Q1 2024 D. R. Horton Inc Earnings Call

Unknown Executive: Good morning and welcome to the first quarter 2024 earnings conference call for D.R. Horton, America's Builder, the largest builder in the United States.

Unknown Executive: At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded.

Jessica Hansen: I will now turn the call over to Jessica Hansen, Senior Vice President of Communications for D.R. Horton. Thank you, Holly and good morning.

Jessica Hansen: Welcome to our call to discuss our financial results for the first quarter of fiscal 2024. Before we get started, today's call includes forward looking statements as defined by the private securities litigation reform act of 1995. Although D.R.

Jessica Hansen: Horton believes any such statements are based on reasonable assumptions, there is no assurance that actual outcomes will not be materially different. All forward looking statements are based upon information available to D.R. Horton on the date of this conference call, and D.R. Horton does not undertake any obligation to publicly update, or revise any forward looking statements. Additional information about factors that could lead to material changes and performance is contained in D.R. Horton's in a report on Form 10K, which is filed with the Securities and Exchange Commission.

Jessica Hansen: This morning's earnings release can be found on our website at investor. D.R. Horton.com, and we plan to file our 10Q later this week. After this call, we will post updated investor and supplementary data presentations to our investor relations site on the presentation section under news and events for your reference.

Paul Romanowski: Now, I will turn the call over to Paul Romanovsky, our president and CEO. Thank you, Jessica, and good morning.

Paul Romanowski: I am pleased to also be joined on this call by Mike Murray, our Executive Vice President and Chief Operating Officer, and Bill Wheat, our Executive Vice President and Chief Financial Officer. For the first quarter, the D.R. Horton team delivered solid results. Highlighted by earnings of $2.82 per diluted share, our consolidated pre-tax income was $1.2 billion on a 6% increase in revenues to $7.7 billion, with a pre-tax profit margin of 16.1%. Our home building return on inventory for the low inflation and mortgage interest rates remain elevated.

Paul Romanowski: Our net sales orders increased 35% from the prior year quarter, as the supply of both new and existing homes at affordable price points is still limited and demographics supporting housing demand remain favorable. Early signs for the spring selling season have been encouraging. We will continue to focus on consolidating market share and are well positioned for the spring with 42,600 homes in inventory. And our average construction cycle times returning to more normal levels.

Paul Romanowski: We expect our housing inventory terms to improve in fiscal 2024 compared to fiscal 2023 and our ongoing focus on capital efficiency to produce strong home building operating cash flows and consistent returns. My earnings for the first quarter of fiscal 2024 increased 2% $2.82 per diluted share compared to $2.76 per share in the prior year quarter. The income for the quarter was $947 million on consolidated revenues of $7.7 billion. Rehaut.

Bill Wheat: Our first quarter home sales revenues were $7.3 billion on $19,340 homes closed compared to $6.7 billion on $17,340 homes closed in the prior year. Our average closing price for the quarter was $376,200 down 2% sequentially and down 3% from the prior year quarter, Bill. Our net sales orders in the first quarter increased 35% to $18,069 homes[inaudible] up 2% from the prior year quarter. To adjust to changing market conditions during fiscal 2023 and into fiscal 2024, we have increased our use of incentives and reduced home prices and sizes of our home offerings where necessary to provide better affordability to home buyers.

Bill Wheat: Based on current market conditions, mortgage rates, and continued affordability challenges, we expect our incentive levels to remain elevated in the near term. Our sales volumes can be significantly affected by changes in mortgage rates, and other economic factors. However, we will continue to start homes and maintain sufficient inventory to meet sales demand and aggregate market share.

Bill Wheat: Jessica? Our gross profit margin on home sales revenues in the first quarter was 22.9%. Down 220 basis points sequentially from the September quarter. 100 basis points of the sequential margin decline related to the decrease in the value of hedging instruments we use to offer below market interest rate financing to our home buyers. While the remainder was primarily due to an increase in incentive levels on homes closed during the quarter. On a per-square-foot basis, home sales revenues were down 1.5% in the quarter and lot costs increased 1.5% while thick and brick costs decreased 1%.

Bill Wheat: As Bill mentioned, we expect our incentive levels to remain elevated in the near term. But with mortgage rates generally declining from the recent highs, we expect our home sales gross margin in the second quarter to be similar to the first quarter. Our home sales gross margin for the full year of fiscal 2024 will be dependent on the strength of demand and other market conditions during the spring in addition to changes in mortgage interest rates.

Bill Wheat: Bill? In the first quarter, our home building SGNA expenses increased by 14% from last year. And home building SGNA expense as a percentage of revenues was 8.3% up 50 basis points from the same quarter in the prior year. Due primarily to expansion of our operations to support future growth and an increase in equity and stock market based compensation expense. We will continue to control our SGNA while ensuring that our platform adequately supports our business.

Paul Romanowski: We started in 19,900 homes in the December quarter and ended the quarter with 42,600 homes in inventory, down 1% from a year ago and up 1% sequentially. 28,800 of our homes in December 31st were unsold, 9,000 of our total unsold homes were completed, of which 730 had been completed for greater than six months. Our current level of homes in inventory puts us in a strong position for the upcoming spring selling season.

Paul Romanowski: For homes we closed in the first quarter, our construction cycle times continued to improve, and we are essentially back to our historical average of roughly four months from the start to complete. We will continue to adjust our homes in inventory and start space based on market conditions and expect our housing inventory turns to improve in fiscal 2024 as compared to fiscal 2023. Mike, our home building lot position at December 31st consisted of approximately 600 and 7,000 lots of which 24% were owned and 76% were controlled through purchase contracts.

Paul Romanowski: 39% of our total own lots are finished and 52% of our controlled lots are or will be finished when we purchase them. Our capital efficient and flexible lot portfolio is the key to our strong competitive position. Our first quarter home building investments in lots land and development totaled $2.4 billion up 3% sequentially. Our investment this quarter consisted of $1.4 billion per finished lot, $740 million for land development and $270 million for land acquisition.

Paul Romanowski: In the first quarter, our rental operations generated $31 million of pre-tax income on $195 million of revenues from the sale of 379 single-family rental homes and 300 multi-family rental units. Our rental property inventory of December 31st was $3 billion which consisted of $1.4 billion of single-family rental properties and $1.6 billion of multi-family rental properties. We are not providing separate guidance for our rental segment this year due to the uncertainty regarding the timing of closings caused by interest rate volatility and capital market fluctuations. Based on our current pipeline of projects, we expect our rental closings and revenues in the second quarter to exceed the first quarter.

Paul Romanowski: Jessica? Forster, our majority-owned residential lot development company reported revenues of $306 million for the first quarter on $3,150 million with pre-tax income of $51 million. Forster's owned and controlled lot position in December 31st was $82,400. 61% of Forster's owned lots are under contract with or subject to a right-of-first offer to deal with. $270 million of our finished lots purchased in the first quarter were from Forster. Forster had more than $840 million of liquidity at quarter end with a net debt to capital ratio of 14.9%.

Paul Romanowski: Forster remains uniquely positioned to capitalize on the shortage of finished lots for the humbling industry and to aggregate significant market share over the next few years with its strong balance sheet, lot supply, and relationship with the important.

Paul Romanowski: Mike? Financial services earned $66 million of pre-tax income the first quarter on $193 million of revenues, resulting in a pre-tax profit margin of $34.3. Horton, Susan Maklari, David Auld, Michael R. Horton Horton Horton Horton Horton Horton Horton Horton Horton Horton Horton Horton Horton Horton Horton Horton Horton Horton Horton For the full year of fiscal 2024, we now expect to generate consolidated revenues of approximately $36 to $37.3 billion, and expect homes closed by our home building operations to be in the range of $87,000 to $90,000 homes.

Paul Romanowski: We expect to generate approximately $3 billion of cash flow from our home building operations. We also plan to repurchase approximately $1.5 billion of our common stock to continue reducing our outstanding share count in addition to annual dividend payments of around $400 million. Finally, we now expect an income tax rate for fiscal 2024 of our approximately 24%. We remain focused on balancing our cash flow utilization priorities to grow our operations, pay an increased dividend and consistently repurchase shares while maintaining strong liquidity and conservative leverage.

Paul Romanowski: Paul? In closing, our results and position reflect our experienced teams, industry leading market share, broad geographic footprint, and diverse product offerings. All of these are key components of our operating platform that sustain our ability to produce consistent returns growth and cash flow while continuing to aggregate market share. We will maintain our disciplined approach to investing capital to enhance the long-term value of the company, which includes returning capital to our shareholders through both dividends and share purchases on a consistent basis.

Paul Romanowski: Thank you to the entire DR Horton family of employees, land developers, trade partners, vendors, and real estate agents for your continued focus and hard work. This concludes our prepared remarks. We will now host questions. Certainly.

Unknown Executive: At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We do ask to please limit yourself to one question and one follow-up question. One moment please while we pull for questions.

Stephen Kim: Your first question for today is coming from Stephen Kim with Evercore ISI. Yeah, thanks very much guys. Appreciate it. And thanks for all your commentary.

Stephen Kim: I guess just to start off with, could you clarify, I think you mentioned at the beginning of the call about 100 basis points of the gross margin was affected by hedging related to, I think you said great buy downs. And in your guide for 2Q, can you also just clarify what, I thought I heard you said 20,000 to 20,500 closings and 8.1 to 8.3 billion in consolidated revenues just want to make sure I heard those right. Yes, Steve.

Stephen Kim: That's correct. For the second quarter, 8.1 to 8.3 billion dollars of consolidated revenues and closings of 20,000 to 20,500 homes. And in terms of home sales, gross margin, you're also correct that 100 basis points the impact was due to the rate buy downs that we've been offering and adjustments we had to make to that position during the quarter on a sequential basis. But what we've guided to for Q2 versus Q1 is relatively flat in terms of a 22.6 to 23.1 percent gross margin in Q2 versus the 22.9 percent that we posted this quarter. Gotcha. And that 100 basis points, is that something that, you know, you have done in the past? Is that a number that, you know, compares?

Stephen Kim: I guess you can give us some sense what that number has been over the last couple of quarters. Steve, this quarter is the first time that that amount has been significant at all. It has essentially adjusting the valuation of our heads. And it's typically a very small move either up or down, but this quarter, given the significant volatility and rates during the quarter, forced mortgage rates moved up to 8% in November, and then dropped sharply in December.

Stephen Kim: Those hedging positions had to be adjusted to reflect that. So it was an unusual situation, this quarter. Generally, we don't plan for any significant move one way or the other. And if you were to include that chart, we would have landed in the gross margin. And that would have been the first time that we were able to do that.

Stephen Kim: The margin that we had guided you for the quarter, that was really the reason that we came in below. Gotcha. Okay, that's really helpful. I'm sure there's going to be more questions about the guide, but I wanted to talk about your capital allocation. And in particular, I guess, you know, I know that, you know, the mantra for D.R. Horton over the last several years now has been about consistency and predictability and reliability. And that sort of thing, and you've done a great job there.

Stephen Kim: But as I think about your overall, your cash position, it looks like you have sufficient cash currently. You've got another $3 billion coming. I think maybe, you know, a little less than $2 billion is spoken for with buybacks and dividends. I was curious about that extra million. And I'm curious how land investment factors into that and rental. So those are the two other big pieces it would theme.

Paul Romanowski: So I guess when I look at your land, your land supply has been coming down for, had been coming down for a number of years, but now for about three years, your land and your supply has been flat. I was wondering, do you think you can bring down that land investment down further, or is this kind of the level that you think that we're going to be, you know, seeing in the future?

Paul Romanowski: And then in rental, can you give us a sense for what you think the growth in the rental inventory may be over the course of the next year? Steve, when we look at our land position, we feel that, you know, the forward one year's roughly supply of land that we own is important to maintain the production velocity in our neighborhoods. Bringing that down significantly is going to be incremental because it's going to be with more developers providing finished lots for us versus self development. And I think we're back up to 76% controlled, which is up from where it's been the past few quarters.

Paul Romanowski: So we're going to continue to incrementally look to control more land and acquire lots that are being finished by others. But we will still need to maintain a supply of land on our balance sheet lots, primarily on our balance sheet, to feed the production. And the rental inventory? And the rental inventory, you know, will probably be investing some during fiscal 24 to grow that platform. It's getting closer to a good sustainable volume that'll produce a consistent revenues and profits quarter to quarter, but it's still on the growth.

Stephen Kim: [inaudible] In terms of overall capital allocation, as you already alluded to, we did guide to the one and a half million dollars of common stock. We've got the anal dividend payments of 400 million. We also have a sizable debt maturity that's very early in fiscal 25 of 500 million dollars in October. So, you know, too early to say what we're going to do with that, and we're very focused on maintaining conservative leverage and we'll see as we get closer, but that is something we're going to be prepared to potentially pay out a cash if we don't feel like the market's right. But to go reify that. Great. Thanks very much, guys.

Carl Reichardt: Your next question is coming from Carl Reichardt with BTIG. I want to talk about SG&A per second.

Bill Wheat: Bill, can you talk about the basis points associated with the incentive comp this quarter, and then you talked about it being also ahead of some some growth you're planning. Can you talk a little bit about community kind of expansion and whether or not this also might be related to some of the new market to vendor more recently. Thanks.

Bill Wheat: Sure. Yeah. The first factor this quarter, we could point to our 14% increase in our average selling community. So, that's obviously a significant increase. Our SG&A is up 14% this quarter year or year as well. So, that's a bigger move than we have had in a while. That's positioning us to be able to provide the increased guidance and you have seen our market count increase over the last several years. Obviously, we expect in time to achieve some leverage on that.

Bill Wheat: And as we grow our revenues, we we would expect our SG&A to come back down to historic levels. But I think we've got a couple of quarters here where we're we're going to see our SG&A a little bit higher as a percentage of revenues, primarily driven by that. This quarter we have one additional factor and really it's just a timing factor in terms of the impact of equity and stock base comp.

Bill Wheat: We typically have an amount that that we incur typically in our second quarter or third quarter, but the timing of some grants this year were a little bit earlier into our first quarter. So, there's an amount of roughly $13 million that it was incurring Q1 in this quarter that typically would be a Q2 or Q2 event. Okay, that's small. So, it's different this year. Okay. Thank you for that.

Carl Reichardt: And then I have a bigger picture question for Paul. So, obviously the biggest news that we've seen in the business for a while is large acquisition by an offshore player of a domestic home builder. And historically, long ago, Horton was was a fairly significant acquire or public companies, other private companies and still here and there. I've we've seen you look at some deals. Paul, can you talk a little bit about your perspective?

Paul Romanowski: What do you think whether or not acquisitions or something that Horton would consider? Historically, I know you've done it more recently. You've talked about doing every most of your growth greenfield. I'd just like to know given current conditions where you sit on this sort of big picture. Thanks much.

Paul Romanowski: Yes, Carl. You know, we still today look at continually look at acquisitions. And for us, you know, we're more interested in the smaller tuck in builders that may add to our market share and existing market or give us, you know, some entry. But we do always have that opportunity to greenfield those. You know, I don't see on the horizon significant large acquisition. Certainly, you know, the acquisition that you're referring to makes some sense.

Paul Romanowski: We speak to scale a lot and market share. And that makes some sense to us. But, you know, today we're going to continue to look at those as they come available. Paul, there's no significant shift in what you've seen us go over the line.

John Lovallo: Thank you for your question for today's coming from John Lovallo with UBS. Good morning, guys.

John Lovallo: Thank you for taking my questions as well. The first one here is it seems like the first quarter gross margin, at least relative to your expectations was impacted by that 100 basis points of hedging. That seemingly was not contemplated in the initial guide. So I guess the question is why would the 2Q gross margin be flatish sequentially if that hit is not expected to repeat and rates have come in a bit?

John Lovallo: Well, it starts with we sold homes with an increased level of incentives while rates were higher during Q1 and some of those closed in December but there are still a number of them that will be closing in Q2. And so far on a core basis we still are entering the quarter at a little bit lower margin than what the average presents. But obviously rates have dropped and so those incentive costs are a bit lower in the later sales.

