Q3 2026 D. R. Horton Inc Earnings Call

July 21, 2026

Speaker #1: Good morning and welcome to the third quarter 2026 earnings conference call for D.R. Horton, America's Builder. At this time, all participants are in a listen-only mode.

Bill Wheat: Good morning, and welcome to the Q3 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.

Bill Wheat: Good morning, and welcome to the Q3 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 *0 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 #1: 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. Please note, this conference is being recorded.

Speaker #1: I will now turn the call over to Jessica Hansen, Senior Vice President of Communications for D.R. Horton.

Speaker #2: Thank you, Paul, and good morning. Welcome to our call to discuss our financial results for the third 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.

Jessica Hansen: Thank you, Paul, good morning. Welcome to our call to discuss our financial results for the Q3 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, 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. 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: 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.

Speaker #2: Additional information about factors that could lead to material changes in performance is contained in D.R. Horton's annual report on Form 10-K 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.

Jessica Hansen: This morning's earnings release and our supplemental data presentation can be found on our website at investor.drhorton.com, 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.

Jessica Hansen: This morning's earnings release and our supplemental data presentation can be found on our website at investor.drhorton.com, 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: After this call, we will also post our updated investor presentation to our Investor Relations site, in 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 #1: 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.

Paul Romanowski: Thank you, Jessica, 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 a solid Q3, highlighted by earnings per diluted share of $3.20. Consolidated pre-tax income totaled $1.2 billion on $9.2 million of revenues, resulting in a pre-tax profit margin of 13.3%. We closed 23,983 homes during the quarter, which was at the high end of our guidance range, achieved a home sales gross margin of 20.7%. We remain focused on capital efficiency to generate strong operating cash flows and deliver compelling returns to our shareholders. Over the past 12 months, we generated $3.4 billion of cash from operations and returned all of it to shareholders through repurchases and dividends.

Speaker #1: The D.R. Horton team delivered a solid third quarter, highlighted by earnings per diluted share of $3.20. Consolidated pre-tax income totaled $1.2 billion on $9.2 billion of revenues, resulting in a pre-tax profit margin of 13.3%.

Speaker #1: We closed 23,983 homes during the quarter, which was at the high end of our guidance range, and achieved a home sales gross margin of 20.7%.

Speaker #1: We remained focused on capital efficiency to generate strong operating cash flows and deliver compelling returns to our shareholders. Over the past 12 months, we generated $3.4 billion of cash from operations and returned all of it to shareholders through repurchases and dividends.

Speaker #1: For the trailing twelve months ended June 30th, our homebuilding pre-tax return on inventory was 17%, while our consolidated returns on equity and assets were 12.8% and 8.5%.

Paul Romanowski: For the trailing 12 months ended 30 June, our home building pre-tax return on inventory was 17%, while our consolidated returns on equity and assets were 12.8% and 8.5%. 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. We work every day to leverage our industry-leading platform, unmatched scale, efficient operations, and experienced teams to bring home ownership opportunities at affordable price points to more Americans. 65% of our mortgage company's closings this quarter were to first-time homebuyers. Our teams manage each community with discipline, balancing pace, price, incentives, and inventory levels to meet demand and maximize returns.

Speaker #1: 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 #1: 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 #1: Sixty-five percent of our mortgage companies' closings this quarter were to first-time homebuyers. Our teams manage each community with discipline, balancing pace, price, incentives, and inventory levels to meet demand and maximize returns.

Speaker #1: Affordability constraints and cautious consumer sentiment continued to impact new home demand, and our operators will continue to adjust as market conditions evolve. Mike?

Paul Romanowski: Affordability constraints and cautious consumer sentiment continue to impact new home demand. Our operators will continue to adjust as market conditions evolve. Mike?

Speaker #3: Earnings for the third quarter of fiscal 2026 were $3.20 per diluted share, compared to $3.36 per share in the prior year quarter. Net income for the quarter was $905 million on consolidated revenues of $9.2 billion.

Michael Murray: Earnings for Q3 of fiscal 2026 were $3.20 per diluted share, compared to $3.36 per share in the prior year quarter. Net income for the quarter was $905 million on consolidated revenues of $9.2 billion. Home sales revenues in Q3 totaled $8.7 billion on 23,983 homes closed, compared to $8.6 billion on 23,160 homes closed in the prior year quarter. Our average closing price was flat sequentially and down 2% year over year to $362,000. This is below the average price of new homes in the United States by approximately $155,000, or 30%, reflecting our continued focus on affordability. Bill?

Mike Murray: Earnings for Q3 of fiscal 2026 were $3.20 per diluted share, compared to $3.36 per share in the prior year quarter. Net income for the quarter was $905 million on consolidated revenues of $9.2 billion. Home sales revenues in Q3 totaled $8.7 billion on 23,983 homes closed, compared to $8.6 billion on 23,160 homes closed in the prior year quarter. Our average closing price was flat sequentially and down 2% year-over-year to $362,000. This is below the average price of new homes in the United States by approximately $155,000, or 30%, reflecting our continued focus on affordability. Bill?

Speaker #3: Home sales revenues in the third quarter totaled $8.7 billion on 23,983 homes closed, compared to $8.6 billion on 23,160 homes closed in the prior year quarter.

Speaker #3: Our average closing price was flat sequentially and down 2% year over year to $362,000. This is below the average price of new homes in the United States by approximately $155,000, or 30%, reflecting our continued focus on affordability.

Speaker #3: Bill?

Speaker #4: Net sales order value in the third quarter totaled $8.4 billion, on $23,084 homes sold, both flat with the prior year quarter. Our cancellation rate for the quarter was 20%, up from 17% in the prior year period and from 16% sequentially, within our normal historical range.

Bill Wheat: Net sales orders value in Q3 totaled $8.4 billion on 23,084 homes sold, both flat with the prior year quarter. Our cancellation rate for the quarter was 20%, up from 17% in the prior year period and from 16% sequentially, within our normal historical range. The average number of active selling communities increased 2% sequentially and 9% year over year. The average price of net sales orders was $365,600, essentially flat both sequentially and year over year. Jessica?

Bill Wheat: Net sales orders value in Q3 totaled $8.4 billion on 23,084 homes sold, both flat with the prior year quarter. Our cancellation rate for the quarter was 20%, up from 17% in the prior year period and from 16% sequentially, within our normal historical range. The average number of active selling communities increased 2% sequentially and 9% year-over-year. The average price of net sales orders was $365,600, essentially flat both sequentially and year over year. Jessica?

Speaker #4: The average number of active selling communities increased 2% sequentially and 9% year over year. The average price of net sales orders was $365,600, essentially flat both sequentially and year over year.

Speaker #4: Jessica?

Speaker #2: Our gross profit margin on home sales revenues in the third quarter was 20.7%, above the high end of our guidance range, reflecting lower stick-and-brick costs and slightly lower incentives than the second quarter.

Jessica Hansen: Our gross profit margin on home sales revenues in Q3 was 20.7%, above the high end of our guidance range, reflecting lower stick and brick costs and slightly lower incentives than Q2. However, we expect incentives to remain elevated relative to historical levels. On a per square foot basis, home sales revenues and lot costs were flat sequentially, while stick and brick costs were down 2%. Year over year, home sales revenue was down 3%, stick and brick costs were down 5%, and lot costs were up 5%. We currently expect our home sales gross margin to be relatively flat in Q4 compared to Q3. Bill?

Jessica Hansen: Our gross profit margin on home sales revenues in Q3 was 20.7%, above the high end of our guidance range, reflecting lower stick and brick costs and slightly lower incentives than Q2. However, we expect incentives to remain elevated relative to historical levels. On a per square foot basis, home sales revenues and lot costs were flat sequentially, while stick and brick costs were down 2%. Year-over-year, home sales revenue was down 3%, stick and brick costs were down 5%, and lot costs were up 5%. We currently expect our home sales gross margin to be relatively flat in Q4 compared to Q3. Bill?

Speaker #2: However, we expect incentives to remain elevated relative to historical levels. On a per-square-foot basis, home sales revenues and lot costs were flat sequentially while stick-and-brick costs were down 2%.

Speaker #2: Year over year, home sales revenue was down 3%, stick-and-brick costs were down 5%, and lot costs were up 5%. We currently expect our home sales gross margin to be relatively flat in the fourth quarter compared to the third quarter, Bill?

Speaker #3: Our home-building

Bill Wheat: Our home building SG&A expenses in Q3 increased 8% compared to last year. SG&A as a percentage of revenues was 8.3%, up from 7.8% in the prior year quarter. We remain focused on managing our platform with discipline to gain market share efficiently, and we expect to return to positive SG&A operating leverage when revenue growth resumes and our average sales price and community absorption rates stabilize. Paul?

Speaker #4: SG&A expenses in the third quarter increased 8% compared to last year, and SG&A as a percentage of revenues was 8.3%, up from 7.8% in the prior year quarter.

Speaker #4: We remained focused on managing our platform with discipline to gain market share efficiently, and we expect to return to positive SG&A operating leverage when revenue growth resumes and our average sales price and community absorption rate stabilize.

Speaker #4: Paul?

Speaker #1: We started $23,900 homes in the third quarter, and we ended the quarter with $38,000 homes in inventory, down 1% both sequentially and year over year.

Paul Romanowski: We started 23,900 homes in Q3. We ended the quarter with 38,000 homes in inventory, down 1% both sequentially and year over year. 23,300 of our homes at 30 June were unsold. 7,600 of our total unsold homes were completed, of which 600 have been completed for more than six months. For homes closed in Q3, our median cycle time from home start to home close improved by roughly three weeks year over year. Our improved cycle times enable us to hold less housing inventory and turn it more efficiently. We expect starts in Q4 to be lower than Q3. We will continue to manage our inventory levels and starts pace based on market conditions. Mike?

Paul Romanowski: We started 23,900 homes in Q3. We ended the quarter with 38,000 homes in inventory, down 1% both sequentially and year-over-year. 23,300 of our homes at 30 June were unsold. 7,600 of our total unsold homes were completed, of which 600 have been completed for more than six months. For homes closed in Q3, our median cycle time from home start to home close improved by roughly three weeks year-over-year. Our improved cycle times enable us to hold less housing inventory and turn it more efficiently. We expect starts in Q4 to be lower than Q3. We will continue to manage our inventory levels and starts pace based on market conditions. Mike?

Speaker #1: $23,300 of our homes at June 30th were unsold. 7,600 of our total unsold homes were completed of which 600 have been completed for more than 6 months.

Speaker #1: For homes closed in the third quarter, our median cycle time from home start to home close improved by roughly 3 weeks year over year, our improved cycle times enable us to hold less housing inventory and turn it more efficiently.

Speaker #1: We expect starts in the fourth quarter to be lower than the third quarter, and we will continue to manage our inventory levels and starts pace based on market conditions.

