local and personal level. You know, I think there's multiple ways using kind of the big bullhorn of the corporate marketing platform, but you've also got the grassroots local relationships with our sales professionals. You know, maybe just the last thing is I think the market itself, if we were so fortunate to see rates come back, I think will probably be the greatest marketing machine of any of them. Yeah. Yeah. Hopefully people have their ear to the ground. Great. Secondly, can we talk about production? Could you give us your sticks and bricks figure to start with? You know, when I look at your level of homes under construction, your inventory homes, or I'm sorry, your spec levels per community, the number of total specs you have per community. You are at 9.8, if my math is right. That's pretty significantly higher than what you know you were running at pre-pandemic, but you're also intentionally doing more specs. I'm curious, you know, what is the level of specs per community that, this is total specs, by the way, that we could expect, you know, by the end of the year? Stephen, Jim will give you the sticks and bricks, and then I'll take the second piece of the question. Under production, we've got $3.164 billion, and then we have another $328 million in models for sticks and bricks. Then Stephen, as to your question on our level of spec inventory, we've, you know, been talking for the better part of the last two to three quarters about our desire to have more spec inventory in the system. Over the last three to four months as the market has slowed, we've seen a real preference for homes that are able to deliver in the next 30 to 90 days. That continues, you know, to this very moment. In terms of the inventory we have in our system, 35% of our WIP is spec, and that is right where we want to be. We feel very comfortable with respect to that. Looking at the finished inventory, we continue to have less than one, finished home per active community, which has always been our historical kind of benchmark. You know, we also feel comfortable that we're not under any pressure with finished inventory. We continue to see good flow-through of our sales rate of specs that are being sold and that are delivering in the near term, which is a real positive for us. Maybe just the last thing, Stephen, and you know, you've seen this transition over the last couple of years. As we've moved more of our business to the first-time entry-level product, we've intentionally put more spec inventory into those, first-time entry-level communities. And certainly, that's where the higher percentage of our spec inventory resides. You know, we feel comfortable with that. The last thing, and I highlighted in my prepared remarks, as it relates to forward starts of new inventory, we've significantly slowed that, and we're matching that to what our sales rate is. You know, we think we've done exactly what we said we were going to do, and we've made additional kind of adjustments based on how we see the market conditions at the moment. Great. Thanks very much, guys. The next question is from Michael Rehaut with JPMorgan. Your line is open. Great. Thanks. Good morning, everyone. Thanks for taking my questions. So I wanted to start out, and I apologize if I missed this earlier, but just what was, as a percentage of price or sales price, what were incentives running during the quarter, and where did you end? You know, if that includes price adjustments as well. Yeah. In the most recently printed quarter today, you know, third quarter, our incentive load was 1%. On closings. On closings, right. That, you know, that is a little bit better than last year, 30 basis points better than closings during the third quarter of last year. What we did highlight was on the sales in this quarter, so not the closings, but the sales, that rate ran up to about 2.5%, so, you know, running higher. Also that financing incentives, and we talked about this in the second quarter, were up over sales in the third quarter of last year, so that the total load of incentive is up on current sales, you know, by a couple of hundred basis points versus the closings that we had in this quarter. That'll influence our business, you know, over the next couple of quarters as those homes close. Mike, the only in addition to Bob's comments, I just highlight that as we make price adjustments, those adjustments are made to base price, and so those adjustments aren't going to necessarily show up in the incentives that Bob just described. We've talked about it for the last several quarters as well. As we're opening new communities, which there are a fair number of those, we've been very intentional in pricing to the current market, such that you have, you know, what we believe is a more normal incentive load. Right. That's. I appreciate that. I mean, that's exactly kind of what I was trying to get at in terms of where you are today. You know, you kind of mentioned that as the quarter progressed, you know, you took, you know, perhaps a little bit more of an aggressive posture and as you said, trying to meet the market with price reductions and I'm sure price adjustments. Just trying to get a sense, I guess, you know, as you've taken those actions maybe over the last, you know, 30, 45 days, if you could give us any sense in terms of what percent of ASP those price adjustments or reductions might have amounted to at this point. I would assume that that's something that we wouldn't see in the gross margin until the first half of next year. Yeah, Mike, it's. There's so much detail behind that, you know, where what the price