D.R. Horton (DHI) 30 Jul 192019 Q3 Earnings call transcript

Company Profile

Participants

Jessica Hansen	VP, IR
David Auld	President and CEO
Mike Murray	EVP and COO
Bill Wheat	EVP and CFO
Carl Reichardt	BTIG
John Lovallo	Bank of America
Alan Ratner	Zelman and Associates
Eric Bosshard	Cleveland Research Company
Truman Patterson	Wells Fargo
Michael Rehaut	JP Morgan
Matthew Bouley	Barclays
Ken Zener	KeyBanc Capital Markets
Jack Micenko	SIG
Stephen Kim	Evercore ISI
Mike Dahl	RBC Capital Markets
Ryan Tomasello	KBW
Jay McCanless	Wedbush
Buck Horne	Raymond James

Call transcript

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Operator

Greetings and welcome to the Third Quarter 2019 Earnings Conference Call for D.R. Horton, America's Builder, the largest builder in the United States. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

pleasure Relations your for my Vice Jessica now Investor President, D.R. is to host, introduce Hansen, It Horton. Please go ahead.

Jessica Hansen

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

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

outcomes on is no there D.R. believes Horton assumptions, different. any Although materially that such will actual reasonable be statements are based not assurance

D.R. obligation are Horton conference any statements upon update based of Horton available to or the forward-looking this on All call does information date not to revise D.R. and statements. undertake forward-looking any publicly

most could of Exchange is information D.R. on Commission. with Horton's are issues that changes and on material report filed and contained quarterly XX-Q, Form lead recent Additional which the report both in performance in Securities annual about XX-K to Form

this our changes to an & active to we release Relations XX-Q this This on supplementary investor.drhorton.com inventory, for section at morning's margin, our found Presentations After sales and we under Events the website mix earnings product on on operations. supplementary file data our presentation our and call, can will plan Investor be week. relates mortgage investor News return gross to your data reference. communities, our site selling and homebuilding home The in post

Auld, and CEO. President to our will I David call the Now, over turn

David Auld

you, Jessica, Thank and morning. good

this joined and and to President Wheat, by addition Officer. Executive Chief Bill In and on Murray, Financial call Officer; our our Chief I'm be to Vice Operating pleased Mike Executive President Jessica, Vice

of a delivered team The D.R. Horton quarter third XXXX. solid

solid product to multiple results scale D.R. affordable to Horton our the footprint of pre-tax ability our leverage strength across $X.X brands. our million, across season improved selling was to profit margin gross XX% billion. reflect broad Pre-tax XX.X%. homebuilding our increased and positioning teams, spring our geographic $XXX offer revenues The sequentially. and margin income our operational and consolidated was Our These was homes

late discussed and in we’ve fiscal few level incentives to on increased spring And progressed. last decreased sales rates concerns XXXX. some offered fiscal incentives reduced Interest pace. XXXX on affordability caused we moderation calls, the loans we since in and early of have sales response, our improve our As as homes for the demand mortgage in

We see the continue At same demand limited good at prices solid. a and remain of across fundamentals financing to economic homes markets. and availability time, affordable our supply

We and sales in July, are and pleased our the in were volumes June and normal our seasonality. which expectations our with with product quarter positioning of line

to and while consolidating is strategic position. annual maintaining our a and financial share focus market growing strong flexible revenues cash continue and Our profits, flows generating returns

years. balance sheet supply growth, of support future conservative remainder the With of are the Mike? includes XXXX to lots and for and well-positioned we ample homes, that land

Mike Murray

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

quarter Our was million. and homebuilding to our million, income for pre-tax income the consolidated pre-tax $XXX increased $XXX

XX,XXX to billion in XX% homes on increased $X.X $X.X Our closed, revenues quarter third billion up homes year. sales prior from on home XX,XXX the closed

closed Our our homes from $XXX,XXX, keep size Bill? to average X%, X% to while for efforts down was the ongoing the our year was our closing last of price average reflecting homes affordable. quarter down

Bill Wheat

value billion, quarter the $X.X prior orders third increased of to and up was billion Net X% sales orders the year. those from in $X.X X% XX,XXX homes, in the

year from X% active the sequentially. Our average increased selling number prior communities X% and of

of we increased Excluding our earlier year, X% our and both this sales number communities active year-over-year. the third builders acquired net orders quarter selling average

in quarter quarter in the was orders same for prior the year. to last from rate sales net was on price $XXX,XXX, third The Jessica? XX% cancellation X% sales average quarter the the Our third XX% year. up compared

Jessica Hansen

margin March quarter XX.X%, the to increase was lumber lower The sequentially up Our XXX and due expectations from in basis sequential home revenue exceeded gross our and primarily points quarter March profit from sales the June quarter. to was third the costs. our incentives in on gross margin

we Based mix on quarter due product margin purchase and expect Bill? today's our the increase warrantee, litigation impact to fourth market as from possible home and well conditions, third to currently quarter, subject the in gross sales sequentially of the relative to geographic accounting. fluctuations as

Bill Wheat

a X.X% over X.X%, expense as last our prior increase our SG&A the was flat the the while share Mike? supports revenues managing adequately quarter, percentage focused market long compared X.X% We remain our of with to efficiently year. Year-to-date, term. homebuilding opportunities SG&A on homebuilding third In SG&A that year infrastructure expense quarter. was revenues of ensuring to

Mike Murray

ended We construction, XX,XXX of with homes quarter X,XXX in our X,XXX of homes XX,XXX unsold, with stages completed. in were the inventory, and various

homes us inventory strong. of in a finish puts Our to current the great position year

