Welcome to Lennar's Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the presentation, we will conduct a question-and-answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I will now turn the call over to Alex Lumpkin for the reading of the forward-looking statement.

Thank you, and good morning. Today's conference call may include forward-looking statements, including statements regarding Lennar's business, financial condition, results of operations, cash flows, strategies and prospects. Forward-looking statements represent only Lennar's estimates on the date of this conference call and are not intended to give any assurance as to actual future results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties. Many factors could affect future results and may cause Lennar's actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These factors include those described in yesterday's press release and our SEC filings, including those under the caption Risk Factors contained in Lennar's annual report on Form 10-K most recently filed with the SEC. Please note that Lennar assumes no obligation to update any forward-looking statements.

I would now like to introduce your host, Mr. Stuart Miller, Executive Chairman. Sir, you may begin.

Great, and good morning, everyone. Thank you for joining. This morning I’m here in Miami joined by Diane Bessette, our Chief Financial Officer; David Collins, our Controller and Vice President; Bruce Gross, CEO of Lennar Financial Services; and of course, Alex, who you just heard from. We also have joining us Rick Beckwitt, who is in Colorado; and Jon Jaffe, who is actually here in Miami, but not in the office. As usual, I'm going to give a macro and strategic Lennar overview. After my introductory remarks, Rick is going to talk about market strength around the country, land and community count as well. John will give an update on the supply chain, production and construction costs. And as usual, Diane will give detailed financial highlights and additional guidance, and then we'll answer as many questions as we can. And as usual, please limit to one question and one follow-up. So, let me go ahead and begin and start by saying that our fourth quarter and full year 2021 reflect extraordinary focus and determination by Lennar's management and operating teams across the country. While the housing market remains very strong in all of our major markets, the ability to actually execute and deliver results has been challenged and tested by the supply chain that is all but broken, the workforce that is short in numbers while driven to produce more, and the never-ending competition for scarce entitled land assets. Lennar's managers and operators have been absolute warriors, recognizing that our customers need and want their homes and the burden of a strong but stressed market simply can't stand in the way. The proud associates of Lennar are pleased to report an excellent quarter and year of accomplishments, in spite of the elusive garage doors and short supply, the unimaginable scarcity…

Thanks. Stuart. As you can tell from Stuart's opening comments, the housing market is very strong, our team is extremely well coordinated, and our financial results continue to benefit from a solid execution of our core operating strategies. Key to that has been running a fine tuned homebuilding machine, where we carefully match homebuilding production with sales on a community by community basis. We have continued to strategically sell our homes later in the construction cycle to maximize sales prices and to offset potential cost increase. To that end, we have slowed sales to generate higher profits. Our fourth quarter results prove out the success of this strategy, as we achieved gross margin increases of 300 basis points year-over-year, and 70 basis points sequentially. During the fourth quarter, we started 4.5 homes per community, sold 4.3 homes per community, and we ended the quarter with less than 160 completed unsold homes across our entire footprint. This production, margin-driven and sales focus program will continue to improve margin and lead to increase deliveries and profits in fiscal 2022. In the fourth quarter, new orders, deliveries, gross margins were solid in each of our operating regions. We continue to achieve price increases and saw strength in all product cost categories, from entry level to move up and in our active adult communities. Here is some color on some of the stronger markets across the country. Florida continues to benefit from core local demand, as well as in migration from the North East, the Midwest, and the West Coast, which is driving both sales pace and price. Inventory is extremely limited. The hottest markets in Florida continue to be Naples and Sarasota in the Southwest, Miami and Dade and Broward in the Southeast and Tampa. Orlando has also been sustaining a strong recovery…