Speaker #1: Mike?

Speaker #3: Our home-building lot position at June 30th consisted of approximately 570,000 lots, of which 22% were owned and 78% were controlled through purchase contracts. We continue to actively manage our investments in lots land and development based on market conditions.

Michael Murray: Our homebuilding lot position at 30 June consisted of approximately 570,000 lots, of which 22% were owned and 78% were controlled through purchase contracts. We continue to actively manage our investments in lots, land, and development based on market conditions. We remain focused on relationships with land developers across the country so we can build more homes on lots developed by others. This approach enhances our capital efficiency, returns, and operational flexibility. Our owned lot position is down 13% from a year ago. In Q3, 67% of the homes we closed were on lots developed by either Forestar or third parties, up from 66% in the prior year quarter. During Q3, our homebuilding investments in lots, land, and development totaled $2.1 billion, including $1.5 billion for finished lots, $520 million for land development, and $75 million for land acquisition. Paul?

Mike Murray: Our homebuilding lot position at 30 June consisted of approximately 570,000 lots, of which 22% were owned and 78% were controlled through purchase contracts. We continue to actively manage our investments in lots, land, and development based on market conditions. We remain focused on relationships with land developers across the country so we can build more homes on lots developed by others. This approach enhances our capital efficiency, returns, and operational flexibility. Our owned lot position is down 13% from a year ago. In Q3, 67% of the homes we closed were on lots developed by either Forestar or third parties, up from 66% in the prior year quarter. During Q3, our homebuilding investments in lots, land, and development totaled $2.1 billion, including $1.5 billion for finished lots, $520 million for land development, and $75 million for land acquisition. Paul?

Speaker #3: We remain focused on relationships with land developers across the country, so we can build more homes on lots developed by others. This approach enhances our capital efficiency, returns, and operational flexibility.

Speaker #3: Our own lot position is down 13% from a year ago, and in the third quarter, 67% of the homes we closed were on lots developed by either 4-Star or third parties.

Speaker #3: Up from 66% in the prior year quarter. During the third quarter, our home-building investments in lots land and development totaled $2.1 billion. Including $1.5 billion for finished lots, and $520 million for land development, and $75 million for land acquisition.

Speaker #3: Paul?

Speaker #1: In the third quarter, our rental operations generated $31 million of pre-tax income on $266 million of revenues from the sale of 601 single-family rental homes and 339 multifamily rental units.

Paul Romanowski: In the Q3, our Rental Operations generated $31 million of pre-tax income on $266 million of revenues from the sale of 601 single-family rental homes and 339 multi-family rental units. At 30 June, our rental property inventory totaled $3 billion, including $2.7 billion of multi-family rental properties and $321 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 the Q3 was $70 million on $221 million of revenues, resulting in a pre-tax profit margin of 31.9%. Mike?

Speaker #1: At June 30th, our rental property inventory totaled $3.0 billion, including $2.7 billion of multifamily and 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 $3.0 billion.

Speaker #1: Turning to our financial services operations, pre-tax income for the third quarter was $70 million on $221 million of revenues, resulting in a pre-tax profit margin of 31.9%.

Speaker #1: Mike?

Speaker #4: 4-Star, our majority-owned residential lot development company, reported third quarter revenues of $407 million on 3,659 lots sold, with pre-tax income of $49 million. At June 30th, 4-Star's owned and controlled lot position totaled 92,000 lots.

Michael Murray: Forestar, our majority-owned residential lot development company, reported Q3 revenues of $407 million on 3,659 lots sold, with pre-tax income of $49 million. At 30 June, Forestar's owned and controlled lot position totaled 92,000 lots. 66% of Forestar's owned lots are under contract with or subject to a right of first offer to D.R. Horton. During the Q3, we purchased $360 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 homebuilding industry and to continue aggregating significant market share over the next several years. Bill?

Mike Murray: Forestar, our majority-owned residential lot development company, reported Q3 revenues of $407 million on 3,659 lots sold, with pre-tax income of $49 million. At 30 June, Forestar's owned and controlled lot position totaled 92,000 lots. 66% of Forestar's owned lots are under contract with or subject to a right of first offer to D.R. Horton. During the Q3, we purchased $360 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 homebuilding industry and to continue aggregating significant market share over the next several years. Bill?

Speaker #4: Sixty-six percent of 4 Star's owned lots are under contract with or subject to a right of first offer to D.R. Horton. During the third quarter, we purchased $360 million of finished lots from 4 Star.

Speaker #4: 4-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 continue aggregating significant market share over the next several years.

Speaker #4: Bill?

Speaker #3: Our capital allocation strategy

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. At 30 June, we had $6.1 billion of consolidated liquidity, including $2.1 billion of cash and $4 billion of available capacity on our credit facilities. Total debt at quarter end was $7.1 billion, with $600 million of homebuilding senior notes maturing over the next 12 months. Our consolidated leverage at 30 June was 23%, and we continue to target leverage of around 20% over the long term. During the first nine months of the year, homebuilding cash provided by operations totaled $1.3 billion, and consolidated cash provided by operations was $881 million.

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. At 30 June, we had $6.1 billion of consolidated liquidity, including $2.1 billion of cash and $4 billion of available capacity on our credit facilities. Total debt at quarter end was $7.1 billion, with $600 million of homebuilding senior notes maturing over the next 12 months. Our consolidated leverage at 30 June was 23%, and we continue to target leverage of around 20% over the long term. During the first nine months of the year, homebuilding cash provided by operations totaled $1.3 billion, and consolidated cash provided by operations was $881 million.

Speaker #4: 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.

Speaker #4: Providing significant financial flexibility to adapt to changing market conditions and opportunities. At June 30th, we had $6.1 billion of consolidated liquidity, including $2.1 billion of cash and $4 billion of available capacity on our credit facilities.

Speaker #4: Total debt at quarter end was $7.1 billion. With $600 million of homebuilding senior notes maturing over the next 12 months, our consolidated leverage at June 30 was 23%, and we continue to target leverage of around 20% over the long term.

Speaker #4: During the first nine months of the year, home-building cash provided by operations totaled $1.3 billion. Consolidated cash provided by operations was $881 million.

Speaker #4: During the third quarter, we paid cash dividends of $0.45 per share, totaling $127 million. And our Board has declared a quarterly dividend at the same level, to be paid in August.

Bill Wheat: During the Q3, we paid cash dividends of $0.45 per share, totaling $127 million, and our board has declared a quarterly dividend at the same level to be paid in August. We also repurchased 4.2 million shares of common stock for $616 million during the quarter, reducing our outstanding share count by 6% compared to a year ago. At quarter end, our stockholders' equity was $23.8 billion, down 1% from a year ago, while book value per share increased 5% from a year ago to $84.85. Jessica?

Speaker #4: We also repurchased 4.2 million shares of common stock for $616 million during the quarter, reducing our outstanding share count by 6% compared to a year ago.

Speaker #4: At quarter end, our stockholders' equity was $23.8 billion, down 1% from a year ago, while book value per share increased 5% from a year ago to $84.85. Jessica?

Speaker #2: Looking ahead to the fourth 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 22,500 to 23,000 homes.

Jessica Hansen: Looking ahead to Q4, 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 22,500 to 23,000 homes. We expect our home sales gross margin for Q4 to be in the range of 20.5% to 21%, and our consolidated pre-tax profit margin to be between 12.3% and 12.8%. For the full year of fiscal 2026, we now expect consolidated revenues of approximately $32.5 to $33 billion and homes closed by our homebuilding operations of 83,800 to 84,300 homes. We now forecast an income tax rate for fiscal 2026 of approximately 25% and still expect 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: Looking ahead to Q4, we currently expect consolidated revenues to be in the range of $8.8 billion to $9.3 billion, with homes closed by our homebuilding operations to be in the range of 22,500 to 23,000 homes. We expect our home sales gross margin for Q4 to be in the range of 20.5% to 21%, and our consolidated pre-tax profit margin to be between 12.3% and 12.8%. For the full year of fiscal 2026, we now expect consolidated revenues of approximately $32.5 billion to $33 billion and homes closed by our homebuilding operations of 83,800 to 84,300 homes. We now forecast an income tax rate for fiscal 2026 of approximately 25% and still expect 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 #2: We expect our home sales gross margin for the fourth quarter to be in the range of 20.5% to 21%, and our consolidated pre-tax profit margin to be between 12.3% and 12.8%.

Speaker #2: For the full year of fiscal 2026, we now expect consolidated revenues of approximately $32.5 to $33 billion, and homes closed by our homebuilding operations of 83,800 to 84,300 homes.

Speaker #2: We now forecast an income tax rate for fiscal 2026 of approximately 25% and still expect operating cash flow of at least $3 billion common stock repurchases of approximately $2.5 billion and dividend payments of around $500 million.

Speaker #2: Paul?

Speaker #1: 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.

Michael Murray: 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 grow market share, generate substantial operating cash flows, and consistently return capital to our shareholders.

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 grow market share, generate substantial operating cash flows, and consistently return capital to our shareholders.

Speaker #1: These are key components of our operating platform that support our ability to grow market share, generate substantial operating cash flows, and consistently return capital to our shareholders.

Speaker #1: We recognize the current volatility and uncertainty in the broader economy, and we will remain agile and disciplined as we focus on enhancing the long-term value of D.R. Horton.

Paul Romanowski: We recognize the current volatility and uncertainty in the broader economy, we will remain agile and disciplined 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 dedication and hard work. We remain committed to continuing to improve our operations and creating home ownership opportunities for even more individuals and families. This concludes our prepared remarks. We will now host questions.

Speaker #1: 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 dedication and hard work.

Speaker #1: We remain committed to continuing to improve our operations and creating homeownership opportunities for even more individuals and families. This concludes our prepared remarks.

Speaker #1: We will now host questions.

Speaker #3: Thank you. At this time, we'll be conducting a question-and-answer session. In the interest of time, we ask our participants to limit themselves to one question and one follow-up on today's call.

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 star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please, while we poll for questions. The first question today is coming from John Lovallo from UBS. John, your line is live.

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 John Lovallo from UBS. John, your line is live.

Speaker #3: If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

Speaker #3: You may press star 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.

Speaker #3: One moment, please, while we pull for questions. And the first question today is coming from John Lavallo from UBS. John, your line is live.

Speaker #5: Good morning, guys, and thanks for taking my questions. The first one is that stabilization is something we've heard numerous times in our channel checks.

John Lovallo: Good morning, guys, and thanks for taking my questions. The first one is that, stabilization is something that we've heard numerous times in our channel checks, despite what's been continued volatility from not only an interest rate, but a geopolitical standpoint. Would you agree with that assessment, and do you think that we're kind of getting to a point where we're starting to form a bottom here?

