D.R. Horton (DHI) 21 Jul 222022 Q3 Earnings call transcript

Company Profile

Participants

Jessica Hansen	Vice President, Investor Relations
David Auld	President and Chief Executive Officer
Mike Murray	Executive Vice President and Co-Chief Operating Officer
Paul Romanowski	Executive Vice President and Co-Chief Operating Officer
Bill Wheat	Executive Vice President and Chief Financial Officer
John Lovallo	UBS
Carl Reichardt	BTIG
Stephen Kim	Evercore ISI
Eric Bosshard	Cleveland Research Company
Mike Rehaut	JPMorgan
Matthew Bouley	Barclays
Alan Ratner	Zelman & Associates
Truman Patterson	Wolfe Research
Susan Maklari	Goldman Sachs
Deepa Raghavan	Wells Fargo Securities
Asher Sohnen	Citigroup
Rafe Jadrosich	Bank of America

Call transcript

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Operator

Good morning and welcome to the Third Quarter 2022 Earnings Conference Call for D.R. Horton, America’s builder, the largest builder in the United States. [Operator Instructions] I will now turn the call over to Jessica Hansen, Vice President of Investor Relations for D.R. Horton.

Jessica Hansen

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

get today’s Act we the Before started, Private defined statements Securities by as Litigation Reform of call XXXX. includes forward-looking

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

website Additional both information Horton’s in presentations annual on could your which call, After the and with of report release section data supplementary its Exchange to D.R. performance reference. post Form on our material quarterly plan be XX-K in and are This will site Relations filed about under changes factors and tomorrow. we morning’s at that earnings report can most XX-Q News file for Securities this the in Events XX-Q, on to is Commission. to Investor investor.drhorton.com, Form Presentations contained our recent lead and our investor on found we updated

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

David Auld

to Wheat, quarter, Thank earnings increase share. joined Vice a strong Executive President pleased am on Executive and Murray a team The $X.XX highlighted delivered you, be President Paul Jessica, Officers; by XX% D.R. Vice Financial Romanowski, our Officer. and diluted Bill good to this and Mike also our morning. third and in I Horton Operating and call per Chief by Co-Chief

consolidated a basis billion XX% to and in Our XX.X%. improved XXX points consolidated pre-tax margin profit revenues $X.X XX% on pre-tax increase to increased income our

months XX ability of demand and teams, geographic a reflect most the D.R. equity moderation to in Our XX.X%. In limited. June during across the we Horton and resale homebuilding scale XX.X% the remains rise production period inflationary Housing continued supply consolidated due of our pressures broad capabilities on our the strong across same their inventory increase The results quarter. market our ended and was to experienced for and return began our trailing XX economy. was on for return These most rapid leverage June, at rate remained of the in demand an homes cancellations affordable mortgage both in and new to see prices footprint.

we homes are were is today There there public homebuilders, the the $XXX,XXX under closed from over than price and approximately drive positioning continue inflationary the in still slowed continue we lower sales frenzy as household of number for closing year, aggregating we XX% to our quarter and position the XX past led average $XXX,XXX higher. qualified months our inventory to average delays share. still the has our year demand the the to fiscal continue pressures rents other market in guidance demand Although market are our the in purposefully to disruptions environment in XXXX. construction changes delay of with and These remain purposely starts that the supply home labor completion under full construction. us chain – our We and homes slowed conditions. tightness to experienced formations past us market pace buyers in reduce third the of priced in align

sales inventory offerings, Mike? managing home optimize balance strength and market trade we their with we are incentives, The this we conditions of relationships. supplier levels time, pricing, and and pace liquidity returns. and financial positioned lot transition persist strong supply offerings, affordable teams, continue may meet our leverage our loan sheet, to believe provide Although the our changing and flexibility product from flexible significant well a product uncertainty some will market of experienced to

Mike Murray

of XX% quarter prior XX% $X.X for compared year third quarter to $X.XX line Net with quarter. billion billion, to increased in share the income fiscal the the diluted expectations. to for of our per $X.XX XXXX in was increased on per share Earnings revenue which $X.X consolidated

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

than the delays and construction the us by supply close Continued caused tightness the fewer quarter. caused disruptions to labor in in chain market during homes expected

the price closing XX% was year from the average Our Paul? prior up quarter $XXX,XXX, quarter. for

Paul Romanowski

to occurring and later for when XX% in prior significantly. During date ensure the rose home to we in was almost construction. continued of In home no homebuyers, quarter. year start slowed of to quarter, sales pace sales our to cycle prior certainty the rate increased better the homes close sell rates construction our for the cancellation quarter rate the compared the XX% The our cancellation June, mortgage interest with third

from our orders to value As net the billion. to X% year decreased and quarter XX,XXX total a the third result, X% sales order net sales prior in our $X.X increased homes

of prior communities number X% from year year active average quarter sales quarter. Bill? in from price average quarter selling orders third sequentially. the $XXX,XXX, prior of the was the X% up was XX% net Our and sales increased The up

Bill Wheat

and maintain the for profit of our the market year. our March gross from most in low third reflects increased per most experienced this square X.X%. to broad stick X.X% up a of home XXX March us of incentives housing to square demand very margin basis, limited brick strong supply sales prices quarter. communities. we increase of points up gross allowed on combined in sales sales June with The level strength were homes, basis the and a foot cost Our was raise sequentially margin the home foot On quarter revenues per while The XX.X%, sequentially, revenues from a in

in As we demand have already in July. to-date moderated has mentioned, June and

concerns, home rate buy-downs we the are levels to increases the As affordability price and incentives on homes for be during quarter address sales we margin historical pace the we mortgage expect sales slow expect from communities. gross lows. inventory we To quarter sales adjust and lower selected to interest necessary to fourth traffic third conditions, as and other our our to Jessica? of our to to We buyers market to and current fourth quarter. offering the sales incentive increase locks in our to and than offer drive are currently our beginning