Thanks, Rick. I’ll now give an update on how we managed through the impact of supply chain disruptions in the fourth quarter, and how we’ve planned for managing through them in 2022. As Stuart noted, we've had to deal with our fair share of disruptions. Similar to the third quarter, these disruptions are affecting different trades at different times and in different geographies. They're intermittent, and they continue. It continues to be a game of whack a mole that creates stress and uncertainty in already strained labor base as materials often do not show up when expected. In the fourth quarter, the supply categories that were most impacted on a national basis were garage doors, windows, paint, HVAC condensers, and flex dock and cabinets. Regionally, there were a variety of disruptions in the delivery of materials and/or the availability of labor. On average, this increased our fourth quarter cycle time by an additional two weeks from the third quarter, bringing the year-over-year increase to a range of four to six weeks. Despite these disruptions and the associated increase in cycle time, the team at Lennar still managed to deliver approximately 18,000 homes in the quarter as expected. This was in large part due to a record number of starts in our second quarter of 19,500 homes to ensure we had enough inventory to meet our delivery goals. Additionally, the extraordinary supply chain, purchasing and construction teams at Lennar have never been better coordinated, and are managing our scheduling on a day by day basis, in partnership with each of our trade partners. We continue to work with our partners to solve issues in real time, as well as planning ahead for our future demand needs. Examples of the strength of our strategic trade partnerships is when we had to take…

Thank you, Jon, and good morning, everyone. Stuart, Rick and Jon have provided a great deal of color regarding our homebuilding performance. So therefore, I'm going to spend a few minutes on the results of our other business segments and our balance sheet, and then provide detailed guidance for Q1 2022 and high level guidance for fiscal year 2022. So starting with financial services, in the fourth quarter, our financial services team produced $111 million of operating earnings. Mortgage operating earnings decreased to $77 million, compared to $125 million in the prior year. As we've indicated for several quarters, the mortgage market has become more competitive with purchase business as refinance volumes have declined. As a result, secondary margins have been decreasing. This was the primary driver for our fourth quarter lower secondary margins as compared to the prior year. Title operating earnings was $30 million compared to $28 million in the prior year. Title earnings increased due to growth in profit per transaction, partially offset by a decrease in volume driven by a reduction in refinance orders. Quarter after quarter title team has been focused on automation and efficiencies with a goal of driving higher productivity. And then turning to Lennar Other, for the fourth quarter, our Lennar other segments had an operating loss of $176 million. This loss was primarily the result of non-cash mark to market losses on our strategic technology investments, which totals $180 million. As we've mentioned before, we are required to mark to market many of our technology investments that are publicly traded, and that valuation will fluctuate from quarter to quarter. While the technology investment had downside with losses for this quarter, overall for the fiscal year, our investments provided approximately $500 million of unrealized gains. In addition, and most important, our investments…

Thank you. We will now begin the question-and-answer session of today's conference call. [Operator Instructions] Our first question comes from Susan Maklari from Goldman Sachs. Please go ahead.

Thank you. Good morning, everyone, and congrats on a great quarter.

Thanks.

My first question is really, thinking about the positive setup that you described, Stuart, against supply relative to demand, and that against the guide that you've given us for 2022. Can you kind of walk us through a bit and maybe talk through where you see the potential for upside and downside within that, and especially maybe as we think about the upcoming selling season and how you're thinking about some of those pieces coming together?

Sure. Let me -- before answering the question, I just want a second, Diane’s congratulations to the finance team with David Collins for the year. A lot of hard work goes into getting the year and quarter close. They're doing great job. But let me answer that Susan, the reality that we're seeing in the field as we have come to our year-end, and even as we go into December is the market remains strong. Traditional seasonality is coming back. But still relative to that seasonality, we're seeing basic strength in the marketplace. The constraining factor right now is the production cycle. And we have been decidedly focused on matching our sales pace with that production cycle, recognizing that we're going to maximize execution and bottom line by keeping those two pieces in parity. So, as we think about the upcoming selling season, it is feeling to us as we look at the market, as we look at week by week sales, traffic, demand, it is feeling to us that this is going to be a very, very strong selling season. It is going to be more of a traditional selling season, traditional selling season in that as we get to the end of February, March, we expect to see even more of a pickup. But make no mistake, it's strong out there right now. With that said, the production cycle, as I've noted, the cycle times have been extending through the quarters, we're cognizant of that. We recognize that it's a bit of, as Jon said, whack a mole out there. One day, it's garage doors, another day, it's windows or paint. And that kind of configuration is at least in our world, starting to feel like we're stabilizing it. I noted our purchasing team and the work that they have done around our builder of choice programs, where Everything's Included programs, working to really stabilize that purchasing side and logistics side of our business. And as we go forward, I think, you're going to see that parity that pairing of production cycles stabilizing and high demand in the marketplace, start to move things towards what I think is going to be more of an upside in 2022. And we'll just have to wait and see if it plays out that way. We've clearly conservatized some of our numbers to recognize the landscape that exists today. And we'll see how the market plays out as we go forward.