Speaker #5: Despite what's been continued volatility from not only an interest rate but a geopolitical standpoint. I mean, would you agree with that assessment, and do you think that we're kind of getting to a point where we're starting to form a bottom here?

Speaker #6: I would say that when looking at our sales, our sales were relatively in line with normal seasonality. They were a little softer post our call in April, and we still see plenty of buyers out there in our sales offices as we travel and in front of people.

Paul Romanowski: I would say that when looking at our sales, our sales were relatively in line with normal seasonality. They were a little softer post our call in April. Still see plenty of buyers out there in our sales offices as we travel and in front of people, it's just needing to see them be a little more confident in the overall economy and their ability to move forward with a purchase today.

Speaker #6: It's just needing to see them be a little more confident in the overall economy and in their ability to move forward with a sale or a purchase today.

Speaker #5: Understood. And you guys slightly pulled back, I think, about 3% on your full-year deliveries, despite being within—actually towards the upper end of—the third quarter range.

John Lovallo: Understood. You guys slightly pulled back, I think about 3% on your full year deliveries despite being within actually towards the upper end of the Q3 range and with flattish orders on a year-over-year basis. I guess, is the trimmed outlook predominantly driven by just uncertainty in consumer confidence in geopolitics as we move into the Q4? Is it a function of maybe lower than internally expected orders in the Q3, or are you just kind of moderating growth to maintain margin?

Speaker #5: And with flattish orders on a year-over-year basis. So I guess, is the trimmed outlook predominantly driven by just uncertainty in consumer confidence and geopolitics as we move into the fourth quarter?

Speaker #5: Is it a function of maybe lower-than-internally-expected orders in the third quarter, or are you just kind of moderating growth to maintain margin?

Speaker #6: It was lower than our internal expected sales rate. We really needed to see a little better than normal seasonality in the quarter.

Paul Romanowski: It was lower than our internal expected sales rate. We really kind of needed to see a little better than normal seasonality in the quarter and felt like we could see that at the beginning of the quarter, that demand softened a little bit as we went through the quarter and hence the reduction in our annual guide.

Speaker #6: We felt like we could see that at the beginning of the quarter—that demand softened a little bit as we went through the quarter, and hence the reduction in our annual guide.

Speaker #2: But to your point, John, happy with the trade-off of what we were able to achieve from a gross margin perspective at the lower sales volume level?

Jessica Hansen: To your point, John, happy with the trade-off of what we were able to achieve from a gross margin perspective at the lower sales volume level.

Speaker #5: Yeah, 100%. Thank you, guys.

John Lovallo: Yeah, 100%. Thank you, guys.

Speaker #3: Thank you. The next question will be from Stephen Kim from Evercore. Stephen, your line is live.

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

Speaker #4: Yeah, thanks very much, guys. I'm impressed with the results in what I consider to be a pretty tough environment, but that's kind of related to my first question.

Stephen Kim: Yeah, thanks very much, guys. Impressive results in what I consider to be a pretty tough environment, but that's kind of related to my first question. When you think about the current environment and you look at your outlook for, let's say, long-term through cycle returns, how do these current results stack up relative to that? Do you regard your current returns as about average longer term? If not, what are the elements that you expect might push your returns higher or lower over the longer term?

Speaker #4: When you think about the current environment and you look at your outlook for, let's say, long-term through cycle returns, how do these current results stack up relative to that?

Speaker #4: Do you regard your current returns as about average longer term, or if not, what are the elements that you expect might push your returns higher or lower over the longer term?

Speaker #6: Yeah, Steve, our current returns are lower than where we expect them to be longer term. While our margins are within the longer-term historic range, we believe our longer-term stabilized margin should be a bit higher than this.

Paul Romanowski: Yes, Stephen. Our current returns are lower than where we expect them to be longer term. Our margins, while in the longer-term historic range, we believe our longer-term stabilized margin should be a bit higher than this. Our operating margin, including our SG&A leverage, should be better than this over time when we're seeing some more consistent growth. We have not seen growth on our top line for a few years here. We're always positioning for growth with a little better operating leverage. Frankly, I think I still feel like we have some opportunity to improve our capital efficiency in our homes and inventory and our land. We continue to focus on that. Overall, we would expect our returns on our capital, whether it's ROA, ROE, both to be higher longer term than they are right now.

Speaker #6: Our operating margin, including our SG&A leverage, should be better than this. Over time, when we see some more consistent growth—since we have not seen growth on our top line for a few years now.

Speaker #6: And so we're always positioning for growth. And so with a little better operating leverage—and frankly, I think we still feel like we have some opportunity to improve our capital efficiency.

Speaker #6: And our homes and inventory and our land. So we continue to focus on that. So overall, we would expect our returns on our capital, whether it's ROA, ROE, both to be higher longer term than they are right now.

Speaker #4: No, that's encouraging. And I appreciate that call, Bill. Second question kind of relates to scale, and I think you talked about when growth returns, that's when you think SG&A could be leveraged, and that makes sense.

Stephen Kim: Well, that's encouraging. Appreciate that color, Bill. Second question kind of relates to scale. I think you talked about when growth returns, that's when you think SG&A could be leveraged, and that makes sense. However, I was curious if you could contextualize that. Given the fact that we've seen a lot of consolidation in the industry from competitors, let's say both foreign and domestic. I'm wondering if you can comment on how you think about your opportunity set from a scale perspective, particularly. I know you've been hard at work generating a lot of economies of scale. Your volume is kind of stabilized here. You still talk about future growth. I'm curious, can you talk about what the importance of scale for you to achieve the efficiencies that you desire?

Speaker #4: However, I was curious if you could contextualize that. Given the fact that we've seen a lot of consolidation in the industry from competitors let's say both foreign and domestic, I'm wondering if you can comment on how you think about your opportunity set from a scale perspective, particularly.

Speaker #4: I know you've been hard at work generating a lot of economies of scale, and your volume has kind of stabilized here. But you still talk about future growth.

Speaker #4: And so I'm curious, can you talk about the importance of scale for you to achieve the efficiencies that you desire? Should we be thinking there's another sort of step-function higher in volume that could unlock some of these opportunities?

Stephen Kim: Should we be thinking there's another sort of step function higher in volume that could unlock some of these opportunities? Maybe you could think about it a little differently. You could walk us through that. Thanks.

Speaker #4: Or maybe you could think about it a little differently. You could walk us through that. Thanks.

Paul Romanowski: Stephen, when you look at our scale today or at our revenues and absorption being relatively flat over the last couple of years, that's while we have been expanding our footprint. We've opened 30 or so markets over the last five years. We've lacked some leverage on our SG&A because of creating that footprint. I think that footprint geographically puts us in a great position as we see demand rebound a little bit. We see some strengthening in consumer confidence and demand. We feel we're in a great position to gain scale nationally. We also feel very good about our positioning at a local level. That scale is still very important to us. We see the benefits of it, believe in it, talk about it, still have our operators in a position to maintain their position in the market and grow when the opportunity's there for us.

Speaker #6: Steve, when you look at our scale today or at our revenues and absorption being relatively flat over the last couple of years, that's while we have been expanding our footprint.

Speaker #6: We've opened around 30 markets over the last five years. And we lack some leverage on our SG&A because of creating that footprint. But I think that footprint geographically puts us in a great position as we see demand rebound a little bit.

Speaker #6: And we see some strengthening in consumer confidence and demand. We feel we're in a great position to gain scale nationally. We also feel very good about our positioning at a local level.

Speaker #6: That scale is still very important to us. We see the benefits of it, believe in it, talk about it, and still have our operators in a position to maintain their position in the market and grow when the opportunity is there for us.

Speaker #2: And as a reminder, we're number one in only half of the markets we operate in today. So we still have a lot of opportunity to continue to grow our share locally across the country.

Jessica Hansen: As a reminder, we're number one only in half of the markets we operate in today. We still have a lot of opportunity to continue to grow our share locally across the country.

Speaker #4: That's great perspective. Appreciate that, guys.

Stephen Kim: That's great perspective. Appreciate that, guys.

Speaker #3: Thank you. The next question will be from Alan Ratner from Zelman. Alan, your line is live.

Operator: Thank you. The next question will be from Alan Ratner from Zelman. Alan, your line is live.

Speaker #7: Hey, guys, good morning. Thanks for the detail so far and for taking my question. Obviously, very impressive results on the gross margin. It looks like a lot of that has been driven by really strong cost controls, and I'm curious, as you think about the cost environment today—obviously, you've done a great job of pushing back on suppliers and trades and driving down costs where you can.

Alan Ratner: Hey, guys. Good morning. Thanks for the detail so far and taking my question. Obviously, very impressive results on the gross margin. It looks like a lot of that has been driven by really strong cost controls. I'm curious, as you think about the cost environment today, obviously, you've done a great job of pushing back on suppliers and trades and driving down costs where you can. Where do you think you are in that process? Because as we look at least the tariff announcements on Canadian concrete. I'm not sure how big of a piece of your business that is. Fuel remains elevated. Do you feel like there's still further room to drive costs lower, or is there a risk, over the next handful of quarters that that could actually reverse given all of those headwinds I just mentioned?

Speaker #7: Where do you think you are in that process? Because, as we look at at least the announcements on Canadian concrete, I'm not sure how big of a piece of your business that is.

Speaker #7: Fuel remains elevated. So do you feel like there's still further room to drive costs lower, or is there risk over the next handful of quarters that that could actually reverse given all of those headwinds I just mentioned?

Speaker #6: We lost a little bit of your question, Alan, but I think I got the gist of it. We've seen good improvement in our cost containment efforts.

Paul Romanowski: We lost a little bit of your question, Alan, but I think I got the gist of it. It's an ongoing battle. There is certainly some headwind out there right now with some fuel cost increases. I don't believe the recently announced Canadian tariff changes are going to have a material impact on D.R. Horton and our footprint. I'm looking for us to hang on to perhaps squeeze out a little additional cost improvements in future quarters. It's more challenging now, just as you get closer to an optimal state to get significant improvement going forward.

Speaker #6: Compared to the prior year, it's an ongoing battle. There are certainly some headwinds out there right now with some fuel cost increases.

Speaker #6: I don't believe the recently announced Canadian tariff changes are going to have a material impact on D.R. Horton and our footprint, but I'm looking for us to hang on and perhaps squeeze out a little additional cost improvement in future quarters. But it's more challenging now, just as you get closer to an optimal state.

Speaker #6: To get significant improvement going forward.

Speaker #7: Thanks very much.

Alan Ratner: Thanks very much.

Speaker #3: Thank you. The next question will be from Matthew Booley from Barclays. Matthew, your line is live.

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

Speaker #4: Good morning, everyone. Thanks for taking the questions. I want to ask about incentives. I think you said the incentives were slightly lower quarter over quarter.

