D.R. Horton (DHI) 26 Jul 182018 Q3 Earnings call transcript

Company Profile

Participants

Jessica L. Hansen	D.R. Horton, Inc.
Michael J. Murray	D.R. Horton, Inc.
Bill W. Wheat	D.R. Horton, Inc.
Stephen East	Wells Fargo Securities LLC
John Lovallo	Bank of America
Alan Ratner	Zelman & Associates
Michael Jason Rehaut	JPMorgan Securities LLC
Kenneth R. Zener	KeyBanc Capital Markets, Inc.
Eric Bosshard	Cleveland Research Co. LLC
Michael Dahl	RBC Capital Markets LLC
Susan Maklari	Credit Suisse Securities (NYSE:USA) LLC
Nishu Sood	Deutsche Bank Securities, Inc.
Soham Bhonsle	Susquehanna Financial Group LLLP
Stephen Kim	Evercore ISI
Jay McCanless	Wedbush Securities, Inc.

Call transcript

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Operator

Greetings and welcome to the Third Quarter 2018 Conference Call for D.R. Horton, America's Builder, the largest builder in the United States.

As a reminder this conference is being recorded. It's now my pleasure to introduce your host, Jessica Hansen, Vice President, Investor Relations for D.R. Horton. ahead. go please Jessica,

Jessica L. Hansen

and results Welcome of for Kevin to fiscal our discuss our the good you to morning. call XXXX. Thank third quarter

that defined get forward-looking XXXX. Litigation we started, call of include Before today's Reform Act statements the by comments as Private Securities may constitute

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

And home supplementary margin, post in basis. section a product The operations includes supplementary information will our in our segments. operations. our Investor our communities, on homebuilding of on our about plan land the Form the This days. under reminder, our Securities is our which mix following detailed XX-K information all found we services release changes investor.drhorton.com and last The & with two Forestar that reference. present press D.R. sales XX-Q, after material on changes be to consolidated in are mortgage recent filed on on your call, updated financial a to other and XX-Q includes in Relations News as contained gross financial report quarterly at our on the both Form quarters, Additional most combined financials reporting our we morning's performance site selling and of our the on release could information inventory, Horton's can this segment next issues consolidated with financials Events and data lead information in file active for annual the homebuilding, Presentation website and data for Commission. development, Consistent Exchange report earnings few return to

Now, Vice will Murray, Operating turn our Executive I to over Chief Mike and President the call Officer.

Michael J. Murray

Thank you morning. and Jessica good

to by and Chief Financial pleased Vice am I Jessica, be to Wheat, our Executive Bill addition joined Officer. In President

for we office two. Our Auld, today. and produce XXXX. back The increase continues D.R. the President team and being expect in his XX% well $XXX He David pre-tax billion. results on a million quarter, to on call him in not is income Horton consolidated in day feeling In or $X.X strong the not sends revenues to XX% the in CEO, a apologies to third increased

to growth and Our our was pre-tax business sales with points XX.X% profit our basis XX% margin consistent XXX plan. improved

ended to billion months income billion. nine the XX% increase $X.X increased For June $XX.X in XX% a revenue pre-tax XX, consolidated on to

Our exceed the full on XX.X%. nine-month geographic the the of pre-tax a to footprint. guidance across leverage our strength track operational profit of scale results year to for on our points improved us for XXX diverse put and meet to broad These ability our period or product and offerings metrics all XXXX margin basis reflects team's it

annual increasing produce focus and while is and double-digit to both annual in pre-tax cash operating Our revenue continued growth profits flows strategic returns.

inventory homebuilding ago. trailing the a from was return XX months, points improvement year on our basis XXX an For of XX.X%,

quarter homes are we operations $XXX lots cash fourth well-positioned With further end million months Forestar. owned support June excluding at generated XXX,XXX June, nine Bill? XXXX. and the and of for and XX,XXX growth the we in to the For ended from inventory of in controlled,

Bill W. Wheat

diluted or Horton $X.XX to the per Net prior quarter share to or income diluted per third quarter. in XX% attributable $XXX to the D.R. $X.XX $XXX million million for compared share increased year

million. million ago million to $XXX income to to million compared increased the versus for $XXX and homebuilding income $XXX XX% pre-tax consolidated XX% Our $XXX increased pre-tax a year quarter

end high for rate conversion the range. our of XX%, quarter at backlog Our guidance the third was

a result, on in prior billion revenue third XX,XXX closed, homes from quarter year $X.X the to homes billion As on sales increased XX% XX,XXX our up closed quarter. $X.X home

of Our the year to quarter the average sales closing value prior price billion to orders net for increased XX,XXX $X.X the quarter from our third homes was from increased X% XX% $XXX,XXX, in prior XX% sold The quarter. up year and homes. the

sales driven of quarter by third active in Our communities. in by growth X% a average pace increase XX% sales number selling decrease a offset was community our

Our flat the second quarter. sequentially average from was count community

from was XX% X% consistent to sales homes. same quarter our Jessica? billion Our the the average of home cancellation in per of ago X% orders during to year $X net The increased backlog the with increased sales XX,XXX and on the with rate in quarter homes value backlog price sales quarter $XXX,XXX average price was a third and year. $XXX,XXX last an

Jessica L. Hansen

experiencing demand, homes prices remains limited. new are in at across healthy with most We sales And striving environment, scale of are while our market raising communities ensure the to control offerings are are remain we we incentives construction relationships especially Land markets we to or and conditions increases. and reducing points. product price affordable supply utilizing of solid this base targeted sales are our cost our our achieving increasing affordable. where costs and that generally In

due quarter of from from XXX third XX home Our gross points purchase improvement from quarter from due expect of to sales gross to conditions, warranty margin basis our construction fourth lower year was be basis points improvement costs year XX net prior basis on cost points consistent we was sales and home increase increases relatively basis interest lot will was of the due points XX margin last XX.X%. on points of Based March current costs, market to the impact the accounting. the An in quarter from and less third XXX additional in excess lower was litigation improved the revenue points to with increases. XXX the price profit and sales sequentially and basis remaining quarter. basis

gross impact warranty, the and litigation our quarterly in Bill? margin costs. a interest as due product as as reminder, mix However, geographic fluctuations to of relative experience and we well may

