Q2 2026 D. R. Horton Inc Earnings Call

April 21, 2026

Speaker #1: Turn on listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press *0 on your telephone keypad.

Speaker #1: Please note this conference is being recorded. I will now turn the call over to Jessica Hansen, Senior Vice President of Communications for DR HORTON.

Speaker #2: Thank you, Paul, and good morning. Welcome to our call to discuss our financial results for the second quarter of fiscal 2026. Before we get started, today's call includes forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995.

Speaker #2: Although DR 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 DR HORTON on the date of this conference call, and DR HORTON does not undertake any obligation to publicly update or revise any forward-looking statements.

Speaker #2: Additional information about factors that could lead to material changes in performance is contained in DR HORTON's annual report on Form 10-K and its most recent quarterly report on Form 10-Q, both of which are filed with the Securities and Exchange Commission.

Speaker #2: This morning's earnings release and our supplemental data presentation can be found on our website at investor.drhorton.com, and we plan to file our 10-Q later this week.

Speaker #2: After this call, we will also post our updated investor presentation to our investor relations site on the presentations section under news and events for your reference.

Speaker #2: Now I will turn the call over to Paul Romanowski, our President and CEO.

Speaker #3: Thank you, Jessica, and good morning. I'm pleased to also be joined on this call by Mike Murray, our Chief Operating Officer, and Bill Wheat, our Chief Financial Officer.

Speaker #3: The DR HORTON team delivered solid second-quarter results with consolidated pre-tax income of $867 million, on $7.6 billion of revenues, and a pre-tax profit margin of 11.5%.

Speaker #1: Good morning and welcome to the second quarter 2026 Earnings Conference call for deer Horton , America's builder , at this time , all participants are in listen only mode .

Operator: Good morning, and welcome to the Q2 2026 Earnings Conference Call for D.R. Horton, America's Builder. 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. I will now turn the call over to Jessica Hansen, Senior Vice President of Communications for D.R. Horton.

Speaker #3: New home demand remains impacted by affordability constraints and cautious consumer sentiment. However, our 10-year teams continue to respond to current market conditions with discipline.

Speaker #1: 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 .

Speaker #3: During the quarter, we delivered a consolidated pre-tax profit margin above the high end of our guidance range. Generated revenues within our expected range, an increased net sales orders by 11% compared to the prior year quarter.

Speaker #1: 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. Horton.

Speaker #1: Horton .

Speaker #2: Thank you , Paul , and good morning . Welcome to our call to discuss our financial results for the second quarter of fiscal 2026 .

Jessica Hansen: Thank you, Paul, and good morning. Welcome to our call to discuss our financial results for Q2 of fiscal 2026. 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 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 in performance is contained in D.R.

Speaker #3: At the same time, we reduced our unsold completed homes by 35% from a year ago, reflecting our focus on balancing sales pace, pricing, and incentives to drive incremental sales while maximizing returns.

Speaker #2: 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 #2: 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.

Speaker #3: We continue to focus on capital efficiency to generate strong operating cash flows and deliver compelling returns to our shareholders. Over the past 12 months, we generated $3.7 billion of cash from operations, and returned $4 billion to shareholders through repurchases and dividends.

Speaker #2: 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 D.R.

Jessica Hansen: Horton's annual report on Form 10-K and its most recent quarterly report on Form 10-Q, both of which are filed with the Securities and Exchange Commission. This morning's earnings release and our supplemental data presentation can be found on our website at investor.drhorton.com, and we plan to file our 10-Q later this week. After this call, we will also post our updated investor presentation to our investor relations site on the presentation section under News and Events for your reference. Now, I will turn the call over to Paul Romanowski, our President and CEO.

Speaker #2: Horton's annual Report on Form 10-K and its most recent quarterly Report on Form 10-Q, both of which are filed with the Securities and Exchange Commission. This morning's earnings release and our supplemental data presentation can be found on our website at Investor COVID-19.

Speaker #3: For the trailing 12 months ended March 31st, our home building pre-tax return on inventory was 17.6%. While our consolidated returns on equity and assets were 13.2% and 8.9%.

Speaker #3: Our return on assets ranks in the top 20% of all S&P 500 companies for the past 3, 5, and 10-year periods, demonstrating that our disciplined, returns-focused operating model delivers sustainable results and positions us well for continued value creation.

Speaker #2: And we plan to file our 10-q later this week After this call , we will also post our updated investor presentation to our Investor Relations site on the presentations section under News and Events .

Speaker #2: For your reference. Now I will turn the call over to Paul Romanowski, our President and CEO.

Paul Romanowski: Thank you, Jessica, and good morning. I'm pleased to also be joined on this call by Mike Murray, our Chief Operating Officer, and Bill Wheat, our Chief Financial Officer. The D.R. Horton team delivered solid Q2 results with consolidated pre-tax income of $867 million on $7.6 billion of revenues and a pre-tax profit margin of 11.5%. New home demand remains impacted by affordability constraints and cautious consumer sentiment. However, our tenured teams continue to respond to current market conditions with discipline. During the quarter, we delivered a consolidated pre-tax profit margin above the high end of our guidance range, generated revenues within our expected range, and increased net sales orders by 11% compared to the prior year quarter.

Speaker #3: Thank you , Jessica , and good morning . I am pleased to also be joined on this call by Mike Murray , our chief Operating Officer , and Bill Wheat , our chief Financial Officer .

Speaker #3: Our sales incentives increased during the second quarter, and we expect incentives to remain elevated for the rest of the year, with a level dependent on demand, mortgage interest rates, and other market conditions.

Speaker #3: The D.R. Horton team delivered solid second quarter results with consolidated pre-tax income of $867 million on $7.6 billion of revenues, in a pre-tax profit margin of 11.5%.

Speaker #3: We work every day to leverage our industry-leading platform, unmatched scale, efficient operations, and experienced teams to bring homeownership opportunities at affordable price points to more Americans.

Speaker #3: New home demand remains impacted by affordability constraints and cautious consumer sentiment. However, our tenured teams continue to respond to current market conditions with discipline.

Speaker #3: 65% of our mortgage companies' closings this quarter were to first-time homebuyers. We will continue to tailor our product offerings, sales incentives, and inventory levels based on demand in each of our markets to maximize returns.

Speaker #3: During the quarter , we delivered a consolidated pre-tax profit margin above the high end of our guidance range , generated revenues within our expected range and increased net sales orders by 11% compared to the prior year quarter .

Speaker #3: Mike?

Speaker #4: Earnings for the second quarter of fiscal 2026 were $2.24 per diluted share, compared to $2.58 per share in the prior year quarter. Net income for the quarter was $648 million, on consolidated revenues of $7.6 billion.

Paul Romanowski: At the same time, we reduced our unsold completed homes by 35% from a year ago, reflecting our focus on balancing sales pace, pricing, and incentives to drive incremental sales while maximizing returns. We continue to focus on capital efficiency to generate strong operating cash flows and deliver compelling returns to our shareholders. Over the past 12 months, we generated $3.7 billion of cash from operations and returned $4 billion to shareholders through repurchases and dividends.

Speaker #3: At the same time , we reduced our unsold completed homes by 35% from a year ago , reflecting our focus on balancing sales pace , pricing , and incentives to drive incremental sales .

Speaker #4: Home sales revenues in the second quarter totaled $7 billion, on $19,486 homes closed, compared to $7.2 billion on $19,276 homes closed in the prior year quarter.

Speaker #3: While maximizing returns, we continue to focus on capital efficiency to generate strong operating cash flows and deliver compelling returns to our shareholders.

Speaker #3: Over the past 12 months , we generated $3.7 billion of cash from operations and returned $4 billion to shareholders through repurchases and dividends For the trailing 12 months ended March 31st , our home pre-tax return on inventory was 17.6% , while our consolidated returns on equity and assets were 13.2% and 8.9% .

Paul Romanowski: For the trailing 12 months ended 31 March, our home building pre-tax return on inventory was 17.6%, while our consolidated returns on equity and assets were 13.2% and 8.9%. Our return on assets ranks in the top 20% of all S&P 500 companies for the past three, five, and 10-year periods, demonstrating that our disciplined, returns-focused operating model delivers sustainable results and positions us well for continued value creation.

Speaker #4: Reflecting our focus on affordability, in addition, the median sales price of our homes is approximately $70,000 lower than the median price of an existing home.

Speaker #3: Our return on assets ranks in the top 20% of all S&P 500 companies for the past three , five and ten year periods , demonstrating that our disciplined returns focused operating model delivers sustainable results and positions us well for continued value creation .

Speaker #4: Bill?

Speaker #3: Net sales orders increased 11% year over year in the second quarter to $24,992 homes. While total order value increased 10% to $9.2 billion, in line with our business plan and expectations.

Speaker #3: Our sales incentives increased during the second quarter, and we expect incentives to remain elevated for the rest of the year, with the level dependent on demand.

Paul Romanowski: Our sales incentives increased during Q2, and we expect incentives to remain elevated for the rest of the year, with the level dependent on demand, mortgage interest rates, and other market conditions. We work every day to leverage our industry-leading platform, unmatched scale, efficient operations, and experienced teams to bring homeownership opportunities at affordable price points to more Americans. 65% of our mortgage company's closings this quarter were to first-time homebuyers. We will continue to tailor our product offerings, sales incentives, and inventory levels based on demand in each of our markets to maximize returns. Mike?

Speaker #3: Our cancellation rate for the quarter was 16%, consistent with the prior year period and down from 18% sequentially. The average number of active selling communities increased 4% sequentially and 11% year over year.

Speaker #3: Mortgage interest rates and other market conditions. We work every day to leverage our industry-leading platform, unmatched scale, efficient operations, and experienced teams to bring home opportunities at affordable price points to more Americans.

Speaker #3: The average price of net sales orders was $366,300, up 1% sequentially and down 2% compared to the prior year quarter. Jessica?

Speaker #3: Sixty-five percent of our mortgage company’s closings this quarter were to first-time homebuyers. We will continue to tailor our product offerings, sales incentives, and inventory levels based on demand in each of our markets to maximize returns.

Speaker #2: Our gross profit margin on home sales revenues in the second quarter was 20.1%, which included a 40 basis point benefit from a favorable litigation outcome and lower than normal warranty costs.

Speaker #2: Assuming normalized warranty and litigation costs, our home sales gross margin would have been 19.7% in the second quarter, slightly higher than our guidance range.

Speaker #3: Mike .

Michael J. Murray: Earnings for Q2 of fiscal 2026 were $2.24 per diluted share, compared to $2.58 per share in the prior year quarter. Net income for the quarter was $648 million on consolidated revenues of $7.6 billion. Home sales revenues in Q2 totaled $7 billion on 19,486 homes closed, compared to $7.2 billion on 19,276 homes closed in the prior year quarter. Our average closing price was $361,600, down 1% sequentially and down 3% year-over-year. Our average sales price on homes closed is below the average price of new homes in the United States by approximately $160,000 or about 30%, reflecting our focus on affordability. In addition, the median sales price of our homes is approximately $70,000 lower than the median price of an existing home. Bill?

Mike Murray: Earnings for Q2 of fiscal 2026 were $2.24 per diluted share, compared to $2.58 per share in the prior year quarter. Net income for the quarter was $648 million on consolidated revenues of $7.6 billion. Home sales revenues in Q2 totaled $7 billion on 19,486 homes closed, compared to $7.2 billion on 19,276 homes closed in the prior year quarter. Our average closing price was $361,600, down 1% sequentially and down 3% year-over-year. Our average sales price on homes closed is below the average price of new homes in the United States by approximately $160,000 or about 30%, reflecting our focus on affordability. In addition, the median sales price of our homes is approximately $70,000 lower than the median price of an existing home. Bill?

Speaker #4: Earnings for the second quarter of fiscal 2026 were $2.24 per diluted share, compared to $2.58 per share in the prior year quarter.

Speaker #2: On a per square foot basis, sequentially, home sales revenues and stick-and-brick costs were both down 2%, while lot costs were essentially flat. Year over year, home sales revenue and stick-and-brick costs were both down 4% per square foot, while lot costs were up 4%.

Speaker #4: Net income for the quarter was $648 million on consolidated revenues of $7.6 billion. Home sales revenues in the second quarter totaled $7.0 billion on 19,486 homes closed, compared to $7.2 billion on 19,276 homes closed in the prior year quarter.

Speaker #2: We currently expect our home sales gross margin to be 19.7% or slightly higher in the third quarter, as we expect to realize additional construction cost savings on homes closed.

Speaker #4: Our average closing price was $361,600 , down 1% sequentially and down 3% year over year . Our average sales price on homes closed is below the average price of new homes in the United States by approximately $160,000 , or about 30% , reflecting our focus on affordability In addition , the median sales price of our homes is approximately $70,000 lower than the median price of an existing home .

Speaker #2: Incentive levels and gross margin for the remainder of the year will continue to be dependent on demand, mortgage rates, and broader market conditions. Bill?

Speaker #4: Our home building SG&A expenses in the second quarter increased 2% compared to last year, and SG&A as a percentage of revenues was 9.2%, up from 8.9% in the prior year quarter.

Speaker #4: The year over year increase on our SG&A expense ratio was primarily driven by lower home closings revenue, reflecting the decline in our average sales price.

Speaker #4: Bill net sales .

Bill W. Wheat: Net sales orders increased 11% year over year in Q2 to 24,992 homes, while total order value increased 10% to $9.2 billion, in line with our business plan and expectations. Our cancellation rate for the quarter was 16%, consistent with the prior year period and down from 18% sequentially. The average number of active selling communities increased 4% sequentially and 11% year over year. The average price of net sales orders was $366,300, up 1% sequentially and down 2% compared to the prior year quarter. Jessica?

Bill Wheat: Net sales orders increased 11% year over year in Q2 to 24,992 homes, while total order value increased 10% to $9.2 billion, in line with our business plan and expectations. Our cancellation rate for the quarter was 16%, consistent with the prior year period and down from 18% sequentially. The average number of active selling communities increased 4% sequentially and 11% year over year. The average price of net sales orders was $366,300, up 1% sequentially and down 2% compared to the prior year quarter. Jessica?

Speaker #3: Orders increased 11% year over year in Q2.

Speaker #5: The second quarter to 24,992 homes, while total order value increased 10% to $9.2 billion. In line with our business plan and expectations.

Speaker #4: We continue to manage our platform with discipline, and remain focused on gaining market share efficiently while driving operating leverage over time. Paul?

Speaker #3: We started 27,500 homes in the second quarter, and we ended the quarter with 38,200 homes in inventory. Of which 22,900 were unsold and 5,500 were completed and unsold.

Speaker #5: Our cancellation rate for the quarter was 16% , consistent with the prior year period , and down from 18% sequentially . The average number of active selling communities increased 4% sequentially , and 11% year over year .

Speaker #3: Our completed, unsold homes are down 25% from December and 35% from a year ago, with both unsold homes as a percentage of total inventory and completed, unsold inventory at their lowest levels since fiscal 2023.

Speaker #5: The average price of net sales orders was $366,300, up 1% sequentially, and down 2% compared to the prior year quarter. Jessica.

Jessica Hansen: Our gross profit margin on home sales revenues in Q2 was 20.1%, which included a 40 basis point benefit from a favorable litigation outcome and lower than normal warranty costs. Assuming normalized warranty and litigation costs, our home sales gross margin would have been 19.7% in Q2, slightly higher than our guidance range. On a per square foot basis, sequentially, home sales revenues and stick and brick costs were both down 2%, while lot costs were essentially flat. Year-over-year, home sales revenue and stick and brick costs were both down 4% per square foot, while lot costs were up 4%. We currently expect our home sales gross margin to be 19.7% or slightly higher in Q3, as we expect to realize additional construction cost savings on homes closed.

Speaker #3: For homes closed in the second quarter, our median cycle time from home start to home close improved by almost a month year over year.

Speaker #2: Assuming normalized warranty and litigation costs , our home sales , gross margin would have been 19.7% in the second quarter , slightly higher than our guidance range on a per square foot basis sequentially .

Speaker #3: Our improved cycle times enable us to hold less inventory and turn homes more efficiently. We expect starts in the third quarter to be lower than the second quarter and we will continue to manage our inventory levels and starts pace based on market conditions.

Speaker #2: Home sales revenues and stick and brick costs were both down 2% , while lot costs were essentially flat year over year . Home sales , revenue and stick and brick costs were both down 4% per square foot , while lot costs were up 4% .

Speaker #3: Mike?

Speaker #4: Our home building lot position at March 31st consisted of approximately 575,000 lots, of which 23% were owned and 77% were controlled through purchase contracts.

Speaker #2: We currently expect our home sales gross margin to be 19.7% , or slightly higher in the third quarter , as we expect to realize , additional construction cost savings on homes closed incentive levels and gross margin for the remainder of the year will continue to be dependent on demand .

Speaker #4: We are actively managing our investments in lots, land, and development based on current market conditions. We remain focused on our relationships with land developers across the country to allow us to build more homes on lots developed by others.

Jessica Hansen: Incentive levels and gross margin for the remainder of the year will continue to be dependent on demand, mortgage rates, and broader market conditions. Bill?

Speaker #2: Mortgage rates and broader market conditions . Bill .

Speaker #4: This approach enhances our capital efficiency, returns, and operational flexibility. In the second quarter, 67% of the homes we closed were on lots developed by either Four Star or third parties, up from 64% in the prior year quarter.

Speaker #5: Our homebuilding and expenses in the second quarter increased 2% compared to last year, and SG&A as a percentage of revenues was 9.2%, up from 8.9% in the prior year quarter.

Bill W. Wheat: Our Homebuilding SG&A expenses in Q2 increased 2% compared to last year, and SG&A as a percentage of revenues was 9.2%, up from 8.9% in the prior-year quarter. The year-over-year increase in our SG&A expense ratio was primarily driven by lower home closings revenue, reflecting the decline in our average sales price.