John Lovallo: And so on ballots we expect we should be able to hold margins around the current levels, excluding the hedging going forward. Okay, got it and then I think last quarter lot costs were up you know 10 or 11% year over year but I think there's some geographic mix that was was in there and maybe it normalized the up sort of mid single digits if you kind of accounted for that mix. I mean, how did lot costs trend in the quarter and how are you thinking about that in in 2Q?

John Lovallo: It's really pretty similar to what we said last quarter that was a year of year comp and so we still were up low double digits on a year over year basis and it did continue to have a little bit of geographic mix but I would say you know stripping out geography or our lot costs on a year over year basis probably are up high single digit and until we cycle an entire year it probably stays that way and then it would moderate in terms of year over year because it's certainly less than that on a sequential basis. Yeah, one and a half percent on the sequential basis. Got it. Thank you guys.

Joe Alice Meyer: Your next question is coming from Joe Alice Meyer with Deutsche Bank. Hey, good morning everybody.

Joe Alice Meyer: If you look to this humor me for maybe a couple more on the gross margin, could you just talk about the actual P&L impact of that charge whether it was something that hit deductions from revenue or if it was just a hit the cogs and then similarly on the what you're expecting going forward. I guess it makes sense you're not expecting it given rates is kind of stabilized, but is there a way to think about the sensitivity based on what you still got out there notionally, like if we had another 50 to 100 basis point drop, which you have another 100 basis point impact from here.

Joe Alice Meyer: Joe the charge the amount of the charge of $65 million approximately and that's basically what hit during the quarter in terms of our position outstanding. We believe that a position is is reflects the current market and the valuation adjustment in the December quarter takes care of all of it. There is always some sensitivity.

Joe Alice Meyer: We always have some hedging position outstanding and so anytime there is a significant sudden change in rates that can leave some exposure there. Obviously the opposite side of that is the benefits to the business when rates drop. Obviously that improves affordability and improves our ability to sell at a price point in the core business. And so what this hedging position allows us to do is offer below market rates on a consistent basis on a broad basis across our business and like we said we try to manage that as best we can but in a courier significant sudden volatility there can be some exposure to the position.

Joe Alice Meyer: There were two very significant moves and interest rates in the quarter they went up significantly in the middle of the quarter and they came down significantly to the end of the quarter kind of a very unique dynamic that we have not experienced. That's what led to the market adjustment being more severe than it's been in prior quarters. And that 65 million mark to market is in cost of goods sold whereas the just standard routine interest rate offering does net against revenue and flows through our ASP but the $65 million specifically is in cost of goods.

Joe Alice Meyer: That's all very helpful, thanks for the transparency there. As a follow-up, thinking about the outlook for materials, either inflation or deflation, can you just speak to what's in your 2Q guide, and then maybe just generally if we're looking at start rising and your volumes, obviously growing, how should we think about the competition for materials, perhaps driving inflation again in those? Yeah, we're seeing some relative flatness in our in our cost side of the business, and would expect to see similar, all things stay consistent through the next quarter, certainly, you know, with the encouraging science early in to January, it's possible that we see some increase in starts from all of our peers, that could put pressure on labor and on materials, you know, which could cost some some headwinds or some increase in the cost side. All right, thanks everybody, good luck. Thank you.

Michael Rehaut: Your next question for today is coming from Michael Rehut with JP Morgan. Hi, thanks for taking my question. Good morning, everyone.

Michael Rehaut: I want to just a circle back for a moment on SGNA, and you know, I think Bill, you talked about the main drivers of the higher, or negative leverage, I guess you could say, being a community count and the stock comp, you're going to see a similar type of negative leverage impact on the second quarter. Would you expect that to kind of flatten out everything else equals seem to imply, you said that maybe in the first couple quarters, you're going to see this impact. And, you know, that that should kind of run through by the time we get to the back cap, or is this more of a 25 event.

Michael Rehaut: And, you know, as part of this question, also curious if, you know, higher sales incentives outside broker commissions has impacted this at all, or if you could remind us if that's the portion that's in the cogs. Yeah, the last part first, yeah, our broker commissions are in our gross margins and our cost of good sold, so that's not part of the equation. And I think your general commentary there is fair, we only provide specific SGNA guidance one quarter out, but generally our expectation, you know, over the longer term is that we would get back to a similar, you know, SGNA level as last year and beyond.

Michael Rehaut: So I think it is a phenomenon here for a couple of quarters, where we were guiding a little bit higher than last year. A little headwind on the community count market growth, but a little tailwind in Q2 on the equity comp position, recognizing that Q1 versus Q2. And we're also also ASP is down year-to-year, and so it's always a little bit more of a headwind on a percentage basis for SGNA when ASPs are down. Right, now that's fair, that makes sense as well, appreciate that.

Michael Rehaut: Secondly, not to be a dead horse, but I do, you know, you kind of made a comment on the gross margins bill, and I don't know if you misspoke, or it would kind of make sense to us. Indeed, you did not misspoke, but, you know, I think you said at one point, we would expect gross margins to get back to the 1Q levels excluding the hedging impact. That would kind of make sense to us to the extent that in the last couple of months rates have come down, and your current orders, you know, would include less expensive, rate buy downs, and let's say a couple of months ago, and I think you're kind of saying QQ is currently being impacted by some of the carry over from 1Q.

Michael Rehaut: I just wanted to make sure I heard that right, or how to think about, you know, where gross margins are today on orders taken in mid-January, let's say, versus a couple of months ago. Yeah, we've provided guidance one quarter out, so we've got it to 22.6 to 23.1%, so essentially straddling the gap margin that we reported in Kintu1. Coming into Q2, the closings that we will have early in the quarter, or at the probably the low end of that range, maybe even a little below that.

Michael Rehaut: But then later in the quarter, margins are improving because of the cost of buy downs after rates have dropped is lower. And so but on average, that's we believe that that will balance out to a margin in the 22.6 to 23.1% range. While we'll occur after that, we can't really comment. It's really going to be a matter of what's the strength of the spring selling season, what does demand look like through the spring, and what happens with mortgage rates.

Michael Rehaut: And so but on average, that's where we believe things will fall for margins in Q2. Right. So basically what you're saying is beginning of the quarter at the low end, perhaps a little bit below the low end of that range. That would imply towards the end of the quarter at the higher end, perhaps a little bit above the high end of that range. Is that fair?

Michael Rehaut: I think on balance, it's going to balance out to 22.6 to 23.1% you know, and we still sell, we still sell a large portion of our homes into quarter. So 35 to 40% is our kind of historical average. And so, you know, those are being sold now. And as we look through through the quarter and into the spring selling season, so certainly as the spring selling season, the season emerges and continues, it's going to give us, you know, better visibility as we look towards the end of this quarter and into to end of 3Q.

Michael Rehaut: Right. Appreciate it. Thank you.

Truman Patterson: Your next question is coming from Truman Patterson with robust research. Hey, good morning everyone.

Truman Patterson: Not to to be the dead horse here, but just want to understand kind of your old philosophy and some of your term dynamics with rates coming below, a little bit below 7%. I realize there's this hedging noise, but have you all been able to kind of pull back on, you know, core incentives, if you will, the past several weeks, or is this much more taking kind of a bit of a weight and see approach.

Truman Patterson: I think you mentioned a good rebound early in the year. You know, you know, are you taking a weight and see approach so you're not disrupting kind of to me under the momentum ahead of the spring selling season. Truman, you know, I think that as we look at this today, it's still very early and for us, a activity has been important.

Paul Romanowski: So we haven't made any significant changes in our incentives. If the market gives us to us and we continue to see the early encouragement that we are, then we'll respond to the market and kind. If rates continue to stay up and we'll need to lift our rate offerings like we've done in the past and we'll fluctuate as those rates move still has been our best incentive is the rate by down and consistency of rate, consistency of payment to our buyers as a shopping market.

Paul Romanowski: And all of that continues to be managed market by market community by community based on what our local operators are seeing and believe is the best to drive the strongest returns. I mean, even with a little bit of give back in our gross margin, our improved cycle time and what we're going to turn this year in terms of inventory is way more important to our bottom line and the returns we're going to generate than giving up a little bit of gross margin and still being at roughly 23%. That makes total sense.

Paul Romanowski: And with that, you know, you all bumped your closing guidance a little bit to about 89,000 around there. That's well above, you know, the prior peak of, we'll call it 83,000 back in 2022 when there were all these supply chain issues and constraints. Could you just help us get a little more comfortable with that level of growth kind of based on today's labor pool, a lot of availability. I'm really trying to understand, you know, constraints today and maybe what level of closings would would really create bottlenecks in the construction process, not, you know, asking about, you know, demand or anything along those lines.

Paul Romanowski: We've been very focused on creating a quarter to quarter consistent starts plan where we're feeding our neighborhoods with lots that are available in front of us and making sure we have those lots supplied and secured to us. At the same time, we've made a tremendous amount of progress, reducing our cycle times and coming back to sort of our historical norms of around four months from starting a home to completion. And so that's giving us much greater flexibility going into this year with the strong finish lot position we currently have combined with the reduced cycle times.

Paul Romanowski: We're able to reduce our homes and inventory and still deliver, you know, a closings target that's going to be, you know, add or in excess of our two times beginning of the year housing terms. So we really feel good about what's happened there as to what the upside top side is for where the bottlenecks would come in hard to speculate on where that would be so really good about our lot position neighborhood by neighborhood and the trade partnerships that we have and the supplier relationships that we have. But they've been very supportive of us.

Paul J. Romanowski: But great point, Truman, and that when we think about overall industry constraints, finish lots are going to continue to be an issue in terms of builders being able to put more houses on the ground today. It's not getting any easier to put a finish lot on the ground and so we continue to have a focus on building on our lot position and our relationships with third party developers to make sure we're position for growth. But when we think about the biggest constraints to the industry overall, it definitely starts with finish lots.

Truman Patterson: Perfect. Thank you all and good luck in the coming year. Thank you, Truman.

Eric Blasard: Your next question is coming from Eric Blasard with Cleveland Research Company. Good morning.

Paul Romanowski: I'm curious if you can provide a little bit of perspective you talked about. I think it's pretty consistent across the board. We're feeling really good across all of our offerings. I mean as you know 55% of 56% of our deliveries have been the first time on buyers. That's generally where we kind of geared our neighborhoods that we're positioning and the product that we're positioning with that. I think 70% of our deliveries were at $400,000 or less, which for us is maintaining a focus on affordability and a payment that works for people in their monthly budget.

Paul Romanowski: Hence we've used the interest rate buy downs quite a bit, but feel really good. Coming out in January does not make a quarter or a spring selling season, but we're very encouraged by the early trends in January, and are excited for what this ring is going to hold.

Paul Romanowski: From a product perspective or price point perspective with lower rates, do you think differently than you did 90 days ago in terms of a focus on affordability? Or do you think about expanding a bit more what you're doing? I think we have made adjustments as the market has shifted over the last 12 to 18 months and feel comfortable. We're going to go with our trajectory and the product offering that we have.

Paul Romanowski: Certainly as you look across our communities, you know, they're going to trend inside of the product offering that we have. Based on rate and monthly payment environment, whether that means that they're buying up in size or down in size, but we feel like we have a good offering across our markets. And we'll continue to stay as we need to respond to monthly payment and interest rates and provide affordable opportunities across all of us. Great. Thank you.

Alan Ratner: Your next question for today is coming from Alan Ratner with Zellman and Associates. Hey guys, good morning.

Alan Ratner: Thanks for all the detail so far. I've got some questions on kind of the spec versus bill to order dynamic in the industry right now. You know, you guys being a spec builder, I think, had a pretty, pretty strong advantage during the pandemic. Obviously resell and inventory was incredibly tight. The extended cycle time as well.

Paul Romanowski: I'm sure it was hard to manage from your side kind of gave you an advantage versus the BTO guys in terms of the consumer experience. So I guess my question is now that cycle time seem to be improving across the industry, refail inventory is picking a little bit higher. Are you thinking about that dynamic any differently? Are you, you know, maybe contemplating selling earlier in the construction process again, whereas before you were maybe waiting for homes to get closer to completion? Are you seeing more competition from bill to order builders that have kind of shrunk in there, their construction cycle times? Any commentary on that would be great.

Paul Romanowski: I think today, you know, we are still seeing people looking for closing with certainty of close day and in that 30 to 60 day timeframe based on their ability to lock an interest rate. And so I don't know that we've seen much significant shift from the build to order builders being able to deliver a presale into those time frames. We are very comfortable with our inventory position, both in a total homes and in a completed home scenario.

Paul Romanowski: It's continued to play into the shortness of resale inventory across our markets and don't expect a significant change for us. We're going to continue to stay focused on inventory sales and consistent production community community. Even with the kind of declining existing home sales, they're still three to four times larger of a market transaction volume than new home sales. So we've always tried to position ourselves to compete against those homes rather than just, you know, other new home to the provider.

Paul Romanowski: Sanders, you know, the timing of that sale has been able to move up in earlier in our stage of construction, just because we have gotten back to our historical norms of months of delivery of our houses. God, but in terms of your sale strategy, I mean, you know, I look at your completed spec count, it's been picking a little bit higher here more recently, is that still kind of the strategy to hold these homes off until, you know, you're maybe a month or two from completion to allow the buyer to lock in that rate? Or are you maybe thinking about kind of pulling that forward a little bit?

Bill Wheat: We're allowing, you know, we're not restricting the sale of homes. Seasonally, you'll see the completed spec inventory, the completed home inventory, check up through the fall and be positioned that we have houses available for quick deliveries, you know, beginning in January for the spring selling season. So we're able to deliver the homes that people are coming in and needing 30 or 60 days at the same time with with the compressed cycle times as Paul mentioned, we are very comfortable selling and locking a rate in for a buyer earlier in the production process, then we were a year ago for sure. Okay, gotcha.

Bill Wheat: One last quick one if I could just going back to the charge on the hedge, I just want to better understand this like we have heard from other builders in the past, the situations where they would buy kind of forward commitment pools and when rates pull back sharply in a short period of time, those pools would kind of go unused because the market, you know, kind of fell below wherever that pool was. Is that kind of what's going on with you guys or the mechanics of this much different? I'm just trying to write my arms around that better. No, you've described it exactly.

Bill Wheat: We typically will buy those forward commitment pools really for the next few weeks of deliveries, essentially is the plan. We're not going out very far, but it is a few weeks and so that's when we say a very sudden sharp change in rates, then can present some exposure there, but it has not occurred in the past. But the circumstances this quarter were pretty unusual in terms of the significance and the suddenness of the rate moves.

Bill Wheat: And it was really restructuring so it could be used, not that we weren't going to fulfill the pool. We just had to restructure it so it was usable. And then at the end of the quarter, we always have to mark to market the value at the end of the quarter. So that's always a factor there as well. So it sounds like this is an industry phenomenon, not necessarily a Horton phenomenon, but obviously we'll learn more about that in the next few weeks, but I appreciate that. Thank you.

Anthony Petonari: Your next question for today is coming from Anthony Petonari with City. Good morning.

Anthony Petonari: There was an earlier question on the large builder acquisition we saw last week. I guess we also saw a large acquisition in SFR. And I'm just wondering if you could talk about how institutional demand for build to rent homes has been trending, maybe relative to earlier expectations. Do you expect that to grow as a portion of your home building operations and maybe the impact to that business in this kind of rate environment?

Anthony Petonari: Certainly have seen that with the change in the capital markets, that demand environment became much chopier last year, but we still had institutional buyers that were anxious to get the product we were delivering to the market, and they continue to be so. But we've delivered projects in the first quarter. We expect to deliver more in the second quarter and then throughout the year with the pipeline that's there.

Paul Romanowski: I mean, for us, it's a strategy to help us de-risk land positions and more rapidly monetize our land portfolio. And so we've still seen good demand for the product, good demand on the rentals and the lease ups when we're taking the stabilization process on and continue to expect that to become a growing part of our business. Dennis?

Anthony Petonari: Okay, that's helpful. And then just last quarter, I think 60% of your buyers took some form of a buy-down and you were offering six and a quarter on a conventional loan. I'm just wondering if you can update where that stands coming out of fiscal 1Q. And I guess you talked about this earlier a bit.