Bill W. Wheat

third prior year-to-date the the SG&A expected our X.X%, basis prior year In revenues percentage down improvement expense Jessica? SG&A also that our Fiscal was the controlling We homebuilding quarter, an of basis period. year from as points which on our adequately focused XX ensuring while our remain SG&A points quarter. X.X%, from of a was growth. was XX homebuilding supports infrastructure

Jessica L. Hansen

for due Financial services mortgage from quarter million lower profit closed quarter of company's volume. prior of company market. XX% with services in homebuilding average pre-tax million with operations this quarter mortgage year a income of pricing homebuyers. in was the by $XX.X originations margin compared and sales and Borrowers' quarter competitive an FHA to and loans on related originating in accounted pressures loan Financial margin FICO the $XX.X ratio company's loan XX%. of loans during average XX% pre-tax pre-tax DHI the primarily score mortgage VA Mortgage the to financing our declined pre-tax loan-to-value the handled D.R. the XX% Horton income third XX% and this an quarter. for profit of homes had margin XX% mortgage profit XXX to our our a of origination of

the by homebuyers XX% company, First-time same handled from mortgage Mike? XX% closings our in quarter in represented last year. the up

Michael J. Murray

ago, were of completed. inventory. homes a total and XX,XXX we the XX,XXX We X,XXX with in our XX,XXX inventory. construction Bill? third more to homes in quarter have year Compared homes with stages in unsold ended X% of various

Bill W. Wheat

Our the for for of homebuilding totaled land which million quarter development. acquisition investments third $XXX $XXX and land was lots, and lots in was development land during million million $XXX finished and

year. invested June, $X.X with ended During the and billion we months nine consistent development lots, period land same last in the

and our or expectations June consistent return XX contracts. by XX% XX, months. remain XXX,XXX controlled controlled criteria of and initial XXX,XXX annual of June XX,XXX at which consisted our homebuilding for communities option on pre-tax were were of underwriting investment our and Forestar. within cash XXX,XXX option were of owned owned owned finished at of XX,XXX and were XX% our homebuilding a were total lots through or lot At return XX,XXX lots optioned. which or lots were a minimum XXX,XXX operational XX% new Our XX inventory position of

have option lots lot pipeline have keeping development position operations. our lot towards total of near target a expanding increased current country are XX% our the making XX% ago progress lot We optioned while with from homebuilding and We our the homebuilding our year level. majority-owned to developers our owned continue land plan of Forestar across growing relationships number as our well to as

Mike? market portfolio lot to is a homebuilding strong XXX,XXX growth. expected sufficient Our our advantage current the support in competitive and housing

Michael J. Murray

a to which development of our the subsidiary, of between under XX, majority-owned traded owned a in lots, XX master two Forestar's is D.R. our and or XX,XXX Horton, finished. contract supply lot At are and X,XXX controlled June with offer XX first now company, are states. markets publicly approximately companies. Forestar, subject Forestar XX,XXX lots under of operating right agreement

are Our last expectations call. for consistent Forestar quarter's on what shared with we

is on for in to Forestar the standalone in pre-tax $XXX of range XX% its million fiscal million a grow revenue XXXX margin XX%. Forestar's annual to to approximately expectations XX,XXX with profit lots, to in generating track deliveries stabilized These are $XXX results.

will operating on be success ability dependent long-term raise strong growth and Forestar's liquidity capital. its maintain to

that credit be to end process of by a obtain going finalized fiscal year. facility to well report bank to Forestar's expected pleased and this are is We the is

as and/or to to We statement debt registration public a shelf fiscal in file conditions Forestar XXXX and also permit. the expect access markets equity

capital ratio Forestar or positions efficiency Forestar our of to targeting with long-term alignment lot advancing and option is enhance to less. access XX% strategy is net debt Horton's our our to operational increase a returns. D.R. and

create long-term for operating excited will Horton very Forestar's platform shareholders. this value are growing Forestar's the about both over and We relationship D.R. the Bill? and

Bill W. Wheat

of our and $XXX of our million available credit cash billion XX, revolving liquidity facility. on homebuilding capacity June homebuilding included At $X.X unrestricted

improved balance we ratio the homebuilding from of XX $XXX end months. XXX our and Our The billion, a was the in notes $X.X homebuilding points senior XX.X%. at of ago outstanding next note of maturities leverage the quarter to public million basis have year

fiscal cash generated of the from operations was for nine $XXX.X our months by $XXX.X nine-month we of Forestar, million During excluding operations period. And consolidated cash XXXX, million. the first provided

cash our than achieve in target to XXXX. greater million operating expect fiscal We for of flow $XXX

increased million, Subsequent our Board our to Mike? $XX.XX, we billion, cash During our repurchase paid dividends Directors and our was up approximately and through share book $X.X authorization. June the XXX,XXX authorization a was value to XX, the replacing $XXX $XX.X prior shares for end, of repurchased of ago. equity share stockholders' million, we stock September effective of XX% million. $XX At quarter, XXXX, quarter year per common from

Michael J. Murray

Our opportunistic flexible, balanced capital on approach focuses being and disciplined.

sheet's increasing flexibility, strength, the earnings and utilize strong generation our we company. and value growth long-term position to cash liquidity, plan our of balance enhance to are flow Our

and dividends market strategic and homebuilding through our return homebuilding Our in share top investing to by and cash flow repurchases. leverage business priorities reduce are share our capital to consolidate acquisitions, shareholders

select more have pursuing to capital We this and purpose for over deploy expect the been year. actively country acquisitions next across the

approximately Spokane, the purchased quarter, position teams Homes Texas. and two Lexington acquired We builder We the enter Midland/Odessa as Jessica? assets to and solidify market welcome This we the Washington Permian the in D.R. builders of Homes $XX our in largest private for to Horton the to million. market Permian the small Lexington family.