Bill Wheat: Our Homebuilding SG&A expenses in Q2 increased 2% compared to last year, and SG&A as a percentage of revenues was 9.2%, up from 8.9% in the prior-year quarter. The year-over-year increase in our SG&A expense ratio was primarily driven by lower home closings revenue, reflecting the decline in our average sales price.

Speaker #5: The year-over-year increase in our G&A expense ratio was primarily driven by lower home closings and revenue, reflecting the decline in our average sales price.

Speaker #4: During the second quarter, our home building investments in lots, land, and development totaled $2.1 billion. Including $1.5 billion for finished lots, $500 million for land development, and $120 million for land acquisition.

Speaker #5: We continued to manage our platform with discipline and remain focused on gaining market share efficiently while driving operating leverage over time. Paul.

Michael J. Murray: We continue to manage our platform with discipline and remain focused on gaining market share efficiently while driving operating leverage over time. Paul?

Mike Murray: We continue to manage our platform with discipline and remain focused on gaining market share efficiently while driving operating leverage over time. Paul?

Speaker #4: Paul?

Speaker #3: We started 27,500 homes in the second quarter , and we ended the quarter with 38,200 homes and inventory , of which 22,900 were unsold and 5500 were completed .

Speaker #3: In the second quarter, our rental operations generated $12 million of pre-tax income on $212 million of revenues, from the sale of 566 single-family rental homes and 216 multifamily rental units.

Paul Romanowski: We started 27,500 homes in Q2, and we ended the quarter with 38,200 homes in inventory, of which 22,900 were unsold, and 5,500 were completed and unsold. Our completed unsold homes are down 25% from December, and 35% from a year ago, with both unsold homes as a percentage of total inventory, and completed unsold inventory at their lowest levels since fiscal 2023. For homes closed in Q2, our median cycle time from home start to home close improved by almost a month year over year. Our improved cycle times enable us to hold less inventory and turn homes more efficiently. We expect starts in Q3 to be lower than Q2, and we will continue to manage our inventory levels and starts pace based on market conditions. Mike?

Speaker #3: And unsold—our completed unsold homes are down 25% from December and 35% from a year ago, with both unsold homes as a percentage of total inventory and completed unsold inventory at their lowest levels since fiscal 2023.

Speaker #3: At March 31st, our rental property inventory totaled $3 billion. Including $2.7 billion of multifamily rental properties and 347 million of single-family rental properties. We remain focused on improving the capital efficiency and returns of our rental operations.

Speaker #3: For homes closed in the second quarter , our median cycle time from home start to home close improved by almost a month year over year .

Speaker #3: And we currently expect our rental inventory to remain around $3 billion. Turning to our financial services operations, pre-tax income for the second quarter was $52 million on 193 million of revenues, resulting in a pre-tax profit margin of 26.8%.

Speaker #3: Our improved cycle times enable us to hold less inventory and turn homes more efficiently. We expect starts in the third quarter to be lower than the second quarter, and we will continue to manage our inventory levels and starts pace based on market conditions.

Speaker #3: Mike?

Speaker #4: Four Star, our majority owned residential lot development company, reported second quarter revenues of $374 million on 2,938 lots sold, with pre-tax income of $44 million.

Speaker #3: Mike .

Speaker #4: Our home building lot position at March 31st consisted of approximately 575,000 lots , of which 23% were owned and 77% were controlled purchase contracts .

Michael J. Murray: Our Homebuilding lot position at 31 March consisted of approximately 575,000 lots, of which 23% were owned, and 77% were controlled through purchase contracts. We are actively managing our investments in lots, land, and development based on current market conditions. We remain focused on relationships with land developers across the country to allow us to build more homes on lots developed by others. This approach enhances our capital efficiency, returns, and operational flexibility. In Q2, 67% of the homes we closed were on lots developed by either Forestar or third parties, up from 64% in the prior year quarter. During Q2, our Homebuilding investments in lots, land, and development totaled $2.1 billion, including $1.5 billion for finished lots, $500 million for land development, and $120 million for land acquisition. Paul?

Mike Murray: Our Homebuilding lot position at 31 March consisted of approximately 575,000 lots, of which 23% were owned, and 77% were controlled through purchase contracts. We are actively managing our investments in lots, land, and development based on current market conditions. We remain focused on relationships with land developers across the country to allow us to build more homes on lots developed by others. This approach enhances our capital efficiency, returns, and operational flexibility. In Q2, 67% of the homes we closed were on lots developed by either Forestar or third parties, up from 64% in the prior year quarter. During Q2, our Homebuilding investments in lots, land, and development totaled $2.1 billion, including $1.5 billion for finished lots, $500 million for land development, and $120 million for land acquisition. Paul?

Speaker #4: We are actively managing our investments in lots land and development based on current market conditions . We remain focused on our relationships with land developers across the country to allow us to build more homes on lots developed by others .

Speaker #4: At March 31st, Four Star's owned and controlled lot positions totaled $94,000 lots. 65% of Four Star's owned lots are under contract with or subject to a right of first offer to DR HORTON.

Speaker #4: During the second quarter, we purchased 280 million of finished lots from Four Star. Four Star's strong separately capitalized balance sheet national operating platform and lot supply position them well to provide essential finished lots to the home building industry and to aggregate significant market share over the next several years.

Speaker #4: This approach enhances our capital efficiency , returns and operational flexibility In the second quarter , 67% of the homes we closed were on lots developed by either four star or third parties , up from 64% in the prior year quarter During the second quarter , our home building investments in lots , land and development totaled $2.1 billion , including $1.5 billion for finished lots , $500 million for land development and $120 million for land acquisition .

Speaker #4: Bill?

Speaker #3: Our capital allocation strategy remains disciplined and balanced, supporting an operating platform that delivers attractive returns and substantial operating cash flows. We maintain a strong balance sheet with low leverage and healthy liquidity, providing significant financial flexibility to adapt to changing market conditions and opportunities.

Speaker #4: Paul .

Speaker #3: In the second quarter, our rental operations generated $12 million of pre-tax income on $212 million of revenues from the sale of 566 single-family rental homes and 216 multifamily rental units.

Paul Romanowski: In Q2, our Rental Operations generated $12 million of pre-tax income on $212 million of revenues from the sale of 566 single-family rental homes and 216 multi-family rental units. At 31 March, our rental property inventory totaled $3 billion, including $2.7 billion of multi-family rental properties and $347 million of single-family rental properties. We remain focused on improving the capital efficiency and returns of our Rental Operations, and we currently expect our rental inventory to remain around $3 billion. Turning to our Financial Services operations, pre-tax income for Q2 was $52 million on $193 million of revenues, resulting in a pre-tax profit margin of 26.8%. Mike?

Speaker #3: During the first six months of the year, home building cash provided by operations totaled $619 million. In consolidated cash provided by operations was $442 million.

Speaker #3: At March 31st , our rental property inventory totaled $3 billion , including $2.7 billion of multifamily rental properties and $347 million of single family rental properties .

Speaker #3: During the second quarter, we repurchased 6 million shares of common stock for $904 million. Reducing our outstanding share count by 8% compared to a year ago.

Speaker #3: We also paid cash dividends of 45 cents per share, totaling $130 million. And our board has declared a quarterly dividend at the same level to be paid in May.

Speaker #3: We remain focused on improving the capital efficiency and returns of our rental operations, and we currently expect our rental inventory to remain around $3 billion.

Speaker #4: In quarter end, our stockholders' equity was 23.6 billion. Down 3% from a year ago, while book value per share increased 5% from a year ago to $82.91.

Speaker #3: Turning to our financial services operations, pre-tax income for the second quarter was $52 million on $193 million of revenues, resulting in a pre-tax profit margin of 26.8%.

Speaker #4: At March 31st, we had $6 billion of consolidated liquidity, including $1.9 billion of cash and $4.1 billion of available capacity on our credit facilities.

Speaker #3: , four .

Michael J. Murray: Forestar, our majority-owned residential lot development company, reported Q2 revenues of $374 million on 2,938 lots sold, with pre-tax income of $44 million. At 31 March, Forestar's owned and controlled lot positions totaled 94,000 lots. 65% of Forestar's owned lots are under contract with or subject to a right of first offer to D.R. Horton. During Q2, we purchased $280 million of finished lots from Forestar. Forestar's strong, separately capitalized balance sheet, national operating platform, and lot supply position them well to provide essential finished lots to the home building industry and to aggregate significant market share over the next several years. Bill?

Mike Murray: Forestar, our majority-owned residential lot development company, reported Q2 revenues of $374 million on 2,938 lots sold, with pre-tax income of $44 million. At 31 March, Forestar's owned and controlled lot positions totaled 94,000 lots. 65% of Forestar's owned lots are under contract with or subject to a right of first offer to D.R. Horton. During Q2, we purchased $280 million of finished lots from Forestar. Forestar's strong, separately capitalized balance sheet, national operating platform, and lot supply position them well to provide essential finished lots to the home building industry and to aggregate significant market share over the next several years. Bill?

Speaker #4: Star , a majority owned residential lot development company , reported second quarter revenues of $374 million on 2938 lots sold , with pre-tax income of $44 million .

Speaker #4: Total debt at quarter end was $6.6 billion, with $600 million of home building senior notes maturing over the next 12 months. Our consolidated leverage at March 31st was 21.7%.

Speaker #4: At March 31st, for Starz, owned and controlled lot position totaled 94,000 lots. 65% of Four Star's owned lots are under contract with, or subject to, a right of first offer to D.R. Horton.

Speaker #4: And we continue to target leverage of around 20% over the long term. Jessica?

Speaker #4: Horton During the second quarter , we purchased $280 million of finished lots from four star . Four star strong separately capitalized balance sheet , National operating platform and lot supply positioned them well to provide essential finished lots to the home building industry and to aggregate significant market share over the next several years .

Speaker #5: Looking ahead to the third quarter, we currently expect consolidated revenues to be in the range of $8.8 to $9.3 billion, with homes closed by our home building operations to be in the range of $23,500 to $24,000 homes.

Speaker #5: We expect our home sales gross margin for the third quarter to be in the range of 19.7 to 20.2%, and our consolidated pre-tax margin to be between 12.2% and 12.7%.

Speaker #4: Bill .

Speaker #5: Our capital allocation strategy remains disciplined and balanced , supporting an operating platform that delivers attractive returns and substantial operating cash flows . We maintain a strong balance sheet with low leverage and healthy liquidity .

Paul Romanowski: Our capital allocation strategy remains disciplined and balanced, supporting an operating platform that delivers attractive returns and substantial operating cash flows. We maintain a strong balance sheet with low leverage and healthy liquidity, providing significant financial flexibility to adapt to changing market conditions and opportunities. During H1, home building cash provided by operations totaled $619 million, and consolidated cash provided by operations was $442 million. During Q2, we repurchased 6 million shares of common stock for $904 million, reducing our outstanding share count by 8% compared to a year ago. We also paid cash dividends of $0.45 per share, totaling $130 million, and our board has declared a quarterly dividend at the same level to be paid in May.

Bill Wheat: Our capital allocation strategy remains disciplined and balanced, supporting an operating platform that delivers attractive returns and substantial operating cash flows. We maintain a strong balance sheet with low leverage and healthy liquidity, providing significant financial flexibility to adapt to changing market conditions and opportunities. During H1, home building cash provided by operations totaled $619 million, and consolidated cash provided by operations was $442 million. During Q2, we repurchased 6 million shares of common stock for $904 million, reducing our outstanding share count by 8% compared to a year ago. We also paid cash dividends of $0.45 per share, totaling $130 million, and our board has declared a quarterly dividend at the same level to be paid in May.

Speaker #5: For the full year of fiscal 2026, we now expect consolidated revenues of approximately $33.5 to $34.5 billion, and homes closed by our home building operations of $86,000 to $87,500 homes.

Speaker #5: Providing significant financial flexibility to adapt to changing market conditions and opportunities. During the first six months of the year, homebuilding cash provided by operations totaled $619 million, and consolidated cash provided by operations was $442 million. During the second quarter, we repurchased 6 million shares of common stock for $904 million.

Speaker #5: We continue to forecast an income tax rate for fiscal 2026 of approximately 24.5%. Operating cash flow of at least $3 billion, common stock repurchases of approximately $2.5 billion, and dividend payments of around $500 million.

Speaker #5: Reducing our outstanding share count by 8% compared to a year ago . We also paid cash dividends of $0.45 per share , totaling $130 million , and our board has declared a quarterly dividend at the same level to be paid in May .

Speaker #5: Paul?

Speaker #3: In closing, our results and positioning reflect the strength of our experienced teams, industry-leading market share, broad geographic footprint, and focus on delivering quality homes at affordable price points.

Speaker #5: At quarter end . Our stockholders equity was $23.6 billion , down 3% from a year ago , while book value per share increased 5% from a year ago to $82.91 at March 31st , we had $6 billion of consolidated liquidity , including $1.9 billion of cash and $4.1 billion of available capacity on our credit facilities Total debt at quarter end was $6.6 billion , with $600 million of homebuilding , senior notes maturing over the next 12 months .

Bill W. Wheat: At quarter end, our stockholders' equity was $23.6 billion, down 3% from a year ago, while book value per share increased 5% from a year ago to $82.91. At 31 March, we had $6 billion of consolidated liquidity, including $1.9 billion of cash and $4.1 billion of available capacity on our credit facilities. Total debt at quarter end was $6.6 billion, with $600 million of home building senior notes maturing over the next 12 months. Our consolidated leverage at 31 March was 21.7%, and we continue to target leverage of around 20% over the long term. Jessica?

Bill Wheat: At quarter end, our stockholders' equity was $23.6 billion, down 3% from a year ago, while book value per share increased 5% from a year ago to $82.91. At 31 March, we had $6 billion of consolidated liquidity, including $1.9 billion of cash and $4.1 billion of available capacity on our credit facilities. Total debt at quarter end was $6.6 billion, with $600 million of home building senior notes maturing over the next 12 months. Our consolidated leverage at 31 March was 21.7%, and we continue to target leverage of around 20% over the long term. Jessica?

Speaker #3: We recognize the current volatility and uncertainty in continue to adjust to market conditions with discipline as we focus on enhancing the long-term value of DR HORTON.

Speaker #3: Finally, I want to thank the entire DR HORTON family. Our employees, land developers, trade partners, vendors, and real estate agents for your continued hard work and commitment.

Speaker #5: Our consolidated leverage on March 31st was 21.7%, and we continue to target leverage of around 20% over the long term. Jessica.

Speaker #3: We look forward to continuing to improve our operations and expand homeownership opportunities for more individuals and families throughout fiscal 2026. This concludes our prepared remarks.

Speaker #2: Looking ahead to the third quarter , we currently expect consolidated revenues to be in the range of 8.8 to $9.3 billion , with homes closed by our homebuilding operations to be in the range of 23,500 to 24,000 homes .

Jessica Hansen: Looking ahead to Q3, we currently expect consolidated revenues to be in the range of $8.8 to 9.3 billion, with homes closed by our home building operations to be in the range of 23,500 to 24,000 homes. We expect our home sales gross margin for Q3 to be in the range of 19.7% to 20.2%, and our consolidated pre-tax margin to be between 12.2% and 12.7%. For the full year of fiscal 2026, we now expect consolidated revenues of approximately $33.5 to 34.5 billion and homes closed by our home building operations of 86,000 to 87,500 homes.

Speaker #3: We will now host questions.

Speaker #6: Thank you. At this time, we'll be conducting a question-and-answer session. In the interest of time, we ask that participants limit themselves to one question and one follow-up on today's call.

Speaker #2: We expect our home sales gross margin for the third quarter to be in the range of 19.7% to 20.2%, and our consolidated pre-tax margin to be between 12.2% and 12.7% for the full year of fiscal 2026.

Speaker #6: If you'd 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.

Speaker #6: 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.

Speaker #2: We now expect consolidated revenues of approximately 33.5 to $34.5 billion , and homes closed via homebuilding operations of 86,000 to 87,500 homes . We continue to forecast an income tax rate for fiscal 2026 of approximately 24.5% , operating cash flow of at least $3 billion , common stock repurchases of approximately $2.5 billion and dividend payments of around $500 million .

Speaker #6: One moment, please, while we pull for questions. And the first question today is coming from Alan Ratner from Zelman. Alan, your line is live.

Bill W. Wheat: We continue to forecast an income tax rate for fiscal 2026 of approximately 24.5%, operating cash flow of at least $3 billion, common stock repurchases of approximately $2.5 billion, and dividend payments of around $500 million. Paul?

Jessica Hansen: We continue to forecast an income tax rate for fiscal 2026 of approximately 24.5%, operating cash flow of at least $3 billion, common stock repurchases of approximately $2.5 billion, and dividend payments of around $500 million. Paul?

Speaker #7: Hey, guys. Good morning. Really nice job in a tricky environment, so congratulations. First question, I would love to drill in a little bit more on the gross margin, outlook.

Speaker #7: It sounds like adjusting for the various warranty and litigation charges it sounds like you're expecting pretty stable margins sequentially, which is very encouraging given what's going on.

Speaker #2: Paul

Speaker #3: , in closing , our results and positioning , reflect the strength of our experienced teams industry leading market share , broad geographic footprint , and focus on delivering quality homes at affordable price points .

Paul Romanowski: In closing, our results and positioning reflect the strength of our experienced teams, industry-leading market share, broad geographic footprint, and focus on delivering quality homes at affordable price points. These are key components of our operating platform that support our ability to aggregate market share, generate substantial operating cash flows, and consistently return capital to our shareholders. We recognize the current volatility and uncertainty in the broader economy, and we will continue to adjust to market conditions with discipline as we focus on enhancing the long-term value of D.R. Horton. Finally, I want to thank the entire D.R. Horton family, our employees, land developers, trade partners, vendors, and real estate agents for your continued hard work and commitment. We look forward to continuing to improve our operations and expand homeownership opportunities for more individuals and families throughout fiscal 2026. This concludes our prepared remarks. We will now host questions.