points are. You can see, though, our sign-up average price for sign-ups is down by about 6%. That certainly reflects some of the current pricing. You know, you have to be a little bit careful because our sign-ups were a little bit more skewed towards first time, and so mix matters in that. I wouldn't wanna put a number on X% down because it really varies by market, by community. Again, you can see that ASP is likely to come down, and there will be, you know, some margin consequence, and you can see it in the guide that we gave where we're at 28%. Then Mike, to your margin question, yeah, a lot of that will certainly be next year, for homes that are on a build to order model. If it was a spec home, those will show up more likely than not in the fourth quarter, and that is incorporated into the margin guide that Bob gave for the fourth quarter. You know, depending on kind of the nature of the adjustments we've made, you know, some of those incentives also have flown into backlog, as we work to protect the backlog and get those homes closed as well. That's also incorporated into the guide for the fourth quarter. Great. One last quick one, if I could. Order trends by month, sometimes you're able to give that out. Just, you know, you kinda mentioned that there was some differences a little bit as rates kind of fluctuated a little bit during the quarter. Just trying to get a sense of year-over-year trends, and as you say that, you know, October kind of remained a little soft, any sense of that type of number as well. Yeah. Without getting into the detail of month by month, I think, you know, you heard it in Ryan's prepared comments. You know, the demand equation followed the rate movements, and so, you know, you saw a little bit of a dip in rates in August. We saw some activity around that where people came off the fence. As rates progressed higher after that, we saw a relative decrease in demand. Next question is from Matthew Bouley with Barclays. Your line is open. Good morning, everyone. Thanks for taking the questions. Wanted to ask on this $24 million write-down, obviously small kinda in and of itself, but can you kinda speak or sorta how do you think about the risk of maybe larger write-downs occurring, you know, in that particular bucket where you saw it, you know, in the deposits bucket? Then ultimately, as this market evolves from here, what's the risk of write-downs spreading to sort of the owned land portfolio? Thank you. Yeah. You know, it's interesting. You know, the market will tell us that. You know, I don't wanna predict. You know, we've got, you know, obviously call it $400 million-$450 million of total money at risk around option deals. So that's gonna be pre-acquisition spend, legal, et cetera, as well as deposits. You know, you heard us say, and we've been doing this for a while now, we're reevaluating every land transaction. It's interesting because, you know, we made the point in the prepared remarks. You know, we have been closing on a lot of transactions, and our expectation is that we will for the balance of the year. There will be some stuff that we walk away from. I wouldn't wanna try and quantify it. You know, part of the reason our land spend is projected to go down next year is because it's getting harder to make stuff work, especially in things that were negotiated more recently, right? As that stuff comes to the table, I think we're gonna have some questions to answer internally as to whether it still meets our return requirements. You know, the good news is, you know, again, it was in Ryan's prepared remarks. You know, the 11,600 lots that we walked away from had a land cap spend of $800 million. If we had bought all that land at a point in time, that might have been, you know, some tough markets that we would've had to work through. We feel, you know, and Ryan said it, we don't feel good about a $24 million charge. Having said that, having to work through $800 million of land with, oh, by the way, a lot of development spend on top of that. We feel like it's actually operating the way we are. As we look at the market, we're trying to get more of that optionality into our book. You know, we've targeted 65%-70%. You know, we're pushing our teams to look for optionality, whether it be in time or takedown. I think I don't wanna guess at what the market's gonna bring to us. You know, we'll work through each transaction as we go. Got it. That's very helpful. Thanks for that, Bob. Then I guess the second one zooming into the margin guide. You know, I think the Q4 guide is for margins down 200 basis points sequentially. You know, I know you mentioned everything around incentives and the change in, you know, price, you know, perhaps more impactful to 2023. I think, Ryan, you just said that there's certainly some spec impact there in the Q4 guide. You know, just given that a lot of these changes won't flow through into 2023, I'm just curious so you can sort of bridge us to that 200 basis points declining in Q4 and sort of why this margin decline is kinda happening this quickly. Thank you. Yeah. Matt, it was really wrapped up, and I think the prior answer that I gave, you know, as we looked at what will close in the fourth quarter, you know, it incorporates specs that have been sold, some specs that still need to be sold, as well as some adjustments that flowed through to backlog based on pricing adjustments that we made in active communities. You know, those are the big drivers that are influencing the Q4 guide. You know, the only other kind of piece that I would add is there's a little bit of, you know, continued