Jessica Hansen

In year the expense quarter, homebuilding third SG&A from as down of percentage X.X%, in points a prior basis XX was the revenues X.X% quarter.

than was we while quarter, adequately This of focused and ensuring a SG&A lower expense history SG&A our infrastructure quarter our homebuilding in percentage controlling business. as on our remain Paul? their revenues our supports any

Paul Romanowski

down appropriate inventory sequentially. XX,XXX in X,XXX ended we market our as year home of our were XX% to this work with June quarter, relative to X% We number were which quarter homes with up homes inventory, slowed total an completed. homes of XX,XXX ago purposefully unsold, XX starts the conditions. We a XX,XXX at position to our of from and homes

this past For compared have by as as construction time cycle year. issues X homes increased remain the quarter, closed to for challenging quarter second we roughly our they the week supply chain

we some stabilization cycle beginning times are to recently However, on in see have homes started. we

inventory demand starts During to and the quarter, market we pace Mike? current will meet adjust and our homes conditions. evaluate in

Mike Murray

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

to a portfolio and Our large competitive position. capital lot efficient strong is flexible key our

to land. Our and investments billion, acquire $X.XX land in and $XXX land third million lots, was was development million quarter $XXX Paul? lots, finished million of homebuilding development, $XXX totaled for for which was

Paul Romanowski

and For the third residential reported quarter, million. income $XXX.X $XX.X Forestar, lot million majority-owned development company our pre-tax of revenues of total

For XX%. of the with and of now deliver year, $X.X a generate than to revenue profit full pre-tax XX,XXX greater margin Forestar expects lots billion

right position a and to lots, year quarter under Forestar. or purchased totaled from XX essentially million XX% subject June with of at finished Horton. controlled ago. Forestar’s $XXX with lot owned of first XX,XXX contract D.R. lots our in owned offer the lots were third Forestar’s of a are flat

from ratio quarter with of capitalized and had liquidity XX.X%. net D.R. million separately $XXX Horton is debt-to-capital of approximately at end a Forestar

conditions market strong lot is its with Horton. supply capitalization, Forestar and meet Bill? with relationship to well-positioned D.R. changing

Bill Wheat

services in quarter million margin lot to pre-tax in of Financial profit income quarter. interest increase pre-tax The the a in compared profit significant with to due rate XX.X% year XX.X% commitments. was services $XX.X quarter primarily margin this pre-tax prior was financial million, $XXX.X the acceleration our and third of a

the During the into backlog entered third lower higher-than-normal fourth will cause likely mortgage financial buyers in increase financial our rate to interest quarter. lots revenue This services and to profits a in were resulted majority quarter, the These acceleration quarter fourth than in rates, than of services in due quarter. normal third in revenues which our the be revenue for normal closings commitments. executed earlier lot expected

VA our XX% average volume. loans homes had score our quarter, this FHA the quarter the FICO DHI and by homebuilding and the company an and company’s mortgage Mortgage for originations homebuyers. closed For our accounted of an XX%. originating our related XXX Borrowers loan-to-value loan loans of XX% mortgage of company’s for financing of to handled ratio average with operations XX% of mortgage

of company First-time represented handled XX% homebuyers the mortgage this closings quarter. Mike? the by

Mike Murray

of and million income property of rental XX revenues property homes. X in X sale the operations of rental XXX rental Our $XXX million single-family third related on units of to $XX consisting pre-tax the generated multi-family totaling quarter

$XXX pre-tax million. income rental of months X our the of $XXX million During ended June revenues generated on XX, operations

property multi-family rental included at rental to XX of XX and $XXX Rental June a single-family June million $XXX inventory inventory compared million was rental approximately properties at ago. billion Our billion $X.X $X property properties. year of

and As not closed, and a rental our in sales our included in and multi-family or reported homes segment segments homebuilding inventories. reminder, inventories are revenues our single-family rental are

during We revenues, rental fiscal operations contributor million future to and that be generate in rental as growing our continue years. we inventories a Bill? approximately position $XXX rental plan significant will our We expect our in our to XXXX. operations to continue returns to profits, revenues

Bill Wheat

XX, Our facility. cash unrestricted capacity $X.X focuses disciplined, flexible available June homebuilding on balanced and of approach being billion $X.X revolving opportunistic. we billion liquidity, At $X.X had billion homebuilding our of of homebuilding of and on consisting capital credit

at was and leverage XX.X%. net end homebuilding of was leverage XX% homebuilding June of cash Our the

equity XX.X% book Our June our value share consolidated XX was and leverage $XX, consolidated year billion June was from ago. was net XX, and $XX.X XX% per leverage was at cash up XX.X%. stockholders’ a At of

our June, XX.X% ended XX For XX.X% on months ago. to return the equity year compared a trailing was

was million. the months During provided X homebuilding cash our the by first year, of operations $XXX

a increase a an of for million, of million XX% shares repurchased ago. the common to $XXX.X year $XXX total same year-to-date declared quarter, of in million XX.X has and the shares paid of last as cash paid quarter at $XX.X our we We million be August. the During repurchased X.X Board a quarterly to dividend for dividends level during compared million period same for quarter stock the fiscal

count a As share a year down We at was count the will still ago. approximately lower of fiscal Jessica? expect end result, our XXXX X% outstanding share from June at fiscal end and of X% the be outstanding XX XXXX. our