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

a return Our consistent cash pre-tax new our communities minimum of underwriting at operational for return initial annual investment XX within on criteria David? expectations inventory XX% remained months. and and a

David Auld

XX% will of At June our or total finished we lots purchase our are when our owned finished them. lots lot XXX,XXX be XX% homebuilding controlled were and are of of controlled. lots XX% which consisted XX% owned XXth, position and were of

continue of developed across lot the expanding with We our manufacturing to working and relationship by lot by lot country. platform third Forestar's supporting national developers our expansion increase the being parties position

strong to points current Our portfolio affordable lots ample provide for and includes supply of continues Jessica? lot an price a advantage. competitive at homes

Jessica Hansen

D.R. loans in volume. the prior XX% quarter for prior the homebuyers. in company's XX% services profit quarter our the margin million income for to $XX.X during pre-tax of $XX.X quarter Horton increased Financial sale our mortgage was for improved loan to services and year handled mortgage in closed loan the execution. from company's from up to related XX% the by VA Financial year, XX.X% and homebuilding quarter. million due third XX.X%, of the company of pre-tax homes our originations FHA operations mortgage financing accounted the

of this loan-to-value ratio Mortgage average an XXX had FICO average score Borrowers' with quarter an originating DHI of XX%. and loans

homebuyers the affordable by prior for represented XX% XX% of continued offering handled our up company, focus from closings on quarter, the buyers. Mike? year in our entry-level First-time homes mortgage reflecting

Mike Murray

contract Forestar, of of now or our lots majority owned markets subsidiary a D.R. is subject XX,XXX residential operating June XX XX At approximately to are and lot in a controlled Forestar publicly-traded first Horton states. owned manufacturer, XX,XXX across offer. under right with which XXth,

fiscal expectations million deliver of Forestar million $XXX generating of to million $XXX lots approximately standalone generating in $XXX revenue track is During and fiscal Forestar’s delivered to lots the deliver to XX,XXX for June months and revenue. X on are X,XXX XXth, results. lots into million in These X,XXX XXXX, $XXX XXXX,

progress Forestar's building plans. operational growth steady making platform its and in significant structure its capital support to

Forestar $XXX notes. senior quarter, issued of the million During

at the base to managing growth to Forestar's capital position June are ratio lot leverage and equity to markets their fiscal liquidity, or of conditions, XXth through Forestar net to support opportunistically and planned expects delivery less. to while capital, XX% capital provide Subject long-term debt a access sufficient market XXXX. additional

at growth and quarterly creation investor.forestar.com their model, significant updated on Investors an unique its manufacturing that last Forestar's and presentation earnings hosted David? value opportunity. has Forestar site Thursday and their lot call describes

David Auld

garden-style with Florida. DHI Texas, in apartments current Arizona operations Communities and primarily is our on focused multifamily suburban rental company,

located Houston gain DHI $XX recognized and apartment quarter, on Communities XX,XXX,XXX. second the sold sale During in for million project its of a

early June sold five active currently in which quarter, DHI expect one has Communities’ at assets that be we completed Bill? project projects Communities XXth. end to substantially at DHI were total the fiscal million under construction, was of $XXX the XXXX.

Bill Wheat

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

balance to we enhance the utilizing flow have increased Company. the sheet strong position multi-year and earnings Our generation long-term and value strength flexibility, our our and are cash of

During had million. nine operations by XXXX credit including months available cash our our billion $X.X XXth, and capacity homebuilding facility. liquidity, billion homebuilding the of first $XXX cash At million of unrestricted revolving $XXX.X provided we on of June homebuilding of $X was fiscal

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

XXth, book value from billion, per a our and equity share up $XX.XX, XX% year $X.X ago. At was June was stockholders’

we paid of $XX the cash quarter, dividends During million.

utilizing We also repurchased remainder of common million, outstanding stock the our X.X authorization. million $XXX.X for shares of

the Our nine decline end for compared stock a at the shares the of months outstanding year X.X repurchases first for of year ago. million quarter in a the to $XXX.X count in share our resulting totaled X% million,

a up to end, authorization common billion no expiration to $X new Board with Subsequent of quarter to our our date. issued stock repurchase

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

Jessica Hansen

revenues forward range the of billion to close the we fiscal in of quarter to XX,XXX consolidated XXXX, billion $X.XX XX,XXX to approximately to and Looking fourth homes. $X.X to expect generate

margin our be gross of to be We X.X% of fourth approximately home expect in the the XX.X% to to the SG&A and homebuilding to XX.X% in fourth sales range homebuilding quarter quarter in X.X% revenues.

in rate to a range XX%, margin income of services the expect anticipate tax fourth to quarter XX% be XX.X%. financial and in the pre-tax we We profit our approximately

the outstanding to down cash we full homebuilding fiscal be from XXXX. count the of the end For and at fiscal operations approximately billion XXXX, generate of to expect still flow year, end the $X we to our compared X% year least expect share of

fiscal growth revenues for to conditions, closed. today's in our expected on currently for homes is range and high-single-digit Based both XXXX market percentage consolidated mid the

November We expect XXXX our on to David? further earnings get call. fiscal guidance

David Auld

industry-leading to our be markets, operating country. builder results across striving closing, reflect long-tenured, platform our of and our each to leading share. our in expand of the We're In the strength the market well-established

the top of top Horton housing volume we According in XXXX, the Builder the builder in XX been markets. D.R. of years. to number recent XX have in Local United in all Leaders five was States XX housing We for a U.S. consecutive markets. one builder X were builder And the the issue, largest top Magazine's by

share, growing cash flows financial profits a and strong We maintaining flexible consolidating returns, on focused market generating are revenues and while position. our annual while and

We geographic importantly, multiple most lot so position our to land affordable product are and footprint, outstanding well-positioned broad team conservative our across balancing, the do across and attractive experienced brands, with country. finished offerings

work. focus hard D.R. Horton Thank you the to your for team on entire

and our continue concludes operations. to remarks. well-positioned This growing incredibly are prepared improving We our

We will you. Thank now host questions.