Jessica L. Hansen

in beginning of homes As range quarter the and we to for backlog revenues will results $XX.X of to on we months sales of the this third billion press the XXXX on number based $XX.X of quarter, expect will anticipate of quarter year, to fiscal our the market closed consolidated X% our with consistent fourth morning, expected a our this homebuilding release expect conversion for profit home billion rate year. XX.X% to fourth the We our in current our for range XX% margin increasing In be in a consolidated margin approximate gross to of first relatively quarter, XX%. fourth our SG&A mentioned pre-tax guidance nine a around XX.X% be homebuilding we're we conditions revenues. and

We tax the in expect to our approximately fourth be income rate XX%. quarter

conditions. based expectations on Our market are current

XXXX. We be XX% Our preliminary pre-tax for XX% approximately will year XXXX approximately margin for rate full consolidated to to will XX% and expectations share with fiscal fiscal and count that anticipate to of XXXX fiscal remain of our achieve outstanding revenues for tax consistent a increase the XX% XXXX. are consolidated our fiscal for

to excluding XXXX. to fiscal cash annual expect annual our we by profits and billion a flows, our $X.XX Looking grow double-digit pace increase out, revenues to at and Forestar, operating further over continue

Mike? We also return in XX%, expect our homebuilding pre-tax on beginning around XXXX. inventory maintain fiscal to

Michael J. Murray

our a reiterate, the and profits, operating and conclude result is returns To long-tenured people sales, the closings, growth flows of of strength country. and in our platforms cash well-established across

while market of returns expand cash and operating revenues pace, flows at double-digit our builder a our striving to our We business share. each annual and in industry-leading the markets pre-tax our We are shareholders. growing to annual and both be remain to on increasing our in leading and our profits focused improving

sheet, and land hard country. team finishing the importantly, Horton forward well This We are diversified preparing our and across D.R. continued opportunities do while look positioned focus work. footprint, anniversary our concludes Horton, with across Freedom XXth brands, thank to so entire our our to prepared and offerings finished lot Express product our for broad D.R. year to Emerald, We their the positions years in remarks. come. solid We for team the great balance outstanding and most attractive geographic strong,

host now We will any questions.

Operator

from Wells question Fargo. Our first today Stephen coming from is East

now line live. is Your

Stephen East

Thank you good morning, everybody. and

seems been It's XX% achievable. getting It to up have First, the now I'll maybe readily talking a you start big about with jumped jump XX%. option all like to that is The land. XX%.

like understand do thoughts any deals then, that should quarter, in what would did of have your – deals. moving as had they've now? they they there? place How play many And in Forestar expect I a to last just know acquired jump, XX So we role and of how forward?

Michael J. Murray

Well, Stephen, morning. good

about at It's up do very and fairly increasing a progress we excited fluctuations in number. towards a making this but measurement. little move that our We're percentage. quarter, We we're day-to-day. the And are down dynamic can bit it option expect XX%

does day-to-day. In fact, move it bit a

will we will end achieving that the years. progress that the making we believe week, expect we target, the not see But are fluctuate. next this right to but we to doing the We be of probably by do direction, XX% going in couple but to be of continue over be

Jessica L. Hansen

position in our lots. of lot Forestar the is count option And option our XX,XXX XXX,XXX

as and counts market percentage So up. project growth. their it counts, But We lot We're going deliveries We're forward. that provide lot the for would, providing future quarter is their role necessary owned of of revenues. position not in and playing course, planning expect is position option to progress lot believe update really each and a to moving indicator guidance best their that we anymore. their

Stephen East

in some Okay. enough. talk out demand were talking look what you deliver growth, bit in lot particular the And your saw West of Fair then the you order order then what but seen Could and not you about at fair particularly in quarter? through enough, builders markets seeing little California? paces. and as all good we've a And you

Michael J. Murray

our available serving, of California. traffic. price in We has of strong. it a Stephen was had at out good in mean California. the West specifically we been across the saw lot At demand throughout footprint, quarter out have a a demand don't points out I the very we inventory quarter. in buyers, we're there very itself we lot But lot expected lot in see normal a of especially the seasonality of standing good we a West all, as would. region demand, Demand our played

Our up has us that those and the were excited positioned against absorptions really projects per there the community I team execution XX% and think about the in out projects. West

Stephen East

Great. All you. Thank right.

Operator

Lynch. Bank America Thank from is question you and John next from coming of Lovallo Merrill

Your line now is live.

John Lovallo

Hey you guys. call. taking Thank for my

$XXX are how and is little pretty repurchases, question first current what there reality? you and deeper And you financial put interesting big a that think your increasing just is share there strength, between a liquidity thinking in dislocation your balance bit and B, about acquisitions, considering out appetite place dig very are then that maybe sheet for and your there you to and your targets markets? sense stock we A, comment in want strategic deeper a to earnings about flexibility. The I growth guys guys make might your get price million the for in bigger

Michael J. Murray

small, and this accretive and but did a much like that we us morning. part of we was were were take of believe very been market put looking big allocation our the in. question. good I'll somewhat we acquisition The plans. that John, is actively in another are market – part We've looking. new It quarter a acquisitions two capital into actively and they really

have more the million $XXX quarters at at We today. that we're purchase probably we're next price million over of looking the several year and in those is on looking $XXX few what to

That's private focus with We primarily in share continue high where enter to consolidate new that be teams the or either to already date. the been primary we interested we builders further across very in quality and markets markets country. operate footprint expand the in