Okay. That's very helpful color. Thank you. And my follow-up is, shifting to capital allocation, appreciating all the detail that Diane gave in her commentary around that. As we sort of look out and we think about, the community count growth and obviously the overall growth that you're sort of building and ramping the business, too. Can you talk about how you think about also balancing that with the shareholder returns and improving the overall return profile of the business, even as you kind of aim for a faster growth pace?

What is it that you want me to compare to? I missed that part, the first part.

Well, just sort of thinking about as you are obviously investing for growth going forward, right, but at the same time, you’re - it seems like you're a lot more focused on shareholder returns as well. And thinking about the considerable buyback you did this quarter, how should we think about that going forward and your continued diligence and dedication to the shareholder return piece?

Okay. So look, I think, we've made it clear in the past, and I think our fourth quarter performance relative to share buyback made it even more clear. We're in a cash generation mode. We are clearly generating a lot of excess cash. And we're not shy about opportunistically jumping into the market and making strategic purchases, I think that you can expect that to continue as we go forward. We're laser focused on returns. We're very focused on bringing our asset base down, as we amp up our bottom line returns. And I think that you've heard that as a strategic message, you're going to see it over and over again in execution. And I think that there's a balance, we're going to pay down debt, we're going to limber up the balance sheet. You can expect that we're going to pay down the debt that's coming due over the summer, what is it $575 million. We're going to pay that out of cash flow, but we're going to continue a stock buyback program as we focus on those bottom line returns.

Gotcha. Okay, thank you. That's very helpful, and good luck.

Okay. Thank you.

Thank you. Our next question comes from Truman Patterson from Wolfe Research. Please go ahead.

Good morning.

Hey, good morning, everyone, and thanks for taking my questions. I appreciate it. Stuart, in your prepared remarks, I believe you were talking about the SpinCo being somewhat asset light, and I think you even mentioned potentially liquidating a portion of it. Is the asset spin still going to be about $5 billion to $6 billion? And then, in tandem with that, you are targeting 65% option land by the end of this year. Where do you think this could go after the Spin 80% plus? And with that I'm kind of thinking just longer-term, over the next two, three years, I mean, is there any possibility, maybe you’re getting 80%, 90% option land?

So, we're going to take that in stride and let's play that out over time. I don't want to get out over my skis. Your first question relative to the SpinCo, we have been – look, you have to -- as we've configured SpinCo, we've gone back and forth on an asset-heavier, asset-lighter approach. We think that in terms of defining the company going forward a best program going forward as an asset-light approach to SpinCo. That means that many of the assets that we targeted at the outset, will end up either in AUM or we will liquidate an orderly course on the Lennar books. It's still the same basic configuration of asset base. We've just been -- it's all been about turning assets into cash, and deploying the cash or deploying the assets, so that we lighten up our inventory and we end up with a spun ancillary business program that enables our pure play focus on homebuilding and financial services. So it's kind of a zero sum game. The asset base is still the same, it's just where the asset is going to fall, is going to fall balance sheet, AUM or liquidation, and all of its going to basically solve through the same equation.

Okay. And, for my follow-up question, you all I believe are guiding the low double digit community count growth in ‘22. Over the past four quarters, you've been starting about 4.5 to five homes per community per month. Are you pretty comfortable with this range going forward as you open more communities, just given all the constraints in the market? And, hypothetical internally, do you have the act of land and labor available to possibly move above that range if the material supply chain begins improving throughout 2022?