Operator

We'll be is you. question [Operator from session. Our question-and-answer Reichardt coming BTIG. conducting Carl now Instructions] first today Thank a

is line live. now Your

Carl Reichardt

kind to of of David, rates the about there? -- to Southwest Mike where were community just I you talk the orders Good morning, the maybe bit, or plan off those talk, and Can wanted I re-grow now and first think just bit. absorption short communities reasons? to South a Southwest versus a little Central regions everybody. little count all, on is is

Mike Murray

Yes. in success to frankly, markets. that seeing we in of is the What communities we've are we're that's those were. a had short And Southwest we our relative where function

anticipated, We've at the sold replace communities faster line. yet those than be those communities will on and replace are looking flags. to paces we And communities replacement not

up winter, think, satisfied sales a selling is in we little against we with this this And absorptions a we're and very that the expansion over work what early stronger saw going year, frankly, then, going based with the be much. Central, their did tough been as XX% margin seeing count’s season. and able year, achieve to they pretty Last community flat, South not while grow But the I comp. to we've about late frankly on quarter. there have absorptions fall in

Jessica Hansen

supplemental And XX% strong absorption orders, the year-over-year, right still reference, selling available sales call, with presentation in active the market. our be in so, out that were for communities of But line our Southwest just very will down Carl. specifics our with

Carl Reichardt

been about to share move as of they're bring. well just at you've here to then, And bit keep points, lower softish to road in a peers lot absorptions you those advantages has a market we've meets local about that protect Can And growth reasonably you seen about Can talked and as whoever talk and we've price than a margins the delivering and below. on some been follow-up, can the guys. margins a you a leveraging but talk what grow share market those strong? order greater margins, Thanks, your are market? yours how little that

David Auld

five for this been the We've affordability last years. push in

grow. well deep incredibly very is not overall more fully margin as It not they're competitive as four as And continue It's to rolled and because well are supply. we away deeply a standpoint, down there the of than for years. are. it's out. that something people positioned driven percentage are, from positioned yes, We they're growth positioned give we to in three having pushing outgrow we last the price, or going And what or lot have has communities,

what now feel pace very feel we balance the we've So, margin executing, good good done, and and done, so. about we've about very where that we're

Carl Reichardt

I David. it. Thanks, appreciate

Operator

you. Thank

is of Our John America. Lovallo from question from next coming Bank

Your now is line live.

John Lovallo

guys. questions. Hey, taking Thank you my for

the the is help little a pretty just terms should guys, decision? about more kind on repos, think That seems how like quarter, cadence would of what bit pivot it's first could we on expect give one for us positive. each billion $X of of repurchase to then, The you maybe of opportunistically, drove And you expected in share consistent a buyers be that? a think and we But, you little authorization.

Bill Wheat

the been our being pullback begun we're the a our fluctuations when generally, And couple repurchaser This Yes. stock. a quarters, the pace step with is is our repurchases. of And repurchases years. next flow increased flow. consistent of have in over shares shares cash increased, of opportunistic out more We've But, we've increasing us. our Thanks, see of Bill. we This as last the cash John. our over the for repurchasing is

be is the see will we in to opportunities. we some on expect the We to process. quarter-to-quarter, that but fluctuations So, authorization step do depending obviously kind consistent of see repurchaser, next continue this a

The has no date. authorization expiration

to consistent would signal time that doesn't out us market if So, and the to a continue that a be it But to to of to cadence imply be frame, necessarily front the in repurchaser. like, or spent. going appropriate specific amount specific authorize, they was you we're all put

John Lovallo

That lot Yes. makes sense. a of

with quarters. lower I is the that of well of you to XXXX normal then, that there, rates in on view seem And in put case. coupled couple one we But, line pushbacks it the being the the reasonably the be seasonality, wanted that resulted guys doing of some That here. like in terms Okay. over folks to July past is of interest your kind market then with pull of that. orders out outlook get some seems from mean, kind and forward just I doesn't get that

David Auld

tell belief. That's can my not I you.

market, is opportunities, households, jobs tremendous employment, amount demand there's And there that supply think I a affordable the today. just being tremendous limited in the of created. even

drive can is demand there, can I if and they price So, that you think, the position a buy.

John Lovallo

guys. you, Okay. Thank

Operator

Ratner Associates. next question Thanks. from and The is coming Alan Zelman from

line now is Your live.

Alan Ratner

for Hey, my taking guys. morning. Thanks Nice question. margin with job the Good improvement.

time, I level surprised think, we were you were And actually improvement. specs that the you of of able that same to the quarter. lot had at like in selling looks it a drive success

is where is first down I inventory homes time a while this quite actually think, and in your slightly year-over-year. the

that lower was? down cycle, position or see you or curious there great. would -- was concerted So, that might are through a labor, drive a is or bit function be could construction just if a -- some Just little that headwinds just the et your slowing effort was broadly, spec that about more did you count to talk demand with that, that cetera? And be where the talk you. of all quarter inventory Thank the I slightly, design, weather, guess, by during

Mike Murray

start Thank you, is What in the Sure. quarters to selling of homes demand. expect our some touch run down and to inventory then satisfy This spring of that would seasonally, earlier Alan. we we is on see as build would I that Mike. kind