Bill W. Wheat

John Bill. and is Yeah this

of we points with want that terms right other opportunities year, incrementally began that it will long-term over our our And market a And over benchmark that we've be are step continue XXXX. over do an stated ago. is next acquisitions still I able key to by all share. With flat. then on opportunities track great fiscal want outstanding in in before, share to continue evaluate first of our obviously consistently repurchase we're to and and important begun and to that market. repurchasing the first able we And allocation, to count our we want to We alongside in shares to the repurchase do at or think program beginning that for the increase keep share of to in it then longer clearly that to the here key to different term in In now consistently flexibility as to we capital invest And well. We see obviously be housing flexibility, shares. year have consistent is be our a and part that aggregate markets as do about we that. to us our

John Lovallo

on Forestar. kind a get as clearly be I it you guys equity debt of reiterated that out What in equity issuing kind of Okay be need Forestar take you'd will front? doing be guys And shares. do what year of to raised think or there'll things major that would either that's catalyst of comfortable the a you think XXXX, before your for see helpful. I there to follow-up, And moving fiscal out a that? then

Bill W. Wheat

we've been Well and first a focused in facility putting bank foremost on place.

very that That's so going ongoing. is And well.

this the the – the target. get end Forestar that, which by begin by of year, fiscal been our has for that next of alongside process And to public we'll expect markets. the of end We preparing completed the quarter

with working debt shelf, a to filing in to of next for So agencies target year. having public them position then go with the the prepare markets rating to the markets

debt would we a very as balance their have sheet. probably anticipate Now debt offering little first, they on

on And so an then part. for and we this there. that markets first them as the Forestar certainly for raise is would with market demonstrate debt at equity ability then likely have on an important do agree we're I capital We focused to do an certainly eye second. and bank raise that, debt believe facility the point equity But well. you

Jessica L. Hansen

has And especially near in working Forestar million place. today, for facility term cash sheet balance needs, get of $XXX once capital their bank credit which the on is they their sufficient

John Lovallo

Okay. guys. Thank you,

Operator

you. Thank

from Our Alan from coming next Ratner question is Zelman and Associates.

Your is line live. now

Alan Ratner

Hey guys. morning. Good

Michael J. Murray

Good morning.

Alan Ratner

the mixed seeing job we're data out orders. the there. Great of on other some considering impressive Very points

quarter percentage good going – since indicator the business high of your us that of you about in think side of your leading you sales homes pretty generally such I a kind are every see specs. So inventory where your inventory of as volume the a provide

obviously year-over-year, recently. X% I range the solid you've growth, bit little growing a been kind mentioned up is of is business which below inventory the think you double-digit about

XXXX pipeline expect there line growth through in was I think I what to organic you might today? of looking So to top for implied implicit M&A do curious an your the kind XX% you guess coming given at about you're growth, expectation see guide versus you if XX% just have

Michael J. Murray

our guidance very organic. XX% lot our organic Alan growth, it is is with M&A today. In looking planning to believe growth positions achievable at execute forward to XX% on work the The what we're have we purely we we're but

Alan Ratner

Okay.

additive that? would to So any potentially be M&A

Michael J. Murray

To within if... yeah, XX% a so or XX%

Alan Ratner

Okay.

Michael J. Murray

...within range. that

Bill W. Wheat

range. that Within

Michael J. Murray

Yeah.

Alan Ratner

the within Got kind the it. inventory topic on And second question industry. of again

bit. have to new inventory climb home little We starting up seen a

drive like from I some more entry some pressure than front doesn't space really peers maybe consistent. It you of as pricing your of some year under you the of seeing up? you're the a of be results function that numbers reporting, the conservatism have half been look much that But other competitors. think have. there your peers is look on you Obviously entering side others sound might very at grown not and have the side some to into but volume expect consistently, might level or as their they incentive your builders the of guys the any and quite on premise traditionally are back incentivize

your start inventory do that business affecting do if So think they to you overall incentivize, how position? about and your

Michael J. Murray

teams yeah not react So, monitor at us impacts and very for community. sales community monitoring by ensuring decision while or that in specific. desire community. what how returns decision we local the day or is and maximizing pace to would that's community day and action to community a are it a having that And given to we're And a given incentivize our we proactively take that day, the

competitive decisions macro our make to and sort a that right level today to to we we pressure from from for. drive lot office, those perspective achieve every are the going returns the at broadly space the pace they're seeing looking that local the entrusting we're market of their margin have day here at and to a we day divisions are of corporate feeling So margin because at returns we're that Not communities. see posting we're

Bill W. Wheat

marketplace which Yeah up especially margin. still in price agree inventory seeing supply out now is in raise incentives reduce and right which allowing growth would still much is at us to generally very points. not price there and we the at limited our affordable the We're we're showing

Alan Ratner

hear. to Thanks great That's guys.

Operator

you. Thank

is JPMorgan. coming Rehaut from from Michael Our next question

Your line live. is now

Michael Jason Rehaut

on Good the thanks. congrats is And and feeling morning also everyone Hi results. better. hope David

market the on gotten questions just circle think bears some already it to a a But gone given as warrants some from wanted competitors. on demand. couple of back on in the, mixed of kind focus previously what's it. Obviously week just I the you've question to the results I First two last or and of question said,

results footprint points there out of the is there throughout of even builders your couple softer. Clearly even and in and said it a was you you to surprising. is Your California. the front, really data quarter stand across some and there that good thought like demand contrast recognizing kind seems your about which on out being competitor pointing morning May contrasting little talking Even weakness this some first-time earlier particularly

So of maybe a any question, again stronger to, my guys guess perhaps that And pace allows that change Or strength, bit standpoint saw the the sales – you're saw, first-time Was May perhaps you little I relates standpoint that moderate do guess you a bit affordability a and weaker? just an wanted little June seasonality, bit I another feel way, from it and note? in asked just growth to in or there first price you that's insulated obviously was order volatility? any minor for be positioned just I patterns? as that little that revisit you from adjusting was or to better better a demand the