Jessica Hansen

We are providing fiscal quarter. our guidance for fourth

to conditions, in consolidated homes the revenues than quarter to normal. the be our and However, and homes uncertainty ranges $XX.X and billion current for our by Based to expect construction homes. of to completion on closed generate we XX,XXX the range margin wider of due under dates market, our billion volume operations are to in current projected in the XX,XXX fourth of guidance market homebuilding the the $XX

of homebuilding our SG&A be in range of expect in margin to as fourth the fourth less quarter commitments from as we We to to than X.X%. to the pre-tax percentage and to services interest gross XX% timing anticipate XX% discussed the margin quarter home the our earlier. be a around sales due revenues XX.X% revenues rate in profit of financial lot be We

core We approximately balance We rental the to income paying and and our utilization strong operations, liquidity conservative to fourth rate cash continue repurchasing homebuilding expect flow tax among homebuilding our priorities our dividends consistently David? leverage our plan maintaining quarter. shares. and to be operations, XX% in

David Auld

industry-leading production In brands. diverse footprint share, closing, broad our multiple results and across capabilities, geographic teams our and offerings product experienced reflecting market our and position

returning provide flexibility aggregating conditions share. leverage to low includes and and our strong which significant approach shareholders company, entire basis. you focus both to Horton through consistent effectively with sheet, operate capital investing continue balance Our repurchases Thank disciplined the to and a on dividends D.R. economic and plan team to the of value in changing our financial for your enhance long-term work. us to capital liquidity to hard maintain share We market the

improving We incredibly our concludes are continue ownership to more American prepared well remarks. opportunities operations providing and positioned families. to home our This

We will now host questions.

Operator

is live. John from And UBS. John, your Instructions] coming is [Operator first question you. Lovallo Thank the line from

John Lovallo

Great. Good guys. Thanks, morning.

you the backlog, question XX,XXX delivered year hit converting target. XX,XXX of mean, about you is without had then, fourth but XX,XXX market First is in give changed early delivery full would since quarter has There which I obviously mentioned to June, another any in needing even the orders. year-to-date. orders XX,XXX deliveries the you have

the So construction cancellations, what is understand I lower or delays am delivery both? outlook does concerns trying about to reflect

Jessica Hansen

Both.

continued the have but We had we delays, recognize construction market softened. has also

like are we deliver is they But we the the of bigger on feel in of what because our new I mean, uncertainty so closings. our well are to alluded And positioned for some as be, than very I to, ranges normally would guide market.

our the to but in going see are construction is I to continue is closings some in cycle how and and start guide. And also will people as really work quarter, are out throughout upside improvement see we to our times improve plays are to There we houses we there so our confident converting to it downside. going mean, closings. we ultimately

John Lovallo

Thank been your to hit what those And has there meaningful then Great. sales? to you. ability or resell cancellations margin has ASP been a the and

Mike Murray

strong, John. – still been been It’s very

mortgage resell the you sometimes. X-week resell seeing able to the to homes immediately. the those we it and re-qualify a just process, be X been that still have buyer doesn’t to It happen We But still have. a for could process XX-week time it are we good demand cancellations. By through

John Lovallo

guys. Thanks, Great.

Operator

line BTIG. is Thank is Carl question you. Carl, from next And Reichardt the live. coming your from

Carl Reichardt

compared cancellations guys In higher you just folks at really can’t or is would in rates, scared cans, to? I’d concerned of in jobs. issue, look to do? are about little ask past a the your their is is Thanks. high other a change Good you psychological? their folks the see of value how sort about sense wanted the that especially – this which that as cycles this might like your I economy you what acceleration of words, everybody. to morning, mathematics or They are this of just afford house more sense, the prices, attribute

David Auld

Hi, John.

probably think of a both. it’s I little

increase of I a Toward think payment basis about it. part end of June, rates of period. point in we a or XXX X the June, had was shock long-term middle X-day over

again, seen our country. impacted think I XXXX, I’ve people in when deteriorated, values still not history ‘XX, typical it. that market and Most our remember ever ‘XX worst of which housing

very we and sell the So I will wise are are getting good we headed where pause. as I market mean, continue I response about feel we to there. houses out

you XXX X does but basis – psyche. higher increase it rates in impact days, So points

Carl Reichardt

Yes.

market? then David. are are a horizontal? construction. your you is of you were that the Thanks, would Okay. slowing are getting Thanks. How plan And just have that question, open a from be related on vertical would – the second prevent if you or communities internally So to in that issues change, more just that of function to seeing in terms delays delays you seeing

Paul Romanowski

the continue vertical than some see we horizontal had side, I time. a addition so, to been process that look I communities the today. we think a to yes, permitting Any and of bit it new seen delays bringing that hence don’t have lower what it’s starting side, online to it’s getting and on of challenge we communities think that mean online in delays if we to. on seen than in I necessarily on have guide aggregate little at in are previously different stabilize the better in our I to side vertical think But the and the you bringing terms will guiding both. be

Carl Reichardt

everybody. Thanks, Paul. Thanks,

Jessica Hansen

Thanks, Carl.