Let me invite Rick and then Jon to weigh in on this.

Yeah. So on the community count, I think, as I said in my remarks, we're really well-positioned right now. Why we'll dip a little bit in Q1, it's really just a timing issue. It's tough to map some of these things out over a 12 or 24-month timeframe. But we will see solid growth in the back-half of this year starting in Q2. And based on our land pipeline, we're pretty comfortable that we'll see continued growth in ‘23. As I said, we increased our overall owned and controlled pipeline land position by 44%, year-over-year. That's a lot of work from our teams. And all of that really increase came from option contracts. So it's remarkable repositioning and change in direction of the ship, all during a time period where we're really driving growth. I'll let Jon talk about start pace, because I think we're pretty comfortable.

Yeah, we're very comfortable that we'll be able to look at ‘22 as an increase since starts over ‘21. So that some of that typical seasonality with Q2 being our strongest start quarter. But I think as we look across our platform, we are well-positioned with our relationship with our trade partners to be able to manage a very healthy start pace, and to the extent that we do see more stabilization relative to the supply chain. I think what you'll see is a tightening of the cycle time more than the increasing start pace. And we're already planning on maintain a very disciplined approach to our start pace. What we'll pull in is the cycle time from the extended periods that we're seeing now.

Okay. Thanks for that. And good luck on the upcoming year.

Thanks.

Thank you. Our next question comes from Mike Rehaut from JP Morgan. Please go ahead.

Thanks. Good morning, everyone. And thanks for taking my question or questions. First, just on the gross margins, I think the guidance initially last night, maybe earlier this morning caught a some people off guard. With the first quarter down sequentially, certainly is it consistent though with your before ‘21, you had a consistent sequential decline. I was hoping to delve into number one, if you could kind of break out perhaps what was the incremental negative headwind, in terms of lumber? I believe you mentioned that, you expect peak lumber costs in the first quarter versus just the reduced overhead leverage. And as you think about the full year guidance, I think, more importantly even what are some of the drivers there in terms of upside or downside. And the lumber costs assumption for the back half of the year.

So let me start by saying that our margins are very strong. When you look at the first quarter, you're basically looking at peak lumber, and you're getting to the edge of peak lumber, as we fall into the second quarter, where it really starts to moderate. And number two, you're really looking at leverage relative to field expenses. So, you see a little bit of a minor down in the first quarter, but our margins are still coming in at a very strong level. And you see that in our look forward to 2022. And, I’d just say that, like relative to looking ahead, it's always difficult to look at numerous quarters particularly in the market, where labor and materials and logistics are moving around. I think that we feel pretty optimistic about our margins as we go forward. And I think you see the beginnings of that reflected in our year-end or our total year 2022 projections, or forecast. Jon, you want to weigh in?

I think you pretty much covered it. The peak pricing of lumber will hit us in Q1, and then we'll start benefiting from significantly lower prices. And, if you follow what's happening in lumber now, we'll probably see some uptick as we look at lumber purchases in the first, second, second quarters that will impact some the back-half of the year, but likely offset by what we spoke about in terms of very strong spring selling season, which should increase our ASP to offset that.

Right. Okay. No, that's helpful. Thank you for that. Secondly, if I could just a couple of clarifications on earlier questions. Number one around the share repurchase, it seems like you have a lot less wood to chop in terms of debt pay down this upcoming year, at the same time, presumably, you'd have a higher amount, equal to higher amount of cash flow. Everything else equal that that would point to potentially a greater amount of share repurchase in ‘22. I just want to make sure I'm thinking about that right. And just lastly, on the Spin that it did sound like in an answer to Truman's question, you're kind of still expecting to offload about $5 billion to $6 billion of assets one way or another, if I heard you right?