Jessica L. Hansen

that. I'll Mike, take at a Sure. stab

have I questions in you several there. think

them a hit quarter, seasonality. I'll hope all. But typical we I the for So saw

country. to typical across our strong because seasonality really quarter offerings is our do it So We our outperformance our we we and throughout we saw the and the product pertains into summertime. the moved sales a as demand positioning early just as believe moved very of as that

sales our at Express now X% is If results call, this it'll posted our our sales. closings the new our of you but data after quarter, supplementary and of in was brand our XX% Freedom be look and

keeping offerings very we are on are focused that those product So very affordable affordable.

affordable supply points. So price there's limited extremely still at

where we to see sign price we continue so at that can those get robust of product weakness demand on and ground, points. the And no very

of that's the the when today. sales out some our us others that's in there you at look think the industry main I So reason versus differentiating

Michael Jason Rehaut

that Appreciate Jessica.

in expecting margins and on as carry it be that. strength the It environment, I'd question as of the as thank guess will some SG&A. seems expect pre-tax. coming over mean I second the all, a just fourth So guess gross higher assume that in the you're into extent XXXX by gross guidance bit kind above demand of at achievable roughly you your it for to I And I the well, you equally that and does like also change fiscal little to quarter. driven – where where I they something a today, looking you peakish-type margins need do or you're the at margins need necessarily mean you kind as go gross number shouldn't when that that is gross where the much are don't that year of see feel can more go if you'd higher growth? that use of higher Or next something now is pivot you maintaining and that a over you like the see ensuring towards that or two? to or even that volume to

Bill W. Wheat

Mike. Mike. Thanks Yeah

consistently, returns. on we're pretty first we've stated focused As

pace opportunity community making for in on return environment, giving gross price increase best to our results that our that market this day reduce very price, operate points, strong with And to community investment. positioning, the we decisions so and demand and demand in balancing the great the with by in and higher each absorption margin our And generate And limited position supply business us and right is prices. now incentives the at a margin. affordable inventory

So We healthy good very today, the still with balance see That such the the said, We demand. returns how very a and first we But that market demand. foremost. really a on market. see in this, change in may regardless can returns focused we're to of a see what will continue market of opportunity. seeing as We're market future. primarily we see good environment on being focus we in supply and

for both reflected Implication that in an the level gross guidance are than. for preliminary our next with reported We see to with where guidance as should able third the maintain on margins quarter. margins would we slightly and able be gross flat in range a that's increase where continued lower. But be margins current we of to QX. at for we expect our There be our so quarter where There XXXX. in to maintain our And fourth around same the we environment are the could today and quarters assumes slightly the margin level year sustainable be operating leverage relatively higher level quarters SG&A.

Michael Jason Rehaut

so much. Thanks

Operator

you. Thank

proceed next KeyBanc your Zener Capital Ken Markets. is from Our Please question. coming question with from

Kenneth R. Zener

all. morning Good

Jessica L. Hansen

Good morning.

Bill W. Wheat

morning. Good

Michael J. Murray

morning. Good

Kenneth R. Zener

at in and February. it to was talking So January taking that out the California clear about we looking quarter since is just someone enables intra spec or let's your places very say day Northern versus approach orders to everyone you us get for other were an it order

helps in that support backlog orders, an the inventory their specs spread you. on your relative think And pace on that, we're you A? markets? there margin, versus orders. what rising B then new could of the specific home Thank is do gross think existing sale But of impact within I comment So seeing you to

Bill W. Wheat

margin price limited between a with in than spread Yeah the first specs we're on Clearly margins on a The on normal environment, specs. build tighter because supply, have the today, Ken rising limited on like and inventory our than usual. specs our supply on is jobs are in better market versus we margins ground.

if by a order the of normal. market to in And of pace not and hard amount margins is then resulting affected So houses the orders of much in better than supply, certainly sell terms the in reports that's supply. there's

releasing it introduced demand today. do believe not affordable unlocking price demand we So markets markets have in clearly points pent-up at product introduced that I have and that's we're did as in before, new communities,

Michael J. Murray

We're we a supply inventory half existing the process. lot And in for completed, there that look look we is And we the before place the in the we're that's in sale. first supply available out marketplace, during they're homes seeing neighborhoods. – our own than of have selling homes at our before construction are less at available as

we're home not so And new coming bear at we're about, seeing places to which in excess supply the concerned near our is neighborhoods. or most

Kenneth R. Zener

Thank much. very you

Michael J. Murray

Ken. you Thank

Operator

Thank you.

Our Cleveland Company. next question from Eric coming is from Research Bosshard

live. Your line is now

Eric Bosshard

are incentives little morning. price pause reducing a environment that Good orders. the some in of made Bill comment of in raising a and you Thanks. seeing bit where

you're for little doing during but more that's time you wobbling I you perhaps that? do where allowing talk others? spoke you that bit success inventories to period that are you of a can have to about what just a where some the think it's Just know

Bill W. Wheat

It's I and at available inventory positioning. strategy. our our as price affordable in product starts with think spec it our communities having positioning an well

some a they when looking can I at. certainty they can home for think have that customers move on are

a and very an each And we're much think that's that able and that achieving in us on making I remain our products with in eye to first always our And put keeping We have on so sales returns be foremost today. always focusing sure target incent to pace also good balance move price position affordable. not and community. to

certainly are that affordable. net seeing we remain increase will today, while some So to our products continue in sure make and incentives pricing we

Jessica L. Hansen

in work, and with scale and house and same Express limiting more along through more efficient money a fantastic and nationally locally, Homes business of plan a purchasing so costs cost get both keep rising our the to teams has partners check. for model, have clearly they that options on over Nationally, our they a got look well. the very our our can floor being them is And stick over helped done houses many can so and our because able materials trades again, building that floor helping us and scale, us we navigate much be as efficient. being really less can local pay our over And at front just that you we've but more brick huge cost, And can plans, limiting or when environment. fantastic make job driver on true our us that building side, are and

costs on year-over-year on to basis continue inflation cost was the our slightly a we per the footage basis lot and right lot and a range. side square quarter saw cost around brick the outpace mid-single-digit on the revenues both the brick and this We our stick see �� and stick