I this the quarter well. quarter, were we in quarter we as had think, this of homes sold XX% the closed

costs, and margins, most the a that lumber. some seeing notably of incentives enhanced with market tailwind reduced And bit so, on a little a return buyer material of our lot reflected to the and

it We coming position now, we to quarter. like have our right fourth where inventory

fiscal inventory we than right do. at be XXth we're have I we We're last We to ‘XX, time And more had now times start any as seeing do what September not to this year. real mean, well. well-positioned expect [ph]. continuing we to

Alan Ratner

through And environment, based raise helpful. of your That’s in was on increases? price I little you ticked year-over-year, about quite for time pulling Got actually on I lower there's incentives. the the of you but a price talk prices, mix involved there. incentives, percentage you you. outright which bit communities either a Can back a think, first lot net then, higher mentioned while, where or pricing know order just

pricing percentage seeing markets you What power? you. in, what are So, magnitude? or your of it which communities you seeing and are to Thank

Jessica Hansen

purely today did Generally, I we still say gross from most But and in not by we of lower power. have than our fiscal pricing margin power the ago. improvement rights in was last driven a has the pullback point, helped. versus today at less would XXXX, processing in really, any year year incentives,

So, But, back we're the expecting, incentives. main the in better our sequentially little QX margin of what improvement it power. drivers is then roll a in And terms in and from bit pure it's in is also and QX, pricing on to continues that that gross regard. more pullback

Alan Ratner

that just have of year quarter see? those of are today incentives numbers kind versus ago, you handy, Jessica, you ASP Do percentage a ago

Jessica Hansen

we So, falls typically incentives, cost to or because all something it's it's flowing out the if of us, price quantify sales, margin. it whether in don't through

we margin typically is way. best So, incentives to don't to grade quantify that try us, and a

Operator

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

now is line Your live.

Eric Bosshard

forward with you're those what up make follow incentives doing talk about we comfort the sure To areas. to both just in and understand path your of pricing,

progress normal, area opportunity or you further and the in you the the in price? saw this there's new if like that if Now, quarter feel is incentives of

Mike Murray

see they in them. something And measure those manage in market meet community-by-community. making are field and continually it’s front decisions Eric, pricing we our that the think, operators the I to of

our expect environment selling we're continue good to a the see the in as quarter. to Based that we the bit on doors, into guidance, and mentioned, that. would, margin of that’s So, in Jessica today really improved little the strength about margin I fourth we our buyer feel coming would gross

going further see as maintaining expansion the some pace we're that margin I we're to in think, at. as well and

Eric Bosshard

And you deliveries range of the now better two segment share? that that getting a market How of end different at of would market will range? or you better Is high guidance that? factors to then, between end full-year you the those your looks earlier. be like high the contributing the secondly, the What's are established sort to within

Mike Murray

visibility. better a just it's think, I

we've base, a sell we've As and have deliver confidence a homes sell our spring during this continue through we in we on our greater level ability solid and way gotten at the have pace see able the been through and to to fiscal year. that

Just the I sequential market market as pull into And improvement back solid seeing ability still very a factor. we primary QX. think a evidenced was very here as solid out think throughout the by our the we're visibility, I quarter. It's to our incentives go

Operator

Thank you.

Fargo. is Truman question next Wells Patterson Our coming from from

live. now is line Your

Truman Patterson

Good morning, everybody.

wanted your to count. I look lot First, at option

As little environment have developers this just little a or in percent cetera. down a Could you in a drove discuss I Forestar, general, land bit about this, ticked lean availability of you bit guys figured, the total continued option et you sequentially. a lots, what seeing it would increasing of guys given are improving?

Mike Murray

percentage, very of think, change time cancel the in terms contract moves, dynamic. down every or the number sign or lots a take that Truman, we a In It contract. is I option

working the has past and work trend been years, as And on the general to to we're we've it that. this that. few volatility lot in And past over of push Directionally, at higher. had continuing few so, we've quarters there's been a frankly,

in to to with lots expand and other both third-party a Availability, deliver for looking partner working and still ways to that market, team works production. to it's developers, us. constantly, Forestar with to find position them job today's hard the We’re right it our very and something lot day. controlled entitled land developers and It and country communities across the every get bring is it into tough at

Truman Patterson

improvement? that XXXX that. that, growth. count community revenue to market Okay. conditions? I for you growth break thinking high-single-digit on gave a versus absorption you're out all's little us guidance, about believe possibly guys your just then, mid And Could with And Thanks maybe you how bit

Jessica Hansen

That's Truman. fiscal preliminary Sure, guidance. XXXX our

only homes completed growth and further going mid just we're So, stick breakdown color to today, revenue November the in end. consolidated July, when And range. it's our we'll we with closed give fiscal in percentage to year in high-single-digits

Mike Murray

perspective on the based Obviously, can only we on that today's is conditions. give market

consistent So, today. with that's assuming that conditions remain relatively

Truman Patterson

grow? you to core Directionally, your continues assume would count community that

Jessica Hansen

We've community but a guidance, stick on we're to never we and feel for bit on count, our what given going specific nonspecific have currently but community guidance. of today, with with expect guidance And November, ‘XX. preliminary in comfortable what count that's fiscal may color just we we little

Truman Patterson

you. Thank Nice Okay. quarter.

David Auld

you. Thank

Operator

Thank you.