Speaker #7: I know you mentioned you have some tailwinds there from lower construction costs. I was just curious if you can kind of give a little more detail on what you're seeing on that front lately, especially with the higher oil prices of late.

Speaker #3: These are key components of our operating platform that support our ability to aggregate market share, generate substantial operating cash flows, and consistently return capital to our shareholders. We recognize the current volatility and uncertainty in the broader economy, and we will continue to adjust to market conditions with discipline as we focus on enhancing the long-term value of D.R. Horton.

Speaker #7: We're starting to pick up some chatter about fuel surcharges from suppliers and trades and I'm curious, if you're experiencing that in general, what your outlook there is maybe beyond the third quarter if oil remains near current levels.

Paul Romanowski: We recognize the current volatility and uncertainty in the broader economy, and we will continue to adjust to market conditions with discipline as we focus on enhancing the long-term value of D.R. Horton. Finally, I want to thank the entire D.R. Horton family, our employees, land developers, trade partners, vendors, and real estate agents for your continued hard work and commitment. We look forward to continuing to improve our operations and expand homeownership opportunities for more individuals and families throughout fiscal 2026. This concludes our prepared remarks. We will now host questions.

Speaker #3: Horton Finally , I want to thank the entire D.R. Horton family . Our employees , land developers , trade partners , vendors , and real estate agents for your continued hard work and commitment .

Speaker #8: Yeah, sure. As we've discussed in prior quarters, we focused throughout our operations on sitting down with our trades and working our costs down as we held our starts back in Q4 and Q1.

Speaker #8: I feel good about what has been accomplished there. It's an ongoing effort. We'll continue to be ongoing. But we can now see in our construction cycle, in our construction, our homes under construction, lower costs coming through.

Speaker #3: We look forward to continuing to improve our operations and expand home opportunities for more individuals and families throughout fiscal 2026. This concludes our prepared remarks.

Speaker #8: And so we've started to see the front end of that in the current quarter that we're reporting. And we can see a bit more of that coming through next quarter.

Speaker #3: We will now host questions .

Speaker #1: Thank you . At this time , we'll be conducting a question and answer session in the interest of time , we ask the participants limit themselves to one question and one follow up .

Operator: Thank you. At this time, we'll be conducting a question and answer session. In the interest of time, we ask that participants limit themselves to one question and one follow-up on today's call. If you would like to ask a question, please press *1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press *2 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. One moment, please, while we poll for questions. The first question today is coming from Alan Ratner from Zelman. Alan, your line is live.

Speaker #8: And so we expect to see some incremental benefits in Q3 and Q4. With respect to recent inflation, potential inflation from oil prices, that's something we'll be monitoring closely.

Speaker #1: On today's call , 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 .

Speaker #8: Right now, we have nothing tangible to report in terms of anticipated inflation from that. But if we were to see an extended period where oil prices stayed elevated for an extended period, then there could be some pressure.

Speaker #1: 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.

Speaker #8: If it remains a relatively temporary period, we wouldn't expect too much impact.

Speaker #1: One moment please , while we poll for questions And the first question today is coming from Alan Ratner from Zelman . Alan , your line is live

Speaker #7: Great. I appreciate that. Second question on the rental segment. I know it's not necessarily an area of growth for you guys, but obviously a lot of noise with the outstanding Senate bill related to BFR, I see you did sell 500-plus homes in single-family rental this quarter.

Speaker #6: Hey , guys . Good morning . Really nice job in a tricky environment . So congratulations First question . I would love to drill in a little bit more on the gross margin outlook .

Alan Ratner: Hey, guys. Good morning. Really nice job in a tricky environment, so congratulations. First question, would love to drill in a little bit more on the gross margin outlook. It sounds like, adjusting for the various warranty and litigation charges, it sounds like you're expecting pretty stable margins sequentially, which is very encouraging given what's going on. I know you mentioned you have some tailwinds there from lower construction costs. I was just curious if you can give a little more detail on what you're seeing on that front lately, especially with the higher oil prices of late. We're starting to pick up some chatter about fuel surcharges from suppliers and trades. I'm curious if you're experiencing that, and in general, what your outlook there is maybe beyond the Q3 if oil remains near current levels.

Speaker #6: It sounds like , you know , adjusting for the various warranty and litigation charges . You know , it sounds like you're expecting pretty stable margins sequentially , which is , very encouraging given what's going on .

Speaker #7: Just curious if you could talk about the demand you're seeing kind of going forward on BFR and whether you think this is going to kind of cause a bit of a pullback in activity in your rental segment beyond '26 if it does come to fruition.

Speaker #6: I know you mentioned , you know , you have some tailwinds there from lower construction costs . I was just curious if you can kind of give a little more detail on what you're seeing on that front lately , especially with the higher oil prices of late .

Speaker #3: We still see interest out there and but there is uncertainty. Around the legislation and I think a little bit of a pause in terms of people waiting to see how that plays out, specifically as it relates to the seven-year potential sale requirements.

Speaker #6: You know , we're starting to pick up some chatter about fuel surcharges , you know , from suppliers and trades . And I'm curious if you're experiencing that .

Speaker #6: And in general, what your outlook there is maybe beyond the third quarter, if oil remains near current levels.

Speaker #3: Generally speaking, we have underwritten our build for rent communities as for sale. So if need be, as we go forward, we can move those if needed.

Speaker #5: Sure. As we've discussed in prior quarters, we focused throughout our operations on sitting down with our trades and working our costs down as we held our starts back in Q4 and Q1. I feel good about what has been accomplished there.

Paul Romanowski: Yeah, sure. As we've discussed in prior quarters, we focused throughout our operations on sitting down with our trades and working our costs down as we held our starts back in Q4 and Q1. Feel good about what has been accomplished there. It's an ongoing effort, will continue to be ongoing, but we can now see in our construction cycle, in our homes under construction, lower costs coming through. We've started to see the front end of that in the current quarter that we're reporting, and we can see a bit more of that coming through next quarter. We expect to see some incremental benefits in Q3 and Q4. With respect to recent inflation, potential inflation from oil prices, that's something we'll be monitoring closely. Right now, we have nothing tangible to report in terms of anticipated inflation from that.

Speaker #3: We also have focused majority of our forward business on forward sales. In other words, we aren't starting those unless we have a contract and firm commitments and so feel good about our positioning there.

Speaker #5: It's an ongoing effort . We'll continue to be ongoing , but we can now see , you know , in our in our construction cycle and our construction , our homes under construction , lower costs coming through .

Speaker #3: Not overly reliant at all on having that business continue to be able to hit certainly our guide and feel good about our positioning in the space.

Speaker #5: And so we've started to see the front end of that in the current quarter that we're reporting . And we can see a bit more of that coming through next quarter .

Speaker #5: And so we expect to see some incremental benefits in Q3 and Q4 with respect to , you know , recent inflation , potential inflation from from oil prices .

Speaker #7: Appreciate it. Thanks a lot.

Speaker #6: Thank you. The next question will be from John Lovallo from UBS. John, your line is live.

Speaker #5: That's something we'll be monitoring closely right now. We have nothing tangible to report in terms of anticipated inflation from that. But if we were to see an extended period where oil prices stayed elevated for an extended period, then there could be some pressure.

Speaker #9: Good morning, guys. Thanks for taking my questions as well. The first one is, how would you sort of characterize demand in March relative to normal seasonality?

Paul Romanowski: If we were to see an extended period where oil prices stayed elevated for an extended period, then there could be some pressure. If it remains a relatively temporary period, we wouldn't expect too much impact.

Speaker #9: And the reason I ask is we've had certain checks that indicate normal seasonality sort of occurred each week through the first week of March, and then sort of leveled off as the war started.

Speaker #5: If it remains a relatively temporary period, we wouldn't expect too much impact.

Speaker #6: Great . I appreciate that . The second question on the rental segment . I know it's not necessarily an area of growth for you guys , but you know , obviously a lot of noise with the outstanding Senate bill related to BFR .

Speaker #9: Other checks have indicated they saw normal seasonality all the way through March. Notwithstanding the war. And then I'm curious also what you're seeing year to date in April for the seasonality standpoint.

Alan Ratner: Great. I appreciate that. Second question on the rental segment. I know it's not necessarily an area of growth for you guys, but obviously a lot of noise with the outstanding Senate bill related to BFR. I see you did sell 500+ homes in single-family rental this quarter. Just curious if you could talk about the demand you're seeing for going forward on BFR and whether you think this is going to cause a bit of a pullback in activity in your rental segment beyond 2026 if it does come to fruition.

Speaker #7: I would say the demand was good. We saw sales in line with normal seasonality. Kind of as we expected and hoped. Throughout the month and we're pleased with our sales results through mid-April at this point.

Speaker #6: I see you did sell 500 plus homes in single family rental this quarter . Just curious if you could talk about the demand you're seeing kind of up for going forward on on BFR and whether you think this is going to kind of cause a bit of a pullback in activity in your rental segment beyond 26 , if it does come to fruition .

Speaker #7: But it's only the middle of the month at this point.

Speaker #10: And our cancellation rate was stable throughout the entire quarter.

Speaker #7: Yeah. No change in that.

Speaker #9: Yeah. No, that was encouraging. Okay. And then on the order ASP of $366,000, it seemed to stabilize a bit here in the second quarter.

Speaker #3: We still see interest out there . And but there is uncertainty , you know , around the legislation . And I think a little bit of a pause in terms of people waiting to see how that plays out .

Paul Romanowski: We still see interest out there, but there is uncertainty around the legislation, and I think a little bit of a pause in terms of people waiting to see how that plays out, specifically as it relates to the seven-year potential sale requirement. Generally speaking, we have underwritten our build-for-rent communities as for sale. If need be, as we go forward, we can move those if needed. We also have focused majority of our forward business on forward sales. In other words, we aren't starting those unless we have a contract and firm commitments. Feel good about our positioning there. Not overly reliant at all on having that business continue to be able to hit, certainly, our guide, and feel good about our positioning in the space.

Speaker #9: It was actually up, I think, quarter over quarter for the first time since maybe the second quarter of '24. I mean, was there any notable mixed impact to call out there?

Speaker #3: Specifically as it relates to the seven year potential sale requirement . Generally speaking , you know , we have underwritten our build for rent communities .

Speaker #9: And do you think we've sort of found a floor on order ASP or close to it at this point?

Speaker #3: I don't know that there was a notable mix for that impact. Our incentives do remain elevated as we had called out. And we're not going to call a floor relative to the market and demand.

Speaker #3: As for sale, so if need be, as we go forward, we can move those if needed. We also have focused the majority of our forward business on forward sales.

Speaker #3: In other words, we aren't starting those unless we have a contract and firm commitments. And so, feel good about our positioning.

Speaker #3: We'll depend on what we see through the remainder of the spring and into the summer selling season.

Speaker #3: There, not overly reliant at all on having that business continue to be able to hit. Certainly, our guide, and we feel good about our positioning in the space.

Speaker #9: Understood. Thank you, guys.

Speaker #6: Thank you. The next question will be from Stephen Kim from Evercore ISI. Stephen, your line is live.

Speaker #7: Great. Thanks very much, guys. And yeah, strong results here in a tough market. Wanted to ask you about the incentive environment. You'd called for incentives remaining elevated through the remainder of the year.

Speaker #6: Appreciate it . Thanks a lot .

Alan Ratner: Appreciate it. Thanks a lot.

Speaker #1: Thank you. The next question will be from John Lovallo from UBS. John, your line is live.

Operator: Thank you. The next question will be from John Lovallo from UBS. John, your line is live.

Speaker #7: Good morning guys . Thanks for taking my questions as well . The first one is how would you sort of characterize demand in March relative to normal seasonality .

Operator: Good morning, guys. Thanks for taking my questions as well. The first one is, how would you characterize demand in March relative to normal seasonality? The reason I ask is we've had certain checks that indicate normal seasonality sort of occurred each week through the first week of March and then sort of leveled off as the war started. Other checks have indicated they saw normal seasonality all the way through March, notwithstanding the war. I'm curious also what you're seeing year to date in April from a seasonality standpoint.

John Lovallo: Good morning, guys. Thanks for taking my questions as well. The first one is, how would you characterize demand in March relative to normal seasonality? The reason I ask is we've had certain checks that indicate normal seasonality sort of occurred each week through the first week of March and then sort of leveled off as the war started. Other checks have indicated they saw normal seasonality all the way through March, notwithstanding the war. I'm curious also what you're seeing year to date in April from a seasonality standpoint.

Speaker #7: And, you know, the reason I ask is we've had certain checks that indicate normal seasonality sort of occurred each week through the first week of March, and then sort of leveled off as the war started.

Speaker #7: And I'm curious if you've seen any changes in trends worth calling out in terms of perhaps maybe an increase in the use of arms or temp buy-downs.

Speaker #7: Other checks have indicated they saw normal seasonality all the way through March . You know , notwithstanding the war . And then I'm curious also what you're seeing year to date in April for the seasonality standpoint .

Speaker #7: If you could just give us a sense for what you're seeing in terms of recent trend or recent activity in terms of how your incentives are tracking.

Speaker #10: Sure. On the arm front, we ran about 10% of our closings, at least through our mortgage company this quarter. We're an arm product that's down from 13% sequentially, but it is up from essentially zero a year ago.

Speaker #4: I would say the demand was good . We saw sales in line with normal seasonality kind of as we expected and hoped throughout the month .

Paul Romanowski: I would say the demand was good. We saw sales in line with normal seasonality, kind of as we expected and hoped throughout the month, and we're pleased with our sales results through mid-April at this point. It's only the middle of the month at this point.

Speaker #4: And we're pleased with our sales results through mid-April at this point. But it's only the middle of the month at this point.

Speaker #10: We are incentivizing. We've got products out there that are arm incentives. So we are not surprised by that tick up. It's been somewhat strategic.

Speaker #2: And our cancellation rate was stable throughout the entire quarter.

Jessica Hansen: Our cancellation rate was stable throughout the entire quarter.

Speaker #4: Yeah, no change in that.

Paul Romanowski: Yeah, no change in that.

Speaker #10: I don't know that we expect it to grow materially from here. It could bounce around in that 10 to 15 percent range would be my guess today.

Speaker #7: Yeah , no , that was encouraging . Okay . And then on the order ASP of 366,000 , it seemed to stabilize a bit here in the second quarter .

John Lovallo: Yes. No, that was encouraging. Okay. On the order ASP of $366,000, it seemed to stabilize a bit here in Q2. It was actually up, I think, quarter over quarter for the first time since maybe Q2 of 2024. Was there any notable mix impact to call out there? Do you think we've sort of found a floor on order ASP or close to it at this point?

Speaker #10: And then in terms of just the buy-down overall, we did have 90% of the buyers that utilized our mortgage company get some version of a permanent and/or a temporary buy-down this quarter, which is up on our overall closings that's roughly 73% of our closings had some form of a buy-down.

Speaker #7: It was actually up, I think, quarter over quarter for the first time since maybe the second quarter of '24. I mean, was there any notable mix impact to call out there, and do you think we've sort of found a floor on order ASP, or close to it at this point?

Speaker #3: I don't know that there was a notable mix for that impact. You know, our incentives do remain elevated, as we had called out.

Paul Romanowski: I don't know that there was a notable mix for that impact. Our incentives do remain elevated as we had called out. We're not going to call a floor relative to the market and demand. It will depend on what we see through the remainder of the spring and into the summer selling season.

Speaker #9: And could you give us a sense for overall what incentives may in aggregate represent as a percentage of the maybe the MSRP, the initial home price?

Speaker #3: And , you know , we're not going to call a floor relative to , you know , the market and demand will depend on what we see through the remainder of the spring and into the summer .

Speaker #3: Selling season .

Speaker #9: And whether this has been it's been whatever it is, I'm sure it's obviously elevated as you indicated. It sounds like there's no expectation to sort of bring that down at least as far as you can see this year and I'm wondering how would you respond to folks who are worried that this is becoming a new normal, that the buyer has become conditioned to expect a very elevated level of incentives?

Speaker #7: Understood . Thank you guys

John Lovallo: Understood. Thank you, guys.

Speaker #1: Thank you . The next question will be from Steven Kim from Evercore ISI . Stephen , your line is live .

Operator: Thank you. The next question will be from Stephen Kim from Evercore ISI. Stephen, your line is live.

Speaker #8: Great . Thanks very much , guys . And yeah , strong , strong results here in a tough market . I wanted to ask you about the the incentive environment you called for incentives remaining elevated .

Stephen Kim: Great. Thanks very much, guys. Yeah, strong results here in a tough market. Wanted to ask you about the incentive environment. You'd called for incentives remaining elevated through the remainder of the year. I'm curious if you've seen any changes in trends worth calling out in terms of perhaps maybe an increase in the use of ARMs or temp buydowns. If you could just give us a sense for what you're seeing in terms of recent trend or recent activity in terms of how your incentives are tracking.

Speaker #8: You know , through the remainder of the year . And I'm curious if you've seen any changes in trends worth calling out in terms of perhaps , maybe an increase in the use of arms or temp by downs , if you could just give us a sense for what you're seeing in terms of recent trends or recent activity , in terms of how your incentives are tracking .

Speaker #9: And do you still have the same confidence that you had, let's say, three years ago when we started getting into this mess, that you're going to be able to bring those incentives all the way back down to the level they historically were?

Speaker #7: Steve, the incentives as a percent of revs is roughly 10%. And as it speaks to that level of incentives, relative to market, rates have remained relatively stable.

Speaker #2: Sure . On the arm front , we ran about 10% of our closings , at least through our mortgage company this quarter . We're an ARM product that's down from 13% sequentially , but it is up from essentially zero a year ago .

Jessica Hansen: Sure. On the ARM front, we ran about 10% of our closings, at least through our mortgage company this quarter, were an ARM product. That's down from 13% sequentially, but it is up from essentially zero a year ago. We are incentivizing. We've got products out there that are ARM incentives. So we are not surprised by that tick-up. It's been somewhat strategic. I don't know that we expect it to grow materially from here. It could bounce around in that 10% to 15% range. Would be my guess today. In terms of just the buydown overall, we did have 90% of the buyers that utilized our mortgage company get some version of a permanent and/or a temporary buydown this quarter, which is up. On our overall closings, that's roughly 73% of our closings had some form of a buydown.