Operator

your And Kim from is line Stephen you. live. ISI. is Evercore Stephen, coming from next question the Thank

Stephen Kim

wanted Great. management. a much, talk Yes, inventory little your I Thanks bit to about guys. very

very You terms levels. lot statistics give of that a are helpful in of spec

are, X,XXX still specs well I finished think, pretty Your normal. below

specs are that’s assume construction the time. and under Your due cycle I high, quite to

then numbers land So you spend. inventories – and the some land gave – around

overarching thinking get of process view sense should your CIP, And get want where the for ask level your what inventory that levels? we and should your go to for see the to the try may next spec to specs? quarters you as to we as is construction you’re wanted expect number where in construction, couple with to? you And it? What see to under that just dollars I be construction over So desired finished a increases,

Bill Wheat

Sure, Steve.

relatively the bit a terms In homes, But we’re those typically still levels been completed X,XXX today at to is of our quite sell as been we spec levels. low you always at quickly higher. Still historically, look as looking We’ve abnormally if at low. can. we’re we’ve

completed to will have we more those, the goal we’re So make not than completed on don’t level two to but that return and to normal more continue through and I community a think sure move one specs a or the age. that be they specs, always at seeing

our little times. we’re year see we cycle of year normal you elongated inventory times, this when could anticipate turning more level well. our slower to will homes in year. cycle a than a hopeful had that with But been improvements and to into terms each we times In twice We’ve number our us and the there overall cycle of could inventory, next that the production, housing historically, historically normal looking as get

our the of from monitoring total we’re total as that XXs to demand, demand that And percentage current ranged reflect part then starts have But and to we low to levels going XXs. the production moderation forward. closely of that of starts look adjusting spec appropriate we twice very determine historically, as turn the our will so in a to low be level the

total normal the over levels our looking just at and best homes can range that we the adjusting our we’re – overall will spec inventory alongside demand to current right our kind be as coming so market. space, spec months in and position ourselves and so through we And now, SAR And of overall.

Stephen Kim

you So is of progress your go in forward just likely dollars to quarters? think in to do construction clarify here on that, that as over the we couple next Bill, rise

Bill Wheat

with on have cost home think seeing rise basis, inflation. per a that we I been

well expected the there more current think fourth and homes start that’s is our an as as of normal in our fairly that, we the in we I from so yes, remain. total deliver of quarter. quarter decline And But the that and inventory And inventory, in homes number fourth element level. the will fourth that us typically than homes quarter for to

Stephen Kim

Yes.

Okay.

factors been some right incentive got we to got strike it’s are in seasonal you now consider expect where recently, Shifting this there. incredibly And do But to of you that next the the much So we I’m amidst recognizing higher I is business, level buyer gears normal curious, normal low. your to you where in the quarter normal? levels, that so? near-term, how what versus guess relative what are go incentives or meaning would now. than

David Auld

normal of – chasing Actually, buyers I lower reopening would homes, out are we’re some difficult. in we been finding there has buyers little still than the a still They right would probably of a now, say sales qualified more what incentive. lot consider efforts a interesting. our

There a will So of program today incentive the buy. not I’d anticipate – out lot point, some normal. to still is it less I probably than people overall, return normal. at for inventory say there to but is

Jessica Hansen

community typically returns. manage is what market market, demand, to tied go community maximize and ultimately we do market we they do, will be it will where which to by And by

Stephen Kim

thanks very it. much, guys. Well, Appreciate Absolutely.

Operator

Cleveland Thank Bosshard is you. next from Eric, live. Company. And coming is your line from the question Eric Research

Eric Bosshard

you. thank morning, Good

more is where XX to seen quarter Where Obviously, time. for inflection? with of what this the I XX curious feels but we specifically, out as recent like has And understand what down period more there, the that cancellation guess, that’s has been? curious Just a in still days comment, a happened the bit expectation the in could lot there you into look more I elevated the the XQ? rates? is that of drill or buyers you’ve XX And last if

Bill Wheat

during the quarter, range. normal In they of the the the Cancellation rates part first in quarter. were

a below for For while had us, normal. been we

did it the was then the which normal range. in average brought up. in sharply it definitely the increased And So for June, quarter overall then

July, As still trend not elevated, far in continued I as is level. higher, a today it still much on has at elevated would an but say it’s

to gross forward. And very and so we’re that very homebuyers other will provide monitoring that level But we activity there. be our incentives still monitoring to for demand we’re our affordability going of said and thus closely and we’re a with core sales along far, responses out like measures good we’ve seeing trying

We’re smoothly cancellations our rather thus reselling far.

demand that in environment will in some sales our over stability so few find we’re months. hopeful here And environment and the the cans we next

Eric Bosshard

geography, versus in variation on then level a a of your And I’m either move mix up or across secondly, price terms is differentiation in standpoint, the is if higher geographies? there entry end rates points? there is or curious impact any any you behavior within and price if difference sort could, any from or higher So of similar the geographic product had or of points,

Mike Murray

first-time move But the pause and goes. seeing homebuyers the affordable that nature. that buyers company live. are comfort I is are the that’s first-time an products potentially still And the in first-time XX% and and some the out expectations, versus in from buyers market alluded provide as were are certainly mortgage lot our that payment, quarter. there housing we business of sensitive, given to up providing first-time is homes of value buying where a biggest qualification closed they of part but they probably taking home those but of able need we a impact question those And expectations in primarily necessity. interest saw home. our still in this more to certainty substantial We’ve homebuyers and closings been our think focused are number discretionary a Buyers the rate place a buyer, rate side on earlier on need June value to around mortgage summer to more of more

out homes people need. our So buying of we’re still seeing

Eric Bosshard

That’s helpful. Thank you.