Anthony Petonari: But you think about a rate level where buy-downs may be stopped becoming the chief incentive mechanism or where you know incentives start to shift back to more kind of traditional ones. We're probably up, you know, call it roughly 10%, sequentially in terms of the take rate on that buy-down. So we were in the 70s and now we'd be in the 80% range of the buyers that utilize our mortgage company. So the 60% you said was on our overall business to say 60 to roughly 70% of buyers took that this quarter.

Anthony Petonari: And the use of those rate buy-downs is not just new to us over the last 12 months. We've been 24 plus months utilizing that incentive. So I believe on a go-forward basis staying competitive to not only the new home market, but especially to the retail market for us and the ability to have a lower monthly payment for same cost of home is advantageous. So, you know, we have no plan in the near term to stop utilizing it, even if we see rates shift down. Okay. That's helpful. I'll turn it over.

Ken Zener: Your next question is coming from Ken Zener with Seaport Research Partners. Good morning everybody. Good morning again.

Ken Zener: I wonder, you know, with the industry, everybody likes to focus on the income statement, right? So the gross margins obviously been a focus today. However, your initial comments were about inventory terms, which together gets you returns on inventory. So because you took up volume for the year, honestly, and all we see is one quarter forward guidance. Is it fair to say that your guys internal metrics are generating the same or higher ROI than you had started the year it. I know you kept the 3 billion cash flow the same, but I just try to understand, you know, we see one part of the business, but not necessarily the output of the other. Sure.

Paul Romanowski: Yeah. I mean, our returns are in line with with our plans and our divisions are out there executing on their plans, their start plans week to week, month to month, and deliver the homes that we expected to this quarter plus a few hundred more. And so, you know, as we enter the spring, we're continuing with that and very consistent with our expectations from an inventory turn standpoint and a return on return on our assets, our investments in inventory. Right.

Paul Romanowski: So you talked about improving cycle times, obviously, part of that stuff. Do you see, you know, when you started 20,000 the last three years starts have been, you know, 14,000, 25,000 all over the place. Can you talk to that level?

Susan McLeary: I mean, do you see some degree of, let me use the word seasonality or, or what's kind of affecting that, you know, is it orders or is it just a plan that you have to reach your closings a and then be what do you expect your inventory units to be at the end of the year given your underlying assumptions right now. Thank you very much. Yeah, Ken, as you look at our past year plus start space, it has been inconsistent.

Susan McLeary: A lot of that has been response to the market and response to the elongation of cycle times and then further reduction of cycle times. As you look at our inventory today, and our guide to basically turn a little more than two times, that inventory, we can expect to see consistent and sustainable starts expansion over the next few quarters. We want to maintain the level of inventory that we have and be in position as we respond to the spring selling season to stay consistent with our starts, but we do need to grow our starts consistently quarter to quarter over the remainder of the year.

Susan McLeary: And as we consistently looked position ourselves to grow, but we would certainly love to position ourselves to grow in fiscal 25 over fiscal 24. So we would expect our inventory at the end of the year to be a little higher than it was at the start of the year with the expectation of turning it a little more than two times in fiscal 25. Thank you.

Susan McLeary: Your next question is coming from Susan McLeary with Goldman Sachs. Thank you. Good morning, everyone.

Paul Romanowski: I wanted to talk a bit more about thinking of the competitive dynamics on the ground. Did you think about some of the smaller new home markets that you have recently entered? And the potential for more existing home turn over to perhaps come through as we move through the year. Any thoughts on what those competitive dynamics could mean for you in various markets and perhaps how you're positioned relative to that? I think Susan that we're continually looking to provide affordable homes that hit a payment that's going to work in the monthly budget for our buyers.

Paul Romanowski: And that is what oftentimes overlooked especially by in the smaller markets. It's a lot of the builders that are currently existing have capital constraints on what they're able to build and start. And so they're looking generally to maximize revenue per lot or margin per lot and go with a lower volume. And so they're leaving that first time home buyer that family that needs a more affordable home kind of not really their target. So that's the target customer we seek out and we seek good results when we go into a new market greenfield a new market and focus on the affordable price points. That's helpful.

Paul J. Romanowski: And then you're thinking about the cash generation and the balance sheet. You know what as things normalize what level of cash I guess are you comfortable holding on the balance sheet today. And how do you think about the potential for perhaps increasing the buybacks or allocating capital is some of the other growth initiatives that you have out there as you continue to bolster the balance sheet. Susan from the size and scale of our business today in the volume that we have in terms of just our constant production of of inventory the cash balance we have on the balance sheet today is in the in the range of where we'd like to be.

Paul Romanowski: So cash across our business segments and then availability under our credit facilities. We would like to maintain the current level and as we scale up over time would incrementally increase that level over time. You know with our plans this year and our guidance on Sherry purchase in fiscal 24 we are increasing our Sherry purchase by you know 25% this year from 1.2 billion to 1.5 billion. And that's just part of our plan to be consistent with with with our distributions to shareholders as well you know increased our dividend this year as well expect to spend $400 million on dividends this year.

Paul Romanowski: And so that is an increase over last year and our plan would be to continue to scale the business continue to be able to increase incrementally those those repurchases and dividend level. Okay, thank you and good luck.

Rafe Jadrosich: Your next question for today is coming from Rafe Jadrosich at Bank of America. Hi, good morning, it's Rafe, thanks for taking my question.

Rafe Jadrosich: Just on the outlook that for improvement in build cycles in 2024, can you talk about where your build cycles are now, where they were last quarter? How much do you think that can improve and then what gets you there from supply chain perspective? We were just over four months this quarter rape and when we think about our historical norm, it really is right at that four months in terms of start to complete, and then there's an additional time from complete to close.

Rafe Jadrosich: That's down from seven months a year ago. So a very substantial improvement in terms of a year of a year basis, sequentially it improved by about 10 days. So when we think about further improvements from here, they're not large moved, they're just continued improvements on average, so we're hopefully, you know, we can get below four months, but that's not something that we expect to, you know, drive from four to two. Drive, thank you, that's helpful.

Rafe Jadrosich: And then I just want to follow up on the comment that you're seeing encouraging signs as we head into the spring season, can you just give a little bit more color on what you're seeing? Is that better?

Paul Romanowski: Home buyer traffic or conversion? And do you think that's just driven by sort of the headline rate number that that's coming, coming down to understand what you're seeing that that's encouraging in the market? I think there's lots of reasons people are out looking for houses, but ultimately they need a house and we're seeing both good traffic and good conversions early in the spring. And so we have set up operating plan for the year, and so far we feel really good about how the market's responding to that.

Paul Romanowski: Your next question is coming from Matthew Blay with Barclays. Okay, in terms of the land market, are you seeing a pickup and land development into 2024? I know that you said that things kind of get a little bit more conscious, you know, the demand increases. How are you thinking about land development costs and lot cost moving higher and kind of offsetting that? You know, for us, we are set in terms of our consistent delivery of loss into our starts plan, and so that plan is in place for us as we look 12 months out.

Paul Romanowski: You know, we have not seen much reduction in development costs and wouldn't expect with the shortness of lots across the industry that we're going to see, and we're not anticipating much reduction. Any of the labor side or the supply side, product side of the components are going to developing lots, but we have a plan that we have stuck to and are consistent with good about our lot position in the near term. And as we look next year. Thank you.

Paul Romanowski: And then just kind of switching over to affordability. Aside from rate buy downs, is there anything else that buyers have been, you know, kind of responsive to as far as like the levers that you have to kind of make the payment work for them? Or has there been a type of any sort of change to those strategies?

Paul Romanowski: Product selection generally they'll buy a smaller home to make the payment work. And sometimes that's within an existing neighborhood or moving to a different neighborhood that's offering a smaller set of plans. So our square footage was down again about 3% year to year. It was relatively flat sequentially but we would expect, you know, just continue gradual moves down from a mixed shift perspective in terms of average square footage. Thank you very much.

Paul Romanowski: We have reached the end of the question and answer session and I will now turn the call over to Paul Romanowski for closing remarks. Thank you, Holly.

Paul Romanowski: We appreciate everyone's time on the call today and look forward to speaking with you again to share our second quarter results in April. Congratulations to the entire D.R. Horton family on producing a solid first quarter. We're proud to represent you on this call and appreciate all that you do. This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.

Good morning, and welcome to the first quarter 2024 earnings conference call for D. R. Horton America's builder, the largest builder in the United States. At this time all participants are in a listen only mode. A question and answer session will follow the formal presence.

Asian, if anyone sugar choir, operator assistance during the conference. Please press star zero on your telephone keypad.

Note. This conference is being recorded I will now turn the call over to Jessica Hansen Senior Vice President of Communications for D. R. Horton.

Jessica L. Hansen: Thank you Holly and good morning, welcome to our call to discuss our financial results for the first quarter of fiscal 2024 before we get started today's call includes forward looking statements as defined by the private Securities Litigation Reform Act of 1995, Although D. R. Horton believes any such statements are based on reasonable assumptions. There is no issue.

Or is that actual outcomes will not be materially different.

Jessica L. Hansen: Forward looking statements are based upon information available to D. R. Horton on the date of this conference call and D. R. Horton does not undertake any obligation to publicly update or revise any forward looking statements additional information about factors that could lead to material changes in performance is contained in <unk> annual report on Form 10-K, which was filed with the securities in it.

Jessica L. Hansen: Exchange Commission.

Speaker Change: Good morning earnings release can be found on our website at Investor <unk> D. R. Horton Dotcom and we plan to file our 10-Q later this week. After this call we will post updated investor and supplementary data presentations to our Investor Relations site on the presentations section under news and events for your reference now I will turn the call over to Paul <unk>.

Paul: Our president and CEO.

Paul: Thank you Jessica and good morning, I am pleased to also be joined on this call by Mike Murray, Our executive Vice President and Chief operating Officer, and Bill Wheat, our executive Vice President and Chief Financial Officer for the first quarter. The D. R. Horton team delivered solid results highlighted by earnings of $2 82 per diluted share.

Paul: Our consolidated pre tax income was $1 2 billion on a 6% increase in revenues to $7 7 billion.

Paul: With a pre tax profit margin of 16, 1%.

Paul: Our homebuilding return on inventory for the trailing 12 months ended December 31 was 29% and our return on equity for the same period was 21, 8%, although inflation in mortgage interest rates remain elevated our net sales orders increased 35% from the prior year quarter as the supply of both.

Paul: New and existing homes at affordable price points is still limited and demographics supporting housing demand remains favorable early signs for the spring selling season have been encouraging and we.

Paul: We will continue to focus on consolidating market share and are well positioned for the spring with 42600 homes in inventory and our average construction cycle times returning to more normal levels. We expect our housing inventory turns to improve in fiscal 2024 compared to fiscal 2023.

And our ongoing focus on capital efficiency to produce strong homebuilding operating cash flows and consistent returns and earnings for the first quarter of fiscal 2024 increased 2% to $2 82 per diluted share compared to $2 76 per share in the prior year quarter net income.

Paul: For the quarter was $947 million on consolidated revenues of $7 7 billion.

Paul: Our first quarter home sales revenues were $7 3 billion.

Paul: On 19340 homes closed compared to $6 $7 billion on 17340 homes closed in the prior year, our average closing price for the quarter was $376200 down 2% sequentially and down 3% from the prior year quarter.

Paul: Our net sales orders in the first quarter increased 35% to 18069 homes and order value increased 38% from the prior year to $6 8 billion cans.

Paul: Cancellation rate for the quarter was 19% down from 21% sequentially and down from 27% in the prior year quarter.

Paul: Our average number of active selling communities was up 2% sequentially and up 14% year over year.

Paul: The average price of net sales orders in the first quarter was $375800 down 2% sequentially and up 2% from the prior year quarter.

Paul: To adjust to changing market conditions during fiscal 2023 and into fiscal 2024, we have increased our use of incentives and reduced home prices and sizes of our home offerings, where necessary to provide better affordability to homebuyers based on current market conditions mortgage rates and continued affordability challenges we expect.

Paul: Our incentive levels to remain elevated in the near term.

Paul: Our sales volumes can be significantly affected by changes in mortgage rates and other economic factors. However, we will continue to start homes and maintain sufficient inventory to meet sales demand and aggregate market share Jessica our gross profit margin on home sales revenues in the first quarter was 22, 9% down 220 basis points sequentially.

Paul: Really from the September quarter, 100 basis points of the sequential margin decline related to the decrease in the value of hedging instruments, we use to offer below market interest rate planning teams, where homebuyers, while the remainder was primarily due to an increase in incentive levels on homes closed during the quarter.

Paul: On a per square foot basis home sales revenues were down one 5% in the quarter and lot costs increased one, 5% well stick and brick costs decreased 1% as.

Paul: As Bill mentioned, we expect our incentive levels to remain elevated in the near term that with mortgage rates generally declining from their recent highs. We expect our home sales gross margin in the second quarter to be similar to the first quarter.

Our home sales gross margin for the full year of fiscal 2024 will be dependent on the strength of demand and other market conditions. During this spring in addition to changes in mortgage interest rates.

Paul: In the first quarter, our homebuilding SG&A expenses increased by 14% from last year and homebuilding SG&A expense as a percentage of revenues was eight 3% up 50 basis points from the same quarter in the prior year due primarily to expansion of our operations to support future growth and an increase in equity in stock market.

Paul: Based compensation expense, we will continue to control our SG&A, while ensuring that our platform adequately supports our business Paul.

Paul: We started 19900 homes in the December quarter and ended the quarter with 42600 homes in inventory down 1% from a year ago and up 1% sequentially.

Paul: 28800 of our homes at December 31 were unsold 9000 of our total unsold homes were completed of which 730 had been completed for greater than six months, our current level of homes in inventory puts us in a strong position for the upcoming spring selling season.

Paul: For homes, we closed in the first quarter, our construction cycle times continue to improve and we are essentially back to our historical average of roughly four months from start to complete we will continue to adjust our homes and inventory and start space based on market conditions and expect our housing inventory turns to improve in fiscal.

Paul: 2024, as compared to fiscal 2023.

Paul: Our homebuilding lot position at December 31 consisted of approximately 607000 lots of which 24% were owned and 76% were controlled through purchase contracts, 39% of our total owned lots are finished and 52% of our controlled lots are or will be finished when we.

Paul: <unk> them are capital efficient and flexible lot portfolio is a key to our strong competitive position.

Paul: Our first quarter homebuilding investments in lots land and development totaled $2 4 billion up.

Up 3% sequentially our investments this quarter consisted of $1 $4 billion for finished lots $740 million for land development and $270 million for land acquisition, Paul in the first quarter, our rental operations generated $31 million of pre tax income on 100.

Paul: <unk> $95 million of revenues from the sale of 379 single family rental homes and 300 multifamily rental units are rental property inventory at December 31 was $3 billion, which consisted of $1 4 billion of single family rental properties and $1 6 billion of multifamily.

Paul: Rental properties, we are not providing separate guidance for our rental segment. This year due to the uncertainty regarding the timing of closings caused by interest rate volatility and capital market fluctuations based on our current pipeline of projects, we expect our rental closings and revenues in the second quarter to exceed the first quarter Jessica.

Paul: First our majority owned residential lot development company reported revenues of $306 million for the first quarter and 3150 lots sold with pretax income of $51 million.

Paul: <unk> owned and controlled lot position at December 31 was 82400 lives.

Paul: 61% at first started the owned lots are under contract with are subject to a right of first offer to D. Over.

Paul: $270 million as our finished lots purchased in the first quarter were from Forrester.

Paul: Forrester had more than $840 million of liquidity at quarter end with a net debt to capital ratio of 14, 9%.

Paul: First there remains uniquely positioned to capitalize on the shortage of finished lots for the homebuilding industry and can aggregate significant market share over the next few years with its strong balance sheet lot supply and relationship with D. R. Horton, Mike financial services earned $66 million of pretax income in the first quarter on 109.

Paul: $3 million of revenues, resulting in a pretax profit margin of 34, 3% during the first quarter essentially all of our mortgage company's loan originations related to homes closed by our homebuilding operations and our mortgage company handled the financing for 78% of our buyers FHA and VA loans accounted for 57% of.