labor pressure with back-end trades, you know, specifically the finished trades for, you know, what is still a pretty heavy load of inventory that's moving not only through our production machine but the industry's production machine. You know, we're starting to see some of that subside on the front end of things as starts have started to come down, you know, and it's given us, you know, better ability to have productive conversations with front-end trades as we work to pull costs back, that are responsive to the dynamic environment that we're seeing. Got it. Thanks, Ryan. The next question is from Anthony Pettinari with Citi. Your line is open. Good morning. As demand has slowed and you've, you know, pulled the price lever to maintain volumes, is there a base level of absorptions we should think about as being a floor, you know, before you start to maybe see some diseconomies of scale? And is it possible to talk about what you see as maybe an ideal absorption pace, you know, understanding it's a very dynamic market? Yeah, Anthony, it's a fair question, and I'll go back to what I think we've talked about for years. We really look to maximize return. We're focused on both the pace and the price kind of levers. You know, I would tell you, we'd like to see more volume than what we're currently seeing. You know, as I highlighted in our prepared remarks, we're trying to be strategic and take a long-term view of, that's really underpinned by, you know, what we still see as a very positive housing market. You know, unfortunately, we've had a doubling of interest rates in 10 months, which we've never seen in this country, at least not in the last 40 years. You know, that coming on the heels of an unprecedented global pandemic, it's created you know, certainly some dynamics that we're being responsive to, but we're not going to overreact. Okay, that's helpful. Just following up on your comment on trades and some of those discussions becoming more constructive, can you quantify the you know the extent to which your cycle times increased in the quarter or decreased, if at all? Would you expect a shortening of cycle times maybe in Q4 or in early next year? Anthony, we're... As I highlighted in maybe my previous question, we're continuing to see some back-end labor pressure with the finished trades. At the current environment, we haven't seen a bunch of progress with cycle times. We're still running right around six months, which is kind of unchanged from where we were in the prior quarter. I wouldn't expect to see any improvement in Q4. There's just too much production still on the machine. I am very focused with our production teams to claw back cycle time in 2023. My hope would be, by the time we hit Q2, Q3, Q4 of next year, we're starting to see some meaningful kind of quarter-over-quarter improvement as we get back to more typical cycle times. I'm confident, you know, based on the drop in volume, but also just the healing of the supply chain, which continues to get better and better, you know, that can become a reality in 2023 and beyond. Okay, that's helpful. I'll turn it over. The next question is from Ivy Zelman with Zelman & Associates. Your line is open. Thank you. Good morning, guys. I appreciate all the information. Maybe, Ryan, you could just speak to sort of broadly, you know, the consumer that has already put an order in and has been backlogged and the cancellations that you're seeing. To the function of how much of it a function of, you know, not being able to afford the monthly payment versus how many people are just getting cold feet and walking away from, you know, built-in equity. Just more broadly, I get a lot of questions from clients. If you look at where rates are today, approaching 7%, you know, what has that done in general to prospective buyer pool? Like, where do you see? Is it now 25% of prospective buyers can't afford it anymore? I mean, we see affordability as probably the most stretched it's been, going back, you know, several decades. Maybe you can help us understand what needs to happen with respect to getting buyers more comfortable, given such elevated pricing and the dynamics that led us here. Yeah, Ivy, thanks for the questions. Appreciate it. You know, in terms of the cancellations that we're seeing, it's both. We're absolutely seeing buyers that can no longer afford. We're also seeing buyers that still can afford, but they've gotten cold feet for whatever reasons. In many cases, they're walking away from pretty sizable earnest money deposits that you know, economically, don't make a ton of sense. You know, that's where you really kind of get into the psychology of they're just not confident in making a purchase. I tell you, as we look at the trends over the last couple of quarters, we haven't seen a noticeable or a significant change in the mix of reasons why folks are canceling. That's been pretty consistent. In terms of the buyer pool, Ivy, you know, it's understandably less, and I'll specifically focus on who can afford. As the industry is going through some pricing adjustments, I think we are working to get more people into that pool. The pool that's harder to quantify, and I'm not even going to attempt to guess, is how many people are on the sideline because of psychological fear. Those folks just aren't engaging with us. They're waiting. As I highlighted in some of my prepared remarks, I think the only way we get that buyer back into the market is through stability. You know, those are unfortunately things that we don't directly control, so we've highlighted kind of what we think they are. No, that's