Our Rehaut from next question is coming from Morgan. Michael JP

live. is Your now line

Michael Rehaut

on the Thanks. Good results. everyone, morning, congrats and

question, more first a and The on I had but, pace, sales sales around a little was versus question of I pace. focused guess bit pace price

had competitors up sales rates. that healthy, to healthy mid-single-digits pace You’ve double-digit very some from anywhere have

guys four minus a You double-digit strong three, for little are this or But growth year. flattish pace the had prior bit sales you've plus years. more in contrast,

shift necessarily that's I'm at to price, and a might reconcile just So, towards have industry, the more of seems your already of driving and adhering that obviously strength my it are little the own a steady question this like, mark, and it's just talk the improving market the which of top-line level benefited. bit improved strength a most any higher kind state, whereas it more approach. entry as of about growth comfortable a bit that also, in more of seems at you balanced adhering is? is, today, been the builders pace, kind because you're double-digit led on to not a like taking sales it point or kind Because time, little trying at first a you there and focusing

versus few how to -- that of but and kind some other pace, of reconciles years. I seeing, sense builders just more long-winded we're the a So, last that apologize, over question, sales get the with trying of own your flattish positioning

Mike Murray

is very you thank Michael, Mike. This much.

product we've with the we tried that’s start level And demand product move very received we expressed the very rolling years is, to that out past of to top-line out entry question I had the that in fuel of positioning well five years to a affordable ago. answer did and to the the in been double-digit way five think, years. units. absorption seeing And the good growth for lot over to

investments. inventory call, do our land one we what each that's as got looking good our seeing We, to opportunities adjust to with secured and positions lot looking communities our we're satisfied very, we're a is in -- a pace that today for long a in we're from now very driving the individually, and working a good and on adjust communities place return offerings, see enhance at through. focusing that. of of we're And in best we is to increases perspective, can price margins, absorptions incentives, as returns what's getting mature, the immunity. that rollout David those for pace then that balanced then we've mentioned And what at are product And very on them in that fairly we're we're overall the looking at and

a continuing for we're So to And the bit getting of replace entry the communities, the by would, have to done sales you kind rollout little look we're to on to returns business level. maximize turn large, and communities if and those. the now, to new the we of, looking those out plan

see we -- were that saying demand. to all up as been not we've opened great others and long we for demand, So satisfy a able communities, time, we've

getting to still have meet a really But good and bit of feel helping others we're positioning some are in that our out performance we of about and the come this. So, demand.

Michael Rehaut

again, low-XXs percentage couple next guess, on faster optional impressive is of of that years? goal third this How of to lot sequentially growth should normal, the over number. years? leg there than about the down the course your kind gains point Should or type the range the and that I very next option after, exceeded lot several your positioning. new more couple percentage in of be over think or secondly, expected. another percentage kind in Obviously, the noticed expect lot goal up of the years option a in the I lot quarter ticked we of we of kind of the hit

Mike Murray

lots would to will I you XX%. current our point But, we But to that and with nothing the bounce the little past a continually, on right looking as continue in we're we're land this. X%, It over still the to next it is controlled would look been with asked be going fairly the the in position control to we builder. been leg continuing immediately focus has delivering rapid adjust way I to very from of to a term business several returns, directionally, more years, But the and to have partner accelerated say more parties as quarters, think, X% that expect years a to third climb volatile at anything level. it question measurement there's few time-to-time. can bit or X%, catalyst but above it to we increased. that its up a to lot to fortunate take

Operator

Thank you.

Bouley question coming next from from Our Barclays. is Matthew

is now Your live. line

Matthew Bouley

near-term it my taking at why that just you Thank typically was you I spec us you. that any back guide, ask Obviously, kind margin around is? margins than mix a just you a but It position finished or looked wanted implications elaborate Good from the inventory little gave that where side, finished as is. on the under is? questions. of Can incentives Thank the on just like looking little back. constructions to for morning. finished higher spec versus a

Mike Murray

an QX guidance certainly and We same in and finished sell us to the position what strong close ‘XX, fiscal position spec is gives fiscal are in ‘XX, on to our sell and for quarter. and to deliver homes the ability

So, positioning, guide. but our we're really on pleased margin implications that no, really with

our continue to good and maintain to our feel that still level. expect at margins the market about tick QX into positioning We to up in margin

Jessica Hansen

a have completed six of said, months as on tight for on position stayed completed overall than XXX And And strong is we a those period have time. to XX,XXX unsold, QX. base homes for We in that very strong focus really been inventory number specs a and we’re homes that over greater very an unsold of XXX very of manageable. homes our feel like Bill which range, on a have in

Matthew Bouley

inventory in at is the Okay, to just are just fourth the we then, but, about talked perfect. on the backlog conversion guide, back just X% as so, secondly, looking down stepping clearly quarter, backlog up units. And year-over-year that And the X% closings nicely. units

environment seeing what what you really you. guys you're backlog just that that's is So, in sales are improvement seeing in loosening? in Thank is conversion? of allowing Just type perhaps the it for July, labor

Mike Murray

one is things the we well we down a what and on that which the fourth that think, be sold in would our In I are have sequentially, completed They're to both aggregate, bit as our year-over-year. inventory of up quarter. homes delivered unsold the discuss is expect plan. business will homes fair in of as seasonally,

there, So, fourth going to we homes quarter. out have close we're the in the

Operator

Thank you.