Matthew Bouley: Morning, everyone. Thanks for taking the questions. Wanted to ask on incentives. I think you said the incentives were slightly lower quarter-over-quarter. You mentioned demand softened a bit during the quarter. Looked like finished spec came up slightly, and obviously interest rates are where they are. It seems like obviously you're still guiding to that flattish sequential gross margin going forward. Maybe you just unpack what's assumed around incentives there and why wouldn't there be an incremental incentive headwind going forward? Thank you.

Speaker #4: And so you mentioned demand softened a bit during the quarter. It looked like finished spec came up slightly and obviously interest rates are where they are.

Speaker #4: It seems like obviously you're still guiding to that flattish sequential gross margin going forward. So maybe you just kind of unpack what's assumed around incentives there and why wouldn't there be kind of an incremental incentive headwind going forward?

Speaker #4: Thank you.

Speaker #6: Well, as in the current environment, we saw a slight improvement in incentives, but as Paul mentioned, it was a bit softer later in the quarter.

Paul Romanowski: Well, in the current environment, we saw a slight improvement in incentives. As Paul mentioned, it was a bit softer later in the quarter. We do expect incentives to remain elevated. As Mike just discussed, we may still see some stick and brick savings, but we have achieved a lot of what we expect to achieve today. Really where we see where we are is a relatively stable outlook going into the next quarter. Obviously, a lot of our sales and our closings in the quarter occur in the same quarter, there's still some uncertainty around what may be required going forward. Right now, the visibility we have points to a relatively stable margin going into Q4.

Speaker #6: So we do expect incentives to remain elevated. And as Mike just discussed, we may still see some stick and brick savings, but we have achieved a lot of what we've expected to achieve today.

Speaker #6: So, really, where we see where we are is a relatively stable outlook going into the next quarter. Obviously, a lot of our sales and our closings in the quarter occur in the same quarter.

Speaker #6: So there's still some uncertainty around what may be required going forward. But right now, the visibility we have points to a relatively stable margin going into Q4.

Speaker #4: Okay, got it. Thank you for that. And then, secondly, stepping back, I wanted to ask about your exposure to the first-time buyer. I think it looks like you're around two-thirds today, first-time buyer.

Matthew Bouley: Okay. Got it. Thank you for that. Secondly, stepping back, wanted to ask about your exposure to the first-time buyer. I think it looks like you're around two-thirds today, first-time buyer, and we can go back any number of years. Once upon a time, that was half the business, maybe even less than half the business. It's been a very steady mix towards that first-time buyer. Given the state of the first-time buyer today, would you say that the two-thirds of the business you're at now maybe stabilizes? Do you expect it to actually continue to move higher, if you look at it as we are the answer to the affordable needs of the country today? Or would you actually look at it and say, you know what?

Speaker #4: And we can go back any number of years. Once upon a time, that was half the business, maybe even less than half the business.

Speaker #4: So, it's been a very steady mix towards that first-time buyer. And so, given the state of the first-time buyer today, would you say where you're at now maybe stabilizes?

Speaker #4: Do you expect it to actually continue to move higher? If you look at it as, we are kind of the answer to the affordable needs of the country today, or would you actually look at it and say, you know what, maybe we actually do want to mix a little bit back towards that kind of first-time, move-up buyer?

Matthew Bouley: Maybe we actually do want to mix a little bit back towards that first-time move-up buyer. Just curious on how you're positioning the business from that perspective on a multi-year timeframe. Thank you.

Speaker #4: So, just curious about how you're positioning the business from that perspective over a multi-year time frame. Thank you.

Speaker #6: The positioning of our business today lends itself to still seeing a significant portion of our buyers—I think in that two-thirds range—as first-time home buyers. There's some opportunity to go up some.

Paul Romanowski: The positioning of our business today lends itself to still seeing significant portion of our buyers, I think in that two-thirds range as first-time homebuyers. There's some opportunity to go up some. We'll certainly take it. If we see more buyers out there, we're happy every day to sell them a home. That said, as we penetrate markets, we also take the opportunity to move upmarket a little bit. I think blending that at a community level and at a division level, our operators are charged every day to find the market, go meet that market. I would expect us to see a first-time homebuyer segment relatively consistent with what we see this quarter.

Speaker #6: We'll certainly take it. If we see more buyers out there, we're happy every day to sell them a home. That said, as we penetrate markets, we also take the opportunity to move up-market a little bit.

Speaker #6: So I think blending that at a community level and at a division level—our operators are charged every day to find the market, go meet that market.

Speaker #6: But I would expect us to see the first-time homebuyer segment remain relatively consistent with what we see this quarter.

Speaker #4: All right. Well, thank you, Paul. Good luck, guys.

Matthew Bouley: All right. Well, thank you, Paul. Good luck, guys.

Speaker #3: Thank you. The next question will be from Eric Bossard from Cleveland Research. Eric, your line is live.

Operator: Thank you. The next question will be from Eric Bosshard from Cleveland Research. Eric, your line is live.

Speaker #5: Good morning. The stick and brick downturn in labor is a meaningful piece of that. And then, the path forward you expect from here, and how this is influencing or contributing to gross margin.

Eric Bosshard: Good morning. The stick and brick down 5%. Curious where you're seeing that, if labor is a meaningful piece of that, and then the path forward you expect from here and how this is influencing or contributing to gross margin.

Speaker #2: Sure, Eric. The majority of the savings we're seeing is still on framing, which would be inclusive of labor. As I think we've talked about previously, we pay for a lot of things turnkey, so we can't split it out for you perfectly.

Jessica Hansen: Sure, Eric. The majority of the savings we're seeing is still on framing, which would be inclusive of labor. As I think we've talked about previously, we pay for a lot of things turnkey, so we can't split it out for you perfectly, labor versus materials. Framing was our biggest cost category of savings. Very positively, though, across all of our major cost categories, we saw a decline in terms of our costs on closings in Q3. I think we expect that to hold at least into Q4. Maybe into 2027, we start to have a slight lumber headwind again with where lumber prices have gone, but we feel good for at least the next quarter or so.

Speaker #2: Labor versus materials. But framing was our biggest cost category of savings. Very positively though, across all of our major cost categories, we saw a decline in terms of our costs on closings in the third quarter.

Speaker #2: And so I think we expect that to hold at least into Q4. Maybe into '27, we start to have a slight lumber headwind again with where lumber prices have gone, but we feel good for at least the next quarter or so.

Speaker #5: And then, in terms of how that is supporting gross margin or supporting the ability to increase incentives, how are you thinking about that or planning that, or how is that playing out?

Eric Bosshard: Then, in terms of how that is supporting gross margin or supporting the ability to increase incentives, how were you thinking about that or planning that, or how is that playing out?

Speaker #6: Incentives and the cost—the stick and brick cost structure—and incentives, in our mind, are kind of separate things. We think about the home we want to deliver on the lot and try to build it as efficiently as possible.

Michael Murray: The stick and brick cost structure and incentives in our mind are kind of separate things. We think about the home we want to deliver on the lot, try to build it as efficiently as possible, and then look to go to market with the appropriate price and incentives that stimulate demand in the marketplace to get the pace we need, to drive the return we need, and then manage the return on the basis of trying to pull back or increase incentives to stimulate demand or to improve margin. Two separate-

Mike Murray: The stick and brick cost structure and incentives in our mind are kind of separate things. We think about the home we want to deliver on the lot, try to build it as efficiently as possible, and then look to go to market with the appropriate price and incentives that stimulate demand in the marketplace to get the pace we need, to drive the return we need, and then manage the return on the basis of trying to pull back or increase incentives to stimulate demand or to improve margin. Two separate-

Speaker #6: And then look to go to market with the appropriate price and incentives that stimulate demand in the marketplace to get the pace we need to drive the return we need.

Speaker #6: And then manage the return on the basis of trying to pull back or increase incentives to stimulate demand, or to improve margin. Two separate parts of the equation for us.

Eric Bosshard: Okay. Then-

Michael Murray: parts of the equation for us.

Mike Murray: parts of the equation for us.

Eric Bosshard: Okay. Secondly, you were relatively clear that in the quarter, a little less volume, a little bit more margin. Is this the path forward strategically? I know it moves around, but is that kind of plan A from here?

Speaker #5: And then secondly, you were relatively clear that in the quarter a little less volume, a little bit more margin. Is this the path forward strategically?

Speaker #5: I know it moves around, but is that kind of plan A from here?

Speaker #6: That was our plan this past quarter. And we're going to respond to the market based on what we see quarter to quarter, month to month, really, week to week.

Paul Romanowski: That was our plan this past quarter, and we're going to respond to the market based on what we see quarter to quarter, month to month, really week to week. We're managing our business, I think, very efficiently, responding to the market as it comes to us. Our operators did a great job of delivering on the quarter, in terms of our guidance in closings and in margin. We did make the decision to hold margin a little more than push into the units, and hence the reduction in our guide for the year. We're going to continue to manage the business as efficiently as we can, to drive the best returns that we have at a community level.

Speaker #6: So we're managing our business, I think, very efficiently, responding to the market as it comes to us. Our operators did a great job of delivering on the quarter.

Speaker #6: In terms of our guidance in closings and in margin, we did make the decision to hold margin a little more. Then push into the units and hence the reduction in our guide for the year.

Speaker #6: But we're going to continue to manage the business as efficiently as we can to drive the best returns that we have at a community level.

Speaker #5: Okay. Thank you.

Eric Bosshard: Sure. Thank you.

Speaker #3: 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 so much, everyone. It was a good quarter. You gave a lot of helpful color on lot cost inflation. I believe it was up 5% year over year in the third quarter.

Sam Reid: Thanks so much, everyone, on good quarter. You gave a lot of helpful color on lot cost inflation. I believe it was up 5% year over year in Q3. Curious as to what's embedded for lot cost inflation in Q4, and then contextualize where you see that line item potentially tracking into next year, whether you expect to get some help just from slack in the horizontal supply chain, or whether there could be some implications from higher oil costs on some of those horizontal lot inputs. Thanks.

Speaker #6: Curious as to what's embedded for lot cost inflation in the fourth quarter, and then could you contextualize where you see that line item potentially tracking into next year? Do you expect to get some help just from slack in the horizontal supply chain, or could there be some implications from higher oil costs on some of those horizontal lot inputs?

Speaker #6: Thanks. We expect to see similar lot cost appreciation although we're seeing some savings and some benefit in the development costs that won't come through for several quarters well into 27 and 28.

Paul Romanowski: We expect to see similar lot cost appreciation. We're seeing some savings and some benefit in the development cost, that won't come through for several quarters, well into 2027 and 2028, anything that we are seeing today. Expect to see similar level of lot cost inflation as we head into Q4.