helpful, Ryan. Just if I could just follow up with my second question. As it relates to, you know, underwriting land right now and appreciating that you've, you know, taken some option, abandonments. You know, given the returns that are currently forecasted with the new pricing on communities that have not been yet open but are slotted to be open, are we talking, you know, gross margins that would hit the return requirements? Because you have always been underwriting to a much lower gross margin than you're currently, you know, obviously achieving. Should we expect margins to be more normalized on whatever you're moving forward in with new communities given the pricing environment? Or is there a risk it could even be below normal at this point? Maybe if you just qualitatively give us some direction. Yeah, Ivy, what I'd highlight is we underwrite return. We've never underwritten to margin. The screen that we're using in the current environment is we're using current pace and price against the historical return on invested capital screen and risk grid that we've always used. We have not compromised on that. The deals that we've elected to walk away from simply don't meet that screen. You know, the ones that we've elected to move forward with, by and large continue to meet our return-based screen. That includes margins that are, you know, kind of, you know, all over the board in terms of the historical range that we've typically operated in. Bob, anything you'd add in terms of kind of underwriting? Hopefully, Ivy, that helps in terms of your question. Yeah. The next question is from John Lovallo with UBS. Your line is open. Good morning, guys. Thank you for taking my questions as well. You know, the first one is just given the more cautious near-term stance, you know, pulling back on land spend, which, you know, is clearly prudent in our view. I mean, where do you intend to allocate the capital? I mean, could you be, you know, more aggressive on buybacks or continue to be aggressive on buybacks? Yeah, we'll go through the same exact exercise we always have. You know, it's interesting, we highlighted in this call, we are out on our revolver, which is, you know, we started borrowing a little bit last quarter. We're actually out on the line today. First and foremost, we'll pay that off. You know, our expectation is that we'll be able to do that in short order. What we always do is look at what the next several years, so it's not a point in time capital generation and usages. We'll consider, you know, investment in land. We've highlighted that we think spend is gonna be down. We'll be building and monetizing our backlog, so we think we're gonna be cash flow positive. We'll look at the capital base that we've got and what to do. You know, we'll have choices. You know, we can. We will obviously continue our dividend. We can look at share repurchases. We will also be looking at our leverage. You know, obviously, the run-up in rates makes our debt a little more attractive on a pricing basis. Not suggesting we're gonna do anything, but it's. We look at these things consistently through time. We'll consider all those things. You know, I think you should expect to see us in market for equity, and we'll look at any other use of cash at the same time. Okay. That's helpful. You know, just kind of thinking about your overall land spend strategy now and just land in general. Are you actually pulling back on community openings, you know, communities that were slated to open, are you holding back those given the demand environment? Not at all. We're continuing to move forward with it, and open those communities. In fact, some of the communities that we've recently opened have been some of our brightest and best performers, which is really encouraging. You know, I think there's two reasons for that, John. One, these are good communities and good locations that have got great interest lists that we've been working for a long time, referencing back to the marketing comment that was asked a little bit ago. We've also been very deliberate in making sure that we're pricing the current market. Now, we do that all the time when we open up new communities. You know, especially in light of the current environment, when we're opening, we're making sure that we're opening at a value, and we've seen traction there. You know, communities that are opening today have been in our pipeline for a long time. They were bought right. They were arguably developed at a pretty attractive cost basis as well. We can continue to deliver you know, nice margins and more importantly, good returns out of those communities. Great. Thanks, guys. The next question is from Mike Dahl with RBC Capital Markets. Your line is open. Morning. Thanks for taking my questions. My first question, just maybe a follow-up on Ivy's questions around cancellations, and maybe it's I don't know if it's a terminology issue in terms of talking affordability versus outright qualification challenges. Yeah, Ryan or Bob, could you address, you know, what percentage of your cancellations, or as you're kind of hearing from the field around prospective buyers, you know, how you're seeing outright inability to qualify impact versus just a, you know, "Hey, maybe I can qualify, but I can't actually afford the X dollars a month in incremental payments? Yeah. I'm looking. We're gonna have to get back to you on that. You know, what I can tell you is that it is, again, running at a consistent percentage. We haven't seen a run up in the percentage of people who just don't outright qualify or rejections. What the relative percentage