Our Zener KeyBanc Markets. next coming Capital Ken question is from from

line now Your live. is

Ken Zener

everybody. morning, Good

for is pre-built is everything. a for closing. up here that units guidance, that Can know XX,XXX, a percent if of how XQ, your XX% interesting a were XX% you What construction lot which more XX,XXX is high Basically, XQ you closing you year. closed have have pre-built at explain the you so here. I you and look had interested your that's construction, I do higher and under you a in in from math your orders end, at last of I'm of year. that's homes, low pretty XX% little last how normal is you just in So, a that which -- be that do we you disclosed end specs as intra and to up which will running quarter could why low number homes percent XQ

are higher So, cycles is conversion you getting what it? or

Jessica Hansen

X,XXX. we Well, year, actually about couple the at the to end have be specs we times, had Last that X,XXX a of specific year. only X,XXX this we've specs of about completed completed referenced --

sell and So, close completion a homes completed that we can behind the we we those strong guidance. are close have to right very on are in also quarter. deliver position same that specs, to that And also in

Ken Zener

-- so for referred or other there using you'd is, where you Now, there my well, entry see guys question because reason, logic you to saw years, that seasonality? products, implication you And of you your absorption. mean, sequentially. as Is pace greater to gave you'd guidance in guidance is than the seasonal of normal pace, other you type any was anything prior level I of guys that same your so where kind given order FYXX --

Jessica Hansen

But, where sit I selling crystal today, today. we normal we see ball looks we to spring have what that Not we like. mean, don't seasonality. anticipate the season a

Ken Zener

your you those in And versus closed question. would given the homes quarter Could and ordered spread, then, between you, What was inter I closings. quarter third mix last say, there's the of backlog? the think being XX% normally XX%, pre-built

Jessica Hansen

close the The in stuff we sell and into going that is almost homes the started quarter were quarter. XXX% same already

Ken Zener

the and differential backlog? those between And margin

Jessica Hansen

slightly generally, lower build jobs. specs our We build generally run just versus than faster. margin. at at our look they margin gross margin turn our spec But, And job our

from perspective, they're accretive. a So, always return

Mike Murray

then, And the are XX% closed of homes specs. roughly

larger margin. really, does reflect margin So really spec overall our

David Auld

the we we I would that the those sold we probably a the have, or sold first in them houses better have quarter. would we and closed would if second in quarter say than quarter, on margin achieved the

Mike Murray

interesting Right. Yes, it is dynamic.

David Auld

is and lift we saw expected. I think, part that of margin the

Operator

Jack coming SIG. question with Our Micenko next from is

now Your line is live.

Jack Micenko

to sort of bit. on up I incentives a wanted little back

volume -- it, some I of the think, I a been goal. incentives other been you a using And it's competitor’s think also well peers is pretty it getting level. the talked Is market beat segmentation about in of earlier certainly large positioning and And meet called better? David, and margin quarter. and pressures of those market entry market sort that guess, your to market some I assets, curious, you the I'm this telegraphed it

-- market it improvement, Your items? it of better is those is margin Is that just getting three or is it�� much the how

David Auld

little right the turn. because day have it bit, positioning we those But, up how then you, I lumber tell margin. reduced thinking things a both gained, every interest and get can affordability affordability we're to rates helped put lot, I right would community house, say to priced the right we and about the which in think trying I prices quarter dropped,

look the and -- And it’s at much. really but know, we psychoish other to say I don't so, this, builders

stay just day. in our So, every offerings we're community community trying competitive presentations, to our and get better

more market, biased. a So, I say, I'm would it's slightly than the but Horton probably

Jack Micenko

on doing. it changed? on a or Do -- then, see mandate level a kind the and And think been merchant mean, now? Okay. that then, from we lot there these I plans the initiative, you do sheet, a pivot smaller out, are the financing, know we that a but I it's couple business, are far homes public's Obviously, is as release master that partnering, a to started apartment I of same on near all just strategy Is flow? the And how year thing. built we cash Horton’s a think you’ve build? about balance you still some already is feeling is reminder so project of

David Auld

it work our in when it. was say, hand out by value we for building typically to land, started and have higher would zoned shareholders drive that was building we our we sold owned apartment communities it it I'd and where started felt we operations. thought selling this, home with we we going could in we Where like hand had

is Our now, to looks long-term them, we going little able to Right buy at sell stuff then it they as our a going right And going it, we And Wheat that that's construction fields we're coming. whether learning And got cap selling. -- -- under scale we're depend is business we pipeline, -- as was strategy and into that's actually now, of hold business, and rates them they're even to program. and pipeline driving scale. market look good we're sustain going whether able be the like to we skeptical on to Bill but pretty be a returns. to

Jessica Hansen

assessing of level of on capital And third-party at our some today, Jack, to what utilize we it's future. but looks sheet the expect financing, in balance we'd that all like in are terms some point.

David Auld

to And impressive. community the done very you, establishing And people. people I slots a and ultimately, platform, guys getting it in what the has been can tell right have comes right our back in

like so what see far. we we So,

Operator

you. Thank

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

now live. line is Your

Stephen Kim

just talk you there the a and know year, we about, going I a that on particular, seeing the second from think margin bit which little the we guide But, about two bring is is rates. that maybe your this a include One about factors to lot things, XXXX qualitatively. next the wanted margin In can't what lumber year little specs, in think wanted to in a can into is is demand, to XXXX, terms I economy the get bit. to decided of guide. you're not two are and and benefit, Obviously, there's near-term.

your to assume into shouldn't and rates. continue assume mentioned part which we On bake believe is the close little specs shouldn't not in usually quickly wanted your that That built -- relative I I your outlook. mean on you are on something specs, unless would rates, BTO, further, to lock but thought order, margins would going you right in in drop now, to to David, assume not you that's that folks the the of a lower drop specs so margin rates that I because those and would actually, I to than benefit

could I benefit then, to to I'm us. we assume how continue XXXX don't shouldn't thinking that of benefit, And much lumber I'd curious -- it either. that in was. secondly, know be in some But, give the assumed be if you

next these could margin be that material to these year? some next are Are you could point that So, hope there the give in offset that that us may to grow things things margins might year. two

Jessica Hansen

XXXX. on of commit gross And is margin a today community-by-community have preliminary can going the subject it's overall to all kind maximizing to And perspective returns. always takes maximize to comfortable with we guidance both price market and market we've that today's to We're to from product outlined, it what we conditions. be get we a focus what going feel As of pace we as with for and fiscal returns.