Eric Bosshard

it good Forestar you're like Then roughly to off a seems start.

results XX how that? As and months, as to integrated the Forestar? that by or look how you what run scale different start have like the business you is project life influenced out and you XX How's do is think

Michael J. Murray

in see be Forestar to as and candidates builder where market. as the portfolio to good that life and And much early to working shape some be accretive that on Forestar collaborative bring we're life, opportunities they're sales. organically determining to we're their identifying starting Yeah which more see will third-party with as deal would projects we Horton for being well flow take now

to have, what out about a together continue organic excited and like to have we're what they operational So to excited an time that's that deep marketplace to at to is most increase really over will capital seeing great they that over the that putting frankly about team growth capabilities capital with to recruit them team be the what to that their developer today for be is today. access build national their advantage cost is a more and next year, XX months. pools the XX going – folks going lot that's next And a to of exciting we're

Eric Bosshard

That's you. Thank helpful. Great.

Michael J. Murray

Thank you.

Operator

Thank you.

is from from Dahl Markets. RBC Capital question coming Our next Michael

now is line Your live.

Michael Dahl

up I questions wanted the of costs. the Hi. on one Thanks to for taking follow questions. my prior response on to

was think said you cost give B, the of and pressures? brick lumber, if areas then whether are digits, meaningful seeing stick was includes could us that that other and the of most you up I mid-single some labor A, outside you're what curious

Jessica L. Hansen

we really when brick and and use we labor that stick the mean mike So materials. phrase

inclusive. So it's all

to driven being labor. that mid-single digit continue We inflation solely cost almost by see

as and continue happy to efficient more noise had And all a we to to lumber same market than that exclusive in having increase think category where do bit it. an reduce we're environment at in where anywhere Although product we're offset Outside A today. we we've the time. probably a We're labor get keeping houses XX And to now a costs labor check, little cost of But little bit working be been built, our It a continue supply commodity-wise are can. doing but we're speaking, is the pay of – as great pressure. headliner. possible to has is generally our more job in labor to concrete. we've to in we're the costs been to tight those a don't to renew able nationally categories. seen over we've it

we back our having very good had market current renewing, locking are to go in take to national exclusive out our increase not price with success that or year we've reducing in further. even prices pricing So our either and when a agreements each just

So along appreciate us all really are today helping of our trade way. the there partners out that

Michael Dahl

interesting. you've you'd just over gross ramped how optioned on greater from think and mix was option portfolio will deliveries up quickly That's because normally some gross be and margin the past interesting margin. the originally Thanks. to that next would plus, conversation, trade-off it's year-and-a-half on of as it Then meaningfully your coming given that next year, relates a year see land

we or can we mix that and the year? the you are should is seeing just occur about to pricing you're such that that So overcome able next think just power how talk over just to that

Bill W. Wheat

Yeah Mike option we've that XX%. were around the mix of we're now years. north last lots been several or ago years and shift seeing we Three over so XX%

our improve lot with we've returns price a maintain it pay more by well offset increase in margins. And we've been on And executing through so from that third-party focus certainly we've developer. process. But we buy good to that we lot for to able finished community been obviously our when been community, able able to still and – a

we so to close level our believe in absorb to rise operations shape are we as position our believe even that level. we're that good be And the and keep our today's option still further, to to margins in relatively able percentage continues at great

Michael Dahl

Got it.

Good luck. Thanks. Okay.

Michael J. Murray

you. Thank

Operator

Thank you.

question Susan Maklari coming Suisse. Credit Our is from from next

it LLC definitely Your Can a some now product. Susan sounds Suisse Credit line Freedom that's the is live. morning. bit you're (USA) to like Securities I gaining talk there. Good the guess you. that within seeing you - Maklari little momentum Thank rollout I mean

you to seeing on so And you're what can side? that talk

Michael J. Murray

Thank Susan. you. Yeah,

are We Express out, but be rolling it's certainly with than to going it out but some we enjoying was growing. It's expected rolled Freedom. success slower slower

about it's from part a think overall now, growing I is of that's of growing product it It's mix. a which backdrop. And against increase significant a X% sales was. our where overall as right

sense we offering, that we're give that's well. in We So we're buyers bathrooms, us flex about the Freedom product for trying plan neighborhood the still in Home of a great for buyer it's we those little a really retiree a take can that the get that's see doing for two-and-a-half them expenses product and concerned community the the of in monthly lifestyles, where a a room, home. and lifestyle like value try on platform to of a really affordable to or an create one-story it's exactly the the lot Active focus bedrooms, Adult right their a ground two

Jessica L. Hansen

see XXXX typical post around Freedom the is today we'll is the you'll right that Mike So in call, home our that feet. talked stratification $XXX,XXX after on brand ASP square about and about

and a of hearing labor some the you're just you to of of thinking with inflation So helpful, of then brand. guess we Maklari terms focused to little color. material lot with Securities of I the suppliers. some through as talk keeping can That's Susan talk you're great. bit And - things in it a Express you the as seeing we're as on that Suisse raw Obviously that? side (USA) how coming affordable our there. what LLC of just Okay, Can about possible have Credit

Michael J. Murray

the the it, our past time on is one Certainly And to labor look and for by build years few not the from moved down times. we consistent side start we completions on at things several our we complete of seen when home times have our days has a up deliveries. build but a maintain or that teams

they're so that a still frankly houses, and get processes able more us to appropriate basis. deep speaks foot labor returns-focused markets long pace, we part Jessica creates speaks for mentioned local those charge with relationships the labor, part given houses. to those to the a spec as And have, day-to-day platform of before that strategy square can in and that simplistic more suppliers. approach of less to themselves communities to to And the they have drive is but on and believe scale we we our so that And make per money to for more more to efficient in get the

LLC delivering there staying seeing how great. Okay, that we're results of our top the Maklari and teams - Suisse about Securities on excited Susan Credit really we're So you. labor. Thank and (USA) are

Michael J. Murray

Thank you.