of that is, I don't know off the top of my head. Okay. Got it. In terms of, you know, thinking through, as you are obviously pretty diversified in your market exposures. In past cycles, you've seen builders exiting markets during contraction periods. You know, when you look at your land positions, when you look at some of the relative results across some of these markets, obviously everything's getting hit, but some things harder than others. You know, are you at the point where you're evaluating whether or not certain markets make sense, or maybe if there's any other regional color you can provide around something like that? No, Mike, we actually feel really good about our geographic footprint. You know, we've entered into several new markets over the last three to four years, and you know, we're as confident in those today as we were when we made the decision to go there. You know, a lot of the places that we've entered into in recent years have been places that have had really attractive job growth, and really nothing's changed along those lines. They're also places that are you know, attractive climates. They generally tend to be more affordable places. And they're you know, in locations that are predominantly kind of in the Sun Belt. You know, we think our new market expansion strategy still makes a ton of sense. In terms of our existing markets, we're really happy with them. I don't know that I have any real additional color to add in terms of the geographies that are doing well versus not, other than what I highlighted in my prepared remarks. The Western markets are the toughest for sure. You know, I think that's been widely reported by, you know, from many sources. We're also seeing, you know, relative kind of softness in the Northeast, you know, some of the more expensive locales. The Southeast, Florida, Texas, relatively are performing, you know, better for a lot of the reasons that I just touched on as with my comments on expansion markets. Okay. Thank you. Our final question today is from Truman Patterson with Wolfe Research. Your line is open. Hey, good morning, everyone, and thanks for taking my questions. First, you know, we've had a nice run of lower realtor and broker commissions, you know, throughout 2021 and the first part of 2022. I'm just seeing if you all started to pull that lever to help augment sales, especially with, you know, quick move-in homes are generally preferred by realtors. Just seeing if you're increasing commissions there, and if so, you know, what sort of impact that could be to SG&A. Truman, you know, the view that we've had on realtor commissions, kind of through time is to be balanced with it. You know, we certainly appreciate when realtors are the procuring cause or, you know, truly bring kind of a buyer into our sales office and help with that process. You know, we've paid, I think, a market competitive broker commission. We're still in the same position today. You know, there's certainly, you know, cases here and there where you may have a above average broker commission as an incentive to move a particular property that's got a unique set of circumstances. Broadly, you won't see us as a strategy employ above average broker commissions. Gotcha. Okay. For the industry, has it generally kind of ticked up, across the board or, you know, specific bonuses, et cetera? I think it depends on the market, and it depends on the builder. I think there are certain builders that part of their strategy, their marketing strategy is largely directed toward outsized or above average broker commissions. You know, as the market gets tougher, you're seeing certain competitors that use that as maybe their primary marketing tool. You're starting to see those bigger numbers come into play. Okay. Gotcha. Could you all discuss, Ryan, you mentioned earlier about, you know, negotiations with trades and building products. But could you discuss if you're getting any early traction on the price negotiations of any specific trades like framers, or materials, building product categories, you know, really outside of lumber? Yeah, Truman, it's really the. You know, we've been talking with all of our trades, but I would tell you the more kind of recent and impactful conversations have been with the front-end trades. You know, so underground plumbing foundation, you know, up through shell, exterior shell, those conversations have been, you know, frequent and helpful. You know, those are the trades that are feeling the slowdown in the industry right now. They evaluate their kind of business situation and kind of the volume that they would like to be doing and what efficiencies look like, you know, we're engaged in what I would tell you are productive conversations. We need to pull cost out of housing generally. You know, that's our organization, and that's our trades as well. You know, I think we can all appreciate that we've seen unprecedented inflation both in materials and labor, and those costs are real. You know, I think we're trying to take a pragmatic but very intentful approach in you know, how we try to pull costs out of the system. Okay. Gotcha. Thank you, and good luck in the upcoming quarter. Thank you, Truman. That concludes our question and answer session. I'll turn it over to Jim Zeumer for any closing remarks. Appreciate everybody's time today. Sorry we could not get through all the questions, but we'll be available over the remainder of the day. Certainly feel free to call or email. Outside of that, we will look forward to speaking with you on our next call. Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.