And sure, going July to maximize other margin we're returns. ‘XX, give so, than pace sort of to gross any fiscal continuing in we're try for price balancing color make and to to not

David Auld

in are incentivize that finished and QX we incentives just thought it and house specs. But misspoke. less we I a -- contract a would I we sold to seeing in The and were we of Because have clarify what if QX have to at houses abated, margin closed higher close. need get under and may the sold and have houses I said. closed sold to a closed than

Jessica Hansen

would That base have. spec quarter I lower margins about be true. that true said we this is But, being earlier case any than job what margins build still generally and in was scenario

Stephen Kim

for some color about really guess, the to give with manner? didn't you I us And that. lumber in some could dimensionalize Could You benefit? talk you specifically respect just that

Mike Murray

quarter homes our probably closed improvement. sequential We second this in to the that closed would quantify in XX quarter. XX lower bps from when lumber in versus as came we the about about Probably we costs margin tailwind of

Stephen Kim

the last me. for then And one

the build -- your mentioned along cycle think, I that not remarks you somewhere the time changed. had

is possible for effectively the next without it means. without returns deteriorated, going shortening we on So, guess, year, is I I'm And and average? therefore, or thinking go margin, or it if assume, that hasn't then, I as what time hasn't your improved, improve we're into just the do to to forward, increasing your build cycle you that time

Mike Murray

this is seeing time. something they our every build try and and be big capital our us day, to flow efficiently, also getting enhance liked. focus stewards that a part of to We of that. is I as and not about build do we cash we more of does an That's We're times times have talked as as would cycle. have David build we much how area do certainly to every remain as lengthen that's how about, of capital that try the up possible do mean, not we part be day efficient But, year contracted turn And better margin huge flow the talked to and our cash about think get a enhance we cycles. that. to

to an You're need area focus on. exactly right. That is we

Operator

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

live. Your now is line

Mike Dahl

the David of know, kind what And return on pace margin and what on, all inventory said up to think you around touched unit out or also I ground following Jessica, goal, the still at earlier. was figure that. you But, question I'm go first it's to put one just and discussion. is, versus My all. I not speaking, the level, year meet fits generally what you of size a, positions a you kind trying on a into that high with Mike

strategic you think as downside kind the through on your so, the versus and swing thinking it way actually really I think line there's on or dynamics? of, margins returns about picture the bigger you're upside of because question what question there's go about still whether to a volume And a demand just right way Is this this fits if or is function shift or is, that units? in fluctuates? some year is the from the margin of Just gross best versus results market at point,

David Auld

one divisions, about my the great. of talk is I margin

you're demand to and job positioning very then product price margin, of the of XX%. for great run If you exists, excess a a point do the in going that high

a product, margin, you're that we certain to a of probably price pace, you're lower -- in because the If hit going process. you going poor to maintain point, adjust are community are going then, then job we a and production run positioning very do out

very, the we there, with get a do So, the high, markets right, margins have And margins working out very us, we improve. the we expectations. everything plan run when do put when

a at we are run to So, going pace.

Mike Dahl

helpful. That's Okay. Thanks.

Mike Murray

return to as between of think Yes. of seeing then to the lot drive in how de-risk of to new more the grow as we for the But well some best driving and X are difference we flow margin grade XX over for and more us In we value levers longer is creating a invest out how years, to the want is term, the years, shareholders, coming do. short pull on bit to based moderate, conditions, the to our we a we've what opportunities as broadly, focus sheet, scale, been maximize business or and And cash we've us return. equity, attained can in market the market able we're the consistently balance on share the capital most pace, to past little there and return downturn, for the term, maximize adjust company's can it’s that on the shareholders. do to we what how opportunities way well creative

Mike Dahl

Okay. my then, lumber. is Thanks that. And second question just for Steve's a question around follow-up to

can XX is you to I guide direct as lumber? level, sequential You versus in your so XQ. shrinking, quantified what to home on XX give related would your benefit size is XQ points that your XQ, then, was benefit us specifically maybe be foot know in square at trends sequential wondering basis the a helpful. -- I higher on cost a per And

Mike Murray

I’ll comment on QX first.

So, sequential in a of bit gross of Don't it's in component specific XX improvement of component to because on sequential points a our a actuality, XX that, of is have in of of increase. a guide our for but it basis a margin QX. tailwind impact guide component that mix is a will lumber

Jessica Hansen

drove incentives relatively which in square gross Yes. revenues two cost of called our square the our other were sequentially, foot out improvement foot margin. than and pieces And per that we really per the outside lumber, flat and

Operator

Thank you.

Rahmani is Jade the from Our question next from KBW.

is now line Your live.