Operator

JPMorgan. Mike is next Mike, And you. from the coming line is from Thank your Rehaut live. question

Mike Rehaut

of comments and when I everyone. XXX anywhere the margin are from up current increased Good bit different gross that or conversations over last private morning, we’ve rate X Appreciate heard little if XXX Thanks. to the incentives drill in down a the incentives to on have with the we’ve and heard basis guidance. wanted our X months possible all builders, points. guidance

guidance Your roughly only midpoint down is about sequentially. XXX bps

seeing to at in of do end you we’re had a say, heard. as so in into is increase terms those the X pace XXX that to we’ve make working through that want kind accurate, are seeing of effect, of does that I So, you’re that – sense brought that, just lower or if let’s XXX, range the make has in make you this that X you’ve terms sense And that comments July? or what back continue sales desired of think rise incentives in the you last to level in to months,

Bill Wheat

in chime lot gross expecting Mike, little we bit had margin trends may going mentioned, guys locked to they that on the enter our we a as that on starts QX. guide Gross more backlog on these in with quarter. we And as rates It margin the I’ll in their a mortgage forward. itself. buyers start close of are incentives with

we QX close the visibility have to we so to see to margins there. that those more we to in And homes expect expect

are we be the the So quarter to will and the those a more visibility little are our biggest likely homes that into our that of selling do current guide. incentive homes in some more close, current environment. that’s still we to exposed piece We have

expect some the to well. And a so those homes, of factored there few guide as which more into incentives in has we’d be been

don’t market I level of in say the buyers are marching coming have in will comments environment, in their closings current partially some all. but around rates will at and reflect wouldn’t so you are the incentives, have inaccurate in I many that And our locked backlog QX. closing those some also and towards the think of reflect But quarter I

Mike Murray

certainly, the and also a down. cost we the has categories, General that inflationary significantly, lumber our earlier cost at it. pressures most to the talked over guidance, driver up again The of lumber we rose environment bit, off different of now it’s at a It is but big XX was over X frankly, months. faced started different margin as about past great X we times and it deal of across pricing, a months back of went past the homes back reflective fell variability had

the So process homes well. the impact an deliver, margin gross they as going through push production as those are have on and to

Mike Rehaut

that’s No, Great. very that Appreciate color. helpful.

or in little Secondly, know I you And continued been highlighted How earlier repurchase. it’s fall more margins, of of still the remarks are about moderate off and share at balance should should it in repurchase share – And we levels we prepared the ‘XX. very sheet don’t you a and they share level forward-looking. repurchase a dial ‘XX? back your given but over you’ve healthy on pace little the cash the moderately market that strong of obviously last a flows a of low a in, assuming some Would your softer strength count of we’re levels expect your bit think continued you’ve share been years reducing rate. cliff, a To for continue. How obviously, couple things about where single fiscal digits. extent softer we should and that still

David Auld

Our share, opportunity growing has see as consistently funding We don’t for market we many with homeownership goal possibly that expanding balanced homebuilding don’t day see in growth. can. changing just to changing. families ‘XX. there, our over or supporting be and operating ‘XX I time, as out the is that our – plan X inventories been the consistent from ‘XX, And I

Mike Rehaut

much. so Thanks Great.

Operator

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

Matthew Bouley

you Thank everyone. Good morning, for the taking questions.

normal, on to gross look I Just an the kind curious I a is margins, David scenario? business could of a limited another return if environment incentives here, earlier, just know how where visibility do in guess here. to outline as one ‘XX might to in such margin you different alluded way But gross the asked of the

Bill Wheat

of level impacted see conditions. are. a market change increases a now, the we talked about top already Well, our rising. right expect The out. and line bit start price is anytime than flatten to incentives costs And we in to moderate We’ve do quicker

becomes cost are three will that really beginning for already to it us through, So categories of a up quarters. on an some be then We’ve labor And lumber, start seen to that able usually then our opens door costs see addressing in relief to from higher tailwind puts quarters side. well. more coming which some be we with inflection still But near-term coming where two the or opportunity start pressure margins. begins, the other and as on that as

And goal to as depend pace that we do be will can on prices the impact Where on best side incentive we as and much margin the housing can be, we so the maintain see that good as returns demand. from we a will cost offset the strength as the to can dependent to levels of to will that our will on generate. generate balance with market and – flattening be

David Auld

working flag. downturn. best for that to to going of the formula for individual what – the out we’ve been it’s working come with Same – return the Ultimately, drives down on coming

ROI, possibly as returned, of more the We construction it’s the that’s we ROE. because focus. we more with and change. became can we margins inventory the were out house it’s At there, every long-term build Our delivering every could not best we end when the can. we to margins deemphasized it’s returning to That’s that and day, gross is focus put expanded house deliver our we the process we challenging wanted going

Matthew Bouley

have Thank which XX% gentlemen. for ask helpful, gross a question, really And the obviously That’s then you one, second to you. that. at margin. Got I impairment

concern is anything it an investor like this point, not here. given We’re but at near that

I the average to of there So would you that you on severe national your ask the way housing where what as that not below something going to portfolio softness to portion there as is of the like in portfolio declines a more able definition. home question the average highlight impairments, type vulnerable within any is longer would you portion impairments of be portfolio, may guess is look to the Thank vulnerable might to the communities to certainly, persists? to be price any the basically, be by more point be But potentially consider be this just or you. – might

Jessica Hansen

Matt. Sure,

led most we’re a at margin. XX% you which important the is think point, I starting with gross

in a list we’d to a that gross before a off prices. impairments. So way to of what deem any even do margin any would price broad-based erosion we the from really that are more on impairment we sort analysis any approaching we get It internally and have to impairments, a even of signifies significant because pretty of declines pickup in a watch decline. they to have home long are watch point thorough list now right that we’re our have that home take projects margin would really don’t see sort from We big see

there a to are say higher ones I piece market So transition, But home right of down prices wouldn’t one others. continue if markets would others, as at being further first. than to would point is there we’d we any as our certain those come now. through than risk be point move the that portfolio where to we certainly,

Matthew Bouley

Jessica. Alright. Thanks, Thank everybody. you,

Operator

next And Alan, question your the live. & is coming Zelman from you. Alan Thank from Ratner line is Associates.