Speaker #7: They've been somewhat range-bound. And we've stayed pretty consistent in the rates that we're offering. Therefore, that cost of those rates has stayed relatively stable in terms of the total incentive package.

Speaker #2: We are incentivizing. We've got products out there that are ARM incentives. So we are not surprised by that tick up. It's been somewhat strategic.

Speaker #7: That being the most significant incentive that we are giving. I think we're going to need to see rates moderate some before we see that break up.

Speaker #2: I don't know that we expect it to grow materially from here . It could bounce around in that 10 to 15% range would be my guess today .

Speaker #7: And/or an increase in consumer confidence and more buyers in the market that allow for a reduction in incentive and over time, eventually, some increase in base house pricing.

Speaker #2: And then in terms of just the buy down overall , we did have 90% of the buyers that utilized our mortgage company . Get some version of a permanent and , and or a temporary buy down this quarter , which is up on our overall closings .

Speaker #7: But we incentivize and look at that on a community-by-community level. We do have communities that we see a reduced incentive level. We haven't seen that come in aggregate.

Speaker #2: That's roughly 73% of our closings had some form of a buy down .

Speaker #8: And could you give us a sense for overall , what incentives may , in aggregate , represent as a as a percentage of the maybe the Msrp , you know , the the initial home price and whether this has been it's been whatever it is , I'm sure it's , you know , it's obviously elevated as you indicated it , it sounds like there's no expectation to sort of bring that down , at least as far as you can see this year .

Stephen Kim: Could you give us a sense for overall what incentives may in aggregate represent as a percentage of maybe the MSRP, the initial home price? Whether this has been out, whatever it is, I'm sure it's obviously elevated, as you indicated. It sounds like there's no expectation to sort of bring that down, at least as far as you can see this year. I'm wondering how would you respond to folks who are worried that this is becoming a new normal, that the buyer has become conditioned to expect a very elevated level of incentives. Do you still have the same confidence that you had, let's say, three years ago when we started getting into this mess, that you're going to be able to bring those incentives all the way back down to the level they historically were?

Speaker #7: When you look at our overall revenues and as we focus on selling earlier in the process, we see the opportunity to hold back on some of those incentives as well.

Speaker #7: Okay. Great. Thanks.

Speaker #6: Thank you. The next question will be from Ryan Gilbert from BTIG. Ryan, your line is live.

Speaker #11: Hi. Thanks. Good morning, everyone. First question on selling what you just said on selling homes. Earlier in the process, it does look like based on the backlog data, you've been able to sell more homes before they've been completed.

Speaker #8: And I'm wondering, how would you respond to folks who are worried that this is becoming a new normal, that the buyer has become conditioned to expect a very elevated level of incentives?

Speaker #11: Is that just a function of the drop in standing inventory, or are you able to offer more incentives on homes under construction than you have been able to previously or have consumer preferences shifted away from completed spec?

Speaker #8: And do you still have the same confidence that you had, let's say, three years ago when we started getting into this mess, that you're going to be able to bring those incentives all the way back down to the level they historically were?

Speaker #10: With our cycle times where they are today, we're able to sell earlier and still put them into the BFC. If that's the incentive that we're needing to get them across the finish line.

Speaker #3: Steve , the the incentives as a percent of revs is roughly 10% . And as it speaks to that level of incentives relative to market , you know , rates have remained relatively stable .

Paul Romanowski: Steve, the incentives as a percent of revs is roughly 10%. As it speaks to that level of incentives relative to market, rates have remained relatively stable. They've been somewhat range bound, and we've stayed pretty consistent in the rates that we're offering. Therefore, that cost of those rates has stayed relatively stable in terms of the total incentive package, that being the most significant incentive that we are giving. I think we're going to need to see rates moderate some before we see that break up, and/or an increase in consumer confidence and more buyers in the market that allow for a reduction in incentive. Over time, eventually, some increase in base house pricing. We incentivize and look at that on a community-by-community level. We do have communities that we see a reduced incentive level.

Speaker #10: Whereas before our construction cycle times were elongated and we weren't able to do that. But usually, when we sell a home earlier, we actually see a gross margin lift.

Speaker #10: Versus selling a home later.

Speaker #3: They've been somewhat range bound . And we've stayed pretty consistent in the rates that we're offering . Therefore , that cost of those rates has stayed relatively stable in terms of the total incentive package .

Speaker #6: Okay. Got it. Thanks. And then second question on starts. Pretty big year-over-year pickup. Did you increase starts throughout the quarter? Did you need to make any adjustments as a result of the Iran conflict?

Speaker #3: That being the most significant incentive that we are giving, I think we're going to need to see rates moderate some before we see that break up and/or an increase in consumer confidence, and more buyers in the market that allow for a reduction in incentive.

Speaker #6: It sounds like potentially not based on the third-quarter guidance. But yeah, any color on the starts gains throughout the quarter? And then if you think 3Q will also be down on a year-over-year basis in addition to sequentially.

Speaker #3: And over time , eventually , you know , some some increase in base house pricing . But , you know , we , we incentivize and look at that on a community by community level , you know , we do have communities that we see a reduced incentive level .

Speaker #7: On the starts for the quarter, we maintained our plan for the quarter throughout the quarter. And we felt really good with the sales demand we saw.

Speaker #7: So the starts plan was in line and continued. I think we'd be expected to be seeing starts down sequentially in Q3. But likely roughly flat with what we had last year, somewhere in that range.

Speaker #3: We haven't seen that come in aggregate . When you look at our overall revenues and as we focus on selling earlier in the process , we see the opportunity to to hold back on some of those incentives as well

Paul Romanowski: We haven't seen that come in aggregate when you look at our overall revenues, and as we focus on selling earlier in the process, we see the opportunity to hold back on some of those incentives as well.

Speaker #7: Obviously, dependent upon the sales environment at a community level.

Speaker #8: Okay , great . Thanks .

Speaker #6: All right. Thanks very much. Thank you. The next question will be from Sam Reid from Wells Fargo. Sam, your line is live.

Stephen Kim: Okay, great. Thanks.

Speaker #1: Thank you . The next question will be from Ryan Gilbert from Btig . Ryan , your line is live .

Operator: Thank you. The next question will be from Ryan Gilbert from BTIG. Ryan, your line is live.

Speaker #9: Hi . Thanks . Good morning everyone . Just first question on selling what you what you just said on selling homes earlier in the process .

Speaker #12: Thanks, everyone. Just wanted to talk through the cycle time benefit you got in the quarter relative to last year. I know this came up a little bit on the prior question.

Ryan Gilbert: Hi. Thanks. Good morning, everyone. Just first question on what you just said on selling homes earlier in the process. It does look like based on the backlog data, you've been able to sell more homes before they've been completed. Is that just a function of the drop in standing inventory, or are you able to offer more incentives on homes under construction than you have been able to previously, or have consumer preferences shifted away from completed spec?

Speaker #9: It does look like based on the backlog data , you've been able to sell more homes before they they've been completed . Is that just a function of the drop in standing inventory , or are you able to offer more incentives on homes under construction than you have been able to previously , or have consumer preferences shifted away from completed spec ?

Speaker #12: But how much of the one-month improvement was explicitly from lower construction cycle times versus shorter complete to close? And then can you talk to any sequential benefits you might have gotten from that lower complete to close in Q2 versus Q1?

Speaker #10: Our complete to close was down about a week sequentially, which is good. We still have room that we can improve that further. But a week, quarter over quarter is a good start.

Speaker #2: With our cycle times where they are today , we're able to sell earlier and still put them into the BFC . If that's the incentive that we're needing to get them across the finish line .

Jessica Hansen: With our cycle times where they are today, we're able to sell earlier and still put them into the BFC, if that's the incentive that we're needing to get them across the finish line. Whereas before, our construction cycle times were elongated, and we weren't able to do that. Usually when we sell a home earlier, we actually see a gross margin lift versus selling a home later.

Speaker #2: Whereas before, construction cycle times were elongated and we weren't able to do that. But usually when we sell a home earlier, we actually see a gross margin lift versus selling a home later.

Speaker #7: No, that's awesome. Helpful to hear. And then I know your red-tag sale I believe that's ongoing right now. Can you just remind us whether there are any timing differences between the sales this year versus last year?

Speaker #7: And maybe any tweaks to incentives we should be mindful of on the red-tag sale? I mean, I know you run it fairly regularly, but always trying to get a sense for any changes at the margins.

Speaker #9: Okay . Got it . Thanks . And then second question on starts pretty big year over year pickup . Did you increase starts throughout the quarter ?

Ryan Gilbert: Okay. Got it. Thanks. Second question on starts. Pretty big year-over-year pickup. Did you increase starts throughout the quarter? Did you need to make any adjustments as a result of the Iran conflict? It sounds like potentially not based on the Q3 guidance. Yeah, any color on the starts gains throughout the quarter? If you think Q3 will also be down on a year-over-year basis in addition to sequentially?

Speaker #7: We've been consistently doing a red-tag sale normally around the start of our fiscal quarters. And the incentive levels vary by community, by sub-market. I wouldn't say there's anything different in the timing this year.

Speaker #9: Did you need to make any adjustments as a result of the the Iran conflict ? It sounds like potentially not based on the third quarter guidance , but yeah , any any color on the starts cadence throughout the quarter .

Speaker #9: And then if you think , you know , three Q will also be down on a year over year basis . In addition to sequentially .

Speaker #7: Or anything really different in the incentive levels we're looking at in the aggregate. We have a little less completed inventory today in today's the current red-tag sale than we did in the prior red-tag sale.

Speaker #4: On the starts for the quarter, we maintained our plan for the quarter throughout the quarter. And we felt really good with the sales demand we saw. So the starts plan was in line and continued.

Michael J. Murray: On the starts for the quarter, we maintained our plan for the quarter throughout the quarter, and we felt really good with the sales demand we saw. The starts plan was in line and continued. I think we'd expect to be seeing starts down sequentially in Q3, but likely roughly flat with what we had last year, somewhere in that range. Obviously, dependent upon the sales environment at a community level.

Mike Murray: On the starts for the quarter, we maintained our plan for the quarter throughout the quarter, and we felt really good with the sales demand we saw. The starts plan was in line and continued. I think we'd expect to be seeing starts down sequentially in Q3, but likely roughly flat with what we had last year, somewhere in that range. Obviously, dependent upon the sales environment at a community level.

Speaker #12: All helpful contacts. Thanks so much.

Speaker #4: I think we'd be expect to be seeing , you know , starts down sequentially in Q3 , but but likely roughly flat with what we had last year somewhere in that range , obviously dependent upon the environment at a community level .

Speaker #6: Thank you. And the next question is coming from Matthew Bouley from Barclays. Matthew, your line is live.

Speaker #13: Hey, good morning, everyone. Thank you for taking the questions. So I wanted to first get a sense of what led the margins to be above your guidance.

Speaker #9: All right . Thanks very much

Ryan Gilbert: All right. Thanks very much.

Speaker #13: And presumably, with that continuing to how you're thinking about Q3 here. So was it kind of a reflection of the 6% mortgage rate environment we had from earlier this year?

Speaker #1: Thank you. The next question will be from Sam Reed from Wells Fargo. Sam, your line is live.

Operator: Thank you. The next question will be from Sam Reid from Wells Fargo. Sam, your line is live.

Speaker #6: Thanks , everyone .

Sam Reid: Thanks, everyone. Just wanted to talk through the cycle time benefit you got in the quarter relative to last year. I know this came up a little bit on the prior question, but how much of the 1-month improvement was explicitly from lower construction cycle times versus shorter complete to close? And then can you talk to any sequential benefits you might have gotten from that lower complete to close in Q2 versus Q1?

Speaker #10: Just wanted to talk through the cycle time benefit you got in the quarter relative to last year . I know this came up a little bit on the prior question , but how much of the one month improvement was explicitly from lower construction cycle times versus shorter complete to close ?

Speaker #13: I mean, it sounded like lot costs at 4%, probably a little bit lower than what we've seen recently. Maybe more success on stick and brick than you had thought.

Speaker #13: Just sort of how do you bucket all that out? Thank you. I think it's a combination of all those things. We've seen some reduction in stick and brick come through the bill spoke to less reduction of the increase of lot price.

Speaker #10: And then can you talk to any sequential benefits you might have gotten from that lower complete-to-close in Q2 versus Q1?

Speaker #2: Our complete to close was down about a week sequentially , which is good . We still have room that we can improve that further , but a week , you know , quarter over quarter is a good start

Speaker #13: So those somewhat offsetting. And then we saw a fairly strong quarter from demand perspective. And just under 25,000 homes sold in the quarter allowed us to hold incentives, maybe a little more than we had anticipated.

Jessica Hansen: Our complete to close was down about a week sequentially, which is good. We still have room that we can improve that further, but a week, quarter-over-quarter is a good start.

Speaker #10: No , that's awesome . Helpful to hear . And then I know your red tag sale , I believe that's ongoing right now .

Sam Reid: No, that's awesome. Helpful to hear. I know your Red Tag Sale, I believe that's ongoing right now. Can you just remind us whether there are any timing differences between the sale this year versus last year, and maybe any tweaks to incentives we should be mindful of on the Red Tag Sale? I know you run it fairly regularly, but always trying to get a sense for any changes at the margins.

Speaker #13: And that's the result of our margin being at the high end or above our guide.

Speaker #10: Can you just remind us whether there are any timing differences between the sales this year versus last year, and maybe any tweaks to incentives?

Speaker #6: Got it. Okay. No, that's perfect. And then secondly, I wanted to dig in back to that ARMS question. So I guess number one was there any more sort of temporary buy-downs on top of the ARMS?

Speaker #10: We should be mindful of, on the Red Tag sale. I mean, I know you run it fairly regularly, but always trying to get a sense for any changes at the margins.

Speaker #6: Or is that 10% you mentioned kind of the whole thing? But then more specifically, I guess going from zero to 10% or if it's more with the temporary buy-downs, is there a rule of thumb?

Speaker #4: We've been consistently doing a red tag sale . Normally around the start of our fiscal quarters , and the incentive levels vary by community by by submarket .

Michael J. Murray: We've been consistently doing a Red Tag Sale, normally around the start of our fiscal quarters. The incentive levels vary by community, by sub-market. No, I wouldn't say there's anything different in the timing this year or anything really different in the incentive levels we're looking at in the aggregate. We have a little less completed inventory today in the current Red Tag Sale, than we did in the prior Red Tag Sale.

Mike Murray: We've been consistently doing a Red Tag Sale, normally around the start of our fiscal quarters. The incentive levels vary by community, by sub-market. No, I wouldn't say there's anything different in the timing this year or anything really different in the incentive levels we're looking at in the aggregate. We have a little less completed inventory today in the current Red Tag Sale, than we did in the prior Red Tag Sale.

Speaker #4: No , I wouldn't say there's anything different in the timing this year or anything really different in the incentive levels we're looking at in the aggregate , we have a little less completed inventory today , and today's the current red tag sale than we did in the prior red tag sale

Speaker #6: Or how would that impact your home building gross margins relative to your financial services margins as well? Thank you.

Speaker #7: I don't think the it had a really significant material impact on the company. I think the ARM product has been pretty slow on the uptake this time versus prior cycles.

Speaker #10: All helpful contacts. Thanks so much.

Sam Reid: All helpful context. Thanks so much.

Speaker #7: And people definitely prefer a 30-year fixed-rate mortgage. And it is up 10% from zero last year, but it's down 3% from Q1. So it's not having a significant impact, truly, on margins at the home builder or the financial services.

Speaker #1: Thank you. And the next question is coming from Matthew Bouley from Barclays. Matthew, your line is live.

Operator: Thank you. The next question is coming from Matthew Bouley from Barclays. Matthew, your line is live.

Speaker #11: Hey , good morning everyone . Thank you for taking the questions . So I wanted to first get a sense of what led the margins to be above your guidance And presumably , you know , with that continuing to how you're thinking about Q3 here .

Matthew Bouley: Hey, good morning, everyone. Thank you for taking the questions. I wanted to first get a sense of what led the margins to be above your guidance, and presumably, with that continuing to how you're thinking about Q3 here. Was it kind of a reflection of the 6% mortgage rate environment we had from earlier this year? It sounded like lot costs at 4%, probably a little bit lower than what we've seen recently, maybe more success on stick and brick than you had thought. Just sort of how do you bucket all that out? Thank you.

Speaker #7: Team at this point.

Speaker #6: All right. Got it. Thanks, guys. Good luck. Thank you. The next question will be from Anthony Pettinari from Citi. Anthony, your line is live.

Speaker #11: So was it kind of a reflection of , of the 6% mortgage rate environment we had from earlier this year ? I mean , it sounded like a lot costs at 4% , probably a little bit lower than what we've seen recently .

Speaker #14: Good morning. On stick and brick, you talked about trends in building products costs. I'm just wondering if you could talk a little bit more about the labor piece?

Speaker #11: Maybe more success on stick and brick than you had thought. Just sort of, how do you bucket all that out?

Speaker #14: What that is year over year? And is there kind of an opportunity to keep driving that down on a year-over-year basis? And sort of what you're doing there?

Speaker #11: Thank you .

Speaker #3: I think it's a combination of all those things . You know , we see we've seen some reduction in stick and brick come through that bill spoke to less you know , reduction of the increase of lot price .

Paul Romanowski: I think it's a combination of all those things. We've seen some reduction in stick and brick come through that Bill spoke to, less reduction of the increase of lot price, so those somewhat offsetting. We saw a fairly strong quarter from demand perspective. Just under 25,000 homes sold in the quarter allowed us to hold incentives, maybe a little more than we had anticipated, and that's the result of our margin being at the high end or above our guide.