Speaker #6: Anything that we are seeing today. So expect to see similar level of lock cost inflation as we head into the fourth quarter.

Speaker #7: That's helpful. And maybe let's switch gears and quickly touch on SG&A. There was a step up in SG&A spend on a dollar basis. I realize there was probably some community count embedded in that.

Sam Reid: That's helpful. Maybe let's switch gears and quickly touch on SG&A. There was a step-up in SG&A spend on a dollar basis. Realize there was probably some community count embedded in that. Just if you could contextualize some of the levers behind the higher year-over-year homebuilding SG&A dollars, just so we can understand how we should be thinking about that, both for the quarter and also for Q4. Thanks.

Speaker #7: But just if you could contextualize some of the levers behind the higher year-over-year homebuilding SG&A dollars, just so we can understand how we should be thinking about that, both for the quarter and also for FQ4.

Speaker #7: Thanks.

Speaker #6: Yes, Sam. The primary driver of SG&A has been our community count increase—our active communities. We're up 9% year over year. Our total dollar spend on SG&A was up 8%.

Michael Murray: Yes, Sam. The primary driver of the SG&A has been our community count increase. Our active communities were up 9% year over year. Our total dollar spend of SG&A was up 8%. Relatively in line there, and that's been a trend for the last two to three years as we've added 30 markets over the last several years. Yet our volume, our absorptions per community, have declined a bit, our overall revenues have not increased. We've been adjusting our ASPs to meet the market as well. We've had some de-leveraging over the last couple of years, but at the point at which we do begin to see stabilization in pricing and in absorption pace, we would expect then to be in position to get forward operating leverage on SG&A.

Mike Murray: Yes, Sam. The primary driver of the SG&A has been our community count increase. Our active communities were up 9% year over year. Our total dollar spend of SG&A was up 8%. Relatively in line there, and that's been a trend for the last two to three years as we've added 30 markets over the last several years. Yet our volume, our absorptions per community, have declined a bit, our overall revenues have not increased. We've been adjusting our ASPs to meet the market as well. We've had some de-leveraging over the last couple of years, but at the point at which we do begin to see stabilization in pricing and in absorption pace, we would expect then to be in position to get forward operating leverage on SG&A.

Speaker #6: So, relatively in line there. And that's been a trend for the last two to three years, as we've added 30 markets over the last several years.

Speaker #6: So but yet our volume, sorry, our absorptions per community have declined a bit. And so our overall revenues have not increased. And we've been adjusting our ASPs to meet the market as well.

Speaker #6: So we've had some deleveraging over the last couple of years, but at the point at which we do begin to see stabilization in pricing and in absorption pace, we would expect then to be in position to get forward operating leverage on SG&A.

Speaker #6: But right now, we're in a position where we've built the infrastructure and we need to see the growth coming off of that in the future.

Michael Murray: Right now, we're in a position where we've built the infrastructure, and we need to see the growth coming off of that in the future.

Mike Murray: Right now, we're in a position where we've built the infrastructure, and we need to see the growth coming off of that in the future.

Speaker #6: Thanks so much. Appreciate it.

Sam Reid: Thanks so much. Appreciate it.

Speaker #3: 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 #8: Hi. Thanks. Good morning, everyone. I wanted to circle back on the finished spec inventory question. It does look like finished specs are up around 2,100 homes sequentially.

Ryan Gilbert: Hi. Thanks. Good morning, everyone. I wanted to circle back on the finished spec inventory question. It does look like finished specs are up around 2,100 homes sequentially. I think that's more than the typical sequential increase. Is that more than you expected, and is that tied to some of the softer results in the, I guess, May and June versus what you saw in mid-April? How should we think about potential gross margin implications for rightsizing the spec count?

Speaker #8: I think that's more than the typical sequential increase. Is that more than you expected? And is that tied to some of the softer results in, I guess, May and June versus what you saw in mid-April?

Speaker #8: And then how should we think about potential gross margin implications for right sizing the spec count?

Speaker #6: So we look at the spec counts. It's a function of a few things. One, it's some improvements that we've continued to see in our construction cycle times.

Michael Murray: We look at the spec counts, it's a function of a few things. One is some improvements that we continue to see in our construction cycle times, so we're finishing homes faster. At the same time, our average selling communities are up 9%, so that's up more than those completed specs are up. Therefore, we have fewer per community at this time. The other part, to the forward margin piece, those completed specs are very recently completed. You can look at our age specs, and they're actually down a few hundred units year-over-year. We feel pretty good about going into Q4 able to provide a stable margin guide.

Mike Murray: We look at the spec counts, it's a function of a few things. One is some improvements that we continue to see in our construction cycle times, so we're finishing homes faster. At the same time, our average selling communities are up 9%, so that's up more than those completed specs are up. Therefore, we have fewer per community at this time. The other part, to the forward margin piece, those completed specs are very recently completed. You can look at our age specs, and they're actually down a few hundred units year-over-year. We feel pretty good about going into Q4 able to provide a stable margin guide.

Speaker #6: We're finishing homes faster. At the same time, our average selling communities are up 9%. So that's up more than those completed specs are up.

Speaker #6: Therefore, we have fewer per community at this time. And then the other part, to the forward margin piece, those completed specs are very recently completed.

Speaker #6: You can look at our age specs, and they're actually down a few hundred units year over year. And so we feel pretty good about going into the fourth quarter, able to provide a stable margin guide.

Speaker #2: Yeah. And as we said in the scripted part, we do expect our Q4 starts to be lower than Q3. And we'll continue to adjust our starts accordingly based on the demand that we're seeing.

Jessica Hansen: Yeah. As we said in the scripted part, we do expect our Q4 starts to be lower than Q3, and we'll continue to adjust our starts accordingly based on the demand that we're seeing. Of our total completed specs, only 600 have been completed and unsold for greater than 6 months, and that's actually down from 800 sequentially. To Mike's point, the vast majority of our completed specs are very fresh.

Speaker #2: Of our total completed specs, only 600 have been completed and unsold. For greater than six months. And that's actually down from 800 sequentially. So to Mike's point, the vast majority of our completed specs are very fresh.

Speaker #8: Right. Okay. Yep. That makes sense. Thanks. And then second question is on community count. Growth. I think you've talked in the past about that growth rate decelerating to kind of a mid-single digit rate at some point in time.

Ryan Gilbert: Right. Okay. Yep. That makes sense. Thanks. Second question is on community count growth. I think you've talked in the past about that growth rate decelerating to a mid-single-digit rate at some point in time. I'm just wondering, given the continued declines in the controlled lot count, should we recalibrate that mid-single-digit growth rate expectation, or do you think you can continue to grow community count despite lower controlled lots?

Speaker #8: I'm just wondering, given the continued declines in the controlled lock count, should we recalibrate that mid-single digit growth rate expectation? Or do you think you can continue to grow community count despite lower controlled lots?

Speaker #2: Yeah. I think that would still be our base case over the longer term is that our goal would be to have a roughly mid-single digit community count growth.

Jessica Hansen: Yeah, I think that would still be our base case over the longer term, is that our goal would be to have a roughly mid-single-digit community count growth. It can be a little bit choppy. It's actually been sticky at the low double digits for quite some time. We did see a slight moderation to a 9% increase on a year-over-year basis this quarter, and 2% sequentially. Did start to see it trend down modestly and would still expect it to trend down to mid-single-digit over time.

Speaker #2: It can be a little bit choppy. It would actually have been sticky at the low double digits for quite some time. We did see a slight moderation to a 9% increase on a year-over-year basis.

Speaker #2: This quarter and 2% sequentially. So did start to see it trend down modestly and would still expect it to trend down to mid-single digit over time.

Speaker #8: Okay. Great. Thanks so much.

Ryan Gilbert: Okay, great. Thanks so much.

Speaker #3: Thank you. The next question will be from Anthony Petnari 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 #5: Good morning. I was wondering if you could talk about any meaningful regional variation you're seeing in terms of demand and any MSAs that stand out as being stronger or weaker?

Anthony Pettinari: Good morning. I was wondering if you could talk about any meaningful regional variation you're seeing in terms of demand and any MSAs that stand out as being stronger or weaker. I guess related question, we've heard about some MSAs with tech exposure being strong, like Bay Area, some others, like Seattle being weak. Is there anything you're observing there? It's sometimes hard to tell whether that's a plus or a minus.

Speaker #5: And I guess a related question—we've heard about some MSAs with tech exposure being strong, like the Bay Area, and some others like Seattle being weak. Is there anything you're sort of observing there? Sometimes it's hard to tell whether that's a plus or a minus, but...

Speaker #6: I think what you just mentioned is consistent with what we're seeing, and fairly consistent with what we've talked about last quarter on the call. Across really what we show as our North operating area—which is the Mid-Atlantic States, the Ohio Valley, and the Midwest—we are seeing relative strength in most of those markets.

Paul Romanowski: I think what you just mentioned is consistent with what we're seeing and fairly consistent with what we talked about last quarter on the call, is that across really what we show as our north operating area, which is the Mid-Atlantic states, the Ohio Valley, the Midwest, seeing relative strength in most of those markets. A little more weakness out in the Northwest and especially as you look up into Seattle, where we've seen some of the shift in the software jobs and more layoffs and some headwinds to demand in those markets. That's pretty consistent with what we've seen through this quarter.

Speaker #6: A little more weakness out in the Northwest, and especially as you look up into Seattle, where we've seen some of the shift in the software jobs and more layoffs, and some headwinds to demand in those markets.

Speaker #6: And that's pretty consistent with what we've seen through this quarter.

Speaker #5: Okay. Okay. And then, are there any other regional variations that you'd highlight—in terms of, I don't know, the Sunbelt or the Northeast, or?

Anthony Pettinari: Okay. Any other regional variations that you'd highlight in terms of, I don't know, Sun Belt or Northeast or

Speaker #6: Yeah. The Florida market seemed to be performing pretty consistently at this point in time. And some of the same across the Southeast. So it's been pretty encouraging.

Paul Romanowski: Yeah. The Florida markets seem to be performing pretty consistently at this point in time. Some of the same across the Southeast. It's been pretty encouraging.

Speaker #5: Great, great. And then, I guess one last one: stick-and-brick costs are down year over year, you've taken down cycle times year over year. Is there sort of a theoretical limit or floor for cycle times? Just generally, how should we think about that?

Anthony Pettinari: Great. I guess one last one. Stick and brick costs down year over year. You've taken down cycle times year over year. Is there sort of a theoretical limit or floor for cycle times? Just generally, how should we think about that?

Speaker #6: You'll never hear us say there's a floor in terms of our ability to run our business more efficiently. That said, the reduction has come more from complete to close than it has from start to complete.