The mortgage company's volume.

Paul: Borrowers originating loans with the ACI mortgage this quarter had an average FICO score of 724, and an average loan to value ratio of 88% first time homebuyers represented 56% of the closings handled by our mortgage company this quarter bill or.

Paul: Our balanced capital approach focuses on being disciplined flexible and opportunistic to support and to sustain an operating platform that produces consistent returns growth and cash flow. We continue to maintain a strong balance sheet with low leverage and significant liquidity, which provides us with flexibility to adjust to changing market conditions.

Paul: <unk>.

During the first three months of the year, our consolidated cash used in operations was $153 million at December 31, we had $6 4 billion of consolidated liquidity, consisting of $3 $3 billion of cash and $3 1 billion of available capacity on our credit facilities.

Paul: Debt at the end of the quarter totaled $5 3 billion.

Paul: With no senior note maturities in fiscal 2024.

Paul: Our consolidated leverage at December 30, <unk> was 18, 6% and consolidated leverage net of cash was seven 8%.

Paul: At December 31st our stockholders' equity was $23 2 billion and book value per share was $69 70 up 19% from a year ago for.

Paul: For the trailing 12 months ended December a return on equity was 21, 8% and our consolidated return on assets was 14, 8%.

Paul: During the quarter, we paid cash dividends of approximately $100 million and our board has declared a quarterly dividend at the same level to be paid in February.

Paul: We repurchased three 3 million shares of common stock for $398 million during the quarter, Jessica although volatility in mortgage rates and changes in economic conditions could significantly impact our business for the second quarter. We currently expect to generate consolidated revenues of $8 one for $8 3 million.

Paul: And so that was closed by our homebuilding operations to be in the range of 20000 to 20500 homes.

Paul: We expect our home sales gross margin in the second quarter to be approximately $22 six to 23, 1% and homebuilding SG&A as a percentage of revenues to be in the range of seven five to seven 7%.

Paul: We anticipate our financial services pre tax profit margin of around 30% to 35% in the second quarter and we expect our quarterly income tax rate to be approximately 23.5.

Paul: 24%.

We are well positioned to continue consolidating market share in all of our operations our full year fiscal 2024, our revenue pricing and margins in our homebuilding rental financial services enforced our businesses will be determined by market conditions and the strength of the spring selling season. In addition to our efforts to meet.

Paul: Manned by balancing pace and price to maximize returns.

Paul: For the full year of fiscal 2024, we now expect to generate consolidated revenues of approximately 36 to $37 $3 billion and expect homes closed by our homebuilding operations to be in the range of 87000 to 90000 homes, we expect to generate approximately $3 billion of cash.

Paul: Hello from our homebuilding operations.

Paul: I also plan to repurchase approximately $1 $5 billion of our common stock to continue reducing our outstanding share count in addition to annual dividend payments of around $400 million.

Paul: Finally, we now expect an income tax rate for fiscal 2024 of approximately 24%.

Paul: We remain focused on balancing our cash flow utilization priorities to grow our operation paying an increased dividend and consistently repurchase shares.

Paul: While maintaining strong liquidity and conservative leverage Paul and.

Paul: In closing our results and physician reflect our experienced teams industry, leading market share broad geographic footprint and diverse product offerings. All of these are key components of our operating platform. The sustain our ability to produce consistent returns growth and cash flow, while continuing to aggregate market share.

Paul: We will maintain our disciplined approach to investing capital to enhance the long term value of the company, which includes returning capital to our shareholders through both dividends and share repurchases on a consistent basis.

Paul: Thank you to the entire D. R. Horton family of employees land developers trade partners vendors and real estate agents for your continued focus and hard work. This concludes our prepared remarks, we will now host questions.

Speaker Change: Certainly at this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants.

Speaker Change: Using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker Change: We do ask you to please limit yourself to one question and one follow up question. One moment. Please while we poll for questions.

Operator: Good morning, and welcome to the first quarter 2024 earnings conference call for D.R. Horton, America's builder, the largest builder in the United States. At this time, all participants are in a listen-only mode.

Speaker Change: Your first question for today is coming from Stephen Kim with Evercore ISI.

Operator: A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the call over to Jessica Hansen, Senior Vice President of Communications for D.R.

Stephen S. Kim: Yeah. Thanks, very much guys I appreciate it and thanks for all your commentary.

Stephen S. Kim: I guess just to start off with could you clarify I think you mentioned at the beginning of the call. It about 100 basis points of the gross margin was affected by hedging related to I think you said rate buy downs.

Stephen S. Kim: And in your guide for <unk> can you also just clarify like what I thought I heard you said 20000 to 20500 closings and eight one to $8 3 billion in consolidated revenues just want to make sure I heard those right.

Jessica L. Hansen: Welcome to our call to discuss our financial results for the first quarter of fiscal 2024. Before we get started, today's call includes forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Although D.R.

Speaker Change: Yes, Steve that's correct for the second quarter eight one to $8 $3 billion of consolidated revenues and closings of 20000 to 20500 homes and in terms of home sales gross margin and you're also correct that 100 basis points. The impact was due to the rate buy downs that we've been offering in adjustments, we had to make to that.

Jessica L. Hansen: Although Horton believes any such statements are based on reasonable assumptions, there is no assurance that actual outcomes will not be materially different. All forward-looking statements are based upon information available to D.R. Horton on the date of this conference call, and D.R. Horton does not undertake any obligation to publicly update or revise any forward-looking statement.

Speaker Change: During the quarter on a sequential basis and what we've guided to for Q2 versus Q1 is relatively flat and in terms of the $22 six to 23, 1% gross margin in Q2 versus the 22, 9% that we posted this quarter.

Jessica L. Hansen: Additional information about factors that could lead to material changes in performance is contained in D.R. Horton's annual report on Form 10-K, which was filed with the Securities and Exchange Commission. This morning's earnings release can be found on our website at Investor. DearHorton.com, and we plan to file our 10-Q later this week. After this call, we will post updated investor and supplementary data presentations on our investor relations site in the presentation section under news and events for your reference. Now, I will turn the call over to Paul Romanowski, our President and CEO. Thank you, Jessica, and good morning.

Speaker Change: Gotcha and that that 100 basis points is that something that you know you have done in the past is that a number that are you know compares you keep I guess can you give us some sense of what that number has been over the last couple of quarters.

Speaker Change: Steve This quarter is the first time that that amount has been significant at all it here. That's a it's essentially adjusting the valuation of our hedging positions that we have in place to offer our programmatic re buy downs across the country and it's typically a very small move either up or down but this quarter given.

I am pleased to also be joined on this call by Mike Murray, our Executive Vice President and Chief Operating Officer, and Bill Wheat, our Executive Vice President and Chief Financial Officer. For the first quarter, the D.R. Horton team delivered solid results, highlighted by earnings of $2.82 per diluted share. Our consolidated pre-tax income was $1.2 billion on a 6% increase in revenues to $7.7 billion, with a pre-tax profit margin of 16.1%. Our home building return on inventory for the trailing 12 months and to December 31st was 29%. And our return on equity for the same period was 21.8%. Although inflation and mortgage interest rates remain elevated, our net sales orders increased 35% from the prior year quarter, as the supply of both new and existing homes at affordable price points is still limited, and demographics supporting housing demand remain favorable. Early signs for the spring selling season have been encouraged.

Speaker Change: The significant volatility in rates during the quarter horse mortgage rates moved up to 8% in November and then dropped sharply in December those hedging positions had to be adjusted to reflect that so it was an unusual situation. This quarter generally we don't plan for for any significant move one way or the other and if you weren't able to lead that charge, we would have landed in the.

Gross margin that we had guided to for the quarter that was really the reason that we came in below.

Speaker Change: Gotcha, Okay. That's that's a that's a really helpful. I'm sure there's going to be more questions about the guide, but I wanted to talk about your your capital allocation and in particular I guess, you know I know that you know, though the mantra for D. R. Horton over the last several years now it's been about consistency and predictability and reliability in and that sort of thing and you've done a great job there.

Speaker Change: But as I think about your overall your cash position. It looks like you have sufficient cash currently you've got another 3 billion coming in.

We will continue to focus on consolidating market share and are well positioned for the spring with 42,600 homes in inventory and our average construction cycle times returning to more normal levels. We expect our housing inventory terms to improve in fiscal 2024 compared to fiscal 2023 and our ongoing focus on capital efficiency to produce strong home building operating cash flows and consistent returns. Mike?

Speaker Change: I think maybe you know a little less than 2 billion is spoken for with buybacks and dividends I was curious about curious about that you know that extra million and I'm curious how land investment factors into that and rental. So those are the two other big pieces. It would seem so I guess when I look at your land your land.

Speaker Change: Supply has been coming down for <unk> had been coming down for a number of years, but now for about three years. Your land in year supply has been flat and I was wondering do you think you can bring down that land investment down further or is this kind of the level that you think that we're gonna be seeing on a in the future and then in rental can you give us a sense for what.

Earnings for the first quarter of fiscal 2024 increased 2% to $2.82 per diluted share compared to $2.76 per share in the prior year quarter. Net income for the quarter was $947 million on consolidated revenues of $7.7 billion. Our first quarter home sales revenues were $7.3 billion on 19,340 homes closed compared to $6.7 billion on 17,340 homes closed in the prior year. Our average closing price for the quarter was $376,200, down 2% sequentially and down 3% from the prior year quarter. Our net sales orders in the first quarter increased 35% to 18,069 homes, and order value increased 38% from the prior year to $6.8 billion. Our cancellation rate for the quarter was 19%, down from 21% sequentially and down from 27% in the prior year quarter. Our average number of active selling communities was up 2% sequentially and up 14% year-over-year. The average price of net sales orders in the first quarter was $375,800, down 2% sequentially and up 2% from the prior-year quarter.

Speaker Change: Do you think the growth in the rental inventory may be over the course of the next year.

Speaker Change: Steve when we look at our land position, we feel that the forward one year's roughly supply of land that we own is important to maintain the production velocity in our neighborhoods.

Speaker Change: Bringing that down significantly is going to be incremental because it's going to be with more developers providing.

Speaker Change: Providing finished lots for us versus self development and I think we're back up to 76% controlled which is up from where its been the past few quarters. So we're going to continue to incrementally look to control more land and acquire a lot there.

Being finished by others.

Speaker Change: But we will still need to maintain a supply of land on our balance sheet lots, primarily on our balance sheet to.

Speaker Change: The video production.

Speaker Change: Mhm.

Speaker Change: And the rental and return.

Speaker Change: And the rental inventory will probably investing some.

Speaker Change: During fiscal 'twenty four to grow that platform is getting closer to a good sustainable volume that will produce a consistent revenues and profits quarter to quarter, but it's still in the growth mode.

To adjust to changing market conditions during fiscal 2023 and into fiscal 2024, we have increased our use of incentives and reduced home prices and sizes of our home offerings where necessary to provide better affordability to homebuyers. Based on current market conditions, mortgage rates, and continued affordability challenges, we expect our incentive levels to remain elevated in the near term. Our sales volumes can be significantly affected by changes in mortgage rates and other economic factors. However, we will continue to start homes and maintain sufficient inventory to meet sales demand and aggregate market share. Jessica?

Speaker Change: And in terms of just overall capital allocation is have you already alluded to we did guide to the $1 5 billion of common stock. We've got the annual dividend payments of $400 million. We also had a sizable debt maturity. That's very early in fiscal 'twenty, five or $500 million in October and so.

Speaker Change: Too early to say, what we're going to do with that and we're very focused on maintaining conservative leverage and we'll see as we get closer but that is something we're going to be prepared.

Speaker Change: To potentially pay out of cash if we don't feel like the market is right to go refi that.

Our gross profit margin on home sales revenues in the first quarter was 22.9 percent, down 220 basis points sequentially from the September quarter. 100 basis points of the sequential margin decline related to the decrease in the value of hedging instruments we use to offer below-market interest rate financing to our homebuyers, while the remainder was primarily due to an increase in incentive levels on homes closed during the quarter. On a per square foot basis, home sales revenues were down 1.5% in the quarter, and lot costs increased 1.5%, while stick and brick costs decreased 1%. As Bill mentioned, we expect our incentive levels to remain elevated in the near-term, but with mortgage rates generally declining from their recent highs, we expect our home sales gross margin in the second quarter to be similar to the first quarter.

Speaker Change: Great. Thanks, very much guys.

Speaker Change: Your next question is coming from Carl Reichardt with B T I D.

Carl Reichardt: Hi, Good morning, everybody I wanted to talk about SG&A protected Bill can you talk about the the basis points associated with the incentive comp this quarter and then you talked about it being also head of some some growth Youre planning can you talk a little bit about community count expansion and whether or not this also might be really.

Speaker Change: <unk> to some of the new market to better and more recently thanks.

Speaker Change: Oh sure Yeah. The first factor this quarter are we can point to a 14% increase in our average selling communities. So that it's obviously a significant increase in our SG&A is up 14% this quarter year over year as well so that that's a bigger move than we've had in a while that's positioning us to be able to provide the increased guidance and you have seen our market.

Our home sales gross margin for the full year of fiscal 2024 will be dependent on the strength of demand and other market conditions during the spring, in addition to changes in mortgage interest rates. In the first quarter, our home building SG&A expenses increased by 14% from last year, and home building SG&A expense as a percentage of revenues was 8.3%, up 50 basis points from the same quarter in the prior year, due primarily to expansion of our operations to support future growth and an increase in equity and stock market-based compensation expenses.

Speaker Change: The increase over the last several years, obviously, we expect and time to achieve some leverage on that and as we grow our revenues, we would expect our SG&A to come back down to historic levels, but I think we've got a couple of quarters here, where we're really going to see our SG&A a little bit higher as a percentage of revenue is primarily driven by that this quarter. We have one additional factor and really it's just a timing fab.

Speaker Change: In terms of the the impact of our equity and stock based comp we typically have.

Speaker Change: Mouth that are that we encourage typically in our second quarter or third quarter, but the timing of some grants. This year were a little bit earlier into our first quarter and so so theres an amount of roughly $13 million that was incurred in Q1 of this quarter that typically would be a Q2 or treat the rib.

We will continue to control our SG&A while ensuring that our platform adequately supports our business. We started 19,900 homes in the December quarter and ended the quarter with 42,600 homes in inventory, down 1% from a year ago and up 1% sequentially. 28,800 of our homes at December 31st were unsold. 9,000 of our total unsold homes were completed, of which 730 had been completed for greater than six months.

Speaker Change: Okay that small so it's different this year. Okay. Thank you for that and then I have a bigger picture question for Paul So I'm, obviously, the biggest news that we've seen in the business for a while as large acquisition by an offshore player of the domestic homebuilder and historically long ago. Horton was was a fairly significant acquirer public companies other private.

Our current level of homes and inventory puts us in a strong position for the upcoming spring selling season. For homes we closed in the first quarter, our construction cycle times continued to improve, and we are essentially back to our historical average of roughly four months from start to complete. We will continue to adjust our homes and inventory and start space based on market conditions and expect our housing inventory terms to improve in fiscal 2024 as compared to fiscal 2023. Mike? Mike?

Speaker Change: <unk> and still here and there.

Paul: We've seen you look at some deals, but can you talk a little bit about Europe from your perspective, what do you think.

Paul: Whether or not acquisitions are something that Horton would consider historically I know you've done more recently, you've talked about doing most of your growth Greenfield I'd just like to know given current conditions, where you sit on this sort of big picture. Thanks, So much.

Speaker Change: Yes, Karl we still today look at continually look at acquisitions and for US we're more interested in the smaller.

Our home building lot position at December 31st consisted of approximately 607,000 lots, of which 24% were owned and 76% were controlled through purchase contracts. 39% of our total owned lots are finished, and 52% of our controlled lots are or will be finished when we buy. Our capital efficient and flexible lot portfolio is a key to our strong competitive position. Our first quarter home building investments in lots, land, and development totaled $2.4 billion, up 3% sequentially. Our investments this quarter consisted of $1.4 billion per finished lot. $740 million for land development and $270 million for land acquisition. In the first quarter, our rental operations generated $31 million of pre-tax income on $195 million of revenue from the sale of 379 single-family rental homes and 300 multifamily rental units. Our rental property inventory as of December 31st was $3 billion. Abu Salih.