Speaker #3: So, those were somewhat offsetting. And then we saw a fairly strong quarter from a demand perspective. And, you know, just under 25,000 homes sold in the quarter allowed us to hold incentives maybe a little more than we had anticipated.

Speaker #7: We are seeing consistent labor and plenty of labor in the market. Hence, our reduced cycle times. And we continue to see those the construction cycle times have slowed in terms of reduction just because we're below our historical average pace of home construction.

Speaker #3: And that's the result of our margin being at the high end or above our guide .

Speaker #11: Got it . Okay . That's perfect . And then secondly , I wanted to dig in back to that . Arms question . So I guess , number one , was there any more sort of temporary buy downs on top of the arms , or is that 10% ?

Speaker #7: So with more labor means more competition. And so we've seen certainly a portion of those total stick and brick savings come through labor as well as some mix of materials.

Matthew Bouley: Got it. Okay, no, that's perfect. Secondly, I wanted to dig in back to that ARMs question. I guess number one, was there any more sort of temporary buydowns on top of the ARMs, or is that 10% you mentioned kind of the whole thing? More specifically, I guess going from zero to 10% or if it's more with the temporary buydowns, is there a rule of thumb or how would that impact your home building gross margins relative to your Financial Services margins as well? Thank you.

Speaker #7: That's specific amount or percentage or split we don't have. But expect to see with what we're seeing in the market that we continue to see some stick and brick savings show up, especially in the indoor third and our fourth quarter in our homes that we close.

Speaker #11: You mentioned kind of the whole thing , but then more specifically , I guess going from 0 to 10% or more with the temporary buy downs , like , is there a rule of thumb or how would that impact your homebuilding gross margins relative to your financial services margins as well ?

Speaker #14: Okay. That's helpful. And I'm wondering if you could give any more kind of regional color on market strength and particularly what you're seeing in Texas and Florida this spring season.

Speaker #11: Thank you .

Speaker #4: I don't think it had a really significant material impact on the company. I think the ARM product has been pretty slow on the uptake this time versus prior cycles.

Michael J. Murray: I don't think it had a really significant material impact on the company. I think the ARM product has been pretty slow on the uptake this time versus prior cycles, and people definitely prefer a 30-year fixed rate mortgage. It is up 10% from zero last year, but it's down 3% from Q1. It's not having a significant impact, truly, on margins at the home builder or the Financial Services team at this point.

Mike Murray: I don't think it had a really significant material impact on the company. I think the ARM product has been pretty slow on the uptake this time versus prior cycles, and people definitely prefer a 30-year fixed rate mortgage. It is up 10% from zero last year, but it's down 3% from Q1. It's not having a significant impact, truly, on margins at the home builder or the Financial Services team at this point.

Speaker #4: And people definitely prefer a 30-year fixed rate mortgage. And it is up 10% from zero last year, but it's down 3% from Q1.

Speaker #7: I think we're seeing good demand in Texas consistent as well in Florida. The markets feel pretty good to us. Generally, across the country, I would say that most of our markets are performing well in line with the expectations.

Speaker #4: So it's not having a significant impact . Truly on margins at the home builder or the financial services team at this point .

Speaker #7: Perhaps a little bit of softness in a few of our markets that have kind of a traditionally heavy exposure to the software industry, that buyer's sentiment may be off a bit.

Speaker #11: Okay. Got it. Thanks, guys. Good luck.

Matthew Bouley: Okay, got it. Thanks, guys. Good luck.

Speaker #1: Thank you . The next question will be from Anthony Pettinari from Citi . Anthony , your line is live

Operator: Thank you. The next question will be from Anthony Pettinari from Citi. Anthony, your line is live.

Speaker #7: Other than that, just kind of a good start to spring. Pretty encouraged.

Speaker #12: Good morning on Stick and Brick , you talked about trends in building products costs . I'm just wondering if you could talk a little bit more about the labor piece .

Anthony Pettinari: Good morning. On stick and brick, you talked about trends in building products costs. I'm just wondering if you could talk a little bit more about the labor piece, what that is year-over-year, and is there kind of an opportunity to keep driving that down on a year-over-year basis, and sort of what you're doing there?

Speaker #14: Okay. That's helpful. I'll turn it over.

Speaker #6: Thank you. The next question will be from Trevor Allison from Wolf Research. Trevor, your line is live. Apologies. Looks like we just lost Trevor.

Speaker #12: You know what that is year over year and is there kind of an opportunity to keep driving that down on a year over year basis and sort of what you're doing there ?

Speaker #6: We'll come back to him if he comes back in. The next question will be from Michael Rehot from JPMorgan. Michael, your line is live.

Speaker #3: I , we are seeing consistent labor and plenty of labor in the market , hence our reduced cycle times . And we continue to see those the construction cycles , cycle times have slowed in terms of reduction just because we're below our historical average pace of home construction .

Paul Romanowski: We are seeing consistent labor and plenty of labor in the market, hence our reduced cycle times, and we continue to see those. The construction cycle times have slowed in terms of reduction just because we're below our historical average pace of home construction. With more labor means more competition, and so we've seen certainly a portion of those total stick and brick savings come through labor as well as some mix of materials. That specific amount or percentage or split, we don't have. Expect to see with what we're seeing in the market, that we continue to see some stick and brick savings show up, especially into our Q3 and our Q4 in our homes that we close.

Speaker #15: Great. Thanks, everyone. Good morning. I wanted to circle back to comments you made earlier about demand trends in March and April. And you kind of indicated that, I believe, March in line with seasonality and you're pleased so far with April.

Speaker #3: So with more labor means more competition . And so we've seen certainly a portion of those total stick and brick savings come through labor as well as some mix of materials that's specific amount or percentage or split .

Speaker #15: I was kind of curious if you could kind of go a little bit more into detail on that. Obviously, the consumer sentiment data has come out a little shaky.

Speaker #3: We don't have , but expect to see with what we're seeing in the market that we continue to see some stick and brick savings show up , especially in into our third and our fourth quarter .

Speaker #15: Since the start of the Iran war, a lot of volatility, a lot of headlines. And just kind of curious what you're seeing more on a bottoms-up basis from your home buyers and week-to-week if perhaps the month as a whole might have been kind of consistent with seasonality.

Speaker #3: And in our in our homes that we close .

Speaker #12: Okay , that's helpful . And I'm wondering if you could give any more kind of regional color on , on market strength and particularly what you're seeing in Texas and Florida .

Anthony Pettinari: Okay. That's helpful. I'm wondering if you could give any more kind of regional color on market strength and particularly what you're seeing in Texas and Florida this spring season.

Speaker #15: But if you saw any more volatility on a week-to-week basis.

Speaker #16: We don't generally comment on intra-quarter in terms of monthly trends. But to reiterate what Mike said, demand was good throughout the quarter. And in line with our expectations and normal seasonality, normal seasonality would be that February into March and into April are really getting into the heart of the spring selling season.

Speaker #12: This, this spring season.

Speaker #4: I think we're seeing, you know, good demand in Texas; consistent as well in Florida. The markets feel pretty good to us generally across the country.

Michael J. Murray: I think we're seeing deep, good demand in Texas, consistent as well in Florida. The markets feel pretty good to us.

Mike Murray: I think we're seeing deep, good demand in Texas, consistent as well in Florida. The markets feel pretty good to us. Generally across the country, I would say that most of our markets are performing well in line with the expectations. Perhaps a little bit of softness in a few of our markets that have kind of a traditionally heavy exposure to the software industry, that buyer's sentiment may be off a bit. Other than that, just kind of a good start to spring. Pretty encouraged.

Paul Romanowski: Generally across the country, I would say that most of our markets are performing well in line with the expectations. Perhaps a little bit of softness in a few of our markets that have kind of a traditionally heavy exposure to the software industry, that buyer's sentiment may be off a bit. Other than that, just kind of a good start to spring. Pretty encouraged.

Speaker #4: I would say that most of our of our markets are performing well in line with the expectations . Perhaps a little bit of softness in a few of our markets that have kind of a traditionally heavy exposure to the software industry that buyer sentiment may be off a bit .

Speaker #16: And we didn't see any meaningful impact or disruption to the business that we would tie to any global or gas-related price increases. And I said earlier, but also our can rate was stable throughout the quarter, which is another positive.

Speaker #4: Other than that, you know, just kind of a good, good start to spring. Pretty encouraged.

Speaker #12: Okay, that's helpful. I'll turn it over.

Anthony Pettinari: Okay, that's helpful. I'll turn it over.

Speaker #15: Okay. Appreciate it. I guess secondly, you highlighted gross margins being stable going into the third quarter. If you exclude the 40-bit benefit, also expecting to benefit from lower costs into the third quarter, perhaps if I heard it right, more than the second quarter as some of those benefits compound, let's say, or you feel the fuller impact.

Speaker #1: Thank you. The next question will be from Trevor Allison from Wolfe Research. Trevor, your line is live. Apologies, it looks like we just lost Trevor.

Operator: Thank you. The next question will be from Trevor Allinson from Wolfe Research. Trevor, your line is live. Apologies. Look like we just lost Trevor. We'll come back to him if he comes back in. The next question will be from Michael Rehaut from JP Morgan. Michael, your line is live.

Speaker #1: I'll come back to him if he comes back in . The next question will be from Michael Holt from JP Morgan . Michael , your line is live

Speaker #13: Great . Thanks . Thanks , everyone . Good morning . I wanted to circle back to comments you made earlier about demand trends in March and April .

Michael Rehaut: Great. Thanks everyone. Good morning. I wanted to circle back to comments you made earlier about demand trends in March and April, and you kind of indicated that, I believe, March in line with seasonality, and you're pleased so far with April. I was kind of curious if you could kind of go a little bit more into detail on that. Obviously, the consumer sentiment data has come out a little shaky since the start of the Iran war. A lot of volatility, a lot of headlines, and just kind of curious what you're seeing, more on a bottoms-up basis from your home buyers and week to week if perhaps the month as a whole might have been kind of consistent with seasonality, but if you saw any more volatility on a week-to-week basis.

Speaker #13: And you kind of indicated that, I believe, March was in line with seasonality. And you're pleased so far with April. I was kind of curious if you could go a little bit more into detail on that.

Speaker #15: With flat gross margin sequentially, and you have better continued gains on the lower costs, are there anything that's offsetting that that otherwise you wouldn't see a potentially slight sequential improvement?

Speaker #13: Obviously , you know , the consumer sentiment data has come out a little shaky since the start of the Iraq war . A lot of volatility , a lot of headlines and just kind of curious what you're seeing , you know , more on a bottoms up basis from your from your home buyers and , you know , week to week .

Speaker #15: And I'm thinking in particular if perhaps there's still kind of some movement around incentives or higher land costs or any factors that might offset the otherwise benefit from lower construction costs.

Speaker #7: I mean, we do continue to expect our live costs to incrementally be a bit higher. It was relatively flat this quarter sequentially. But year over year, still up 4%.

Speaker #13: If , you know , perhaps the month as a whole might have been kind of consistent with seasonality , but if you saw any more , you know , volatility on a , on a week to week basis .

Speaker #7: So that is a continuing headwind that our base case for this year was that we would see enough improvement in our stick and brick labor costs to offset that.

Speaker #2: We don't generally comment , comment on intra quarter in terms of monthly trends , but certainly excuse me , reiterate what Mike said .

Jessica Hansen: We don't generally comment on intra-quarter in terms of monthly trends. Excuse me, to reiterate what Mike said, demand was good throughout the quarter and in line with our expectations and normal seasonality. Normal seasonality would be that February into March and into April are really getting into the heart of the spring selling season, and we didn't see any meaningful impact or disruption to the business that we would tie to any global or gas-related price increases. I said earlier, but also our cancel rate was stable throughout the quarter, which is another positive.

Speaker #7: And that's what we've seen. Thus far, that's kind of what we see as we look into Q3 right now. Obviously, incentive levels will depend on demand and mortgage rates.

Speaker #2: Demand was good throughout the quarter and in line with our expectations and normal seasonality . Normal seasonality would be that , you know , February and March and into April are really getting into the heart of the spring selling season .

Speaker #7: And all the other factors that will impact our selling process. So that remains to be seen what will happen on the incentive front.

Speaker #15: Very great. Thank you.

Speaker #2: And we didn't see any meaningful impact or disruption to the business that we would tie to any, you know, global or gas-related price increases.

Speaker #6: Thank you. And the next question will be from Trevor Allison from Wolf Research. Trevor, your line is live.

Speaker #2: And I'd said earlier, but also our cancellation rate was stable throughout the quarter, which is another positive.

Speaker #17: Hi. Good morning. Thank you for taking my questions. You mentioned earlier that your completed specs are down about 35% year over year. It's made some real progress on working down inventory.

Michael Rehaut: Okay. Appreciate it. I guess secondly, you highlighted gross margins being stable going into Q3, if you exclude the 40 bps benefit. Also expecting to benefit from lower costs into Q3, perhaps, if I heard it right, more than Q2 as some of those benefits compound, let's say, or you feel the fuller impact. With flat gross margins sequentially, and you have better continued gains on the lower cost, are there anything that's offsetting that otherwise you wouldn't see a potentially slight sequential improvement? I'm thinking in particular if perhaps there's still kind of some movement around incentives or higher land costs, or any factors that might offset the otherwise benefit from lower construction costs.

Speaker #13: Okay . Appreciate it . I guess . Secondly , you know , you highlighted , you know , gross margins being stable going into the third quarter .

Speaker #17: In past quarters, you've talked about industry inventory levels kind of still being extended here. Have you seen the industry overall also start to make some progress on working down inventory?

Speaker #17: And then was that a factor either industry-wide or for you guys specifically in your Q2 gross margin coming in better than you anticipated?

Speaker #13: If you exclude the 40 bit benefit , also expecting to benefit from lower costs into the third quarter , perhaps if I heard it right , more than the second quarter , as some of those benefits are compound , let's say , or you feel the fuller impact , you know , with flat gross margin sequentially , and you have better continued gains on the lower cost .

Speaker #7: I think we have seen inventory levels reduce across the competitive environment. And I think similar to what we have done a little more control on starts.

Speaker #7: And that being dependent on the sales pace and demand. And we have absolutely watched that closely week to week. And managing our starts in line with our housing demand that we see and our expectations as we move from quarter to quarter.

Speaker #13: Are there anything that's offsetting that , that otherwise you wouldn't see a potentially slight sequential improvement ? And I'm thinking in particular , if , you know , perhaps there's still kind of some movement around incentives or higher land costs or any factors that might offset the otherwise benefit from lower construction costs .

Speaker #7: So we feel good, very good about our inventory position. And good about the starts level that we had as it related to our sales throughout the quarter.

Speaker #17: Okay. That's very helpful. And then second question on your lot count. It's down about 10% year over year. You've got land prices, which remain sticky.

Paul Romanowski: We do continue to expect our lot costs to incrementally be a bit higher. It was relatively flat this quarter sequentially, but year-over-year is still up 4%. That is a continuing headwind that our base case for this year was that we would see enough improvement in our stick and brick labor costs to offset that, and that's what we've seen thus far. That's kind of what we see as we look into Q3 right now. Obviously, incentive levels will depend on demand, mortgage rates, and all the other factors that will impact our selling process. That remains to be seen, what will happen on the incentive front.

Bill Wheat: We do continue to expect our lot costs to incrementally be a bit higher. It was relatively flat this quarter sequentially, but year-over-year is still up 4%. That is a continuing headwind that our base case for this year was that we would see enough improvement in our stick and brick labor costs to offset that, and that's what we've seen thus far. That's kind of what we see as we look into Q3 right now. Obviously, incentive levels will depend on demand, mortgage rates, and all the other factors that will impact our selling process. That remains to be seen, what will happen on the incentive front.

Speaker #5: We do continue to expect our lot costs to be incrementally a bit higher. It was relatively flat this quarter, sequentially, but year over year, still up 4%.

Speaker #17: Demand's still challenged. Is it your expectation that lot count kind of still continues to move lower sequentially here as maybe fewer deals just meet your underwriting standards in the current environment?

Speaker #5: So that is a continuing, you know, headwind that our base case for this year was that we would see enough improvement in our stick and brick labor costs to offset that.

Speaker #5: And that's what we've seen thus far . That's kind of what we see as we look into Q3 right now . Obviously , incentive levels will depend on demand and mortgage rates and and all the other factors that will impact our our selling process .

Speaker #17: Or are you able to find enough deals here where you expect that lot count to kind of flatten out from where it's at now?

Speaker #17: Thanks.

Speaker #7: I think we feel really good about the current lot position we have. And probably as good as we've ever been in the company's history of positioned with our land pipeline.

Speaker #5: But so that remains to be seen what will happen on the incentive front.

Michael Rehaut: Okay. Thank you.

Speaker #13: Right. Great. Thank you.

Speaker #7: Such that we're able to kind of pass on deals that don't make sense in today's current incentive environment. And being disciplined in our approach to the underwriting.

Operator: Thank you. The next question will be from Trevor Allinson from Wolfe Research. Trevor, your line is live.

Speaker #1: Thank you . And the next question will be from Trevor Allison from Wolfe Research . Trevor , your line is live .

Speaker #16: I think our development partners continue to work with us as well to adjust lot takedown schedules. And so that's probably a big driver of the sequential decline in our owned lot count as we still have an immense need for finished lots.

Trevor Allinson: Hi. Good morning. Thank you for taking my questions. You mentioned earlier that your completed specs are down about 35% year over year, so made some real progress on working down inventory. In past quarters, you've talked about industry inventory levels kind of still being extended here. Have you seen the industry overall also start to make some progress on working down inventory? Was that a factor either industry-wide or for you guys specifically in your Q2 gross margin coming in better than you anticipated?

Speaker #2: Hi .

Speaker #14: Good morning . Thank you for taking my questions . You mentioned earlier that your completed specs are down about 35% year over year , so made some real progress on working down inventory in past quarters .

Speaker #14: You've talked about industry inventory levels still being extended here. Have you seen the industry overall also start to make some progress on working down inventory?

Speaker #16: And appreciate those relationships and the ability to slow our takes in the projects where we need to.