Paul Romanowski: You'll never hear us say there's a floor in terms of our ability to run our business more efficiently. That said, the reduction has come more from complete to close than it has from our start to complete. In other words, in the construction cycle time, we've come down maybe a day, I think, sequentially. Most of that reduction has been from complete to close. Our focus, in the field and in our operations in our communities, is to sell the homes earlier in the process. We're building homes at the most efficient rate that we have in the history of the company, we need to get back to selling homes earlier in the process. That will help reduce that overall start-to-close cycle time. We do think there's some room to bring that down further.

Speaker #6: In other words, in the construction cycle time, we've come down maybe a day, I think, sequentially in most of that reduction has been from complete to close.

Speaker #6: So our focus in the field and in our operations in our communities is to sell the homes earlier in the process. We're building homes at the most efficient rate that we have in the history of the company.

Speaker #6: And so we need to get back to selling homes earlier in the process that will help reduce that overall start to close cycle time.

Speaker #6: And we do think there's some room to bring that down further.

Speaker #5: Understood. I'll turn it over.

Anthony Pettinari: Understood. I'll turn it over.

Speaker #3: Thank you. The next question will be from Rafe Jadrasich from Bank of America. Rafe, your line is live.

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

Speaker #5: Hi. Good morning. Thanks for taking my question. Can you remind us the lag between when lumber prices move and when it shows up in your gross margin for delivered homes?

Rafe Jadrosich: Hi. Good morning. Thanks for taking my question. First, can you remind us the lag between when lumber prices move and when it shows up in your gross margin for delivered homes?

Speaker #6: It usually takes a few quarters for that to come through, based on how we're kind of priced to an average price at the point of purchase order.

Paul Romanowski: It usually takes a few quarters for that to come through based upon how we're kind of priced to an average price at the point of purchase order, and then those homes have to go through the production process to be sold and closed to show up in margin. It's usually a few quarters.

Speaker #6: And then those homes have to go through the production process to be sold and closed to show up in margin. So it's usually a few quarters.

Speaker #5: Sorry. A few quarters. So three? Two to three quarters. Okay. And then the second question, just your operator has been pretty nimble sort of balancing margin and volume.

Rafe Jadrosich: Sorry. A few quarters, so three?

Paul Romanowski: Yeah. Two to three quarters is fair.

Rafe Jadrosich: Two to three quarters, okay. The second question, just your operator's been pretty nimble sort of balancing margin and volume. Earlier this year, it seemed like there was more of a push into the volume in the H1, and there's been an adjustment here. Can you just talk about maybe what you're seeing out there that kind of caused that shift? Is it where Q3 orders came in? Is it the outlook for the Q4? What would it take to sort of get you to shift back to more aggressive volume, given the growth ambitions you have longer term and the strong lot pipeline?

Speaker #5: And sort of coming earlier this year, it seemed like there was more of a push into the volume in the first half. And there's been an adjustment here.

Speaker #5: Can you just talk about maybe what you're seeing out there that kind of caused that shift? Is it where three Q orders came in?

Speaker #5: Is it the outlook for the fourth quarter? And then what would it take to sort of get you to shift back to more aggressive volume given the growth ambitions you have longer term and the strong lot pipeline?

Paul Romanowski: Our efficiency and reduced cycle times have allowed us to respond inter-quarter to those changes in demand. That's really what you saw with our Q2, where we saw a strong early selling season allowed us, or spring selling season allowed us to increase our starts pace to respond to that. We adjust in kind. When throughout this past quarter, we saw the market soften a little bit, and that's why we're anticipating to see our starts rate in the Q4 be below what it was this past quarter. It's our operators, to your point, being nimble, responding to the market, and being out there on the ground every day, responding to the market that comes at them. Thank you. That's very helpful.

Speaker #6: Our efficiency in reduced cycle times has allowed us to respond intra-quarter to those changes in demand. And I think that's really what you saw with our second quarter, where we saw a strong early selling season, which allowed us—or spring selling season—which allowed us to increase our start pace in response to that.

Speaker #6: And then we adjust in kind. And I think when throughout this past quarter, we saw the market soften a little bit. And that's why we're anticipating to see our starts rate in the fourth quarter be below what it was this past quarter.

Speaker #6: So really it's our operators to your point being nimble responding to the market and being out there on the ground every day responding to the market that comes at them.

Speaker #5: Thank you. That's very helpful.

Speaker #3: Thank you. The next question will be from Trevor Allensen from Wolfe Research. Trevor, your line is live.

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

Speaker #7: Hi. Good morning. Thank you for taking my questions. First question is back on incentives and your rate buy-down program with rates moving higher through the quarter.

Trevor Allinson: Hi. Good morning. Thank you for taking my questions. First question's back on incentives and your rate buydown program. With rates moving higher through the quarter, have you made any adjustments to those programs? If so, can you talk about what rate you were buying down to on average currently, and how does that compare to recent quarters?

Speaker #7: Have you made any adjustments to those programs? And if so, can you talk about what rate you were buying down to on average currently and how does that compare to recent quarters?

Speaker #2: It was actually the first quarter that we did see our rate in backlog tick up because of that move in rates. So we saw our average buy-down decrease slightly to 1.6% from 1.7% in the second quarter.

Jessica Hansen: It was actually the Q1 that we did see our rate in backlog tick up because of that move in rates. We saw our average buydown decrease slightly to 1.6% from 1.7% in the Q2. The mortgage rate for our buyers in backlog utilizing our mortgage company at 30 June was 4.9% against, call it, a rough market rate of about six and a half. We're still in the market pretty consistently, with anywhere from, call it, 4.99 to 5.5%, depending on mortgage product. We have an array of offerings, so you'll find some things outside of that band, but that'd be the largest piece of our offering today.

Speaker #2: And the mortgage rate for our buyers in backlog utilizing our mortgage company at June 30th was 4.9% against, call it, a rough market rate of about 6.5.

Speaker #2: So we're still in the market pretty consistently with anywhere from, call it, 4.99% to 5.5%, depending on mortgage product. We have an array of offerings.

Speaker #2: So, you'll find some things outside of that band, but that would be the largest piece of our offering today.

Speaker #7: Okay. Thank you for that, Jessica. And then second question, last quarter, you talked about selling specs earlier in the construction cycle expecting that to provide some gross margin benefits.

Trevor Allinson: Okay. Thank you for that, Jessica. Second question, last quarter, you talked about selling specs earlier in the construction cycle, expecting that to provide some gross margin benefits. Can you quantify or at least talk about any of the benefit you saw in Q3 from that process? Should we expect incremental tailwinds from selling earlier in the construction process in Q4? Thanks.

Speaker #7: Can you quantify, or at least talk about, any of the benefit you saw in Q3 from that process? And should we expect incremental tailwinds from selling earlier in the construction process in Q4?

Speaker #7: Thanks.

Speaker #6: We definitely did see probably on those closings, a lower incentive level having to be offered at the same time it provides a much greater efficiency to the turn of the inventory in the selling process earlier.

Paul Romanowski: We definitely did see, probably on those closings, a lower incentive level having to be offered. At the same time, it provides a much greater efficiency to the turn of the inventory in the selling process earlier, so that as soon as the construction process is complete, the buyer's gone through the mortgage qualification process, and they're excited and ready to move into their home.

Speaker #6: So that as soon as the construction process is complete, the buyer has gone through the mortgage qualification process and they're excited and ready to move into their home.

Speaker #2: Certainly more room for improvement, though. We saw a step up in those closings this quarter, but it's not where we ultimately want it to be.

Jessica Hansen: Certainly more room for improvement, though.

Paul Romanowski: Yes.

Jessica Hansen: We saw a step-up in those closings this quarter, but it's not where we ultimately want it to be.

Speaker #7: Thank you for all the color. Good luck moving forward.

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

Speaker #6: Thank you.

Paul Romanowski: Thank you.

Speaker #3: Thank you. The next question will be from Susan McClary with Goldman Sachs. Susan, your line is live.

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

Speaker #8: Thank you. Good morning, everyone. My first question is on the rental side of the market. Can you talk about what you're seeing there, especially post the housing legislation that passed, and how you're thinking about the outlook in terms of that part of the business?

Susan Maklari: Thank you. Good morning, everyone. My first question is on the rental side of the market. Can you talk about what you're seeing there, especially post the housing legislation that passed, and how you're thinking about the outlook in terms of that part of the business?

Speaker #6: We certainly saw, until it was settled, some uncertainty in that market—a pullback on the single-family-for-rent purchasers. We have seen them out there with interest, but haven't seen a significant shift as of yet.

Paul Romanowski: We certainly saw, until it was settled, some uncertainty in that market, a pullback on the single-family for-rent purchasers. We have seen them out there with interest. Haven't seen a significant shift as of yet. It's fairly new in terms of that legislation being activated. Feel good about our position there. Majority of what we're selling is really on a forward sale basis, and so we have those opportunities and continuing to work with the buyers that have been with us in the future and look for new buyers for that segment.

Speaker #6: It's fairly new in terms of that legislation being activated. But feel good about our position there. Majority of what we're selling is really on a forward sale basis.

Speaker #6: And so we have those opportunities and continuing to work with the buyers that have been with us the future and look for new buyers for that segment.

Speaker #8: Okay. That's helpful. And then thinking about the priorities of capital allocation, you reiterated the guide for the two and a half billion of buybacks.

Susan Maklari: Okay. That's helpful. Thinking about the priorities of capital allocation, you reiterated the guide for the $2.5 billion of buybacks. I guess considering, though, where you are already coming into Q4 and the seasonality of the cash flows, how should we think about the potential for some upside there? What are you watching for to get more active in that? Can you talk about any other priorities in terms of capital allocation?

Speaker #8: I guess considering though where you are already coming into this quarter, and the seasonality of the cash flows, how should we think about the potential for some upside there?

Speaker #8: What are you watching for to get more active in that? And can you talk about any other priorities in terms of capital allocation?

Paul Romanowski: Our share repurchases and dividends are governed by our cash flow, right now, our visibility to cash flow is still to meet or exceed $3 billion. Our year-to-date spend on repurchases has been in excess of our cash flow year to date. Obviously, we expect a strong cash flow performance in Q4 to get that more in line. Right now, we don't really have visibility to any upside to any large extent on our current year repurchases. We will monitor cash flow as we move through the quarter and adjust accordingly.

Speaker #6: Our share repurchases and dividends are governed by our cash flow. And right now, our visibility to cash flow is still to meet or exceed $3 billion.

Speaker #6: And so our year-to-date spend on repurchases has been in excess of our cash flow year-to-date. Obviously, we expect a strong cash flow performance in Q4 to get that more in line.

Speaker #6: So right now, we don't really have visibility to any upside to any large extent. On our current year repurchases, but we will monitor cash flow as we move through the quarter and adjust accordingly.

Speaker #8: Okay. Thank you. Good luck.