Okay. So the answer to question one is, as I noted, we will continue to buy back stock on an opportunistic basis. I don't think there's any flaw in your thinking as to order of magnitude of cash flow, and how we're situated to be able to do that. I don't want to speak specifically about stock buybacks, I don't want to kind of lay out a roadmap, but we're going to do that opportunistically and we have significant cash flow as we look forward. As it relates to number two, the answer is yes, that's the answer that we gave. But basically laid out three buckets, it's either going to be balance sheet for SpinCo, AUM within SpinCo, or liquidation with cash flow enabling greater stock buyback, and that’s how we're focusing on it.

Great. Thanks so much.

Okay, Mike.

Thank you. Our next question comes from Stephen Kim from Evercore ISI. Please go ahead.

Yeah, thanks a lot, guys, lots of good info here. I wanted to start by talking about the supply chain and your cycle times. So if we just did this ratio, we compared your fiscal ‘22 closings guide full year closings guide to what you actually did in this past fourth quarter. And we looked at that through time. And what we see is that your guide is assuming a ratio or a multiple of 4Q ‘21 closings, that's pretty consistent with previous years. But given how unusual and crazy the supply chain was in 4Q, and your earlier comments that you think that it's going to start to get better. I'm kind of curious why you're not expecting that you could close more homes, relative to what you just did in the 4Q than in prior years? And then at a higher level, once your cycle times do stabilize or even contract, I'm curious how you're going to bounce orders relative to your production? Like, should we expect to see order growth reaccelerate, while your backlog turnover stays kind of low? Or, should we expect to see your turnover rates increase and your order growth continue to remain constrained for a while?

Jon, Rick.

So, I think Steve, we've just taken a straight shot look at what we know today about our cycle times and projected production. As I said in my response to the prior question, if we do see the stabilization, I think what you'll see is a reduction in our cycle time versus our material pickup in our start pace. And if that does happen, we should lead to a pickup in closings. Relative to sale, this sort of comment, as Rick commented, we see a very strong sales environment. So to the extent that we change our start pace, not a closing pace, but our start pace, we would adjust our sales pace to match that. But as I said, I don't see a lot of upside in terms of increasing start pace. So I would think our sales would remain pretty consistent with the way that we planned them.

And then price will just be the thing that sort of equalizes that?

Right. I just don't see any reason to sell ahead of how we're starting homes.

Rick.

Yeah, we could sell another 1,000 homes in the quarter if we wanted to without too much effort, it just doesn't make sense to do that. Jon and Stuart are exactly right. Does it make sense to get over skis, but we're good skiers, the market starts to improve a little bit. And the supply chain normalizes itself out, we'll close more homes. It's just the reality of the situation.

So Steve, let me just add to this and say, at the end of the day, the math would indicate just simple math would indicate that you're right. We've pushed some closings from 2021 into ‘22. We've increased starts through the year. And there should be higher closings and opportunities to sell kind of as we go forward. The choppiness of the supply chain really tells us to stay on the conservative side, until we see what the market actually does, and how things actually play out. So if you just sit down and look at the math, I understand your question, it's an excellent question. But if you look at the way the market is playing out, and how cycle times are moving, and the whack a mole kind of environment that we're in, we're just going to let it play out not get over our skis, as Rick says.

Yeah, makes perfect sense. And I believe you actually used a derivative of conservatism in your opening remarks. I think you said you conservatized some assumptions in your guidance. And so I wanted to pull on that thread a little bit that conservatism thread. Last year, your gross margin ultimately exceeded your initial guide by about 300 basis points. And despite the fact that there was this massive, unforeseen spike in lumber costs and scrambling costs from the supply chain and all that. And so, you've addressed the lumber a little bit in the fact that the first quarter is going to have a little bit of a headwind. I assume you meant by that, that the $4.18 increase is going to be bigger in the first quarter. I just want to confirm that maybe Diane, you can confirm that. But then the other big part of it is home price, right. So nationally, home prices look like they're still rising at about 1% a month, you just mentioned that you think a strong selling season is going to drive your ASP higher. But your ASP guide for the full year 2022 is actually below the order price that you booked this quarter. And I'm wondering if there's anything specific that is driving that or again, if it's just conservatism incorporated in your outlook?