Speaker #17: Thank you for all the color and good luck moving forward.

Speaker #14: And then, was that a factor either industry-wide or for you guys specifically in your Q2 gross margin coming in better than you anticipated?

Speaker #6: Thank you. The next question will be from Rafe Jadrosich from Bank of America. Rafe, your line is live.

Paul Romanowski: I think we have seen inventory levels reduce across the competitive environment, and I think, similar to what we have done, a little more control on starts and that being dependent on the sales pace and demand. We have absolutely watched that closely week to week, and managing our starts in line with our housing demand that we see and our expectations as we move from quarter to quarter. We feel very good about our inventory position, and good about the starts level that we had as it related to our sales throughout the quarter.

Speaker #3: I think we have seen inventory levels reduce across , you know , the competitive environment . And I think similar to what what we have done a little more control on starts and , and that being dependent on the sales pace and demand .

Speaker #18: Hi. Good morning. Thanks for taking my questions. Just following up on the last comment. Can you talk about your exposure to land banking? Maybe as a percentage of the option mix.

Speaker #18: And then your ability to actually slow down the pace of the lot takedowns.

Speaker #3: And we have absolutely, you know, watched that closely week to week, and managing our starts in line with our housing demand that we see and our expectations as we move from quarter to quarter.

Speaker #7: We have a mid-single-digit exposure to land lot bankers within our lot portfolio. So it's not a significant part of our land strategy at this point.

Speaker #3: So we feel good, very good, about our inventory position. And good about the start level that we had as it related to our sales throughout the quarter.

Speaker #7: Most of our lot position is held by through third-party developers. That are putting lots on the ground for us or Forestar. And we've been able to work with those folks in terms of adjusting as Jessica said, takedown schedules, timing of development phases to meet the market in line that makes sense for the market.

Trevor Allinson: Okay. Very helpful. Second question on your lot count was down about 10% year over year. You got land prices, which remain sticky, demand's still challenged. Is it your expectation that lot count kind of still continues to move lower sequentially here as maybe fewer deals just meet your underwriting standards in the current environment? Or are you able to find enough deals here where you expect that lot count to kind of flatten out from where it's at now? Thanks.

Speaker #14: Okay . Very helpful . And then a quick question on your lot , count . It's down about 10% year over year . You got land prices , which remain sticky demands .

Speaker #7: We believe our strategy of working with third-party developers provides us a lot of operational flexibility in addition to capital efficiency and utilizing the benefit of some very knowledgeable and seasoned experts in the development world.

Speaker #14: Still challenge . Is it your expectation that lot count kind of still continues to move lower sequentially here as maybe fewer deals ? Just meet your underwriting standards in the current environment ?

Speaker #14: Or are you able to find enough deals here where you expect that lot count to kind of flatten out from where it's at now ?

Speaker #14: Thanks .

Speaker #18: Great. That's really helpful. And then I know it can be difficult to predict at times. But just can you help us at all with how we should think about the community count growth in the second half of the year?

Speaker #4: I think we feel really good about the current lot position . We have , and we're , you know , probably as good as we've ever been in the company's history of positioned with our land pipeline , such that we're able to kind of pass on deals that don't make sense in today's current incentive environment .

Paul Romanowski: I think we feel really good about the current lot position we have, and we're probably as good as we've ever been in the company's history of position with our land pipeline, such that we're able to kind of pass on deals that don't make sense in today's current incentive environment, and being disciplined in our approach to the underwriting.

Bill Wheat: I think we feel really good about the current lot position we have, and we're probably as good as we've ever been in the company's history of position with our land pipeline, such that we're able to kind of pass on deals that don't make sense in today's current incentive environment, and being disciplined in our approach to the underwriting.

Speaker #18: And if there's any sort of cadence that we should be considering?

Speaker #4: And being disciplined in our approach to the underwriting .

Speaker #16: We don't. I always start with this. But we don't guide the community count for a reason. It's a really hard one because it is so dependent on what's happening with our sales pace community by community.

Jessica Hansen: I think our development partners continue to work with us as well to adjust lot takedown schedules. That's probably a big driver of the sequential decline in our own lot count, as we still have an immense need for finished lots, and appreciate those relationships and the ability to slow our takes in the projects where we need to.

Speaker #2: I think our development partners continue to work with us as well to adjust lot takedown schedules, and so that's probably a big driver of the sequential decline in our owned lot count, as we still have an immense need for finished lots and appreciate those relationships and the ability to slow our takes in the projects where we need to.

Speaker #16: But it has had stayed on a year-over-year basis up a double digit, low double digit percentage. We were up 11% year over year and 4% sequentially.

Speaker #16: We do continue to expect that to moderate at some point. I think the biggest positive this quarter, irrespective of community count, is that our sales were up 11% in line with our community count increase.

Speaker #14: Thank you for all the color, and good luck moving forward.

Trevor Allinson: Thank you for all the color, and good luck moving forward.

Operator: Thank you. The next question will be from Rafe Jadrosich from Bank of America. Rafe, your line is live.

Speaker #1: Thank you. The next question will be from Ralph from Bank of America. Ralph, your line is live.

Speaker #16: So we didn't see any decline on a year-over-year basis in terms of absorption. So another really positive sign about the second quarter and the demand environment.

Speaker #15: Hi . Good morning . Thanks for taking my questions . Just following up on the last , last comment . Can you talk about your exposure to land banking ?

Rafe Jadrosich: Hi. Good morning. Thanks for taking my questions. Just following up on the last comment. Can you talk about your exposure to land banking, maybe as a percentage of the option mix, and then your ability to actually slow down the pace of the lot takedowns?

Speaker #18: Yeah. We expect it will moderate to that mid-single digit exactly what that timing will be, whether it's in the next few quarters or it's next year sometime.

Speaker #15: Maybe as a percentage of the the option mix and then your ability to , to actually slow down the pace of the lot takedowns .

Speaker #18: That's the part that's a little more difficult to predict.

Speaker #4: We have a mid-single-digit exposure to land bank lot bankers within our lot portfolio, so it's not a significant part of our land strategy at this point.

Paul Romanowski: We have a mid-single-digit exposure to land lot bankers within our lot portfolio. It's not a significant part of our land strategy at this point. Most of our lot position is held by true third-party developers that are putting lots on the ground for us or Forestar. We've been able to work with those folks in terms of adjusting, as Jessica said, takedown schedules, timing of development phases to meet the market, in line that makes sense for the market. We believe our strategy of working with third-party developers provides us a lot of operational flexibility in addition to capital efficiency, and utilizing the benefit of some very knowledgeable and seasoned experts in the development world.

Speaker #6: Great. Thank you. Thank you. The next question will be from Buck Horn from Raymond James. Buck, your line is live.

Speaker #19: Hey. Thanks. Good morning, guys. Congrats. Apologies if I missed this earlier. But I was just wondering if you could clarify for me the changes to the top end of the revenue guidance for the year.

Speaker #4: Most of our lot position is held by through third party developers that are putting lots on the ground for us or for star , and we've been able to work with those folks in terms of adjusting , as Jessica said , take down schedules , timing of development phases to meet the market in line .

Speaker #19: Given the I mean, the pretty resilient strength in net orders and the faster cycle times you're seeing, I just wanted to be clear on what the messaging was on kind of taking down the top end of revenue guidance for the year.

Speaker #4: That makes sense for the market. We believe our strategy of working with third-party developers provides us a lot of operational flexibility.

Speaker #16: We lowered our closings guide by 500. And then we also saw a lighter ASP than we would have originally anticipated. And we're not really assuming our ASP to increase in the back half of the year.

Speaker #4: In addition to capital efficiency and utilizing the benefit of some very knowledgeable and expert and seasoned experts in the development world .

Speaker #16: And so it's a combination of slightly lower closings at the high end and slightly lower average sales price.

Rafe Jadrosich: Great. That's really helpful. I know it can be difficult to predict at times, but just can you help us at all with how we should think about the community count growth in H2 of the year, and if there's any sort of cadence that we should be considering?

Mike Murray: Great. That's really helpful. I know it can be difficult to predict at times, but just can you help us at all with how we should think about the community count growth in H2 of the year, and if there's any sort of cadence that we should be considering?

Speaker #15: That's really helpful . And then I know it can be difficult to predict at times , but just , can you help us at all with how we should think about the community count growth in the in the second half of the year ?

Speaker #19: And those lower closings would be driven by what factor?

Speaker #16: We were light on our closings guide in both Q1 and Q2. We didn't achieve what we said we were going to do. We're still very well positioned to deliver in the heart of our original guide.

Speaker #15: And if there's any sort of cadence that we should be considering.

Speaker #2: We don't . I always start with this , but we don't guide to community count for a reason . It's a , it's a really hard one because it is so dependent on what's happening with our sales pace , community by community , but it has had stayed on a year over year basis , up a double digit low double digit percentage .

Jessica Hansen: We don't. I always start with this, but we don't guide a community count for a reason. It's a really hard one because it is so dependent on what's happening with our sales pace community by community. It has had stayed on a year-over-year basis up a low double-digit percentage. We were up 11% year-over-year and 4% sequentially. We do continue to expect that to moderate at some point. I think the biggest positive this quarter, irrespective of community count, is that our sales were up 11%, in line with our community count increase. We didn't see any decline on a year-over-year basis in terms of absorption. Another really positive sign about the Q2 and the demand environment.

Speaker #16: We just felt like it was prudent to bring down the top end since the first half of the year we didn't deliver exactly what we were expecting.

Speaker #19: Got it. Got it. Thanks for that. Appreciate it. And just secondly, I was just curious. If you're making any thoughts or changes around your land pipeline, just due to what's changing around gas prices and just as consumers are having to drive longer distances for new home communities and the elevated cost of commuting, does that if we see an elevated energy price outlook longer term, do you start to reevaluate some of the locations where your communities are at in the pipeline?

Speaker #2: We were up 11% year over year and 4% sequentially . You know , we do continue to expect that to moderate at some point .

Speaker #2: I think the biggest positive this quarter, irrespective of community count, is that our sales were up 11% in line with our community count increase.

Speaker #2: So, we didn't see any decline on a year-over-year basis in terms of absorption. So, another really positive sign about the second quarter and the demand environment.

Paul Romanowski: Yeah, we expect it will moderate to that mid-single digit. Exactly what that timing will be, whether it's in the next few quarters or it's next year sometime, that's the part that's a little more difficult to predict.

Speaker #5: We expect it will moderate to that mid-single digit. Exactly what that timing will be, whether it's in the next few quarters or it's next year sometime, that's the part that's a little more difficult to predict.

Speaker #20: We would have to see a very extended period of elevated gas prices to want to be responsive to that. The time that it takes to bring these communities online and our positioning of those communities are where we'd like to see them.

Rafe Jadrosich: Great. Thank you.

Speaker #15: Great . Thank you .

Speaker #1: Thank you. The next question will be from Buckhorn, from Raymond James. Your line is live.

Operator: Thank you. The next question will be from Buck Horne, from Raymond James. Buck, your line is live.

Speaker #20: So we feel good and comfortable about our community and our future community counts and locations. That said, we adjust as the market moves. And if we see adjustment in market based on distances, then we'll adjust in kind.

Speaker #16: Hey , thanks . Good morning guys . Congrats . Apologies if I missed this earlier , but I was wondering if you could clarify for me the changes to the top end of the revenue guidance for the year .

Buck Horne: Hey, thanks. Good morning, guys. Congrats. Apologies if I missed this earlier, but I was just wondering if you could clarify for me the changes to the top end of the revenue guidance for the year. Given the pretty resilient strength in net orders and the faster cycle times you're seeing, I'm just wanting to be clear on what the messaging was on kind of taking down the top end of revenue guidance for the year.

Speaker #16: Given the, I mean, the pretty resilient strength in net orders and the faster cycle times you're seeing, I'm just wanting to be clear on what the messaging was on kind of taking down the top end of revenue guidance for the year.

Speaker #20: But nothing that we feel we need to be proactive about at this point in time.

Speaker #19: Got it. Appreciate it. Thanks, guys.

Speaker #6: Thank you. The next question will be from Susan McLaury from Goldman Sachs. Susan, your line is live.

Speaker #2: We lowered our closing guide by 500, and then we also saw a lighter ASP than we would have originally anticipated. And we're not really assuming our ASP to increase in the back half of the year.

Jessica Hansen: We lowered our closings guide by 500, and then we also saw a lighter ASP than we would've originally anticipated, and we're not really assuming our ASP to increase in the H2. It's a combination of slightly lower closings at the high end, and slightly lower average sales price.

Speaker #21: Thank you. Good morning, everyone. My first question is on the SG&A. Can you just talk a bit more on how we should think about the path from here and your ability to get some leverage in the second half as those closings continue to come through?

Speaker #2: And so it's a combination of slightly lower closings at the high end . And slightly lower average sales price .

Speaker #16: And those lower closings would be driven by what factor

Buck Horne: Those lower closings would be driven by what factor?

Speaker #20: Yeah. We do expect to see some leverage in Q3 and Q4 as our guide for closings is a step up. So we'll see a higher revenue volume in Q3, Q4.

Jessica Hansen: We were light on our closings guide in both Q1 and Q2. We didn't achieve what we said we were going to do. We're still very well positioned to deliver in the heart of our original guide. We just felt like it was prudent to bring down the top end, since H1, we didn't deliver exactly what we were expecting.

Speaker #20: Obviously, we want to be as efficient as we can there. The decline in our ASP over the last few quarters and then specifically this quarter, obviously, is a little bit of a drag on the SG&A ratio as well.

Buck Horne: Got it. Thanks for that. Appreciate it. Just secondly, I was just curious if you're having any thoughts or changes around your land pipeline, just due to what's changing around gas prices and just as consumers are having to drive longer distances for new home communities and the elevated cost of commuting. If we see an elevated energy price outlook longer term, do you start to reevaluate some of the locations where your communities are at in the pipeline?

Speaker #20: But as we look forward, we do expect to see SG&A as percentage of revenue coming down from where we've been the last few quarters.

Speaker #21: Okay. All right. That's helpful. And then how should we think about your ability or your willingness to continue on the shareholder returns? Any thoughts there on potential upside or changes to the guide?

Speaker #21: And how you're thinking about balancing investments and growth relative to the dividend and the buyback in this environment?

Speaker #20: Our approach will remain consistent there. We're focused on generating strong cash flows from operations. And then basically utilizing 90 to 100 percent of that cash flow for distributions to shareholders.

Paul Romanowski: We would have to see a very extended period of elevated gas prices to want to be responsive to that. The time that it takes to bring these communities online and our positioning of those communities are where we'd like to see them. We feel good and comfortable about our community and our future community counts and locations. That said, we adjust as the market moves, and if we see an adjustment in market based on distances, then we'll adjust in kind. Nothing that we feel we need to be proactive about at this point in time.

Speaker #20: We've been consistent with our dividend and inching that up each year. And then the remainder goes to share repurchases. We're still guiding to approximately two and a half billion of share repurchases this year.

Speaker #20: We're ahead of pace through Q2. When we saw the pullback in the stock in the latter part of the March quarter, obviously, we continue to purchase and leaned into it a bit.

Buck Horne: Got it. Appreciate it. Thanks, guys.

Speaker #20: So we've really essentially accelerated a bit of our repurchases into Q2. But still right on track towards our two and a half billion guide for the year.

Operator: Thank you. The next question will be from Susan Maklari from Goldman Sachs. Susan, your line is live.

Susan Maklari: Thank you. Good morning, everyone. My first question is on the SG&A. Can you just talk a bit more on how we should think about the path from here and your ability to get some leverage in H2 as those closings continue to come through?

Speaker #21: All right. Thank you. Does that fit the quarter?

Speaker #20: Thanks, Sue.

Speaker #6: Thank you. The next question will be from Jade Rahmani from ABWK. Jade, your line is live.

Speaker #22: Thank you very much. Could you talk about what's driving these warranty and litigation benefits, which has you've experienced for more than this quarter? And if you expect further benefits going forward?

Paul Romanowski: We do expect to see some leverage in Q3 and Q4 as our guide for closings is a step up. We'll see a higher revenue volume in Q3, Q4. Obviously, we want to be as efficient as we can there. The decline in our ASP over the last few quarters, and then specifically this quarter, obviously, is a little bit of a drag on the SG&A ratio as well. As we look forward, we do expect to see SG&A as a percentage of revenue coming down from where we've been the last few quarters.

Bill Wheat: We do expect to see some leverage in Q3 and Q4 as our guide for closings is a step up. We'll see a higher revenue volume in Q3, Q4. Obviously, we want to be as efficient as we can there. The decline in our ASP over the last few quarters, and then specifically this quarter, obviously, is a little bit of a drag on the SG&A ratio as well. As we look forward, we do expect to see SG&A as a percentage of revenue coming down from where we've been the last few quarters.

Speaker #20: Yeah, Jade. The last three quarters, we've had various kind of one-off events that occurred. This quarter, we had a favorable outcome from a specific litigation case that had been previously reserved.

Speaker #20: And the results was better than what we had anticipated when we booked the reserve. And so that was a positive benefit this quarter. As well as we did see our warranty costs step down a bit.

Susan Maklari: Okay. All right. That's helpful. How should we think about your ability or your willingness to continue on the shareholder returns? Any thoughts there on potential upside or changes to the guide, and how you're thinking about balancing investments in growth relative to this dividend and the buyback in this environment?

Speaker #20: And we're seeing the benefits of that. We set our reserves based on really where our costs have been. So there was some benefit from that.

Speaker #20: And so this quarter, we would attribute 40 basis points of benefit from those items that we do truly believe are one-off. And so really, our forward anticipation is that the net impact of litigation and warranty would continue to be around 40 to 50 basis points negative impact on margin each quarter.