Alan Ratner

guys. morning, for questions. Hey, my taking thanks Good

demand perhaps traffic there the increase it’s And far, elastic the to First certain been or But at of maybe where what driving know on inelastic any early so there are I incentives as you’re increased seems innings are incentives you you’re seeing one any markets where meaningful what more incentives. Are have as there. and orders? offering where based incentives. effective them? markets increases less And curious elasticity far on on seeing those in even

Paul Romanowski

as Alan, I yet. pattern don’t seen definite a of we’ve think

additional to homes driving what and we have the of to rise. house. been of converting near-term we the norms the as put already as has at we’ve still in that out, generally our think has been driving incentives market and are convert terms to able conditions completed, with being get We’ve that traffic a need Traffic have that a we’ve rate the stated, in terms slowed homes buyers into the historical this below are those total change traffic. cancellation on point about. I have we’ve based accomplished a are in incentives trying just still that talked those But speaking, lot do effective of and

the we’re we to so the market is adjust looking driver needs And will of And drive pace the for. as the flag-by-flag community-by-community that. returns

Alan Ratner

Appreciate that. Got it.

Second of bit about drill for least lot is rent talked might an that a that in – the at the bull one people business. Only few sidelines for last of period kind be point a was communities little of a fill have able there the if would where question, this quarters. of build demand of soften I love rent kind time to your core for than on which this quarter, sold void. to bit But build lower the perhaps that the targeting extended capital on does all part maybe

have parties their what you’re rent in build appetite and early next for sales the investors or shift thinking you ‘XX. maybe the curious the with communities? round communities seeing expectation your quarter space? the your seen for to. market in that conversations BFR as demand Have of you What’s even selling some I guidance and you any about these know in in So for the you’re fourth

Mike Murray

investors. is We we to heavily communities by the take very that. for Certainly, equation market costs interest long-term strong encouraged valuation still financing impacted still when very those see by and

and see homes. up are demand moving units these So them. process the we people in there costs open a demand into we – these to it, seeing for still of for still leasing, but of is with volatility front strong periods longer completed they begin tremendous the we’re the little communities and those underwriting. in to end their It’s to on complete get And in still as transactions,

we’re creating as encouraging those mentioned, that And in of in as so interested lot cash there investing very flow a assets capital is, that’s you ultimately assets today.

Alan Ratner

you some A Have homes pushing your your land, for shift of in for process more year, a more quarter or that you selling than if BFR to thought an follow-up a run are the and XXX,XXX seem earlier to total on you than you shifted communities kind to lots at quarters would so the XX,XXX a like you roughly, are perhaps ago? planning rent of I pipeline, look lot if that from there perhaps rate when two that’s of land probably sale that for need opportunity could. any is is year, which it lot

Mike Murray

more portfolio. evaluate looking in in for certainly slows in We a that build for real positions without because user longer estate terms different market, our of in estate. little cannibalizing our great we demand and ways of real position to business is – land the to gets always that monetize that If rapidly given different thought way rent down a a market, a pace land it’s then sale for sale for of the owner

pools bear. capital other brings it So, to

a buys. repurposed aspect sale. land certainly our are years mean X at purchase. projects we to rent, identified the Today, not they do have continues. build-to-rent from process years that being in the have of originally So, X is a may we on buys underwrite underwriting land and executed as that we look ago, valuations I for We for for-sale basis

Alan Ratner

that color. Appreciate Thanks Mike.

Mike Murray

you. Thank

Operator

is Thank Truman, line coming is the you. from question Research. from And Patterson next live. Wolfe your Truman

Truman Patterson

metro you a update well based the exit of Eric’s Hoping June my kind up peers could And give Hey. on for an then performance. rate one of all order of are Good in following you morning or just lay your seeing question, as regional what questions. land your taking as on everyone. Thanks even July? on gave

you on hoping color metros? some the can give or out Just underperforming

Jessica Hansen

we on exit other. the first are each again, so we you specify all I sure at rate question. make right your question we Can looking think answer

Truman Patterson

Yes.

orders. June Your

kind Just July trying decline how was is to of get trending? an the there, what update and

Jessica Hansen

guide early be orders we the year-over-year quarter sales Well, our that expected did being don’t X%. on and speak to came essentially ever a Okay. said, for in we down in at we June we to flat monthly basis, That specifically. a conference

And does earlier in made that talked the day result the July. we think worst a out in in gotten pretty since necessarily can in to. demand decent July, closing because one continued far selling softening said the comments, you we still I those sales challenge, cancellation of tell rate have quarter, the and would most has then been of have but are see pickup of hasn’t have already So, so his and but it elevated be do into level sales moderation did in rates spiked June a June, both we that market month we in rates to of of every and see as after Q&A our stayed that a responses most Bill worse and June, that and June our homes quickly demand of

Truman Patterson

outside Okay. you metros color any Perfect. And kind on then seeing metros or strength? are any of problem

David Auld

yes, doesn’t for a Yes. exist drive with norm, going has about expectations we are Is we for demand, just But that company problematic. the being of those continued points are historical the four there areas, are my areas mean are basis shock desire a industry. really Texas, mark. days, talk rates and pause, XXX go Payment to – yes, history in to and is numbers. Florida, demographics, our of expectation, to stressed history out think absolutely. there continue and to good national in or a the continuing enforced be back It’s on year from I going prior I reset to in lines It from absolutely. the when the some up next or pace. General to my strong kind all stable us, get get today. a and

in all good So, Horton. D.R.