Let me just say and I'm sorry, Rick, for stepping on you. But let me just say that we are a little bit shy about projecting too much ASP growth. And I think that, it's going to be interesting also to see what happens with interest rates, which I don't know how to factor in either right now. I kind of like, what we're looking at and what we're projecting, I feel pretty good about our ability to accomplish and maybe exceed some of those metrics. Rick, I stepped on you, I apologize.

Yeah. And I agree with exactly what Stuart said that there's a good feel in the market. As I walk through the markets, there's market strength in all product categories. We're seeing strength, it's all about getting the homes built, and reducing that cycle time. Sales price, we have good room in sales prices. Some of the ASP is a higher percentage of deliveries in the Texas markets, which are a little bit lower price markets. But we'll see how the year progresses.

And Steve, answer to the first part of your question is yes, Q1 should be the peak lumber prices. And by the end of the quarter, we'll start to see them fall. But overall for the quarter, it'll be up from the fourth quarter.

Okay. Thank you very much, guys. Appreciate it.

Thank you, Steve.

Thank you. Our next question comes from Alan Ratner from Zelman & Associates. Please go ahead.

Hey, guys, good afternoon now. And thank you for taking the questions. First, I'd love to expand a little bit on that pricing conversation you just had with Steve. I totally understand the conservatism there not wanting to get too bullish, especially with the uncertainty on the rate environment. But, if I look at your ‘21 pricing a while you guys obviously grew prices at a very nice rate. And certainly, based on your margin, it looks like you took advantage of the strong pricing environment. The growth was a little bit less than some of the other builders. And I'm curious if there's any -- when you look at your business on the pricing side, are there any actions you guys are taking, recognizing affordability constraints where you're trying to offset maybe apples-to-apples price gains with either building smaller square footage product, maybe moving out into some more affordable sub-markets as a way to keep your product more affordable? Or, am I reading too much into that and you'll tell me, no, it's just a mix of deliveries from quarter to quarter?

Rick?

Well, it's a combination of all those things. As we move out to some other markets that are a little bit further out those are generally the lower priced compared to sort of the more infill style. We are adjusting and building a smaller footprint in many of our markets. And, Jon and I constantly balance with the team pace and price. And you'll continue to see good ASP growth.

I think, also, as Rick mentioned earlier, I don't think it's a quarter-to-quarter mix as much as Rick and I and the divisions have been very focused on driving down the price curve as we deal with affordability. So we're consciously trying to produce product that is a smaller, more affordable, as well as a significant focus on picking up our market share in Texas, which does drive better ASP.

Perfect. Thanks for the color there, guys. Second question on the land strategy, the lot count. You guys highlighted the 40% plus growth in total lots controlled, and you're not necessarily unique in that standpoint. I think the public builders as a group are probably up 30%, 40% year-over-year, so clearly there's a huge push for tying up more land. And, on one hand, it's all tied up through option contracts, which is great, because it's obviously capital efficient. But on the other hand, it doesn't seem like the markets going to be capable of delivering that type of growth anytime soon. So effectively, the way I look at the tail of your land supply is effectively continuing to grow, unless we could just see these huge bottlenecks resolved here over the next year or two. And, while it's off balance sheet, you still do have a billion dollars more of capital tied up in option deposits today than you had five or six quarters ago. So it's not completely asset free or capital free. So I'm just curious, should we expect that growth to maybe start slowing here? Or, are you comfortable effectively growing that tail, because you want to have your kind of arms around all corners of the market for when the market does resolve itself from these constraints?

Look, I would say, Alan that on an overall for all homebuilders basis, the math and your questions probably hold water. And the positive side of that is, this market is not going to enable there to be a sizeable overbuilding, which has been an overhang in past cycles. On the other side, I think that if you look at our land strategy and programming, I think that the land market is definitely constrained. But I think that given our position in our strategic markets, we're just going to be able to outperform, and I think that we're really positioned to be able to do that. Rick, you want to weigh in on that?