Operator

you. Thank

coming question Deutsche is Sood Bank. next Nishu from Our from

now Your line live. is

Nishu Sood

you. Thank

strong question. back to going looks here Very, next and be it performance very will like So gross the sustained into margin year.

need do kind deals, new the sustain we was level cycle, price in think XXX, this higher XX%, that, above What major formas? we of do rate margin see that? versus that. Or seeing And pro drivers the the related we're now basis to to pencil on in that XXX they favorable range do to about higher to normal of closer earlier the to points now? see mix as just margin As we're also gross you this

Bill W. Wheat

than in record I sales than little focus first higher whether know pro community a ability sound to us and achieve lower broken helps And a be bit. I like the pro forma. then our market and on do each pace or foremost then determine the forma But we then returns. margin our will

return the on are is inventory pre-tax achieve based the of that at the to on typically the our project. to that So hurdle or better when on a the low-XXs. teens we that high in underwriting yes, XX% a are And investment XX% always usually we're pro-forma-ing income is really project, margins in making. range. every But somewhere It's gross net investment

driver period so, bit limited environment believe a good those – gross have and really, a I in I itself efficiency we're gross are supply we've three market, in drivers range. and bit quarters homes teams there's – normal about of year, costs There's the normal. price One business, our costs manifested yeah, our The execution last points. our right quarter. affordable litigation more a aspect is were last than our the new other improvements with what in warranty a which our this or been had continued now we in main especially think a so, talked and throughout in And the has margins, of at at where higher the here primary those the behind now. margins And very the our positioning very

consistent as margin basis of so was is remain costs. a from do year-over-year improvement reduction expect going gross remain quarter, for part of forward, warranty consistent. points And guide margins We and our levels in XX this which to to those litigation pretty again our of

Jessica L. Hansen

margin. The as advantage in a the de-lever cover lower to our sheet with gross costs and homebuilding continue limited of done interest we our in big improvement margins sustained to our expect we in gross is that's we what and balance have our from interest And carry business. other terms we think that we've costs now

Nishu Sood

it. got it, successful the plan. Very Got the Forestar Forestar, helpful. second And of with question on rollout obviously,

XX% the might ahead think normally capital a for Looking that on debt you're from leverage a cap. that, that see or no the that basis targeting the wanted But understand development for debt raise, the ratio you business that's to off just net that at lower to what thinking would behind so on somewhat land to higher One to risk homebuilder? targeted moment to cap there's debt Obviously, far level? might merit a it.

Bill W. Wheat

We stated negative it's less. they a Today or than Sure. significantly leverage. that. Today less XX% have

out grow they they're operating something operate not their that leverage which look But And builders when to homebuilders, that so a to out kind is over as than would would XX%, as at a longer a going at you some as term at, at look homebuilder of maximum that maximum we they the that that level a comparable of It's time. but of really be we level cap, certainly their there's at the they overnight. be that. level universe, higher XX% kind look across capacity, earning grow as platform,

Jessica L. Hansen

a customers one shortage who of finished the as we across country, really what, a in entire way manufacturer really people about to I a country Horton, historical Forestar builder lots run largest the there D.R. finished of as is platform. We're think, to thinking the think largest Forestar of immense traditionally going today. the of expect land that's lot And its is not lots. amount an have needs developer And

in platform a a with that the of need to modest market. think we opportunity for opportunity advantage the to in to that industry leverage unique that is help very So take Forestar today. grow them has the run there And plan

Bill W. Wheat

seen be going across a footprint be model going efficient to business development the with to broad than would It's in fast spread turning of you've not and That land much deliveries. geographic assets. a be concentrations more lot individual large

Michael J. Murray

Production focused, return focused developer.

Nishu Sood

it. you. Got sense. Thank Makes

Operator

Thank you.

Our is from Micenko question coming Jack next from SIG.

now line live. Your is

Soham Bhonsle

This Good morning. is this Soham Hey, Bhonsle morning, on Jack actually guys. for

buyers are to change you guys or wanted being to wanted revisit moving behavior any the if of and to square buyer today Just in loans there footage ARM of terms bought seeing today? issue see

Jessica L. Hansen

market not, affordable, really being to in least points really positioned us we're at market. which the No, we're to still where the

very see to our FICO continue percentage We saw our tick first-time homebuyer up. score We be strong.

purchasing is a footage or And relatively it of really townhome, much either. be product, hasn't an attach the buyers square are consistent. percentage a that average Our whether risen even that our duplex

all generally just of those signs still lack point of for country, speaking, most affordable. impact kind So us a parts which does of supply market the pretty in to of demand. There's the is

Soham Bhonsle

on second great. growth year. Okay That's was one order And helpful. next then

driven higher land, of count you to year, And labor how be order so sort we an is going and growth as the next in improvement pace, for face material much think as of by costs? community versus growth especially your drivers about

Jessica L. Hansen

houses one for manage. first our a you and things the our internally tell on we're So focus community to that'll for us And We Soham, guide of really we position. It's don't ever to count more reason. headed. hardest lot where officially

the long minimum at you community be that growing ultimately count we it. lots not that have tells as if the we As replenishing our and going a to are houses

it haven't sequentially. have point. still year-over-year, We was at to it flat that grow We was some It X% down said we would essentially that. expect but seen

our our revenue very inventory controlled confident about owned XX% lots feel targets So XX,XXX consolidated XXX,XXX to in homes ability and and almost with today. to XX% meet

Soham Bhonsle

way improvement ask see to another guess to into year? continue do I next you it is pace

Jessica L. Hansen

Yes.