Truman Patterson

Perfect. And Okay. kind ask asked owned-land I a Matt want then about But to differently. little impairments. of

what conditions any order your position. recent contracts? need Have those deals? of option see of to to the to more market really all really walk you sort heavy land transformed to And would sheet prior you the compared cycle, of balance from perhaps all rework in any started You

Mike Murray

way the of deliveries having future important land that change those portfolio, as neighborhoods. will that evaluating and we selling identified to that through option to the the value conditions move work it and have constantly the through have working land everybody the of are we end of home are work But all the ripple to we with benefits make that we to one all Those same projects ultimately we continue to and chance front continue have we the through market chain, the position neighborhood in about are homes buyers at company, projects land. the projects a the We the decisions we very together of them. starts – and is portfolio. understands with get That’s to the in we going

as it’s And we So, reflect the continually we to conditions, acceleration current needed. to an whether will portfolio rework making or project. always our on-the-ground continue of adjustments are deceleration given

Truman Patterson

all. you Thank Okay.

Operator

[Operator your live. the Maklari Susan Susan, is question Goldman And from Sachs. is line coming next Instructions] from

Susan Maklari

that My future, first There Good how to some better changes through the in. take morning question lumber back builders everyone. is lumber. going aligning in are you. coming are with Thank them actually the

are uncertainty seeing think of volatility considering you the to hedge and are that the – would in Given demand, some starting about or you perhaps those you costs?

Mike Murray

Sorry. Is that for a sales pitch Goldman?

Susan Maklari

No.

Mike Murray

bring to work the not with hedge the our We to those to suppliers positions, possible. value job tried local we lumber historically and sites and of have to any partners best the

us. not we our function at certainly if We how yet sense to a business. in will look or make that evaluate possibility are markets it offset risk things But that’s to yet for going have seen those

Susan Maklari

Yes.

appreciate I My is land spend. on Okay. question second that.

obviously quarter. allocated You about talked what you in the

on thoughts even? and you where and this to you last perhaps it year where how think about may year initial any As about to year, have relative upcoming the think been that go

Bill Wheat

today. Susan, only XXX,XXX own lots we Yes. about

are So, we we buying a are finished constantly put on production lots lots our larger and almost that basis. and more, a purchases just-in-time of more of into percentage essentially

replenish to be lot we supply So, the continuing owned along will way. our

portfolio a adjusting on basis. optioned Mike said, our As constant

inventory So, spend lots here, conditions and those see and steady homes the demand our transition the plans positioning Obviously, reinvestment we set. the conditions and into to match and our our and year. then of we we market will be how next pipeline. of go the our there expect land will I as the with And depth that then land still align we our and evaluating current a will demand, as replenishment be strength would

Susan Maklari

Good Alright. Thank with luck Okay. you. Great. everything.

Operator

from coming line is And next is from your Wells question Raghavan the you. Deepa, Deepa Thank live. Fargo Securities.

Deepa Raghavan

you market the on everyone. by comment Thanks pricing surprise I pricing, or Good Truman my within you pricing? resilience elements had decline were question. if morning of Can asked through for any question orders had trends, the that a you question some a provided your talk a though. Hi. color. or volume Wasn’t prior surprised in I on on was moderation that markets? or taking clear follow-up your

David Auld

Surprised. probably turn. great surprised, a that I don’t know it’s

our think there to creations and formations, responding job housing more my are and that I still – belief are We there mean demand belief, it’s buyer I homes is being is built.

past. long pause the a and couple both was one And disruption, have But And absolutely. time. days he so regional probably doing have been talked market. cycles the conversation with it the worse, a market been very I elongated presidents about our I doing in Both difficult. about think is this ever. selling been of could in best second this models This get we long when we this I a homes have And of have a were talking time. ago, sales in And

people in you So, people is are understand we I what homes, to have that going out those that homes. That’s do. going how uncertainty I adjust, put But to when I out want figure buy mean there there. guess to we to are we

create going it start close sell, of [ph]. to up, cut is. market-by-market, however up this That’s that’s – are start build, And to flag-by-flag, what going ownership division-by-division, so want home to opportunities. And you we we the and company mission are

are to we going do. So, that’s what

Bill Wheat

it’s determine exactly very adjustments early what occur. And trends, to of may in current the still magnitude Dave, it’s

there evaluating payment when is We a buyers are basis earlier, adjustment period. a rates there now on is when are are shock in a that – spiked, right of rate we week-by-week David an bit that where still shock. period little And as adjustment said – or a

they them are they sure them into purchase. get adjust to we homes going how to expectations are so adjusting the with want that to and we to make And

Deepa Raghavan

a are much you frankly, space am aware supply reasonable I been what provide just issues. My how printing be follow-up under start Fair is you near-term? expect start to could The start circumstances to on here pace, what over the And look, units enough. XXXX, quarter. starts pace thoughts chain XX,XXX I mean would this on space unable XX,XXX was into any by on XXXX, the you thoughts based recently? but grow volume have that guided for trimmed