Speaker Change: Chuck and builders that may add to our market share in an existing market or give us some entry but.

Speaker Change: But we do always have that opportunity to Greenfield does.

Speaker Change: Don't see on the horizon significant large acquisition certainly the acquisition that you're referring to make some sense, we speak to scale a loss in market share.

Speaker Change: That makes some sense to us but.

Speaker Change: Today, we're going to continue to look at those as they come available, but no significant shift in what you've seen us do over the last couple of years.

Speaker Change: Okay I appreciate it thanks Bob.

Speaker Change: Your next question for today is coming from John Lovallo with UBS.

Good morning, guys. So I. Thank you for taking my questions as well.

Speaker Change: The first one here is it you know it seems like the first quarter gross margin at least relative to your expectations was impacted by that 100 basis points of hedging that seemingly was not contemplated in the initial guide. So I guess the question is why would the <unk> gross margin be flattish sequentially. If that it is not expected to repeat and rates have come in a bit.

Unnamed Speaker: Thanks. We are not providing separate guidance for our rental segment this year due to the uncertainty regarding the timing of closings caused by interest rate volatility and capital market fluctuation. Based on our current pipeline of projects, we expect our rental closings and revenues in the second quarter to exceed the first quarter. Four Star, our majority-owned residential lot development company, reported revenues of $306 million for the first quarter on 3,150 lots sold with pre-tax income of $51 million.

Speaker Change: Well it starts with the <unk>.

Speaker Change: We sold homes with an increased level of incentives while rates were higher during Q1 and some of those closed in December but there are still a number of them will that will be closing in Q2, and so so far on a on a core basis, we still are entering the quarter and a little bit lower margin than what the average presents and so that's.

Speaker Change: But obviously rates have dropped and so those incentive costs are a bit lower than in the later sales and so on balance we expect we should be able to hold margins around the current levels excluding.

Unnamed Speaker: Four Stars' owned and controlled lot position at December 31st was 82,400 lots. 61% of Four Stars' owned lots are under contract with or subject to a right of first offer to D.O. Horton.

Speaker Change: Excluding the hedging going forward.

Speaker Change: Okay got it and then I think last quarter log costs were up 10, or 11% year over year, but I think there's some geographic mix that was in there and maybe a normalized to up sort of mid single digits. If you kind of accounted for that mix I mean, how did log cost trend in the quarter and how are you thinking about that in a in <unk>.

Unnamed Speaker: $270 million of our finished lots purchased in the first quarter were from forestry. Forstar had more than $840 million of liquidity at quarter end with a net debt-to-capital ratio of 14.9%. Forster remains uniquely positioned to capitalize on the shortage of finished lots for the home building industry and to aggregate significant market share over the next few years with its strong balance sheet, lot supply, and relationship with D.L. Horton. Mike?

Speaker Change: No.

Speaker Change: No it's pretty similar to what we said last quarter and that was a year over year comps instead, we still were up.

Speaker Change: Low double digits on a year over year basis, and it didnt continue to have a little bit in geographic mix, but I would say you know stripping out a geography or a lot to us on a year over year basis, probably are at the high single digit.

Unnamed Speaker: Financial Services earned $66 million of pre-tax income in the first quarter on $193 million of revenue, resulting in a pre-tax profit margin of 34.3%. During the first quarter, essentially all of our mortgage company's loan originations related to homes closed by our home building operations, and our mortgage company handled the financing for 78% of our buyers. FHA and VA loans accounted for 57% of the mortgage company's volume. Borrowers originating loans with DHI Mortgage this quarter had an average FICO score of 724 and an average loan-to-value ratio of 88%.

Speaker Change: And until we cycle, an entire year, it probably stays that way and then it would moderate and in terms of year over year, because it's certainly less than that on a sequential basis, one 5% on a sequential basis.

Speaker Change: Got it thank you guys.

Speaker Change: Your next question is coming from Joe Alice Meyer with Deutsche Bank.

Speaker Change: Hey, good morning, everybody.

First-time homebuyers represented 56% of the closings handled by our mortgage company this quarter. Our balanced capital approach focuses on being disciplined, flexible, and opportunistic to support and sustain an operating platform that produces consistent returns, growth, and cash flow. We continue to maintain a strong balance sheet with low leverage and significant liquidity, which provides us with flexibility to adjust to changing market conditions. For the first three months of the year, our consolidated cash used in operations was $153 million. At December 31st, we had $6.4 billion of consolidated liquidity, consisting of $3.3 billion of cash and $3.1 billion of available capacity on our credit facility. Debt at the end of the quarter totaled $5.3 billion, with no senior note maturities in fiscal 2024.

Speaker Change: If you'll just humor me for maybe a couple more on the gross margin could you just talk about the actual P&L impact of that charge, whether it was something that hit deductions from revenue or if it was just the hit the Cogs and then similarly on the what you're expecting going forward I guess, it makes sense, you're not expecting that given rates has kind of stabilized.

Speaker Change: But is there a way to think about the sensitivity based on what you've still got out there notionally like if we had another 50 to 100 basis point drop which you have another 100 basis point impact from here.

Speaker Change: Joe the charge the amount of the charge of $65 million approximately.

Speaker Change: And that's basically what hit during the quarter in terms of our position outstanding.

Speaker Change: We believe that our position is reflects the current market and and the valuation adjustment in the December quarter. It takes care of all of it. There is always some sensitivity we always have some hedging position outstanding and so anytime there is a significant and sudden change in rates that can leave some exposure there.

Our consolidated leverage at December 31st was 18.6%. Solidified Leverage Net of Cash with 7.8, and at December 31st, our stockholders' equity was $23.2 billion. And book value per share was $69.70, up 19% from a year ago. For the trailing 12 months into December, our return on equity was 21.8%, and our consolidated return on assets was 14.8%. During the quarter, we paid cash dividends of approximately $100 million, and our board has declared a quarterly dividend at the same level to be paid in February.

Obviously, the opposite side of that is the benefits to the business of when when rates drop obviously that improves affordability and improves our ability to to sell at a price point and the core business and so what is our hedging position allows us to do is offer below market rates on a consistent basis on a raw basis across our our are busy.

Speaker Change: And and like we said, we try to try to manage that as best we can but in a period of significant sudden volatility there can be some exposure to the position that there were two very significant movements in interest rates in the quarter. They went up significantly in the middle of the quarter and they came down significantly to the end of the quarter kind of a very unique dynamic that we have not experienced that.

Operator: Although volatility in mortgage rates and changes in economic conditions could significantly impact our business, for the second quarter, we currently expect to generate consolidated revenues of $8.1 to $8.3 billion and homes closed by our home building operations to be in the range of 20,000 to 20,500 homes. We expect our home sales gross margin in the second quarter to be approximately 22.6%. General consultants and financial analysts and leaders. We have a list of missed opportunities that I will be mentioning and reviewing related to technical assistance in rule six. How can we prepare you to take a new record soon on the principles we covered last week? Good morning.

Speaker Change: Led to the mark to market adjustment being more severe than it's been in prior quarters and that 65 million Mark to market is in constant then sold and whereas just standard routine interest rate offering does net against revenue and inflows to our ASP, but the $65 million specifically is in cost of goods.

Speaker Change: That's all very helpful. Thanks for the transparency there.

As a follow up thinking about the outlook for materials, either inflation or deflation can you just speak to what's in your <unk> Guide and then maybe just generally if we're looking at starts rising in your volumes, obviously growing how should we think about the competition from materials, perhaps driving inflation again at those.

Operator: We just want to get right into that. We'll start by taking today's review in handwriting. It is our second week of report day. We have four items that have come out that we have to move through depending on what we have, but we'll be focusing on reports as they should come up. We anticipate a financial services pre-tax profit margin of around 30-35% in the second quarter, and we expect our quarterly income tax rate to be approximately 23.5-24%. We are well positioned to continue gaining market share in all of our operations. Our full-year fiscal 2024 revenue, pricing, and margins in our home building, rental, financial services, and four-star businesses will be determined by market conditions and the strength of the spring selling season, in addition to our efforts to meet demand by balancing pace and price to maximize returns.

Speaker Change: Yes, we're seeing some relative flatness in our in our cost side of the business and would expect to see similar all things stay consistent through the next quarter certainly.

Speaker Change: With the encouraging signs early in January it's possible that we see some increase in starts from all of our peers that could put pressure on labor and materials.

Speaker Change: Which could cause some.

Speaker Change: Some headwinds or some increase in disaster.

Speaker Change: Alright, thanks, everybody good luck.

Speaker Change: Thanks, Jim.

Speaker Change: Your next question for today is coming from Michael Rehaut with J P. Morgan.

Speaker Change: Yeah.

Michael Jason Rehaut: Hi, Thanks.

Michael Jason Rehaut: Taking my question good morning, everyone.

Michael Jason Rehaut: I wanted just to circle back for a moment on SG&A and.

Operator: For the full year of fiscal 2024, we now expect to generate consolidated revenues of approximately $36 to $37.3 billion and expect homes closed by our home building operations to be in the range of 87,000 to 90,000 homes. We expect to generate approximately $3 billion of cash flow from our home building operations. We also plan to repurchase approximately $1.5 billion of our common stock to continue reducing our outstanding share count, in addition to annual dividend payments of around $400 million. Finally, we now expect an income tax rate for fiscal 2024 of approximately 24 percent.

Speaker Change: I think bill you talked about the main drivers of the higher or or negative leverage I guess you could say.

Speaker Change: The beam community count and the stock comp.

Speaker Change: You're going to see a similar type of negative leverage impact on the second quarter.

Speaker Change: Would you expect that to kind of flatten out.

Speaker Change: Everything else equal it seems to imply.

Speaker Change: You said that maybe in the first couple of quarters, you're going to see this impact and you know that.

That's your kind of run through by the time, you get to the back half or is this more of a 25 event.

Speaker Change: And you know as part of this question I'm also curious if you know higher.

Speaker Change: Sales incentives outside broker commissions.

Operator: We remain focused on balancing our cash flow utilization priorities to grow our operations, pay an increased dividend, and consistently repurchase shares while maintaining strong liquidity and conservative leverage. In closing, our results and position reflect our experienced teams, industry-leading market share, broad geographic footprint, and diverse product offering. All of these are key components of our operating platform that sustain our ability to produce consistent returns, growth, and cash flow while continuing to gain market share. We will maintain our disciplined approach to investing capital to enhance the long-term value of the company, which includes returning capital to our shareholders through both dividends and share repurchases on a consistent basis. Thank you to the entire DR Horton family of employees, land developers, trade partners, vendors, and real estate agents for your continued focus and hard work.

Speaker Change: As impacted if at all or if you could remind us if that's the portion that's in the.

Speaker Change: The Cogs.

Speaker Change: Yes, the last part first yeah, our broker commissions are in our in our gross margins are in our cost of goods sold so that's not part of the equation and I think your general commentary. There is fair you know, we only provide specific SG&A guidance, one quarter out, but generally our expectation.

Speaker Change: Over the longer term is that we would get.

Speaker Change: Get back to a similar you know SG&A level as last year and beyond so I think it is a phenomenon here for a couple of quarters, where we where we're guiding a little bit higher than last year, a little headwind on the community count market growth, but a little tailwind in Q2 on the equity comp position recognizing that in Q1 versus Q2, and we're also I'm also.

Speaker Change: ASP is down year over year, and so it's always a little bit more of a headwind on a percentage basis for SG&A went when when asp's are down.

Speaker Change: Right No. That's that's that's fair that makes sense as well appreciate that.

Speaker Change: Secondly.

Speaker Change: Not not to beat a dead horse, but I do.

Speaker Change: You've kind of made a comment on the gross margins Bill and I don't know if he misspoke or.

Operator: This concludes our prepared remarks. We will now take questions. Certainly. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue.

Speaker Change: It would kind of make sense to us. It is indeed, you did not miss speak, but you know I think you said at one point.

Speaker Change: We would expect gross margins to get back to the <unk> levels, excluding the hedging impact.

Speaker Change: That would kind of make sense to us to the extent that in the last couple of months rates have come down.

Stephen S. Kim: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button. We do ask that you limit yourself to one question and one follow-up question. One moment, please, while we poll for questions. Your first question for today is from Stephen Kim with Evercore ISI. Yeah, thanks very much, guys. Appreciate it. And thanks for all your commentary.

Speaker Change: In your current orders you know would include less expensive rate buy downs than let's say a couple of months ago and I think you were kind of thing <unk> is currently being impacted by some of the carryover from once you I just wanted to make sure I heard that right or.

Speaker Change: Or how to think about you know where gross margins are today on orders taken in mid January let's say versus a couple of months ago.

Unnamed Speaker: I guess, just to start off with, could you clarify? I think you mentioned at the beginning of the call that about 100 basis points of the gross margin was affected by hedging related to, I think you said, rate buydowns. And in your guide for 2Q, can you also just clarify, like, what I thought I heard? You said 20,000 to 20,500 closings and 8.1 to 8.3 billion in consolidated revenues. I just want to make sure I heard those right. Yes, Steve, that's correct.

Speaker Change: Yeah, you know, we provided guidance one quarter out and so we've got it to 22, 6% to 23, 1%. So essentially straddling the GAAP margin that we reported in Q1 coming into Q2. The closings that we will have early in the quarter or at the probably the low end of that range, maybe even a little below that but then lay.

Speaker Change: In the quarter, our margins are improving because of the cost of buy downs. After rates have dropped is lower and so but on average. That's we believe that that will balance out to a margin in the $22 six to 23, 1% range, while will occur after that we can't really call them and it's really going to be a matter of what's the strength of the.

Unnamed Speaker: For the second quarter, $8.1 to $8.3 billion of consolidated revenues and closings of 20,000 to 20,500 homes. And in terms of home sales gross margin, you're also correct that 100 basis points, the impact was due to the rate buydowns that we've been offering and adjustments we had to make to that position during the quarter on a sequential basis. But what we've guided to for Q2 versus Q1 is relatively flat in terms of a 22.6% to 23.1% gross margin in Q2 versus the 22.9% that we posted this quarter. Gotcha. And those 100 basis points, is that something that, you know, you have done in the past? Is that a number that, you know, compares?

Speaker Change: Spring selling season, what does demand look like through the spring and what happens with mortgage rates and so but on average that's where we believe things will fall for margins in Q2.

Speaker Change: Right. So so basically what you're saying is beginning of the quarter at the low end, perhaps a little bit below the low end of that range that would imply towards the end of the quarter at the higher end or perhaps a little bit above the high end of that range is that fair.

Speaker Change: I think on balance it's going to balance out to $22 six to 20 341.

Speaker Change: Yeah.

Speaker Change: So we still sell a large portion of our homes inter quarter, so 35% to 40% is our kind of historical average and so those are being sold now and as we look through the quarter and into the spring selling season. So certainly as the spring selling season emerges and continues it's going to give us better visibility as we look towards the end of this.

Unnamed Speaker: I guess, can you give us some sense of what that number has been over the last couple of quarters? Steve, this quarter is the first time that that amount has been significant at all. It has – it's essentially adjusting the valuation of our hedging positions that we have in place to offer our programmatic rate buy-downs across the country, and it's typically a very small move, either up or down, but this quarter, given the significant volatility in rates during the quarter, mortgage rates moved up to 8 percent in November and then dropped sharply in December. Those hedging positions had to be adjusted to reflect that, so Generally, we don't plan for any significant move one way or the other. And if you were to exclude that chart, we would have landed in the gross margin that we had guided to for the quarter. That was really the reason that we came in below. Gotcha, okay, that's really helpful.

Speaker Change: This quarter Institute and <unk>.

Speaker Change: Great appreciate it thank you.

Your next question is coming from Truman Patterson with Wolfe research.

Truman Patterson: Hey, good morning, everyone not to beat a dead horse here, but.

Truman Patterson: Just wanted to understand kind of your old philosophy, and some near term dynamics with you know rates come in below little bit below a 7%.