Susan Maklari: Okay. Thank you. Good luck.

Speaker #3: Thank you. The next question will be from Mike Dahl from RBC Capital Markets. Mike, your line is live.

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

Speaker #5: Good morning. Thanks for taking my questions. Maybe, to expand on Susan's question, can you just broaden out and give us your perspective now that the Road to Housing has officially passed and you know all the final details?

Mike Dahl: Morning. Thanks for taking my questions. Maybe to expand on Susan Maklari's question, can you just broaden out and give us your perspective now that the Road to Housing has officially passed, and you know all the final details? Give us your view on kind of puts and takes and whether or not anything really is impactful aside from what you just commented on the SFR or BTR dynamic.

Speaker #5: Give us your view on the kinds of puts and takes, and whether or not anything is really impactful, aside from what you just commented on—the SFR or BTR dynamic.

Speaker #6: I think one of the biggest impacts will be on the SFR. It's settled down. For institutional investors, their ability to operate in their business without required sale.

Paul Romanowski: I think one of the biggest impacts will be on the SFR. It's settled down for institutional investors, their ability to operate in their business without a required sale. I think that is certainly a benefit. We're encouraged by the fact that there's still a lot of focus on affordability and on deregulation. I think that has the biggest long-term impact or opportunity, at the state level. Really it has to come down to a local level, municipal and county level, where we see some deregulation opportunity. We're hopeful for that. We see more of that discussion today throughout our communities, don't expect to see any significant shift or change in either demand or supply in the near term from what was just passed.

Speaker #6: I think that is certainly a benefit. We're encouraged by the fact that there's still a lot of focus on affordability. And on deregulation, I think that has the biggest long-term impact or opportunity at the state level and then really it has to come down to a local level.

Speaker #6: Municipal and county level where we see some deregulation opportunity. We're hopeful for that. We see more of that discussion. Today, throughout our communities, but don't expect to see any significant shift or change in either demand or supply in the near term from what was just passed.

Speaker #5: Got it. Okay, appreciate that. And then just shifting gears back to the land dynamic—I mean, your land acquisition spend in particular has been coming down.

Paul Romanowski: Got it. Okay. Appreciate that. Then just shifting gears back to the land dynamic. Your land acquisition spend, in particular, has been coming down, obviously, that's kind of alongside the lot count. Can you just give us your perspective on the land market right now and how you're managing that? It seems like for the time being, even as you enter new markets and try to build those positions, you're comfortable with kind of moving to the sidelines a bit on acquisition or shrinking your lot count a little. Just curious to get kind of the

Speaker #5: And obviously, that's kind of alongside the lot count. But can you just give us your give us your perspective on the land market right now and how you're managing that?

Speaker #5: It seems like for the time being, even as you enter new markets and try to build those positions you're comfortable with kind of moving to the sidelines.

Speaker #5: A bit on acquisition or shrinking your lot count a little, but just curious to get kind of the your updated views on how that market's evolving.

Mike Dahl: your updated views on how that market's evolving.

Paul Romanowski: We're certainly trying to have our land acquisition efforts in line with what we see as market demand right now. There are some markets that we've been able to rework some of our lot position, lot portfolio, working with our developers. We have been very pleased with their partnership in working through some changes along those lines. At the same time, there's still opportunities we see where it still makes great sense to go out and tie up new positions. We're probably buying less raw dirt in the most recent quarters than we have in a while. We'll probably continue that trend a bit right now because there's a fair number of lots that are in the pipeline, both under control by us and that are available from some of our development partners to look at.

Speaker #6: We're certainly trying to have our land acquisition efforts in line with what we see as market demand right now. And there are some markets that we've been able to rework some of our lot position, lot portfolio working with our developers been very pleased with their partnership and working through some changes along those lines.

Speaker #6: And at the same time, there are still opportunities we see where it still makes great sense to go out and tie up new positions. We're probably buying less raw dirt in the most recent quarters than we have in a while.

Speaker #6: And we'll probably continue that trend a bit right now because there's a fair number of lots that are in the pipeline, both under control by us and that are available from some of our development partners to look at.

Speaker #2: Our focus is to continue to manage it more efficiently and own fewer lots. Where we can. If we're still in position to be in control of our starts pace, which will govern our revenue.

Jessica Hansen: Our focus is to continue to manage it more efficiently and own fewer lots where we can, if we're still in position to be in control of our starts pace, which will govern our revenue. We have about 1.5 years of owned land today, which is down from 1.6 years sequentially and 1.7 years year-over-year. More importantly, we control 6.7 years. We're in a great position, even with our lot count coming down a little bit. We're pleased that our owned lot count has come down, but we still control almost 7 years of land overall.

Speaker #2: So we have about 1.5 years of owned land today, which is down from 1.6 years sequentially and 1.7 years year over year. But more importantly, we control 6.7 years.

Speaker #2: So we're in a great position even with our lot count coming down a little bit. We're pleased that our owned lot count has come down, but we still control on the seven years of land overall.

Speaker #5: Great. Appreciate that. Thanks.

Mike Dahl: Great. Appreciate that. Thanks.

Speaker #3: Thank you. The next question will be from Buck Horn with Raymond James. Buck, your line is live.

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

Speaker #7: Hey. Thanks. Good morning. I was just wondering if you could go back to the interquarter demand trends a little bit. Just as it relates to the CAN rate.

Buck Horne: Hey, thanks. Good morning. I was just wondering if you could go back to the inter-quarter demand trends a little bit, just as it relates to the cancellation rate. I'm just wondering, as demand kind of seasonally softened into May and June, I was wondering if you saw, was the cancellation rate also the increase there back-end loaded, or was it more of a slowdown in kind of the incoming gross orders or some combination of both?

Speaker #7: I'm just wondering as demand kind of seasonally softened into May and June, I was wondering if you saw was the CAN rate also the increase there back and loaded or was it more of a slowdown in kind of the incoming gross orders or some combination of both?

Speaker #6: Yeah. It was a little bit of both. As we saw a bit of softening mid-quarter into the later part of the quarter. Our CAN rate did tick up alongside that.

Paul Romanowski: Yeah. It was a little bit of both. As we saw a bit of softening mid-quarter into the later part of the quarter, our cancellation rate did tick up alongside that. That was something that our operators were adjusting through the quarter.

Speaker #6: And so that was something that our operators were adjusting through to the quarter.

Speaker #2: Even our exit rate, though, and our rate-wise performance for the quarter was still well within our normal historical range.

Jessica Hansen: Even our exit rate.

Buck Horne: Okay

Jessica Hansen: Though, cancellation rate-wise for the quarter, was still well within our normal historical range.

Speaker #7: Awesome. That's helpful, Jessica. Appreciate that. And what were the largest reasons for cancellation in the quarter? Was it ability to qualify or just cold feed or any other reasons?

Buck Horne: Awesome. That's helpful, Jessica. Appreciate that. What were the largest reasons for cancellation in the quarter? Was it ability to qualify or just cold feet or any other reasons?

Speaker #6: Yeah. It's still largely qualification as a historically has been. We have a general lack of confidence. We'd love to see a bit more confidence among our buyers today, but qualification is still largely the biggest reason for CANs.

Paul Romanowski: Yeah. It's still largely qualification as it historically has been. We have a general lack of confidence. We'd love to see a bit more confidence among our buyers today, qualification is still largely the biggest reason for cans.

Speaker #7: Got it. Thanks, guys. Appreciate it.

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

Speaker #3: Thank you. The next question will be from Kenneth Zener from Seaport Research. Kenneth, your line is live.

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

Speaker #5: Good morning, everybody.

Kenneth Zener: Good morning, everybody.

Speaker #8: Morning, Kenneth.

Jessica Hansen: Morning, Kenneth.

Paul Romanowski: Morning, Kenneth.

Speaker #7: Morning, Kenneth.

Speaker #5: Hello? Just checking. Your gross margin beat. Can you talk to I mean, your regional segment results are very consistent versus other builders. So was it what kind of led to the modest beat that you guys had?

Kenneth Zener: Hello? Just checking. Your gross margin beat. Can you talk to Your regional segment results are very consistent versus other builders. What led to the modest beat that you guys had? Was it regional mix? Can you talk to if these newer 30 markets, which you said have higher SG&A, do they also have higher gross margins? Thank you.

Speaker #5: Was it regional mix? Can you talk to if these newer 30 markets, which you said have higher SG&A, do they also have higher gross margins?

Speaker #5: Thank you.

Speaker #2: No. Typically, a new market wouldn't have higher than normal gross margins. It takes a little while for them to live into that on both the gross margin and SG&A front.

Jessica Hansen: No, typically, a new market wouldn't have higher than normal gross margins. It takes a little while for them to live into that on both the gross margin and SG&A front.

Kenneth Zener: Yep.

Speaker #2: So, that'd be a little bit of a drag compared to our company averages.

Jessica Hansen: That'd be a little bit of a drag compared to our company averages.

Speaker #7: I think mostly that margin beat is the efforts in cost reduction. And it's stick and brick. And it's seeing those come through now with the efforts that our operators have been focused on for some time.

Paul Romanowski: I think mostly that margin beat is the efforts in cost reduction, and it's stick and brick, and it's seeing those come through now with the efforts that our operators have been focused on for some time, and that's largely where we saw, I think, the difference in the margin beat. Slight reduction in incentives as well, as we adjusted throughout the market and took the position to hold onto a little bit of margin instead of leaning into absorption.

Speaker #7: And that's largely where we saw, I think, the difference in the margin beat. Slight reduction in incentives as well as we adjusted throughout the market.

Speaker #7: And took the position to hold on to a little bit of margin, instead of leaning into absorption.

Speaker #5: Okay. And then you talked about 4Q starts being the low 3Q, which is not it's not heroic. Last year, your starts were 14 and a half thousand.

Kenneth Zener: Okay. You talked about 4Q starts being below 3Q, which is not heroic. Last year, your starts were 14,500. Is that the range that we should be thinking about given that occurred last year? I'm just trying to think about your base of inventory units, which historically you said are ending inventory times two. That was your long-term revenue outlook. Now you're a little more efficient, so it could be higher than that, but I'm trying to think where you're bringing starts in 4Q and inventory for your 2027 positioning.

Speaker #5: Is that the range that we should be thinking about given that occurred last year? I'm just trying to think about your base of inventory units, which historically you said are ending inventory times two.

Speaker #5: That was your long-term revenue outlook. Now, you're a little more efficient, so it could be higher than that. But I'm trying to think where you're bringing starts in Q4 and inventory for your '27.

Speaker #5: Positioning.

Speaker #6: Certainly, seeing Q4 starts inside of Q3. And while that's not heroic, it will be more starts, probably, than we had last year in the fourth quarter.