Bill W. Wheat: Our approach will remain consistent there. We're focused on generating strong cash flows from operations. You're basically utilizing 90% to 100% of that cash flow for distributions to shareholders. We've been consistent with our dividend and inching that up each year. The remainder goes to share repurchases. We're still guiding to approximately $2.5 billion of share repurchases this year. We're ahead of pace through Q2. When we saw the pullback in the stock in the latter part of the March quarter, obviously we continued to purchase and leaned into it a bit. We've really essentially accelerated a bit of our repurchases into Q2. Still right on track towards our $2.5 billion guide for the year.

Bill Wheat: Our approach will remain consistent there. We're focused on generating strong cash flows from operations. You're basically utilizing 90% to 100% of that cash flow for distributions to shareholders. We've been consistent with our dividend and inching that up each year. The remainder goes to share repurchases. We're still guiding to approximately $2.5 billion of share repurchases this year. We're ahead of pace through Q2. When we saw the pullback in the stock in the latter part of the March quarter, obviously we continued to purchase and leaned into it a bit. We've really essentially accelerated a bit of our repurchases into Q2. Still right on track towards our $2.5 billion guide for the year.

Speaker #20: This quarter, that impact was zero. We would expect normally it would be a negative impact of 40 bips.

Speaker #21: And as a reminder, our supplemental presentation out on our investor relations site does give that line item detail on the home sales gross margin slide.

Specifically this quarter obviously is a little bit of a, of a drag on, on the sgna ratio as well. But but we, as we look forward, we do expect to see uh sgna as percentage of Revenue coming down from where we've been the last few quarters. Okay. All right. That's helpful. And then how should we think about your ability or your willingness to continue on the shareholder returns? Any thoughts there on potential upside or changes to the guide and and how you're thinking about balancing investments in growth relative to uh these dividend in the buyback, in this environment. Uh we're our approach will remain consistent there. Uh, we're we're focused on generating strong cash flows from operations. Uh, and then you basically utilizing uh, you know, 90 to 100% of that cash flow for distributions to shareholders. Uh, we've been consistent with our dividend and and inching that up each year. And then the remainder goes to uh share repurchases. Um you know we we're still guiding to approximately, you know, 2 and a half billion.

Speaker #21: And so you can see quarter to quarter what that is and if you go further back than the last three quarters, you'll see we're right in the heart of that 40 to 50 basis point typical impact.

Speaker #22: Thanks very much. And in terms of the share buybacks, is there a multiple at which above book value, you don't think it makes sense and where you would look to rather lean on the dividend as a way to efficiently return capital?

Susan Maklari: All right. Thank you. Good luck with the quarter.

Of share repurchases this year, we're ahead of pace uh, through Q2. Um, you know, when we saw the pullback in the stock and the latter part of the March quarter, uh, I was that we continue to to to purchase and and leaned into it a bit. So I bet. So we've really essentially accelerated a bit of our of our repurchases into Q2 uh but still right on track uh towards our uh 2 and a half billion guide for the year.

Bill W. Wheat: Thanks, Sue.

Bill Wheat: Thanks, Sue.

All right, thank you. Good luck with the quarter.

Operator: Thank you. The next question will be from Jade Rahmani from KBW. Jade, your line is live.

Speaker #20: Oh, we look at all aspects of our distribution strategy. And valuation of where the stock is is a component of that. However, we're committed to continuing to distribute substantial majority of our cash flow to our shareholders.

Jade Rahmani: Thank you very much. Could you talk about what's driving these warranty and litigation benefits, which you've experienced for more than this quarter, and if you expect further benefits going forward?

Thank you. The next question will be from Jade Ramani from ABW K.J. Jade, your line is live.

Speaker #20: We've typically kept the dividend at a more consistent level. Because any payment of dividends you prefer, that to continue to increase over the long term.

Bill W. Wheat: Yeah, Jade. The last three quarters, we've had various kind of one-off events that occurred. This quarter, we had a favorable outcome from a specific litigation case that had been previously reserved, and the result was better than what we had anticipated when we booked the reserve. That was a positive benefit this quarter. As well, we did see our warranty costs step down a bit, and we're seeing the benefits of that. We set our reserves based on really where our costs have been. There was some benefit from that. This quarter, we would attribute 40 basis points of benefit from those items that we do truly believe are one-off. Really our forward anticipation is that the net impact of litigation and warranty would continue to be around 40 to 50 basis points negative impact on margin each quarter.

Bill Wheat: Yeah, Jade. The last three quarters, we've had various kind of one-off events that occurred. This quarter, we had a favorable outcome from a specific litigation case that had been previously reserved, and the result was better than what we had anticipated when we booked the reserve. That was a positive benefit this quarter. As well, we did see our warranty costs step down a bit, and we're seeing the benefits of that. We set our reserves based on really where our costs have been. There was some benefit from that. This quarter, we would attribute 40 basis points of benefit from those items that we do truly believe are one-off. Really our forward anticipation is that the net impact of litigation and warranty would continue to be around 40 to 50 basis points negative impact on margin each quarter.

Speaker #20: And we are very reluctant to reduce dividend levels. And so the share repurchase would be the element that would be more likely to either toggle up or toggle down over time.

Speaker #22: Thank you.

Speaker #6: Thank you. The next question will be from Mike Dahl from Orbisee Capital Markets. Mike, your line is live.

Speaker #23: Good morning. Thanks for taking my questions. And nice results. I just want to ask a clarifying question on the incentives. I believe in the opening remarks, you made a comment about incentives continued to increase in the quarter.

Thank you very much. Um, could you talk about what's driving these warranty and litigation benefits, which is, uh, you've experienced for more than this quarter. And if you expect further benefits going forward, uh, yeah. Jade. Uh, the last 3 quarters, we've had, uh, various kind of 1 off, uh, events that occurred this quarter. We had a favorable, uh, outcome from a specific litigation case that had been previously, reserved and, and uh, the results was, uh, was better than what we had anticipated when we booked the reserve. And so, so that was a positive benefit. Uh, this quarter, uh, as well as we did, see our, our warranty costs, uh, you know, step down a bit and we're seeing the benefits of, of, of that. Uh, we set our reserves based on really where our where our costs have been. So, so, there was some benefit from that. So this quarter, we would attribute 40 basis points of benefit um, from those items that we do truly believe or are 1 off. Um, and so really our forward anticipation is that the

Speaker #23: But then a lot of your subsequent commentary sounded like it was actually a little more stable. So I just wanted to kind of confirm, was that a comment that was sequential or year on year?

Bill W. Wheat: This quarter, that impact was 0. We would expect normally it would be a negative impact of 40 bps.

Bill Wheat: This quarter, that impact was 0. We would expect normally it would be a negative impact of 40 bps.

Jessica Hansen: As a reminder, our supplemental presentation out on our investor relations site does give that line item detail on the home sales growth margin slide. You can see quarter to quarter what that is. If you go further back than the last three quarters, you'll see we're right in the heart of that 40 to 50 basis points typical impact.

Speaker #23: And then I understand that on a forward basis, the market conditions will dictate where you go with that. But in terms of what's embedded in the three-Q guide, is that for stable sequential incentives or a different level, good or bad?

Speaker #22: I think you heard that properly as stable incentive levels from Q2 to Q3. In Q2, about 61% of our homes closed. We're sold within the quarter.

Jade Rahmani: Thanks very much. In terms of the share buybacks, is there a multiple at which above book value you don't think it makes sense, and where you would look to rather lean on the dividend as a way to efficiently return capital?

Speaker #22: So they're very reflective that the results were reflective of the market conditions we experienced. And that's what we're kind of projecting forward from an incentive level.

Speaker #23: Okay. So the 10% in the 10% you experienced in two Q, was that also stable relative to one Q?

Bill W. Wheat: We look at all aspects of our distribution strategy, and valuation of where the stock is a component of that. However, we're committed to continuing to distribute the substantial majority of our cash flow to our shareholders. We've typically kept the dividend at a more consistent level because any payment of dividends, you prefer that to continue to increase over the long term, and we are very reluctant to reduce dividend levels. The share repurchase would be the element that would be more likely to either toggle up or toggle down over time.

Bill Wheat: We look at all aspects of our distribution strategy, and valuation of where the stock is a component of that. However, we're committed to continuing to distribute the substantial majority of our cash flow to our shareholders. We've typically kept the dividend at a more consistent level because any payment of dividends, you prefer that to continue to increase over the long term, and we are very reluctant to reduce dividend levels. The share repurchase would be the element that would be more likely to either toggle up or toggle down over time.

You know, net impact of litigation and warranty would continue to be around 40 to 50 basis points negative impact on margin each quarter. This quarter, that impact was zero. Uh, we would expect normally it would be a negative impact to 40 bips. And as a reminder, our supplemental presentation out on our Investor Relations site does give that line item detail on the Home Sales Gross Margin slide, and so you can see quarter to quarter, um, what that is. And if you go further back than the last three quarters, you'll see we're right in the heart of that 40 to 50 basis point typical impact. Thanks very much. Um, and in terms of the share buybacks, you know, is there a multiple at which, above book value, you don't think it makes sense and where you would look to, uh, rather lean on the dividend as a way to efficiently return capital?

Speaker #21: It picked up slightly, but it was essentially rounded to the same number.

Speaker #23: Got it. Yeah, yeah, yeah. Okay. That makes sense. I wanted to also follow up on the material cost dynamic. I appreciate that you guys have some forward visibility given the way you negotiate with your trades and labor.

Speaker #23: If we've now seen a slew of price increase announcements across a large basket of construction materials and building products, I understand that it may take time for those to go through.

Jade Rahmani: Thank you.

Operator: Thank you. The next question will be from Mike Dahl from RBC Capital Markets. Mike, your line is live.

Oh, we we look at all aspects of our distribution strategy. Uh, and valuation of where the stock is, is a component of that. Uh, however, we're committed to, uh, continuing to distribute, uh, the substantial majority of our cash flow to our shareholders. Um, we've typically, uh, kept the dividend at a more consistent level, um, because any, any payment of dividends you prefer that to continue to increase over the long term and we are, uh, you know, very reluctant to reduce dividend levels. Uh, and so the share we purchase would be the, the element that would be more likely to either toggle off or toggle down over time. Thank you.

Speaker #23: It may fluctuate based on ultimately what's happening on the ground today. But from a timing standpoint, if we start seeing price increases go into the market this later this spring, when does that flow through to is that a fiscal '27 closings dynamic for you at this point in the year?

Mike Dahl [Managing Director, Equity Research: Good morning. Thanks for taking my questions, and nice results. I just want to ask a clarifying question on the incentives. I believe in the opening remarks you made a comment about incentives continuing to increase in the quarter. A lot of your subsequent commentary, it sounded like it was actually a little more stable. I just wanted to kind of confirm, was that a comment that was sequential or year on year? I understand that on a forward basis, the market conditions will dictate where you go with that. In terms of what's embedded in the Q3 guide, is that for stable sequential incentives or a different level, good or bad?

Mike Dahl: Good morning. Thanks for taking my questions, and nice results. I just want to ask a clarifying question on the incentives. I believe in the opening remarks you made a comment about incentives continuing to increase in the quarter. A lot of your subsequent commentary, it sounded like it was actually a little more stable. I just wanted to kind of confirm, was that a comment that was sequential or year on year? I understand that on a forward basis, the market conditions will dictate where you go with that. In terms of what's embedded in the Q3 guide, is that for stable sequential incentives or a different level, good or bad?

Thank you. The next question will be from Mike Dah from ORBC, Capital Markets. Mike, your line is live.

Speaker #23: Are you pretty locked for '26 starts and closings?

Speaker #20: If we started to see those price increases truly come through, then yes, that would be more of an impact on fiscal '27. Certainly, we'd see some.

Speaker #20: But I think probably offset imbalance and we really haven't seen that to date. So we'll just see how that goes based on what occurs in the world.

Bill W. Wheat: I think you heard that properly as stable incentive levels from Q2 to Q3. In Q2, about 61% of our homes closed were sold within the quarter, so they were very reflective. The results were reflective of the market conditions we experienced, and that's what we're kind of projecting forward from an incentive level.

Bill Wheat: I think you heard that properly as stable incentive levels from Q2 to Q3. In Q2, about 61% of our homes closed were sold within the quarter, so they were very reflective. The results were reflective of the market conditions we experienced, and that's what we're kind of projecting forward from an incentive level.

3Q guide—is that for stable sequential incentives or a different?

Speaker #21: Increases get announced a lot. That doesn't mean we actually take them.

Speaker #23: Of course. Okay. Thank you.

Speaker #6: Thank you. The next question will be from Ken Zehner from Seaport Research. Ken, your line is live.

Speaker #24: Thank you. Good morning, everybody. Given your normal order seasonality, do you feel that your teams tell you that you guys gain share? Or is that kind of just the demand environment?

Mike Dahl [Managing Director, Equity Research: Okay. The 10% you experienced in Q2, was that also stable relative to Q1?

Mike Dahl: Okay. The 10% you experienced in Q2, was that also stable relative to Q1?

A different level good or bad. I I think you heard that properly as stable incentive levels from from Q2 to Q3 in Q2 about 61% of our homes closed were sold within the quarter so they're very reflective. The results were reflective of the market conditions we experienced. And that's what we're kind of projecting forward from an incentive level.

Speaker #20: Hard for us to gauge what we're doing on share versus the overall environment. It felt pretty good. Anecdotally, I'd say maybe it's a little bit of share.

Okay, so the 10%—the 10% you experienced in Q2—was that also stable relative to...

Jessica Hansen: It ticked up slightly, but it was essentially rounded to the same number.

Speaker #20: But I don't know. We'll find out when everybody else reports.

Mike Dahl [Managing Director, Equity Research: Got it. Yeah. Okay. That makes sense. I wanted to also follow up on the material cost dynamic. I appreciate that you guys have some forward visibility given the way you negotiate with your trades and labor. We've now seen a slew of price increase announcements across a large basket of construction materials and building products, and understanding that it may take time for those to go through. It may fluctuate based on ultimately what's happening on the ground today. But from a timing standpoint, if we start seeing price increases go into the market this-

Mike Dahl: Got it. Yeah. Okay. That makes sense. I wanted to also follow up on the material cost dynamic. I appreciate that you guys have some forward visibility given the way you negotiate with your trades and labor. We've now seen a slew of price increase announcements across a large basket of construction materials and building products, and understanding that it may take time for those to go through. It may fluctuate based on ultimately what's happening on the ground today. But from a timing standpoint, if we start seeing price increases go into the market this-

To 1 Q. Um, it it ticked up slightly but it was it, it was essentially rounded to the same number.

Speaker #21: Over the next week and a half, I think you'll have a pretty good idea.

Speaker #20: Yeah. I mean, our team is focused. Each of their communities.

Speaker #24: And then right. No, it's very impressive. And then your lower lay-in costs, I think you said it was up 4% year over year. Could you give us some context to that?

Speaker #24: I think it was more in the mid to high single digits. And then can you talk to the benefit you believe you're realizing from when you slowed down starts to renegotiate?

Speaker #24: Just trying to understand how those two factors are might play out going forward. Thank you.

Speaker #20: When you talk about the benefit of slowing starts, are you talking on the land side or on the labor side? Labor? Yeah. I think that yeah.

Michael J. Murray: ... later this spring. When does that flow through to? Is that a fiscal 2027 closings dynamic for you at this point in the year? Are you pretty locked for 2026 starts and closings?

Mike Murray: ... later this spring. When does that flow through to? Is that a fiscal 2027 closings dynamic for you at this point in the year? Are you pretty locked for 2026 starts and closings?

Speaker #24: It could be both. I mean, really, just to illuminate us, if you would.

Um, I I wanted to also follow up on the material cost Dynamic. I appreciate that. You guys have some forward visibility given the way you. Um, you negotiate with your, with your trades and, and labor. If we, we've now seen, you know, a slew of price increase announcements across a a large basket of of construction, materials, and, and building products. And understanding that, you know, it may take time for those to go through it, may fluctuate based on ultimately, what's happening on the ground today, but from a timing standpoint, you know, if we start seeing price increases going to the market this later, this spring, um, when does that flow through to? Is that a

Speaker #20: Yeah. I think that what we have seen and expect to see as we go into the third and fourth quarter, that the stick-and-brick savings between both materials and labor will offset any increase that we see.

Paul Romanowski: If we started to see those price increases truly come through, then yes, that would be more of an impact on fiscal 2027. Certainly, we'd see some, but I think probably offset in balance, and we really haven't seen that to date, so we'll just see how that goes based on what occurs in the world.

Speaker #20: On the land side, we have as we've gone through community by community, just like we do on the sales and our incentive level, this is a regular discussion with our development partners and/or landowners relative to the terms of any particular deal.

Jessica Hansen: Increases get announced a lot. That doesn't mean we actually take them.

Paul Romanowski: Yeah.

Mike Dahl [Managing Director, Equity Research: Of course. Okay. Thank you.

Mike Dahl: Of course. Okay. Thank you.

Speaker #20: And we've seen some savings on land deals, not widespread, but some land and lot reductions based on the reality of the environment and the pace at which we're buying lots.

Fiscal. 27, closings. Dynamic for you at this point in the year, are you pretty locked for for 26 starts in closings? If we started to see those, uh, price increases truly come through, the yes, that would be more of an impact on fiscal 27. Uh, certainly we'd see some, but I think probably offset in balance and we really haven't seen that today. So we'll just see how that goes based on what occurs in. Uh uh, in the world increases get announced a lot. That doesn't mean we actually take them. Yeah.

Operator: Thank you. The next question will be from Ken Zener from Seaport Research. Ken, your line is live.

Okay, thank you.

Ken Zener: Thank you. Good morning, everybody. Given your normal order seasonality, do you feel, did your teams tell you that you guys gained share or is that kind of just the demand environment?

Speaker #20: And/or starting homes.

Thank you. The next question will be from Kensar from Seaport Research. Kensar, your line is live.

Speaker #21: And Ken, so the first part of your question, we did see moderation in terms of that increase on a year-over-year basis. We were up 6% last quarter.

Speaker #21: 4% this quarter. Too early for us to say it's going to continue to decline or stay right in that 4% range. But we have expected, as we continue to move through our earlier or our more recently purchased land, that that will moderate in terms of the year-over-year increase.