Soham Bhonsle

Beyond today?

Jessica L. Hansen

Yes.

Soham Bhonsle

you. Thank Okay.

Operator

Thank you.

question is Kim next Evercore from Stephen from coming Our ISI.

live. Your line is now

Stephen Kim

My related to Thanks first very question much. the Yeah. West.

I you see strong are to think out you results indicated very continuing that there. some

said XX%. you about absorptions worth think I

your orders so and were comparable community about I count if down think I the probably wondering flat was a since would you that about could... amount imply was that

Michael J. Murray

of the actually my I schedule. was number I pulled I – head looked out probably should've Steve, at and the

Our absorption up pace was actually X%. Yeah...

Stephen Kim

Okay.

Michael J. Murray

...in west. the

So be X%. about count imply down the to would community

Stephen Kim

All defuses because that question right. that Well X%...

Michael J. Murray

about Sorry that.

Stephen Kim

No problem.

me shift then. gears let So

allocation your repurchases particular was M&A. related One about of as the things the to was well and in thinking as I capital

you $XXX on used authorization, than new So that you've – think repurchases million That of you authorization million. side, authorization or that the a think but replaces your said $XXX have its little I only over half a you a I I life. about upped of think less

the about if was could million there metric to is valuation get chose you going be pursued programmatic. was so that you if which $XXX degree And what any would using I to or opportunistic it's to that's to be if opportunistically, if likely of to sort And curious the be talk you do?

Bill W. Wheat

Thanks, Great. Steve.

to repurchase we time we've for are programmatic our be We're consistent program, being. As it. begun share the about going

to our keep is flat expectation share count Our in outstanding XXXX.

to or X-quarter out extend authorization XX-month a a September essentially we But do is of to July. expect million was authorization. previously majority the that through whereas it $XXX for ending authorization Our spend of XXXX, in

ended We of in authorization did which than we expect to spend a prior July. the that authorization, higher percentage

Stephen Kim

what the type so. to on differences to if that a about looked Okay. very go those historically so, million upcoming many historically centered side, that there That's about Was valuation as the focused others you've this you focus or in spend you year banks. generally M&A think companies, the be would be price-to-book helpful. curious be? willing you different might $XXX to talk methodology. and if then could If main also And on $XXX million you acquire much anything would around? And around And perhaps land the

Michael J. Murray

importantly a whether the their joining that Most and we of currently would particular in in I And new look they that we at what or in and other at we're and to always you would whether for metrics complementary the think, our are are geography. It's of on how day they year, has are, after an attributes of land we've after like at acquire important company. to That's part have position. geography good team. thing teams on good lot the to whole get looked on looking lot good a land be the Because what supplies been lot it. the going exist into that are pays operating markets you people. those expand most bringing a gone, importantly, place We're referenced footprint? acquisition there, the one process to we're consistently at is that each be looking and year they serve, us. we'd is And same people the a the the good ways people people adding most bank you back

Stephen Kim

Got it. job. very Great Great. Thanks much, guys.

Michael J. Murray

Thank Yeah. you, Steve.

Operator

Thank you.

question coming Securities. final today from Wedbush Our McCanless Jay is from

Your line is now live.

Jay McCanless

in. Hey, good me for morning. Thanks fitting

First what trends? order from question, you're on any color July, seeing

Jessica L. Hansen

with we're the business of plan well-positioned year strong. more just our the think Really in same line out to I very finish and

Jay McCanless

there, what availability. talk on just Okay. Could you about of located Thanks. land also California. then a and And percentage is count two-part talk current question about community the then

growth land and order next is coming seeing the up the You've orders two like couple to tough got of a and out over comps the just the there? for drive availability neighborhoods quarters what

Michael J. Murray

in about in think already we availability the is for feel and short-term I pretty sales. land good of short-term, the the the lots crystallized kind flags –

focused what In and challenging points affordable land the in term, coming price by submarkets. front from that's very continue price best in on to those a what growth focus believe the are against below part positioning is and been always points the us is have terms certain market which we we're to California of our we our execute longer of that's teams and market, housing, be where various that to is And large. has seeing of

Jessica L. Hansen

state or region. by community don't And by we our then Jay disclose count

product is where find had we However, diverse of can Really more returns across we've a I offerings we California by entire that more country. this about acceptable can choice go is and attractive last exposure what third cycle. the the got footprint cycle assure a and diverse

to California like happy lower very at although they So really compared we're there we this investments a prior cycles. are and level with our cycle

Michael J. Murray

you and to we had, very models through our bringing across has out within for that the And had, on been Really travels demand activity communities road things. opportunities currently a have we to contract, market I've about that or confidence the under D.R. under and consumer positions and our weeks, contract neighborhoods the to see that of Jay same would strong, geography land California six has past at have third-party enthusiastic the our to have the rate that Davis and teams eight excited sales undersupplied in in tell the energized against housing, are good we I looking continue and seeing Very the good and we're accommodative and job a a about environment are good and growth, developers backdrop outlook on development economy. bringing still interest very the the are position market.

market the now. right we where So about are very is enthusiastic

Jay McCanless

Okay. Thanks It sounds great. again.

Operator

any to further to I'd question-and-answer management over like the turn reached for of We've you. comments. our back closing the Thank floor end session.

Michael J. Murray

everyone's every your appreciate the keep with and you continually We thank in team, customers. call to for our deliver our Kevin. day Thank we you, on fourth make And D.R. better take Go machine in you. the Horton again efforts year. and D.R. look forward to company Thank next speaking of quarter and the our care great to driving November the and behalf time today share of again year-end on you to David, results.

Operator

today's That teleconference. you. Thank does conclude

may time. your a your thank We And at today. line You day. this you for participation have disconnect wonderful

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