Paul Romanowski

challenges largely pace and big meet and our in the conditions. Deepa, basis, pace starts that’s catch forward. we the start capacity. our quarters our to markets, from giving on will start and We ability supply we production homes chain prior purposefully and with move production market labor leading to the looking chance, reduced over a our And continued the giving this had last the and up into vendors go-forward start again, the at paces to people quarter, in and and that those adjust market, those

pause And start looking we as this an that are the and So, for. have are drive our period we units will mentioned, we as pace early still adjustment. we in we want to deliveries we maintain find base,

Jessica Hansen

if the we too guidance anything have out, to November. a feel fiscal year, on say not. then position we the for and a we high-level certainty but in some little doing full market. reassess or hopefully, be market, on it’s bit ‘XX, more And If depend And going to comfortable in give in early it’s will to the settled we that will

makes share. to conditions our really be position But going going us always maximizing most to ourselves to are sense and returns. it’s in We the market of market consolidate and grow what to terms up

Bill Wheat

homes that of into our next inventory. of and number year positioning Part is going

XX,XXX and we close XX.X between guiding have homes are We coming to the quarters. and in inventory, in today, XX.X

to and going to QX will inventory that next we supplement drive will the it beyond levels with start So, our well to we and then the as pace in year. drive with are year go volume into

Deepa Raghavan

Thanks Fair enough. very good luck. much and

Operator

the Anthony is you. question Citigroup. live. is your Pettinari from line Anthony, from coming Thank next And

Asher Sohnen

under wanted pandemic. I least for currently selling prior control to largely you Anthony. This Hi. just And that to is at on Asher Sohnen are ask, on land the think was homes partially put I

for sort contract you to possible else, start under before exhaust how very it compare would favorable trying putting now that be might roughly just And are to long basis? cost these lots gross prices at So, margins? looking to and lots to hold the you that generally, those current of all then margins gross quantify how just on new

Jessica Hansen

across country prices the Land and varied. increases rate land the in of vary have prices

talked to contracted lot basis dates the quarter contracted over at relatively maybe flowing may being year, it quarter-to-quarter and continue it. it increase the a in our to we for last costs on vast expect our we amount what seen to have buying we of than quarter, a more foot are a So, land lot in quarter. have through we of square what’s and increase low costs we it with basis, closings you our done X in years to in different see a the for have in closings. mid-single last be all through And really would not each future on each flowing that terms digit modest

Asher Sohnen

then this sort you quarter And demand, anticipated I if starts to Understood. Thanks. slowed better heard correctly. match of

level peers and D.R. supply/demand cycles? on So, level, of maybe slowdown, the how among share or a is your compared discipline see about trying in you do just gain maybe housing do to strategic Horton think to prior you competitors around the

David Auld

I accelerating on think much flow, compared focused is prices. land industry on cash disciplined, return, cycles, to more more prior the much much entire more focused

June, So, the look reaction starts, increases. rate think look industry very, you to at I the starts, at fast our very you in

going what that and stabilize stay are August. starts see and ‘XX, rates can July ‘XX. happens a the they will it see is will just our them, We ‘XX, the starts pricing and we expectation But to today offerings when buyers are than I in to you disciplined. And was in up. back you different But world and think see tick buying comfortable it’s then adjust

business got today. have building a real You that’s assets

Bill Wheat

a that’s strategy. part specific to always gains, And then market of core our share

Asher Sohnen

will Okay. Thanks. over. pass I it

Operator

you. the your is Rafe, from from question is And coming Rafe Bank line America. Jadrosich Thank live. next of

Rafe Jadrosich

of to a Thanks June, the spike sort on the question. and about with just decelerate, talked the shock Has seen continued for the taking moderation trend. I you the In my demand we mortgage of affordability July some comments wanted or and on of rate. Good sort in follow-up have stabilization reset? morning. to Hi.

Mike Murray

This more in seasonal early year, It’s we The We we see to the summers, complete seeing to It’s still are. of still moving say. as see and out traffic we buying little homes the have People the middle we slower think into Hard a are past are falloff. seasonality. I not quarter where models. much summer perspective. little not a where few But seen people probably a still little back that bit we coming gets normal environment. a from homes. close. more to into the a zero traffic It’s the seasonality,

Rafe Jadrosich

that you. And coming land come any material relief been you with demand Thank That’s on the Okay. Are down. commented slower prices you the helpful. potentially down? the in Has there labor and market? on cost then outlook side seeing

Paul Romanowski

in process, little always over and demand. labor we on and on a behind little things at to materials flow think housing in the going one No, a land you come just the conditions, it basis we react probably than pause a last And then at be It’s localized really to we the see really see land. slower down look like market we to as the and rise is again, has. and adjust a of will first, – I are to this going market. it It’s the time based

David Auld

will say, I also Rafe.

plan buy market for have years. it. a pricing We to expectations, the where that see we future have it in position don’t if in land imbalance does pipeline And controlled versus us a put we multiple have very our we of deep

ability to that’s an got think if decision. extended land the in we acquisition have the period our for prudent We pause

Rafe Jadrosich

sense. Good. you. That makes Thank

Operator

questions Thank to today. you. to call for I the would like remarks. all hand now for back and Auld ladies we And closing time that’s the David gentlemen, have

David Auld

you speaking appreciate And housing in Thank you Horton country. quarter of creation time family, forward November. are hard call What the force share entire Horton thank D.R. driving today a in and everybody’s results fourth executive look the important. this with to for your you, is you again affordable do the on Paul. to work. focus to and Don in and you We our team, the

finish this to Let’s move and year ‘XX. on

Operator

conference. and ladies you, Thank today’s conclude gentlemen. does This

for at this have lines your and disconnect day. wonderful a may You Thank your time, you participation.

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