Ryan Tomasello

Good questions. Jade. Thanks morning. This the is Ryan on for for taking

opportunity an D.R. you structure fragmented Just for think first, the intermediate to do industry of the like term? and fundamental too thinking that consolidate presents really homebuilding bigger picture, is the over Horton therefore someone

David Auld

continue consolidate. can been to you, plan to consolidating. I our We've And is tell

of look the more since against the the publics. other every we industry when -- gained publics and have the don’t share for see we one gained then, year, have And change. market more you X% went I If about market. overall public were public, builders the was market share at it

Ryan Tomasello

your scale that that markets, Company And is overblown? economies the topic. process think I over -- you that of dovetailing majority material off or that somewhat further is Do guess, process the there in of are benefit somewhat thought would that

Mike Murray

ours. of focus big the That's

in the country, certainly we're largest While we're builder number volume market. not in every the one

top market become X aggregate largest top on builder. focused to of in we're We're each XX do what in we the can the So, XX market share and markets.

and community opportunity level plenty consolidate to really still happens that we market-by-market day. So, see of at every

Operator

from question Jay McCanless next coming Our from is Wedbush. today

is now live. line Your

Jay McCanless

you you first far you in how through talk quantify I orders could quarter? basis what so The see And if a question then, had, about on July? trended the could monthly

Jessica Hansen

think, month, just sales through we we've the our in today expectations. Jay, of with our and talk our line yet, we that and in seen most I mentioned about we've seen through call, but David normal seasonality answered June quarter -- July the can't

talked to want about. So to deliver putting we the where fourth quarter we’ve right be this

Jay McCanless

on demand? expansion Freedom has wondering, the Okay. all you’ve of that well. affordable And as then, was I couple completed. times. product the applies a if think it of basically to commented But been I And Since folks love sectors maybe hear adult been what demand, are have affordable, some how move you're on would these up to other performing? focused seeing most of and active from also

David Auld

early in The still the Freedom brand is rollout.

us want And gives areas at pay our and to returns near we product better continue growth, we think XX% affordable I point returns have nowhere at it, a upon our better -- much the out We and better rolled of long seems now, a every to want near have at a customer. gotten be point. positioning we to But that say to we’ve a be, be we're reception brand, we deliveries. some time. we'll luxury going Right to the brand it’s be. approach of will I for and that it's And a profits. positioned, company from again, It this guys part this anywhere plus The little product. get not driven at to little community based focus. where lines where better

will past has a wants. at their been in in will So, where point it time cycles. there that buyer focus on has drive But, least been what than levels, return the a entry delivering better be

So, doing. get to We’ve just got very everything better. we're happy with

Operator

is question Horne James. from Our final today coming from Raymond Buck

live. Your line is now

Buck Horne

coming you is just number quantify benefits or getting. throughout per trending foot labor of Question, you're how or costs I it been I a was talked cost wondering, the on you either think, little on if square bit have that inflation otherwise, land seeing And that's be, of those how how question out terms And from my secondary negotiate to you’re pricing there? also, are would do you lots in that you're quarter? prices? what just the Forestar,

Mike Murray

steak first labor terms bread in cost. and of a your our seeing we're of question not other all, changes in of lot costs, really So,

in back and and we we've out that, with costs always seen of a the a negotiating deep lot work positions right through we're scale Land we a quarter’s now So, teams relationships flat, there are development and on our now challenge and against, holding with of costs lot closings. health labor quarter-on-quarter cost lot have pleased the that market coming of this this. inflation

So produced. with benefit the we're happy that's

return returned question, to the they'll Forestar’s to those up, lot pricing achieve those think we to the structures metrics We And it it's that if the an opportunity then, it deal those way third parties, have to negotiate work, part they If at deal and And land teams that they the for with hurdles. I for not achieve. with does then Forestar projects and bring Forestar and then tied and to work, a it pricing. and that bring we have take them does. we is hurdles And down go find it. doesn't make we a look works both negotiate can't are Forestar we of forward our Forestar what have that

it as have that's the the work that are with work where where they those really, tied hurdles; sense. up to on refusal other with other write have out in us opportunity parcels. return they first get it Forestar builders it they'll or makes marketplace And, bidding the with For have there competitively offer first builders. lots sources, we to sense well. they'll makes And opportunity And up, their an but a

as to sell sell Horton to well. third-party and both builders they they So,

Buck Horne

to a was fire debt DTI some have early One there. buyers be could or you industry in give that or just have or a wondering, income in the help? letting there, concern could how around long There many But could way the XX% to DTI to us the metrics that XXXX. last letting we’re affected of discussing gears a questions one around, from you do of just -- in ratios [ph] anything of mortgage and the by loans buyers if many your change ratios with how And to framework, market out little up your switch bit. FHFA some around have any underwriting those a over feel path

Jessica Hansen

Buck. Sure,

kind start, long which you’ve head how think out. on the with I we is nail XXXX of hit the a ways would is

now between think then. and or I ways And does does a fully It's ground long So, happen can some we'll between lot be a middle see. and away expire go it then, out. reached

In terms on company, income mortgage debt of this the our quarter, DTI percentage for mortgage average buyers and was that utilizing to entire about their for are our XX%. buyers our company the

they’d But, we decent not have them, a that still you we So, XX% is be amount were go we patch it's at we also the sources of potentially verify for our first that conventional, do And that that for other be income question FHA haven't eligible mean for there's then, can product a into to to equation? because yet, ask that an buyers go always do doesn't loan. have that of the or away just would above.

change XXX% typically, that, is like sort fallout. not that So of any gets implemented

company to mortgage to which that's feel this the scenario I of now, phenomenal way don't just pipeline a different company if with any fallout. know that lot buyers our patch of expire, figure our find were job right them through base mortgage products. of And we I does confident it -- with these without in Our that working a case

Operator

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

David Auld

team, appreciate outstanding look We with November. quarter. call to you the speaking on forward and D.R. time Kevin. everybody's Thank today again in And you. Horton the Thanks, to

forever what you November. we'll there. We I guys sooner than guess, do And grateful talk are up for to you here out

Jessica Hansen

Thanks, everyone.

Operator

you. teleconference. Thank does conclude That today's

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

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