Truman Patterson: I realize there's this hedging noise, but have you all been able to kind of pull back on you know core incentives. If you will over the past several weeks or is this much more taking kind of a a bit of a wait and see approach. I think you mentioned are a good rebound early in the year.

Stephen S. Kim: I'm sure there are going to be more questions about the guide, but I wanted to talk about your capital allocation, and in particular, I guess, you know, the mantra for DR Horton over the last several years now has been about consistency, and predictability, and reliability, and that sort of thing, and you've done a great job there. But as I think about your overall cash position, it looks like you have sufficient cash currently. You've got another three billion coming.

Truman Patterson: You know you know are you, taking a wait and see approach so you're not disrupting kind of demand or the momentum ahead of the spring selling season.

Truman Patterson: Sure.

Truman Patterson: I think that as we look at this today, it's still very early and for us.

Truman Patterson: Activity has been important so we haven't made any significant changes in our incentives if the market gives us to us and we continue to see the early encouragement that we are then we will.

Stephen S. Kim: I think maybe, you know, a little less than two billion is spoken for with buybacks and dividends. I was curious about that extra million, and I'm curious how land investment factors into that, and rental. So those are the two other big pieces, it would seem.

Respond to the market in time, if rates continue to stay up and we will need to lift a lift our array offerings like we've done in the past and will fluctuate as as those rates move still has been our best incentive is the rate buy down and consistency of rate consistency of payment to our buyers as they shop in the market and all of that continues to be.

So I guess when I look at your land, your land supply has been coming down for, had been coming down for a number of years, but now, for about three years, your land and year supply has been flat. I was wondering, do you think you can bring that land investment down further, or is this kind of the level that you think that we're gonna be, you know, seeing in the future? And then in rental, can you give us a sense for what you think the growth in the rental inventory may be over the course of the next year? Stephen, when we look at our land position, we feel that the forward one year's supply of land that we own is important to maintain the production velocity in our neighborhoods.

Truman Patterson: Managed market by market community by community based on what our local operators are seeing and believe is the best to drive the strongest returns I mean, even with a little bit of give back in our gross margin our improved cycle times and what we're going to turn this year in terms of inventory is way more important to our bottom line and the returns we're going to generate them.

Truman Patterson: Giving up a little bit of gross margin and still being at roughly 23%.

Bringing that down significantly is going to be incremental because it's going to be with more developers providing finished lots for us versus self-development, and I think we're back up to 76% controlled, which is up from where it's been the past few quarters. So we're going to continue to incrementally look to control more land and acquire lots that are being finished by others. But we will still need to maintain a supply of land on our balance sheet, lots primarily on our balance sheet, to feed production and the Rental Inventory.

Truman Patterson: Makes makes total sense and with that you know you will bump to your closings guidance a little bit.

Truman Patterson: To about 89000 or around there that's well above the prior peak of we'll call. It 83000 back in 2022, when there were all these supply chain issues and constraints.

Speaker Change: Could you just help us get a little more comfortable with that level of growth kind of based on todays labor pool lot of availability I'm really trying to understand.

Speaker Change: Constraints today, and maybe what level of closings would would really create bottlenecks in the construction process not.

And the rental inventory, we'll probably be investing some. During fiscal 24 to grow that platform, it's getting closer to a good sustainable volume that will produce a consistent revenues and profits quarter to quarter, but it's still on the growth. And in terms of overall capital allocation, as you already alluded to, we did guide to the one and a half billion dollars of common stock, we've got the annual dividend payments of 400 million. We also have a sizable debt maturity that's very early in fiscal 25 of 500 million dollars in October. So, you know, too early to say what we're going to do with that. And we're very focused on maintaining conservative leverage. And we'll see as we get closer. But that is something we're going to be prepared to potentially pay out of cash if we don't feel like the market's right to go refi that. Great.

Speaker Change: You know asking about demand or or anything along those lines.

Speaker Change: We've been very focused on creating a quarter to quarter consistent starts plan, where we're feeding our neighborhoods with lots that are available in front of us and making sure. We have those lots supplied and secured to us at the same time, we've made a tremendous amount of progress, reducing our cycle times and coming back to sort of our historical norms of.

Speaker Change: Around four months from starting at home to completion, and so that's giving us much greater flexibility going into this year.

Speaker Change: With the strong finish lot position. We currently have combined with the reduced cycle times were able to reduce our homes and inventory and still deliver our closings.

Speaker Change: Target, that's going to be at or in excess of our two times beginning of the year housing tourists. So so we really feel good about what's happened there as to what the upside topside is for where.

Stephen S. Kim: Thanks very much, guys. Your next question is coming from Carl Reichardt with BTIG. Morning, everybody.

Carl Reichardt: I want to talk about SG&A for a sec. Bill, can you talk about the basis points associated with the incentive comp this quarter? And then you talked about it being ahead of some growth you're planning. Can you talk a little bit about community count expansion and whether or not this also might be related to some of the new markets you've entered more recently? Thanks.

Speaker Change: Where the bottlenecks would come in hard to speculate on where that would be feel really good about our lot position neighborhood by neighborhood and the trade partnerships that we have in the supplier relationships that we have.

Speaker Change: They've been very supportive of us.

Speaker Change: Great point, chairman and that when we think about overall industry can change finished lots are going to continue to be an issue in terms of the other is being able to put more houses on the ground today, it's not getting any easier to put a finished lots on the ground and so we continue to have a focus on building out our lot position and our relationships with third party developers.

Sure, yeah, the first factor this quarter we point to our 14% increase in our average selling community, so that's obviously a significant increase, and our SG&A is up 14% this quarter year-over-year as well. So that's a bigger move than we have had in a while that's positioning us to be able to provide the increased guidance, and you have seen our market count increase over the last several years. Obviously, we expect in time to achieve some leverage on that, and as we grow our revenues, we would expect our SG&A to come back down to historic levels, but I think we've got a couple of quarters here where we're going to see our SG&A a little bit higher as a percentage of revenues, primarily driven by that.

Speaker Change: To make sure we're positioned for growth and when we think about the biggest constraints to the industry overall it definitely starts with finished lots.

Speaker Change: Perfect. Thank you Oleg and good luck in the coming year.

Oleg: Thank you Jeremy.

Oleg: Yes.

Oleg: Yes.

Oleg: Your next question is coming from Eric Bossard with Cleveland Research Company.

Oleg: Yeah.

Eric Bosshard: Good morning.

Eric Bosshard: I'm curious if you can provide a little bit of perspective, you talked about.

This quarter, we have one additional factor, and really it's just a timing factor in terms of the impact of equity and stock-based comp. We typically have an amount that we incur typically in our second quarter or third quarter, but the timing of some grants this year was a little bit earlier into our first quarter, and so there's an amount of roughly $13 million that was incurred in Q1 of this quarter that typically would be a Q2 or Q3 event. Okay, that's small, so it's different this year. Okay, thank you for that. And then I have a bigger picture question for Paul.

Favorable trends into the spring and 56% first time I'm just as you look across the business.

Eric Bosshard: In terms of where you're seeing relative strength.

Eric Bosshard: In regards to price points and product, where things are above average and where things are below average.

Eric Bosshard: Yeah.

Eric Bosshard: I think it's pretty consistent across the board, we're feeling really good across all of our offerings I mean, as you know with 55% up to 56% of our deliveries have been the first time homebuyers, that's generally where we've kind of geared our neighborhoods that were positioning and the product that were positioning with that I think 70% of our deliveries were at $400000 or less.

Eric Bosshard: Which for US is maintaining a focus on affordability and a payment that works for people in their monthly budget. Hence we've used the interest rate buy down quite a bit but feel really good.

So obviously, the biggest news that we've seen in the business for a while is the large acquisition by an offshore player of a domestic homebuilder, and historically, long ago, Horton was a fairly significant acquirer of public companies and other private companies, and still is here and there. We've seen you look at some deals. Paul, can you talk a little bit about, from your perspective, whether or not acquisitions are something that Horton would consider? Historically, I know you've done them.

Eric Bosshard: Coming out in January does.

Eric Bosshard: It does not make a quarter or a spring selling season, but we're very encouraged by the early trends in January.

Eric Bosshard: And and are excited for what the spring is going to hold.

Eric Bosshard: From a product perspective, or a price point perspective with lower rates do you think differently than you did.

Eric Bosshard: 90 days ago in terms of a focus on affordability.

More recently, you've talked about doing most of your growth greenfield. I'd just like to know, given current conditions, where you sit on this sort of big picture. Thanks so much.

Eric Bosshard: Do you think about expanding a bit more what youre doing.

Eric Bosshard: I think we have made adjustments as the market has shifted over the last 12 to 18 months and feel comfortable with our trajectory and the product offering that we have certainly as you look across our communities.

Carl Reichardt: Yes, Carl, you know, we still today look at, continually look at acquisitions. And for us, you know, we're more interested in the smaller, tuck-in builders that may add to our market share in an existing market or give us, you know, some entry. But we do always have an opportunity to greenfield those, you know. I don't see a significant, large acquisition on the horizon. Certainly, the acquisition that you're referring to makes some sense. We speak to scale a lot.

Eric Bosshard: They're going to trend inside of the product offering that we have based on rate and monthly payment environment, whether that means that they're buying up in size or down in size, but we feel like we have a good offering across our markets and we'll continue to stay as we need to respond to a monthly payment and <unk>.

Eric Bosshard: Crist rates and provide affordable opportunities across all of our platform.

And market share, and that makes some sense to us. But, you know, today, we're going to continue to look at those as they come available, but no significant shift in what you've seen us do over the last. Appreciate it. Thanks all.

Speaker Change: Great. Thank you.

Speaker Change: Okay.

Speaker Change: Your next question for today is coming from Alan Ratner with Zelman and associates.

Alan Ratner: Hey, guys. Good morning, Thanks for all the detail so far.

John Lovallo: Your next question for today is coming from John Lovallo with UBS. Good morning, guys. Thank you for taking my questions as well. The first one here is, you know, it seems like the first quarter gross margin, at least relative to your expectations, was impacted by that 100 basis points of hedging, which apparently was not contemplated in the initial guide.

Alan Ratner: Couple of questions on kind of a spec versus build to order dynamic in the industry right now.

Alan Ratner: You guys being a spec builder I think had a pretty pretty strong advantage during the pandemic.

Alan Ratner: Obviously resale inventory was incredibly tight the extended cycle times, while I'm sure. It was hard to manage from your side kind of gave you a an advantage versus the bto guys in terms of the consumer experience. So I guess my question is now that cycle time seem to be improving across the industry resale inventory.

So I guess the question is, why would the 2Q gross margin be flattish sequentially if that hit is not expected to repeat and rates have come in a bit? Well, it starts with we sold homes with an increased level of incentives while rates were higher during Q1, and some of those closed in December, but there are still a number of them that will be closing in Q2. And so on a core basis, we still are entering the quarter at a little bit lower margin than the average presents, but obviously rates have dropped, and so those incentive costs are a bit lower in the later sales. And so, on balance, we expect we should be able to hold margins around the current levels, you know, excluding the hedging going forward. Okay, I got it.

Alan Ratner: He is taking a little bit higher.

Alan Ratner: Are you thinking about that dynamic any differently are you may be contemplating selling earlier in the construction process again, whereas before you were maybe waiting for homes to get closer to completion are you seeing more competition from build to order builders that have kind of shrunk in there their construction cycle times any commentary on that.

Speaker Change: That would be great.

Speaker Change:

Speaker Change: Thank today.

Speaker Change: We are still seeing people looking for closing with certainty of close date and in that 30 to 60 day timeframe based on their ability to lock in interest rates and so I don't know that we've seen much significant shift from the build to order builders being able to deliver a pre sale into those.

And then I think last quarter lot costs were up, you know, 10 or 11% year over year, but I think there's some geographic mix that was in there. And maybe it normalized up sort of mid single digits if you kind of accounted for that mix. I mean, how did lot costs trend in the quarter? And how are you thinking about that in 2Q? Similar to what we said last quarter, that was a year-over-year comp, and so we still were up low double digits on a year-over-year basis, and it did continue to have a little bit of geographic mix. But I would say, you know, stripping out geography, our lot costs on a year-over-year basis probably are up high single digits, and until we cycle an entire year, it probably stays that I got it.

Speaker Change: Timeframes, we are very comfortable with our inventory position both in a total homes and in our completed home scenario, which continued to play into the shortness of resale inventory across our markets and I don't expect a significant change for us we're going to continue to stay focused.

Speaker Change: On inventory sales.

Speaker Change: Consistent production.

Speaker Change: Community to community.

Speaker Change: Even with the decline in existing home sales. They are still three to four times larger of a market transaction volume than new home sales. So we've always tried to position ourselves to compete against those homes, rather than just other new home delivery providers.

John Lovallo: Thank you, guys. Your next question is coming from Joe Ellesmire with Deutsche Bank. Hey, good morning, everybody.

Speaker Change: <unk> of that sale has been able to move up earlier in our stage of construction just because we have gotten back to our.

If you'll just humor me for maybe a couple more on gross margin, could you just talk about the actual P&L impact of that charge, whether it was something that hit deductions from revenue or if it was just a hit to COGS? And then similarly on what you're expecting going forward, I guess it makes sense you're not expecting it given rates have kind of stabilized, but is there a way to think about the sensitivity based on what you still have out there notionally, like if we had another 50 to 100 basis point drop, would you have another 100 basis point impact from here? Joe, the amount of the charge was $65 million, approximately, and that's basically what hit during the quarter. In terms of our position outstanding, we believe that a position reflects the current market, and the valuation adjustment in the December quarter takes care of all of it. There is always some sensitivity involved.

Historical norms of months of delivery and warehouse.

Speaker Change: Got it but in terms of your sales strategy and that you know I look at your completed spec count it's been ticking a little bit higher here more recently is that still kind of the strategy to hold these homes off until you or maybe a month or two from completion to allow the buyer to lock in that rate or are you maybe thinking about kind of.

Speaker Change: Pulling that forward a little bit.

Speaker Change: Okay.

Speaker Change: Where we're allowing we're not restricting the sale of homes seasonally youll see the completed spec inventory the completed home inventory tick up through the fall and be positioned that we have houses available for quick deliveries beginning in January for the spring selling season.

We always have some hedging position outstanding, and so anytime there is a significant, sudden change in rates that can leave some exposure there, obviously, the opposite side of that is the benefit to the business. When rates drop, obviously, that improves affordability and improves our ability to sell at a price point in the core business, and so what this hedging position allows us to do is offer below-market rates on a consistent basis, on a broad basis across our business. And, like we said, we try to manage that as best we can, but in a period of significant, sudden volatility, there can be some exposure to the position. There were two very significant moves in interest rates during the quarter.

Speaker Change: So.

Speaker Change: We're able to deliver the homes that people are coming in and eating in 30 or 60 days at the same time with them with the compressed cycle times as Paul mentioned, we are very comfortable selling unlocking a rate in for a buyer earlier in the production process than we were a year ago for sure.

Speaker Change: Okay Gotcha.

Speaker Change: One last quick one if I could just going back to the the charge on the hedge.

Speaker Change: I just wanted to better understand this like we have heard from other builders in the past situations, where they would buy kind of forward commitment pools and win rates pulled back sharply in a short period of time, those pools and kind of go unused because the market kind.

They went up significantly in the middle of the quarter, and they came down significantly at the end of the quarter. It is kind of a very unique dynamic that we have not experienced. That's what led to the mark-to-market adjustment being more severe than it had been in prior quarters. And that $65 million mark-to-market adjustment is in cost-of-goods sold, whereas the just the standard, routine interest rate offering does net against revenue and flows through our ASP, but the $65 million specifically is in cost-of-goods. That's all very helpful.

Speaker Change: Kind of fell below wherever that pool, what is that kind of what's going on with you guys or are the mechanics of this much different I'm just trying to wrap my arms around that better.

Speaker Change: No you've described it exactly we typically will buy those forward commitment pools really for the next few weeks of deliveries essentially as the plan, we're not going out very far but it is a few weeks and so that's when we say a very sudden sharp change.