We feel very comfortable with what we've done, feeling incredibly comfortable and pleased with the relationships that we've established across the U.S. with just some incredible land folks, regional developers. And that's what's really propelling this, it's given us an opportunity to get involved with some larger communities that are battleship communities that will have multiple price points and products going at various points in time, that have the ability to feed on themselves. I just really couldn't be more pleased with where we are right now.

All right. Thanks a lot, guys. I appreciate it.

Thank you. And let's make the next one the last question, please.

Absolutely. Our last question comes from Matthew Bouley from Barclays.

They totally didn't answer that. Hey, sorry, that wasn't me. Thanks for squeezing me in here, and congrats on the quarter. So just a clarification around what's assumed in the guide related to supply chain. So you mentioned in the Q&A that you're embedding conservatism in the guide. But I think at the top, Stuart, you mentioned in the second-half that you do expect some I think you said mitigation in the supply chain disruptions. Just curious, as we think about closings and community guide, kind of what degree of contingency is built into that guide? Or, is there an assumption within the guide that that supply chain does get better somewhat? Thank you.

So you're right. I did daylight that the second-half of the year, we expect to see some stabilization in the supply chain. And what we basically daylighted is that it's self-imposed stabilization, meaning we've increased the number of starts in order to be able to accommodate the fact that the cycle time has expanded, deliveries are somewhat impaired. I think the supply chain disruptions, I can't predict what's going to actually happen in the field. But what we've done is we've put buffers out there in increased starts, our builder of choice program working with our subcontractor base or our building partner base, to activate kind of safeguards and programming to enable a better delivery system and logistics system. And additionally, our Everything's Included program, really reducing the number of skews in our product offering is working to our benefit and helps with our builder of choice program to really create embedded buffers that I think are going to really position us well in the second-half of the year. So, your question is what kind of conservatism have we injected. I think that we're kind of expecting more of a steady state program through the year. We're certainly not getting over our skis and expecting that everything will stabilize, and rise to the level of perfection as we get to the second-half. I can't give you a number in that regard. But conceptually, we've taken a conservative approach to looking to the remainder of the year. But we think that the market is going to stabilize that at least on the supply chain side.

That's great color. Thank you for that, Stuart. And then last one on the gross margin guide, just to clarify the cadence here. Assuming, obviously the normal step down in Q1 with fixed field expenses. And simply looking at the math for getting to the full year guide, it's almost like assuming a normal levering of your fixed expenses as you go through the year without really much else that different is simply doing the math. So I'm just curious between you mentioned clearly lumber tailwinds emerging as you get to Q2, I'm wondering if there's any other pressures to the gross margin that we should be aware of. Rick, you just mentioned more mix to Texas, lower priced homes, for example, or perhaps the mix of delivering option lots. Just what other headwinds might be part of that gross margin guide? Thank you.

Well, look, I think that you have a number of crosscurrents in just the cost side of the equation. Yes, lumber is moderating and we're going to bypass the first quarter’s peak. But at the same time, you have pressures from labor and materials in other areas that are clearly offsets to the benefit that we'll get from the lumber reduction. So, the cost side of the equation is moving around. We'll still have to see where ASP goes. And you're correct, that when you start to normalize our field expense and lumber starts coming down, there's somewhat of a gap in some of our numbers. But we're going to have to see how that gaps filled by the other traditional areas where costs are going up. Don't underestimate what's happening in labor. In a constrained labor market, you got to pay more. And sometimes to get things done, you got to pay a lot more. Same thing on logistics. So that's what's happening in the field right now. You can't predict it. All we can do is lay out our expectations. And that's what we've done.

Great. Well, thanks. Good luck and happy holidays.

Okay. Thank you. Thank you very much. So let's leave it there. Thank you, everyone for joining us. We look forward to reporting 2022 quarter by quarter. And we expect a very positive record breaking year from 2022. Thank you.

Thank you, all for participating in today's conference. You may disconnect your lines and enjoy the rest of your day.