Paul Romanowski: Certainly seeing Q4 starts inside of Q3, and while that's not heroic, it will be more starts probably than we had last year in Q4. That was deliberately suppressed to try to bring inventory back in line. Largely, it's going to be dependent upon the sales environment we see through the quarter and positioning for our 30 September inventory. A 2x turn had been a historical norm for us. Today, we're looking in excess of that, and our internal goals are to get that to 3, and we'll be-

Speaker #6: That was deliberately suppressed to try to bring inventory back in line. Largely, it's going to be dependent upon the sales environment. We see through the quarter.

Speaker #6: And positioning for our September 30th inventory—a two-times turn had been a historical norm for us. Today, we're looking at numbers in excess of that, and our internal goals are to get that to three.

Speaker #6: And we'll be 3 this year, but we'll be close.

Kenneth Zener: Thank you very-

Paul Romanowski: this year, but we'll be close.

Speaker #5: Really? Okay. Do you appreciate it? Thank you.

Kenneth Zener: Really. Okay. Do appreciate it. Thank you.

Speaker #3: Thank you. The next question will be from Jade Rahmani from KBW. Jade, your line is live.

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

Speaker #4: Thank you very much. Just the multifamily inventory, given where rates are and cap rates in the market as well as supply overhang, what's the outlook for stabilizing and moving that inventory?

Jade Rahmani [Managing Director: Thank you very much. Just the multifamily inventory, given where rates are and cap rates in the market as well as supply overhang, what's the outlook for stabilizing and moving that inventory?

Paul Romanowski: We write at about $3 billion in terms of our total, that's split largely between apartments at $2.7 billion and around $320 million in our build for rent. Our focus on the build for rent has really been on forward sales, we don't need to grow that much other than if we see demand for that, then we'll be able to build into it. We're looking to hold that inventory stable at about that $3 billion mark. Then the multifamily, we do expect to close a few more units in Q4, expect that inventory to come down a bit in Q4, then in aggregate, keep the overall rental inventory, multi and single, within the $3 billion range. A bit coming down in the short term, though.

Speaker #6: We write it about $3 3 billion. In terms of our total, and that's split largely between apartments at 2.7 and around 320 million in our bill for rent.

Speaker #6: Our focus on the bill for rent has really been on a forward sale. So we don't need to grow that much other than if we see demand for that, then we'll be able to build into it.

Speaker #6: And we're looking to hold that inventory stable at about that $3 billion mark. And then the multifamily, we do expect to close a few more units in Q4.

Speaker #6: So, expect that inventory to come down a bit in Q4, and then, in aggregate, keep the overall rental inventory—multi and single—within the $3 billion range.

Speaker #6: So a bit coming down in the short term though.

Speaker #4: Thank you. And then, on the technology side, I was wondering if there is anything in offsite manufacturing or AI you’re seeing that looks promising. The housing legislation included some manufactured housing incentives, and maybe that’s an area of potential synergy.

Jade Rahmani [Managing Director: Thank you. Then on the technology side, I was wondering if there's anything in off-site manufacturing or AI you're seeing that looks promising. The housing legislation included some manufacturing housing incentives, maybe that's an area of potential synergy. Just curious about your thoughts there.

Speaker #4: Just curious about your thoughts there.

Paul Romanowski: We continue to evaluate opportunities to deliver the housing more efficiently. Looking at a wide number of off-site manufacturing processes and players that are trying to crack the code there. We haven't yet found anything that's replacing the way we've done it for a long time that can do it more efficiently. We are continually looking and evaluating.

Speaker #6: We continue to evaluate opportunities to deliver the housing more efficiently. Looking at a wide number of offsite manufacturing processes and players that are trying to crack the code there.

Speaker #6: We haven't yet found anything that's replacing the way we've done it for a long time. They can do it more efficiently. But we are continually looking and evaluating.

Speaker #4: Thank you.

Jade Rahmani [Managing Director: Thank you.

Speaker #3: Thank you. The next question will be from Jay McCandless from Citizens. Jay, your line is live.

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

Speaker #5: Hey, good morning, everyone. So my first question, nice to see the backlog price up. You're on year for the first time in several quarters.

Jay McCanless: Hey, good morning, everyone. My first question, nice to see the backlog price up year-on-year for the first time in several quarters. I guess, is that just a function of mix, or were you guys able to find some pricing power in some of these markets?

Speaker #5: I guess, is that just a function of mix or were you guys able to find some pricing power in some of these markets?

Speaker #6: I think that's largely a function of mix. We do have pricing power in some markets. And when that opportunity is there, our operators are going to take it at the community level.

Paul Romanowski: I think that's largely a function of mix. We do have pricing power in some markets, and when that opportunity is there, our operators are going to take it at the community level. Some of that slight reduction in incentives as well will, if it's in our rate buydowns, will add back to the revenue call.

Speaker #6: Some of that slight reduction in incentives, as well, will—if it's in our rate buy-downs—we'll add back to the revenue call.

Jay McCanless: Got it. The second question, just looking at July. Rates have been moving up pretty aggressively. I guess, what have you seen so far on traffic and demand? Also as part of that, what are you seeing from competitive inventories, especially on the entry level and first-time buyer side?

Speaker #5: And then the second question, just kind of looking at July and rates have been moving up pretty aggressively. I guess, what have you seen so far on traffic and demand?

Speaker #5: And also, as part of that, what are you seeing from competitive inventories? Especially on the entry level and first-time buyer side.

Speaker #6: I don't know if we've seen much change in inventories. I think that the industry as a whole has been relatively disciplined and is trying to measure that towards demand.

Paul Romanowski: I don't know if we've seen much change in inventories. I think that the industry as a whole has been relatively disciplined and trying to measure that towards demand. Still early in July for us to forecast. We're responding daily in the field and at point of sale to meet what's in front of us.

Speaker #6: Still early in July, for us to forecast. And we're responding daily. In the field. And at point of sale to meet what's in front of us.

Speaker #5: Got it. All right. Thank you.

Jay McCanless: Got it. All right. Thank you.

Speaker #3: Thank you. And the next question will be from Alex Barron from Housing Research Center. Alex, your line is live.

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

Alex Barrón: Yes, thank you. I'm sorry if this was asked in a different manner, but on the single-family rental side, it seems the business has sort of been winding down. Is that the basic idea of what's going to happen, or is this going to come back at some point?

Speaker #4: Yes. Thank you. I'm sorry if this was asked in a different manner. But on the single-family rental side, it seems the business has sort of been winding down.

Speaker #4: Is that the basic idea of what's going to happen, or is this going to come back at some point?

Paul Romanowski: We had taken the business from one in which we developed the entire neighborhood, stabilized the neighborhood, and sold it as a fully stabilized rental property, to one in which we're working with those institutional and owners of those properties to basically deliver units to them as we complete construction. They're responsible for the lease-up and stabilization process of it. We do the site identification, acquisition, development. They then do the lease-up and stabilization process and ownership.

Speaker #6: We had taken the business from one in which we developed the entire neighborhood, stabilized the neighborhood, and sold it as a fully stabilized rental property to one in which we're working with those institutional and owners of those properties to basically deliver units to them as we complete construction.

Speaker #6: So they're responsible for the lease-up and the stabilization process of it. We do the site identification, acquisition, and development. They then do the lease-up and stabilization process and ownership.

Speaker #4: And there was probably a little bit of a gap while there was a lot of uncertainty, until we knew how the actual act was going to come out.

Jessica Hansen: There was probably a little bit of a gap while there was a lot.

Paul Romanowski: Yeah, transition

Jessica Hansen: of uncertainty until we knew how the actual act was going to come out. I think those buyers now can be more comfortable to move forward. We certainly are not winding that business down and could do more of it going forward, depending on investor appetite.

Speaker #4: And so I think those buyers now can be more comfortable to move forward. So we certainly are not winding that business down and could do more of it going forward depending on investor appetite.

Speaker #6: And it's a more efficient model, so we will operate it with a lower inventory balance than we had historically in the SFR business.

Paul Romanowski: It's a more efficient model, so we will operate it with a lower inventory balance than we had historically in the SFR business.

Speaker #4: So will it still show like on balance sheet type business where you report revenues and closings and stuff? Or is it more of a off-balance sheet or JV or something like?

Alex Barrón: Will it still show like a on-balance sheet type business where you report revenues and closings and stuff, or is it more of a off-balance sheet?

Paul Romanowski: No. It's the same

Alex Barrón: A JV or something else?

Speaker #6: Same. Not a JV. Selling homes and completion to third parties.

Paul Romanowski: Same. Not a JV. Selling homes at completion.

Alex Barrón: Okay

Paul Romanowski: To third parties.

Speaker #4: Okay. And on the multifamily side, it seems like you guys still have a lot of assets committed, but it doesn't seem like there's too much revenue coming out of it lately.

Alex Barrón: Okay. On the multifamily side, it seems like you guys still have a lot of assets committed, but it doesn't seem like there's too many revenues coming out of it lately. Can you expand on what the future looks like?

Speaker #4: So, can you expand on what the future looks like?

Paul Romanowski: We do expect an increase in revenues in Q4 from multifamily business. There are a number of projects that are under contract, are completed or stabilized, we've got a little bit of a back-end-weighted revenue base here for fiscal 2026. As we look into fiscal 2027, we do have an active pipeline that is working and expect to continue to add to that over time. The revenues have been a bit inconsistent quarter to quarter.

Speaker #6: We do expect an increase in revenues in Q4 from our multifamily business. There are a number of projects that are under contract, are completed, and are stabilized, and so we've got a little bit of a back-end weighted revenue base here for fiscal '26.

Speaker #6: And as we look into fiscal '27, we do have an active pipeline that is working, and expect to continue to add to that over time.

Speaker #6: But the revenues have been a bit inconsistent quarter to quarter.

Speaker #4: Okay. I appreciate it. Thank you guys.

Alex Barrón: Okay. Appreciate it. Thank you, guys.

Speaker #2: Thanks, Alex.

Jessica Hansen: Thanks, Alex.

Speaker #6: Thank you.

Speaker #3: Thank you. And that does conclude today's Q&A session. I will now hand the call over to Paul Romanowski for closing remarks.

Paul Romanowski: Thank you.

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

Speaker #6: Thank you, Paul. We appreciate everyone joining us today, and we look forward to sharing our fourth quarter and full-year results with you on Thursday, October 29.

Paul Romanowski: Thank you, Paul. We appreciate everyone joining us today, and we look forward to sharing our Q4 and full year results with you on Thursday, 29 October. To the entire D.R. Horton team, congratulations on a solid Q3. Thank you for all that you do.

Speaker #6: And to the entire D.R. Horton team, congratulations on a solid third quarter. Thank you for all that you do.

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

Q3 2026 D. R. Horton Inc Earnings Call

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