Speaker Change: Change in rates, then can prove presents some exposure there, but it's has not occurred in the past, but the circumstances this quarter, where we're pretty unusual in terms of the significance and the suddenness of the right moves and it was really restructuring. So it could be is not that we weren't going to fulfill the pool. We just had to restructure it usable and then at the end of the.

Thanks for the transparency there. As a follow-up, thinking about the outlook for materials, either inflation or deflation, can you just speak to what's in your 2Q guide? And then maybe just generally, if we're looking at starts rising and your volumes obviously growing, how should we think about the competition for materials perhaps driving inflation again in those? Yeah, we're seeing some relative flatness in our cost side of the business, and would expect to see similar. All things stay consistent through the next quarter. Certainly, you know, with the encouraging signs early in January, it's possible that we see some increase in starts from all of our peers that could put pressure on labor and on materials, you know, which could cost some headwinds or some increases. All right. Thanks, everybody. Good luck! Thank you so much.

We always have we always have to mark to market the value at the end of the quarter and so that's always a factor there as well.

Speaker Change: So it sounds like this is an industry phenomenon not necessarily important phenomena, but obviously, we'll learn more about that in the next few weeks, but I appreciate that thank you.

Speaker Change: Yeah.

Speaker Change: Yeah.

Your next question for today is coming from Anthony Pettinari with Citi.

Good morning.

Mike Dahl: There was a earlier question on the large builder acquisition. We saw last week I guess, we also saw a large acquisition in that so far and I'm. Just wondering if you could talk about how institutional demand for build to rent homes has been trending maybe relative to earlier expectations.

Michael Jason Rehaut: Thank you. Your next question for today is coming from Michael Rehaut with J... Hi, thanks for taking my question. Good morning, everyone.

Mike Dahl: You expect that to grow as a portion of your homebuilding operations and maybe the impact to that business in this kind of rate environment.

Michael Jason Rehaut: I want to just circle back for a moment on SG&A and, you know, Bill, you talked about the main drivers of the higher or negative leverage, I guess you could say, being community count and the stock comp. You're going to see a similar type of negative leverage impact on the second quarter. Would you expect that to kind of flatten out?

Mike Dahl: Certainly have seen that with the change in the capital markets that.

Mike Dahl: Demand environment became much chop here last year.

Mike Dahl: But we still had institutional buyers that were anxious to get the product we were delivering to the market and they they continue to be so we delivered projects in the first quarter, we expect to deliver more in the second quarter and then throughout the year with the pipeline. That's there I mean for US it's a strategy to help us derisk land positions and more rapid.

Everything else equals seems to imply, you said that maybe in the first couple of quarters, you're going to see this impact, and you know, that should kind of run through by the time you get to the back half, or is this more of a 25 event? And you know, as part of this question, I'm also curious if, you know, higher sales incentives outside broker commissions have impacted this at all or if you could remind us if that's the portion that's in the COG. Yeah, the last part first. Yeah, our broker commissions are in our gross margins or in our cost of goods sold. So that's not part of the equation.

Mike Dahl: Lee monetize our land portfolio and so we've still seen good demand for the product good demand on the rentals and the lease ups. When we're taking the stabilization process on and continue to expect that to become a growing part of our business.

Lee: Okay. That's helpful. And then just you know last quarter I think 60% of your buyers took some form of a buy down and you were offering six in a quarter on a conventional loan I'm. Just wondering if you can update you.

And I think your general commentary there is fair. We only provide specific SG&A guidance one quarter out. But generally, our expectation, you know, over the longer term is that we would get back to a similar SG&A level as last year and beyond. So I think this is a phenomenon here for a couple of quarters, where we're guiding a little bit higher than last year. A little headwind on the community count and market growth, but a little tailwind in Q2 on the equity comp position, recognizing that Q1 versus Q2. And we're also, also ASP is down year over year. And so it's always a little bit more of a headwind on a percentage basis for SG&A when ASPs are down. That's fair.

Lee: Where that stands coming out of fiscal <unk> and I guess, you talked about this earlier a bit but do you think about a kind of a rate level, whereby downs, maybe stop becoming kind of the chiefs incentive mechanism or were you know incentives start to shift back to more kind of traditional ones.

Speaker Change: We're probably up and call.

Speaker Change: Call it roughly 10% and sequentially in terms of the take rate on that buy downs than we were in the seventies and now we'd be in the 80% range as the buyer to utilize our mortgage company. So the 60% you said was on our overall business. It's a 60 day, roughly 70% of buyers and kick that kicked that this quarter.

Speaker Change: And the use of those rate buy downs is not just new to us over the last 12 months, we've been 24 plus months utilizing that incentives. So I believe on a go forward basis.

Michael Jason Rehaut: That also makes sense as well. I appreciate that. Secondly, not to beat a dead horse, but you kind of made a comment on the gross margins, Bill, and I don't know if you misspoke or it would kind of make sense to us if indeed you did not misspoke, but I think you said at one point we would expect gross margins to get back to the 1Q levels excluding the hedging impact. That would kind of make sense to us to the extent that in the last couple of months rates have come down, and your current orders, you know, would include less expensive rate buydowns than, let's say, a couple of months ago. And I think you're kind of saying 2Q is currently being impacted by some of the carryover from 1Q. I just wanted to make sure I heard that right or how to think about, you know, where gross margins are today on orders taken in, you know, mid-January, let's say, versus a couple of months ago.

Speaker Change: Staying competitive to not only the new home market, but especially for the resale market for us and the ability to have a lower monthly payment for same cost of home is advantageous.

Speaker Change: We have no no plan in the near term to stop utilizing it even if we see rates shift down.

Okay. That's helpful I'll turn it over.

Speaker Change: Yes.

Speaker Change: Your next question is coming from Ken Zenner with Seaport Research partners.

Ken Zener: Good morning, everybody.

Ken: Morning, Ken.

Ken Zener: Oh I wonder.

Ken Zener: With the industry everybody likes to focus on the income statement right. So the gross margins, obviously been a focus today. However.

Ken Zener: Your initial comments were about inventory tourists, which together gets you your returns on inventory so.

Ken Zener: Because you can pick up volume.

Yeah, you know, we've provided guidance one quarter out. So we've got it at 22.6 to 23.1%, so essentially straddling the gap margin that we reported in Q1. Coming into Q2, the closings that we will have early in the quarter are probably at the low end of that range, maybe even a little below that.

Ken Zener: For the year modestly and all we see is one quarter forward guidance is it fair to say that your guys internal metrics are generating the same or higher rois than you had started the year I know you kept the 3 billion cash flow are the same but I'm just trying to understand we see one part of the business, but not necessarily the output or the other.

But then later in the quarter, margins are improving because the cost of buy-downs after rates have dropped is lower. And so, on average, we believe that that will balance out to a margin in the 22.6 to 23.1% range. What will occur after that, we can't really comment.

Speaker Change: Sure Yeah, I mean, our returns are in line with our plans and our divisions are out there executing on their plans there start plans week to week month to month and <unk>.

Speaker Change: The liver the homes than we expected to this quarter plus a few hundred more and and so you know as we enter the spring, we're continuing with that and very consistent with our expectations from an inventory turn standpoint, and a return on return on our assets our investments in inventory.

It's really going to be a matter of what the strength of the spring selling season is, what demand looks like through the spring, and what happens with mortgage rates. And so, on average, that's where we believe things will fall for margins in Q2. Right. So basically, what you're saying is the beginning of the quarter at the low end, perhaps a little bit below the low end of that range, that would imply towards the end of the quarter at the higher end, or perhaps a little bit above the high end of that range. Is that fair?

Speaker Change: Right.

Speaker Change: So yeah.

Speaker Change: You talked about improving cycle times, obviously part of that stuff do you see you know when you started 20000. The last three years starts within 14000 25000, all over the place.

Speaker Change: Can you talk to.

That level I mean, do you see some degree of.

Speaker Change: I use the word seasonality or or what's kind of affecting that is it orders or is it just a plan that you have to reach your closings a and then B. What do you expect your inventory units to be at the end of the year given your underlying assumptions right now thank you very much.

Michael Jason Rehaut: I think on balance it's going to balance out to 22.6 to 23.1. We still sell a large portion of our homes between quarters, so 35-40% is our kind of historical average. And so, you know, those are being sold now and as we look through this quarter and into the spring selling season. So certainly, as the spring selling season emerges and continues, it's going to give us better visibility as we look towards the end of this quarter and into the spring. Great. I appreciate it.

Speaker Change: Yeah, Ken as you look at our past.

Speaker Change: Year, plus storage space. It has been in consistent a lot of that has been response to the market in response to the elongation of cycle times and then further reduction of cycle times as you look at our inventory today.

Speaker Change: And our guide to basically turn a little more than two times that inventory.

Truman Patterson: Thank you. Your next question is coming from Truman Patterson with Wolf Research. Hey, good morning, everyone.

Speaker Change: Can expect to see consistent.

Speaker Change: Sustainable starts.

Truman Patterson: Not to beat a dead horse here, but just want to understand kind of your philosophy and some near-term dynamics with, you know, rates coming below a little bit below 7%. I realize there's this hedging noise, but have you all been able to kind of pull back on, you know, core incentives, if you will, the past several weeks? Or is this much more taking kind of a bit of a wait-and-see approach?

Speaker Change: Pension over the next few quarters.

Speaker Change: Want to maintain the level of inventory that we have.

Speaker Change: And be in a position as we respond to the spring selling season.

Speaker Change: Consistent with our stores, but we do need to grow our starch consistently quarter to quarter over the remainder of the year.

Speaker Change: And as we consistently look to position ourselves to grow, but we would certainly love.

Speaker Change: To position ourselves to grow in fiscal 'twenty five over fiscal 'twenty four so we would expect our inventory at the end of the year to be a little higher there wasn't the start of the year with the expectation of turning it a little more than two times in fiscal 'twenty five.

I think you mentioned a good rebound early in the year. You know, are you taking a wait-and-see approach so you're not disrupting any kind of demand or the momentum ahead of the spring? Truman, you know, I think that as we look at this today, it's still very early.

And for us, consistency of activity has been important, so we haven't made any significant changes in our incentives. If the market gives this to us, and we continue to see the early encouragement that we are, then we'll, you know, respond to the market in kind. If rates continue to stay up, then we'll need to lift our rate offerings like we've done in the past, and we'll fluctuate as those rates move. Still has been our best incentive is the rate buydown and consistency of rate, and consistency of payment to our buyers as they shop. And all of that continues to be managed market-by-market, community-by-community based on what our local operators are seeing and believe is the best to drive the strongest returns.

Speaker Change: Thank you.

Speaker Change: Your next question is coming from Susan Mcclary with Goldman Sachs.

Speaker Change: Okay.

Susan Maklari: Thank you good morning, everyone.

Susan Maklari: I wanted to just talk a bit more about taking I'm thinking probably normal because on the ground as you think about some of the smaller new home market.

Susan Maklari: Recently entered and the potential for more existing home turnover to perhaps come through as we move through the year any thoughts on what those competitive dynamics could mean for you in various markets and perhaps how you're positioned relative to that.

Truman Patterson: I mean, even with a little bit of a give-back in our gross margin, our improved cycle times and what we're going to turn this year in terms of inventory are way more important to our bottom line and the returns we're going to generate than giving up a little bit of gross margin and still being at roughly 23%. It makes total sense, and with that, you know, you all bumped your closings guidance a little bit to about 89,000 around here. That's well above, you know, the prior peak of, we'll call it 83,000 back in 2022 when there were all these supply chain issues and constraints. Could you just help us get a little more comfortable with that level of growth kind of based on today's labor pool, a lot of availability? I'm really trying to understand constraints today and maybe what level of closings would really create bottlenecks in the construction process. You know, asking about, you know, demand or anything along those lines.

Speaker Change: I think Susan that we're continually looking to provide affordable homes that hit a payment that's going to work in the monthly budget for our buyers and that is whats oftentimes overlooked, especially by in the smaller markets a lot of the builders that are currently existing have capital constraints on what they are able to build and start and.

Speaker Change: So theyre looking generally to maximize revenue per lot or margin per lot and go with a lower volume and so they're leaving that first time homebuyer.

Speaker Change: Family that needs a more affordable home kind of not really their targets. So that's the target customer we seek out and we see good.

Speaker Change: Results when we go into a new market Greenfield of new market and focus on the affordable price points.

Speaker Change: Okay.

Speaker Change: That's helpful. And then just thinking about the cash generation and our balance sheet.

Speaker Change: What I think of normalized what level of cash I guess are you comfortable holding on the balance sheet to guide.

We've been very focused on creating a quarter-to-quarter consistent starts plan where we're feeding our neighborhoods with lots that are available in front of us and making sure we have those lots supplied and secured to us. At the same time, we've made a tremendous amount of progress reducing our cycle times and coming back to sort of our historical norms of around four months from starting a home to completion. And so that's giving us much greater flexibility going into this year. With the strong finished lot position we currently have, combined with the reduced cycle times, we're able to reduce our homes and inventory and still deliver closings. That's going to be, you know, add or in excess of our two times the beginning of the year housing terms. So we really feel good about what's happened there. As to what the upside, the top side is for where the bottlenecks would come in, hard to speculate on where that would be. I feel really good about our lot position, neighborhood by neighborhood, and the trade partnerships that we have and the supplier relationships that we have. They've been very supportive of us.

Speaker Change: How do you think about the potential for perhaps increasing our buybacks or allocating capital as some of the other growth initiatives that you have out there as you continue to bolster the balance sheet.

Speaker Change: Susan for the size and scale of our business today and the volume that we have in terms of just our cost of production of of inventory. The cash balance we have on the balance sheet today is in the in the range of where we'd like to be so cash across our business segments, and then availability under our credit facilities, we would like to maintain the current level.

Speaker Change: And as we scale up over time will increase incrementally increase that level over time.

Speaker Change: With our plans this year and our guidance on share repurchase in fiscal 'twenty four we are increasing our share repurchase by <unk>.

Speaker Change: 25% this year from $1 2 billion to $1 5 billion and that's just part of our plan.

Speaker Change: Planned to be consistent.

Speaker Change: With our distributions to shareholders as well and increased our dividend this year as well expect to spend $400 million on dividends. This year and so that is an increase over last year and in our plan would be to as we continue to scale. The business continue to be able to increase incrementally those those repurchases and dividend levels.

But a great point, Truman, in that when we think about overall industry constraints, finished lots are going to continue to be an issue in terms of builders being able to put more houses on the ground today. It's not getting any easier to put a finished lot on the ground, and so we continue to have a focus on building on our land position and our relationships with third-party developers to make sure we're positioned for growth. But when we think about the biggest constraints on the industry overall, it definitely starts with finished lots. Perfect. Thank you all and good luck in the coming year. Thank you, Truman. Your next question is coming from Eric Bosshard with Cleveland Research. Good morning.

Speaker Change: Okay. Thank you and good luck.

Your next question for today is coming from Raffi Tetherow sick at Bank of America.

Raffi Tetherow: Hi, Good morning, it's Rafe thanks for taking my question.

Raffi Tetherow: I just.

Raffi Tetherow: Just on the outlook that.

Rafe: For an improvement in build cycles and 'twenty going forward can you talk about where your build cycles are now where they were last quarter.

Eric Bosshard: Curious if you can provide a little bit of perspective. You talked about favorable trends into the spring and 56% for the first time, just as you look across the business. In terms of where you're seeing relative strength in regards to price points and product, where things are above average and where things are below average, I think it's pretty consistent across the board.

Rafe: How much do you think that can improve and then like what gets you there from a supply chain perspective.

Rafe: Yeah, we were kicked over four months this quarter rates and when we think about our historical norm. It really is right at that four months in terms of start to complete and then there's an additional time from complete to close and that's down from seven months and a year ago. So a very substantial improvement in terms of year over year basis.

We're feeling really good across all of our offerings. I mean, as you know, 55% to 56% of our deliveries have been to first-time homebuyers. That's generally where we've kind of geared our neighborhoods that we're positioning and the product that we're positioning with that. I think 70% of our deliveries were at $400,000 or less, which for us is maintaining a focus on affordability and a payment that works for people in their monthly budget. Hence, we've used the interest rate buy-downs quite a bit. I feel really good coming out in January.