Paul Romanowski: Hard for us to gauge what we're doing on share versus the overall environment. It felt pretty good. Anecdotally, I'd say maybe it's a little bit of share, but I don't know. We'll find out when everybody else reports.

Jessica Hansen: Over the next week and a half, I think you'll have a pretty good idea.

Speaker #24: Thank you.

Paul Romanowski: Yeah. Our teams are focused on each of their communities.

Thank you. Good morning, everybody. Giving you a normal order seasonality. Do you feel—did your teams tell you—that you guys gained share, or is that kind of just the demand environment? Hard for us to gauge what we're doing on share versus the overall environment. You know, it felt pretty good. Um, you know, anecdotally I'd say maybe it's a little bit of share, but I don't know, we'll find out when everybody else reports over the next week and a half. I think you'll have a pretty good idea.

Ken Zener: Yeah.

Ken Zener: Yeah. And then next-

Speaker #6: Thank you. The next question will be from Jay McCanless from Citizens. Jay, your line is live.

Jessica Hansen: And then next-

Paul Romanowski: On the next meet on the plans.

Ken Zener: Right. No, it is very impressive. Your lower land costs, I think you said it was up 4% year-over-year. Could you give us some context to that? I think it was more in the mid- to high single digits. Can you talk to the benefit you believe you're realizing from when you slowed down starts to renegotiate? Just trying to understand how those two factors might play out going forward. Thank you.

I mean, our kids, and then

Speaker #23: Hey, good morning, everyone. Jessica, I wanted to go back to a comment you made about a gross margin tailwind on homes that you guys sell earlier in the construction process.

Speaker #23: Is that some extra upgrades going in? Or is that just some cost attribution flowing through?

Speaker #20: Some of that comes from choice. Selling earlier in the process compared to a completed home or one that we may be more motivated to move off-balance sheet and get a buyer in there.

Paul Romanowski: When you talk about the benefit of slowing starts, are you talking on the land side or on the labor side?

Ken Zener: Labor.

Paul Romanowski: Labor?

Jessica Hansen: Yeah.

Speaker #20: So when we sell early in the process and there's a little more choice, whether that's lot selection or some of the things that go in the homes, I think those all attribute to a slight advantage on gross margin at time of sale.

Paul Romanowski: Yeah. I think that.

Ken Zener: It could be both. Really just illuminate us, if you would.

Paul Romanowski: Yeah. I think that what we have seen and expect to see as we go into Q3 and Q4, that the stick and brick savings, between both materials and labor, will offset any increase that we see on the land side. As we've gone through community by community, just like we do on the sales and our incentive level, this is a regular discussion with our development partners and/or landowners relative to the terms of any particular deal. We've seen some savings on land deals, not widespread, but some land and lot reductions based on the reality of the environment and the pace at which we're buying lots and/or starting homes.

Speaker #24: Yeah. Just to clarify that, we would expect a slightly higher margin on homes sold earlier in the construction process than those that are sold when they're complete.

Speaker #24: Just to make sure we got the headwind tailwind on margin and cost of sales.

Right. No, it's very impressive and then your lower land cost. I think you said it was up, 4%, year-over-year, could you give us um some context to that? I think it was more in the mid to high single digits and then can you talk to the benefit? You believe you're realizing from when you shut, slowed, down starts to renegotiate, just trying to understand how those 2 factors are. Um, you know, might play out going forward. Thank you. When you talk about the benefits of slowing, start to you talking on the land side or on the labor side labor. Yeah, yeah, I think that it could be both. I mean really just illuminate us if you would. Yeah I I think that I think that what we have seen and expect to see is we go into the third and fourth quarter that the stick and brick savings between both materials and labor. Uh, will offset any increase that we see uh on the land side. We have you know, as we've gone through Community by community

Speaker #21: And we typically always talk to the point that once a home's completed and unsold for a period of time, we do start to see the margin degrade.

Speaker #21: Which is why we have such a focus on not letting our completed specs age. And how pleased we are with our completed spec reduction today.

Speaker #23: Okay. That's great. Thank you for that explanation. The second question I had, I guess along those lines, if you are able to sell a little bit earlier, I guess how much were you able to raise prices in certain markets this quarter?

Jessica Hansen: Ken, to the first part of your question, we did see moderation in terms of that increase on a year-over-year basis. We were up 6% last quarter, 4% this quarter. Too early for us to say it's going to continue to decline or stay right in that 4% range. We have expected as we continue to move through our more recently purchased land, that that will moderate in terms of the year-over-year increase.

Speaker #23: Or is it still kind of tricky to pull that off?

Just like we do on the sales and our incentive level. This is a is a regular discussion with our development Partners, Andor, uh, land owners, uh, relative to the terms of any particular deal. And, you know, we've seen some savings on land deals, not widespread but, uh, some land and lot reductions based on the reality of the environment and the pace at which we're buying lots and or starting homes and can so that the first part of your question, we did see moderation in terms of that increase on a year-over-year basis. We are at 6%,

Speaker #20: It's certainly tricky to measure with any consistency because that is a community-by-community balance. In some cases, it's a reduction of incentive compared to a price increase and trying to nail that down and put a number to it is just not something that we have.

Ken Zener: Thank you.

Last quarter, 4%. This quarter, too early for us to say if it's going to continue to decline or stay right in that 4% range, but we have expected as we continue to move through our earlier or our more recently purchased land, that that will moderate in terms of the year-over-year increase.

Operator: Thank you. The next question will be from Jay McCanless from Citizens. Jay, your line is live.

Speaker #23: Okay. Great. Thanks for taking my questions.

Thank you.

Speaker #6: Thank you. The next question will come from Jonathan Bettenhausen from Trua Securities. Jonathan, your line is live.

Jay McCanless: Hey, good morning, everyone. Jessica, I wanted to go back to a comment you made about a gross margin tailwind on homes that you guys sell earlier in the construction process. Is that some extra upgrades going in or is that just some cost attribution flowing through?

Thank you. The next question will be from Jay, Mechanicsville.

Speaker #25: Hey, guys. Thanks for taking the questions. I know it's a smaller mix of sales, but another good quarter for the north. I know it's a fairly large region from a geographic perspective.

Speaker #25: So are there any metros specifically to call out that you're seeing outsized growth? Or is it more just kind of broad across the region there?

Paul Romanowski: Some of that comes from choice, selling earlier in the process compared to a completed home or one that we may be more motivated to move off balance sheet and get a buyer in there. When we sell early in the process and there's a little more choice, whether that's lot selection or some of the things that go in the homes, I think those all attribute to a slight advantage on gross margin at time of sale.

Speaker #20: Pretty consistent across the region. It's also reflective of investments we've made in that geography over the past several years that are now coming in bearing fruit.

Speaker #20: So we're really pleased with the teams, how they're performing across the north region. And contribution they're making to the overall sales results as Texas and Florida are not quite the powerhouses they once were.

Speaker #24: Yeah. Okay. And just to follow up on that, can you talk about the kind of investment thesis in the north?

Michael J. Murray: Yeah, just to clarify that we would expect a slightly higher margin on homes sold earlier in the construction process than those that are sold when they're complete. Just to make sure we got the headwind, tailwind on margin and cost of sales.

Mike Murray: Yeah, just to clarify that we would expect a slightly higher margin on homes sold earlier in the construction process than those that are sold when they're complete. Just to make sure we got the headwind, tailwind on margin and cost of sales.

Speaker #20: The investment thesis? It was markets we had not heavily penetrated. We saw opportunity to take national market share by expanding our presence in those markets.

Jessica Hansen: We typically always talk to the point that once a home's completed and unsold for a period of time, we do start to see the margin degrade, which is why we have such a focus on not letting our completed specs age and how pleased we are with our completed spec reduction today.

Speaker #20: And we did it through a combination of Greenfield organic growth as well as a few acquisitions.

Gross margin Tailwind on homes that um that you guys sell earlier in the construction process is that some extra upgrades going in? Or is that just uh, some cost attribution uh, flowing through some of that comes from, you know, choice selling earlier in the process compared to a completed home or 1 that we may be more motivated to move off, balance sheet and, and get a buyer in there. So, when we sell early in the process, and there's a little more Choice, whether that's lot selection or some of the things that go in the homes, I think those all attribute to a slight uh, advantage on gross margin at at time of sale. Yeah, just to clarify that we would expect a slightly higher margin on homes, sold earlier in the construction process than those that are sold. When they're complete, just to make sure we we got the headwind Tailwind on margin and cost of sales, and we typically always talk to the point that once the home's, completed and unsold for a period of time, we do start to see the margin

Speaker #6: Okay. Got it. Thank you. Thank you. The next question will be from Alex Reigel from Texas Capital. Alex, your line is live.

Jay McCanless: Okay, that's great. Thank you for that explanation. The second question I had, I guess along those lines, if you are able to sell a little bit earlier, I guess how much were you able to raise prices in certain markets this quarter or is it still kind of tricky to pull that off?

Speaker #24: Thank you. Cancellation rates have remained fairly stable but have the reasons for the cancellations changed at all?

Speaker #21: No. We continue to see that the vast majority of our cancellations are due to the buyer ultimately not being able to qualify for the mortgage once they get into the full documentation process.

Paul Romanowski: It's certainly tricky to measure with any consistency because that is a community by community balance. In some cases, it's a reduction of incentive compared to a price increase, and trying to nail that down and put a number to it is just not something that we have.

Speaker #24: Thank you.

Speaker #6: Thank you. And the next question will be from Alex Barron from Housing Research Center. Alex, your line is live.

Jay McCanless: Okay, great. Thanks. Taking my questions.

Speaker #24: Thank you. Good morning. I was recently in San Antonio and saw you guys had several communities priced in the high 100s, low 200s. And I was wondering if that's just something you're only doing in that market or it's a new push you guys are doing across more markets to build more lower-priced, affordable communities.

Operator: Thank you. The next question will come from Jonathan Bettenhausen from Truist Securities. Jonathan, your line is live.

Tricky to measure with any consistency because that is a community by Community balance. In some cases, it's a reduction of incentive compared to a price increase in trying to nail that down and put a number to it is just uh, just not something that we have. Okay, great. Thanks for taking my question.

Thank you.

Jonathan Bettenhausen: Hey, guys. Thanks for taking the questions. I know it's a smaller mix of sales, but it's another good quarter for the North. I know it's a fairly large region from a geographic perspective. Are there any metros specifically to call out that you're seeing outsized growth or is it more just kind of broad across the region there?

The next question will come from Jonathan Beckton Howen from Truist Securities. Jonathan, your line is live.

Speaker #20: Alex, we have focused on finding a more affordable product and doing it where we can in the markets that especially allow the smaller lot prices and allow for those smaller square footages.

Michael J. Murray: Pretty consistent across the region. It's also reflective of investments we've made in that geography over the past several years that are now coming and bearing fruit. We're really pleased with the teams, how they're performing across the North region and the contribution they're making to the overall sales results, as Texas and Florida are not quite the powerhouses they once were.

Mike Murray: Pretty consistent across the region. It's also reflective of investments we've made in that geography over the past several years that are now coming and bearing fruit. We're really pleased with the teams, how they're performing across the North region and the contribution they're making to the overall sales results, as Texas and Florida are not quite the powerhouses they once were.

Speaker #20: Not something we can do across all municipalities in the country. We still face a lot of minimum lot size requirements that put the cost of the lot out of range to achieve that and/or minimum square footages.

Speaker #20: But where we can achieve, we have seen good success with that. And certainly in Texas, allowing to get some of the lowest prices we can provide around the country where you're seeing in San Antonio, and we're seeing those across the Texas markets.

Jonathan Bettenhausen: Yeah. Okay. Just to follow up on that, can you talk about the kind of investment thesis in the North?

Paul Romanowski: The investment thesis, it was markets we had not heavily penetrated. We saw opportunity to take national market share by expanding our presence in those markets, and we did it through a combination of greenfield organic growth as well as a few acquisitions.

Mike Murray: The investment thesis, it was markets we had not heavily penetrated. We saw opportunity to take national market share by expanding our presence in those markets, and we did it through a combination of greenfield organic growth as well as a few acquisitions.

Hey guys, thanks for taking the questions. Uh I know it's a smaller mix of sales but there's another good quarter for the north. That's a fairly large region for my Geographic perspective. So are there any any you know any metros specifically to call out that you're seeing outside growth? Or is it more just you know kind of broad across the region. There pretty consistent across the region. It's also reflective of Investments we've made in that in that geography over the past several years that are now coming in and bearing fruit. So we're really pleased with the teams how they're performing across the north um region and and the contribution they're making to the overall sales results as Texas and Florida are not quite the powerhouses. They once were. Yeah. It it. Okay. And just to follow up on that can you talk about the the you know, kind of investment thesis and and the North?

Speaker #20: And feel good about that positioning.

Speaker #24: Okay. And are you finding above-average sales pace for that price point?

Speaker #20: We are. It's certainly opens up homeownership to places where there is no other option in a lot of the markets. And certainly not for a new home.

Jonathan Bettenhausen: Okay. Got it. Thank you.

The investment thesis it was marketed to, we had not heavily penetrated. We saw opportunity to take national market share by expanding our presence in those markets. And we did it through a combination of greenfield organic growth as well as a few acquisitions.

Operator: Thank you. The next question will be from Alex Rygiel from Texas Capital. Alex, your line is live.

Speaker #20: With a warranty and stability of neighborhood and community that we're delivering. So it's absolutely opening up homeownership across the markets. And we see a higher pace because of that.

Alex Rygiel: Thank you. Cancellation rates have remained fairly stable. Have the reasons for the cancellations changed at all?

Okay, got it. Thank you. Thank you. The next question, will be from Alex Rio from Texas, Capitol, Alex. Your line is live.

Speaker #24: All right. Best of luck. Thank you.

Jessica Hansen: No, we continue to see that the vast majority of our cancellations are due to the buyer ultimately not being able to qualify for the mortgage once they get into the full documentation process.

Speaker #6: Thank you. And that does conclude today's Q&A session. I will now hand the call back to Paul Romanowski for closing remarks.

Speaker #24: Thank you, Paul. We appreciate everyone's time on the call today and look forward to speaking with you again to share a third-quarter results on Tuesday, July 21st.

Alex Rygiel: Thank you.

Thank you. Uh, cancellation rates have remained fairly stable, but have the reasons for the cancellations changed at all? No, we continue to see that the vast majority of our cancellations are due to the buyer ultimately not being able to qualify for the mortgage once they get into the full documentation process.

Operator: Thank you. The next question will be from Alex Barrón from Housing Research Center. Alex, your line is live.

Thank you.

Speaker #24: And congratulations to the entire DR Horton team on a solid second quarter. We appreciate everything that you do.

Alex Barrón: Thank you. Good morning. I was recently in San Antonio and saw you guys had several communities priced in the high $100s, low $200s. I was wondering if that's just something you're only doing in that market or it's a new push you guys are doing across more markets to build more lower-priced affordable communities?

Thank you. And the next question will be from Alex Barron from housing, Research Center, Alex. Your line is live.

Thank you. Good morning. Um, you know, I was recently in San Antonio and saw you guys had

Several communities priced in the high $100s, low $200s.

And I was wondering if that's just something you're only doing in that market, or if it's a new push you guys are doing across more markets to build.

Paul Romanowski: Alex, we have focused on finding a more affordable product and doing it where we can in the markets that especially allow the smaller lot prices and allow for those smaller square footages. Not something we can do across all municipalities in the country. We still face a lot of minimum lot size requirements that put the cost of the lot out of range to achieve that, and/or minimum square footages. Where we can achieve, we have seen good success with that, and certainly in Texas, allowing to get some of the lowest prices we can provide around the country, where you're seeing in San Antonio, and we're seeing those across the Texas markets and feel good about that positioning.

Uh, more lower-priced, affordable communities.

next, we have focused on

Finding a more affordable product and doing it where we can in the markets that especially allow the smaller lot prices and allow for those smaller square footages. Not something we can do across all municipalities in the country. We still face a lot of, uh, minimum, uh, lot size requirements that, uh, put the cost of a lot out of range to achieve that and/or minimum square footages. But where we can achieve, we have seen good success with that, and certainly in Texas, allowing to get some of the lowest prices we can provide around the country, where you're seeing in San Antonio.

Paul Romanowski: Okay. Are you finding above average sales pace for that price point?

Alex Barrón: Okay. Are you finding above average sales pace for that price point?

Paul Romanowski: We are. It certainly opens up homeownership to places where there is no other option in a lot of the markets, and certainly not for a new home, with a warranty and stability of neighborhood and community that we deliver. It's absolutely opening up homeownership across the markets, and we see a higher pace because of that.

Alex Barrón: All right. Best of luck. Thank you.

Antonio and we're seeing those across the Texas markets and feel good about that positioning. Okay. And are you finding uh, above average sales pace for that price point? We are it's certainly opens up home ownership to places where there is no other option. And in a lot of the markets and certainly not for a new home, you know, with a warranty and stability of neighborhood and community that we're delivering. So it's absolutely opening up home ownership across the markets and we see a higher Pace because of that.

Operator: Thank you. That does conclude today's Q&A session. I will now hand the call back to Paul Romanowski for closing remarks.

All right, best of luck. Thank you.

Paul Romanowski: Thank you, Paul. We appreciate everyone's time on the call today and look forward to speaking with you again to share our Q3 results on Tuesday, July 21. Congratulations to the entire D.R. Horton team on a solid Q2. We appreciate everything that you do.

Thank you. And that does conclude today's Q&A session. I'll now hand the call back to Paul Romanowski for closing remarks.

Appreciate, everyone's time on the.

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

With you again to share our third quarter results on Tuesday, July 21, and congratulations to the entire D.R. Horton team on a solid second quarter. We appreciate everything that you do.

Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

Q2 2026 D. R. Horton Inc Earnings Call

Request a DemoDemo

DHI

D. R. Horton

Earnings