Rafe: It improved by about 10 days. So when we think about further improvements from here theyre not large moves and Theyre just continued improvement on average and so where hopefully we can get below four months.

Rafe: But that's not something that we expect K Jive from four to two.

It does not make a quarter or a spring selling season, but we're very encouraged by the early trends in January and are excited for what the spring is going to hold, from a product perspective or price point perspective with lower rates. Do you think differently than you did?

Speaker Change: Got it. Thank you that's helpful. And then I just wanted to follow up on the comment that you are seeing encouraging signs as we head into the spring season.

Speaker Change: Can you just give a little bit more color on what youre seeing is that better homebuyer traffic or conversion.

Eric Bosshard: 90 days ago, in terms of a focus on affordability, or do you think about it? Transcribed by https://otter.ai I think we have made adjustments as the market has shifted over the last 12 to 18 months and feel comfortable with our trajectory and the product offering that we have. Certainly, as you look across our communities, you know, they're going to trend inside of the product offering that we have based on the rate and monthly payment environment, whether that means that they're buying up in size or down in size, but we feel like we have a good offering across our markets, and we'll continue to stay as we need to respond to monthly payment and interest rates and provide affordable opportunities across all of our communities. Thank you. Your next question for today is coming from Alan Ratner with Zellman & Hey, guys, good morning. Thanks for all the detail so far.

Speaker Change: And do you think that's just driven by sort of the headline rate number that that's coming coming down just one understand what you're saying that that's encouraging in the market.

Speaker Change: There's lots of reasons people are out looking for houses, but ultimately they need a house and we're seeing both good traffic and good convergence early in the spring and so.

Speaker Change: We have set of operating plan for the year.

Speaker Change: And so far we feel really good about how the market is responding to that.

Speaker Change: Your next question is coming from Matthew Bouley with Barclays.

Speaker Change: Okay.

Matthew Bouley: In terms of the land market are you seeing a pickup in land development into 2024, and I know that you said that.

Alan Ratner: I've got some questions on kind of the spec versus build to order dynamic in the industry right now. You know, you guys, being a spec builder, I think you had a pretty, pretty strong advantage during the pandemic. Obviously, resale inventory was incredibly tight.

Matthew Bouley: Things can kind of get a little bit more conscious and demand increases.

Matthew Bouley: How are you thinking about land development cost and loss costs, moving higher and kind of offsetting that.

Matthew Bouley: Okay.

Speaker Change: For us we are.

The extended cycle time, as well, I'm sure it was hard to manage from your side, kind of gave you an advantage versus the BTO guys in terms of the consumer experience. So, I guess my question is now that cycle time seems to be improving across the industry, and resale inventory is picking up a little bit higher, are you thinking about that dynamic any differently?

Speaker Change: <unk> set in terms of our consistent delivery of loss into our start plan and so that that plan is in place for us as we look 12 months out we have not seen much reduction in development costs and wouldn't expect with that.

Speaker Change: The shortness of lots across the industry that we're going to see and we're not anticipating much reduction.

Speaker Change: Any of the labor side or the supply side product side of the components that go into developing lots, but we have a plan that we have stuck to and are consistent with feel good about our lot position.

Alan Ratner: Are you maybe contemplating selling earlier in the construction process again, whereas before you were maybe waiting for homes to get closer to completion? Are you seeing more competition from build-to-order builders that have kind of shrunk their construction cycle times? Any commentary on that would be great.

Speaker Change: In the near term and as we look next year or two out.

Speaker Change: Okay. Thank you.

Great. I think today, you know, we are still seeing people looking for closing with certainty of the close date and in that 30 to 60 day timeframe based on their ability to lock and enter. And so I don't know that we've seen much significant shift from the build to order builders, being able to deliver a presale into those timeframes. We are very comfortable with our inventory position, both in total homes and in a completed home scenario. It's continued to play into the shortness of resale inventory across our markets, and we don't expect a significant change for us. We're going to continue to stay focused on inventory, sales, and consistent production.

Speaker Change: And then just kind of switching over to affordability aside from rate buy downs or is there anything else that buyers have been kind of responsive to as far as like the levers that you have to kind of make.

Speaker Change: <unk> work for them.

Speaker Change: Or has there been a type.

Speaker Change: Sort of change to those strategies.

Speaker Change: Product selection generally they'll buy a smaller home to make the payment work.

And sometimes that's within an existing neighborhood or moving to a different neighborhood, that's offering a smaller set of plans.

Speaker Change: Square footage was down again about 3% year over year. It was relatively flat sequentially, but we would expect just continued gradual moves down from a mix shift perspective in terms of average square footage.

Speaker Change: Thank you very much.

Alan Ratner: Even with the decline in existing home sales, they're still three to four times larger in market transaction volume than new home sales. So we've always tried to position ourselves to compete against those homes, rather than just, you know, other new home providers. The timing of that sale has been able to move up earlier in our stage of construction just because we have gotten back to our historical norms of months of delivery.

Speaker Change: We have reached the end of our question and answer session and I will now turn the call over to Paul <unk> for closing remarks.

Paul: Thank you Holly we appreciate everyone's time on the call today and look forward to speaking with you again to share our second quarter results in April congratulations to the entire D. R. Horton family on producing a solid first quarter. We're proud to represent you on this call and appreciate all that you do.

Alan Ratner: But in terms of your sales strategy, I mean, you know, I look at your completed spec count. It's been ticking a little bit higher here more recently. Is that still kind of the strategy to hold these homes off until you're maybe a month or two from completion to allow the buyer to lock in that rate? Or are you maybe thinking about kind of pulling that forward a little bit?

Speaker Change: This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.

We're allowing, we're not restricting the sale of homes. Seasonally, you'll see the completed spec inventory, the completed home inventory, tick up through the fall and be positioned so that we have houses available for quick deliveries beginning in January for the spring selling season. So we're able to deliver the homes that people are coming in and needing in 30 or 60 days. At the same time, with the compressed cycle times, as Paul mentioned, we are very comfortable selling and locking a rate in for a buyer earlier in the production process than we were a year ago, for sure. Okay, gotcha. One last quick one, if I could, just going back to the charge on the hedge. I just want to better understand this.

Like we have heard from other builders in the past, situations where they would buy kind of forward commitment pools, and when rates pulled back sharply in a short period of time, those pools would kind of go unused because the market, you know, kind of fell below wherever that pool was. Is that kind of what's going on with you guys? Or are the mechanics of this much different?

I'm just trying to wrap my arms around that better. No, you've described it exactly. We typically will buy those forward commitment pools really for the next few weeks of deliveries, essentially. We're not going out very far, but it is a few weeks, and so that's when we say a very sudden, sharp change in rates can present some exposure there. But this has not occurred in the past, but the circumstances this quarter were pretty unusual in terms of the significance and the suddenness of the rate moves.

And it was really restructuring so it could be used, not that we weren't going to fill the pool. We just had to restructure it so it was usable. And then at the end of the quarter, we always have to mark to market the value at the end of the quarter, so that's always a factor there as well. So it sounds like this is an industry phenomenon, not necessarily a Horton phenomenon, but obviously we'll learn more about that in the next few weeks. But I appreciate that.

Mike Dahl: Thank you. Your next question for today is coming from Anthony Pettinari, who says, Good morning. Um, there was an earlier question on the large builder acquisition we saw last week. I guess we also saw a large acquisition in SFR. And I'm just wondering if you could talk about how institutional demand for build-to-rent homes has been trending, maybe relative to earlier expectations. You know, do you expect that to grow as a portion of your home building operations and maybe the impact of that business on this? Certainly, I've seen that with the change in the capital markets, that demand environment became much choppier last year, but we still had institutional buyers that were anxious to get the product We've delivered projects in the first quarter.

We expect to deliver more in the second quarter and then throughout the year with the pipeline that's there. For us, it's a strategy to help us de-risk land positions and more rapidly monetize our land portfolio. We've still seen good demand for the product, good demand for the rentals and the lease-ups when we take the stabilization process on, and continue to expect that to become a growing part of our business. Okay, that's helpful.

Mike Dahl: And then just, you know, last quarter, I think 60% of your buyers took some form of a buy down, and you were offering six and a quarter on a conventional loan. I'm just wondering if you can update, you know, where that stands coming out of fiscal one Q. And I guess you talked about this earlier a bit, but, you know, do you think about a kind of rate level where buy-downs maybe stop becoming kind of the chief incentive mechanism or where, you know, incentives start to shift back to more kind of traditional? We're probably up, you know, call it roughly 10% sequentially in terms of the take rate on that buy-down. So we were in the 70s, and now we'd be in the 80% range of the buyers that utilize our mortgage company.

So the 60% you said was on our overall business. So say 60 to roughly 70% of buyers took that this quarter. You know, and the use of those rate buy-downs is not just new to us over the last 12 months. We've been 24 plus months utilizing that incentive.

So I believe on a go-forward basis, staying competitive in not only the new home market but especially the resale market for us and the ability to have a lower monthly payment for the same cost of the home is advantageous. So, you know, we have no plan in the near term to stop utilizing it, even if we see, Okay, that's helpful. I'll turn it over.

Mike Dahl: Your next question is coming from Ken Zener with Seaport Research. Good morning, everybody. Good morning, Ken.

Ken Zener: I wonder, you know, in the industry, everybody likes to focus on the income statement, right? So the gross margins have obviously been a focus today. However, your initial comments were about inventory terms, which together get you returns on inventory.

So because you took up volume for the year modestly, and all we see is one quarter's forward guidance, is it fair to say that your guys' internal metrics are generating the same or higher ROIs than you had started the year at? I know you kept the three billion cash flow the same, but I just try to understand, you know, we see one part of the business but not necessarily the output of the other.

Ken Zener: Sure, yeah, I mean, our returns are in line with our plans, and our divisions are out there executing on their plans, their startup plans week to week, month to month, and they delivered the homes that we expected to this quarter, plus a few hundred more. And so, you know, as we enter spring, we're continuing with that, and it is very consistent with our expectations from an inventory turn standpoint and a return on our assets, our investments in inventory. Wright.

So, you talked about improving cycle times, obviously part of that stuff. Do you see, you know, when you started 20,000, the last three years, starts have been, you know, 14,000, 25,000, all over the place. Can you talk to that level?

Ken Zener: I mean, do you see some degree of, let me use the word seasonality, or, or what's kind of affecting that, you know, are orders? Or is it just a plan that you have to reach your closings? A, and then B, what do you expect your inventory units to be at the end of the year, given your underlying assumptions right now? Thank you very much.

Ken Zener: Yeah, Ken, as you look at our past year plus start space, it has been inconsistent. A lot of that has been a response to the market and a response to the elongation of cycle times and then further reduction of cycle times. As you look at our inventory today and our guide to basically turn a little more than two times that inventory, we can expect to see consistent and sustainable start expansion over the next few quarters. You know, we want to maintain the level of inventory that we have and be in a position as we respond to the spring selling season to stay consistent with our starts, but we do need to grow our starts consistently quarter to quarter over the remainder. And as we consistently look to position ourselves to grow, we would certainly want to position ourselves to grow in fiscal 25 over fiscal 24, so we would expect our inventory at the end of the year to be a little higher than it was at the start of the year with the expectation of turning it a little more than two times in fiscal 25. Thank you. Your next question is coming from Susan Maklari on behalf of Goldberg. Thank you. Good morning, everyone.

Susan Maklari: I wanted to talk a bit more about the competitive dynamics on the ground, as you think about some of the smaller new home markets that you have recently entered and the potential for more existing home turnover to perhaps come through as we move through the year. Any thoughts on what those competitive dynamics could mean for you and in various markets and perhaps how you're positioned relative to that? I think, Susan, that we're continually looking to provide affordable homes that hit a payment that's going to work in the monthly budget for our buyers. And that is what's often overlooked, especially by, in the smaller markets, a lot of the builders that are currently existing have capital constraints on what they're able to build and start. And so they're looking generally to maximize revenue per lot or margin per lot and go with a lower volume. And so they're leaving that first-time homebuyer, that family that needs a more affordable home, kind of not really their target.

So that's the target customer we seek out. And we see good results when we go into a new market, greenfield a new market, and focus on affordable prices. Okay, that's helpful.

And then you're thinking about cash generation and the balance sheet. You know, as things have normalized, what level of cash, I guess, are you comfortable holding on the balance sheet today? And how do you think about the potential for perhaps increasing the buybacks or allocating capital to some of the other growth initiatives that you have out there as you continue to bolster the balance sheet? You know, Susan, for the size and scale of our business today and the volume that we have in terms of just our constant production of inventory, the cash balance we have on the balance sheet today is in the range of where we'd like to be. So cash across our business segments and then availability under our credit facilities.

Susan Maklari: We would like to maintain the current level, and as we scale up over time, we'd incrementally increase that level over time. For example, with our plans this year and our guidance on share repurchase in fiscal 24, we are increasing our share repurchase by 25% this year from $1.2 billion to $1.5 billion. And that's just part of our plan to be consistent with our distributions to shareholders as well. You know, we increased our dividend this year as well, and expect to spend $400 million on dividends this year. And so that is an increase over last year, and our plan would be to, as we continue to scale the business, continue to be able to increase those repurchases and dividend levels. Okay, thank you, and good luck. Your next question for today is coming from Rafe Jadrosich at Bank of America. Hi, good morning. It's Rafe.

Thanks for taking my question. Just on the outlook for an improvement in build cycles in 2024, can you talk about where your build cycles are now compared to where they were last quarter? How much do you think that can improve and then, like, what gets you there from a supply chain? We were just over four months this quarter, Rafe, and when we think about our historical norm, it really is right at that four months in terms of start to complete, and then there's an additional time from complete to close. That's down from seven months a year ago, so a very substantial improvement in terms of year-over-year comparisons. However, sequentially, it improved by about ten days.

When we think about further improvements from here, they're not large moves. They're just continued improvements on average to where, hopefully, we can get below four months, but that's not something that we expect to drive from four to two. Thank you, that's helpful. And then I just wanted to follow up on the comment that you're seeing encouraging signs as we head into the spring season. Can you just give a little bit more color on what you're seeing?

Is that better homebuyer traffic or conversion? And do you think that's just driven by sort of the headline rate number that that's coming, coming down? Just understand what you're seeing that's encouraging in the market. I think there are lots of reasons people are out looking for houses, but ultimately, they need a house, and we're seeing both good traffic and good convergence early in the spring. We have set up an operating plan for the year, and so far, we feel really good about how the market is responding to that. Your next question is coming from Matthew Bouley with Barclays. Okay.

Matthew Bouley: In terms of the land market, are you seeing a pickup in land development into 2024? I know that you said that things can kind of get a little bit more crunched as demand increases. How are you thinking about land development costs and lot costs moving higher and kind of offsetting that? You know, for us, we are set in terms of our consistent delivery of lots into our starter plan. And so that that plan is in place for us as we look 12 months out. You know, we have not seen much reduction in development costs and wouldn't expect with the shortness of lots across the industry that we're going to see, and we're not anticipating much reduction in either the labor side or the supply side, or the product side of the components that go in.

Matthew Bouley: To develop. We have a plan that we have stuck to and are consistent with, and feel good about our lot position in the near term and as we look ahead to the next year or two. Okay, thank you. And then, just kind of switching over to affordability, aside from rate buydowns, is there anything else that buyers have been, you know, kind of responsive to as far as the levers that you have to kind of make the payment work for them? Or has there been any sort of change to those strategies?

Product selection, generally, they'll buy a smaller home to make the payment work. Sometimes that's within an existing neighborhood or moving to a different neighborhood that's offering a smaller set of plans. So our square footage was down again, about 3% year over year. It was relatively flat sequentially, but we would expect just continued gradual moves down from a mixed shift perspective in terms of average square footage.

Matthew Bouley: Thank you very much. We have reached the end of the question and answer session, and I will now turn the call over to Paul Romanowski for closing remarks. Thank you, Holly. We appreciate everyone's time on the call today and look forward to speaking with you again to share our second quarter results in April. Congratulations to the entire D.R. Horton family on producing a solid first quarter. We're proud to represent you on this call and appreciate all that you've done. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.