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. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments following the presentation. If you would like to enter the queue to ask a question, please press star one on your telephone keypad at any time. I will now turn the call over to Jessica Hansen, Vice President of Investor Relations for D.R. Horton. Thank you, Paul, and good morning. Welcome to our call to discuss our results for the third quarter of fiscal 2022. Before we get started, today's call includes forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Although D.R. Horton believes any such statements are based on reasonable assumptions, there is no assurance that actual outcomes will not be materially different. All forward-looking statements are based upon information available to D.R. Horton on the date of this conference call, and D.R. Horton does not undertake any obligation to publicly update or revise any forward-looking statements. Additional information about factors that could lead to material changes in performance is contained in D.R. Horton's Annual Report on Form 10-K and its most recent quarterly report on Form 10-Q, both of which are filed with the Securities and Exchange Commission. This morning's earnings release can be found on our website at investor.drhorton.com, and we plan to file our 10-Q tomorrow. After this call, we will post updated investor and supplementary data presentations to our Investor Relations site on the presentation section under News and Events for your reference. Now, I will turn the call over to David Auld, our President and CEO. Thank you, Jessica, and good morning. I am pleased to also be joined on this call by Mike Murray and Paul Romanowski, our Executive Vice Presidents and Co-Chief Operating Officers, and Bill Wheat, our Executive Vice President and Chief Financial Officer. The D.R. Horton team delivered a strong third quarter, highlighted by a 53% increase in earnings to $4.67 per diluted share. Our consolidated pretax income increased 54% to $2.2 billion on a 21% increase in revenues. Our consolidated pretax profit margin improved 540 basis points to 24.8%. Our homebuilding return on inventory for the trailing 12 months ended June 30 was 41.7%, and our consolidated return on equity for the same period was 35.1%. These results reflect our experienced teams, their production capabilities, and our ability to leverage D.R. Horton's scale across our broad geographic footprint. Housing market demand remained strong during most of the quarter. In June, we began to see a moderation in demand and an increase in cancellations due to the rapid rise in mortgage rates and continued inflationary pressures across most of the economy. The supply of both new and resale homes at affordable prices remains limited. Although demand has slowed from the frenzied pace we experienced over the past year, there are still qualified buyers in the market today as household formations continue and inflationary pressures drive rents higher. 54% of the homes we closed in the past 12 months were priced under $350,000, and our average sales price is approximately $100,000 lower than the average of other public home builders, positioning us to continue aggregating share. There are still disruptions in the supply chain and tightness in the labor market that continue to delay the completion of our homes under construction. These construction delays and changes in demand environment led us to reduce our full-year closing guidance for fiscal 2022. We purposely slowed our number of home starts in the third quarter to position our inventory to align with market conditions. Although the uncertainty of this market transition may persist for some time, we believe we are well-positioned to meet changing market conditions with our experienced teams, affordable product offerings, flexible lot supply, and our strong trade and supplier relationships. The strength of our balance sheet, liquidity, and low leverage provide a significant financial flexibility, and we will continue managing our product offerings, incentives, home pricing, sales pace, and inventory levels to optimize returns. Mike? Earnings for the third quarter of fiscal 2022 increased 53% to $4.67 per diluted share compared to $3.60 per share in the prior year quarter. Net income for the quarter increased 48% to $1.6 billion on consolidated revenues of $8.8 billion, which was in line with our expectations. Our third quarter home sales revenues increased 18% to $8.3 billion on 21,308 homes closed, up from $7 billion on 21,588 homes closed in the prior year. Continued construction delays caused by disruptions in the supply chain and tightness in the labor market caused us to close fewer homes than expected during the quarter. Our average closing price for the quarter was $391,200, up 20% from the prior year quarter. Paul? During the quarter, we continued to sell homes later in the construction cycle to better ensure the certainty of the home close date for our home buyers, with almost no sales occurring prior to start of home construction. In June, our sales pace slowed, and our cancellation rate increased when mortgage interest rates rose significantly. The cancellation rate for the third quarter was 24%, compared to 17% in the prior year quarter. As a result, our net sales orders in the third quarter decreased 7% to 16,693 homes, and our total net sales order value increased 8% from the prior year to $6.9 billion. Our average number of active selling communities increased 5% from the prior year quarter and was up 1% sequentially. The average sales price of net sales orders in the third quarter was $415,800, up 16% from the prior year quarter. Bill? Our gross profit margin on home sales revenues in the third quarter was 30.1%, up 120 basis points sequentially from the March quarter. On a per square foot basis, home sales revenues were up 3.9% sequentially, while stick and brick cost per square foot increased 2.4%. The increase in our gross margin from March to June reflects the broad strength of the housing market we experienced most of this year. The strong demand for homes, combined with a limited supply, allowed us to raise prices and maintain a very low level of sales incentives in most of our communities. As we have already mentioned, demand has moderated in June and to date in July. As we adjust to current market conditions, we expect the pace of our sales price increases to slow during the fourth quarter and for our incentive levels to increase from historical lows. To address affordability concerns, we are offering mortgage interest rate locks and buydowns to our buyers, and we are beginning to offer other sales incentives as necessary on selected homes and inventory and to drive sales traffic to our communities. We currently expect our home sales gross margin in the fourth quarter to be lower than the third quarter. Jessica? In the third quarter, homebuilding SG&A expense as a percentage of revenues was 6.6%, down 50 basis points from 7.1% in the prior year quarter. This quarter, our homebuilding SG&A expense as a percentage of revenues was lower than any quarter in our history, and we remain focused on controlling our SG&A while ensuring that our infrastructure adequately supports our business. Paul? We purposefully slowed our home starts to 17,900 homes this quarter as we work to position our inventory with an appropriate number of homes relative to market conditions. We ended the quarter with 56,400 homes in inventory, up 19% from a year ago and down 6% sequentially. 27,200 of our total homes at June 30th were unsold, of which 1,400 were completed. For homes we closed this quarter, our construction cycle time increased by roughly one week compared to the second quarter as supply chain issues remain challenging as they have for the past year. However, we are beginning to see some stabilization in cycle times on homes we have recently started. During the quarter, we will evaluate demand and adjust our homes and inventory and starts pace to meet current market conditions. Mike? At June 30th, our homebuilding lot position consisted of approximately 600,000 lots, of which 22% were owned and 78% were controlled through purchase contracts. 24% of our total owned lots are finished, and 47% of our controlled lots are or will be finished when we purchase them. Our large capital efficient and flexible lot portfolio is a key to our strong competitive position. Our third quarter homebuilding investments in lots, land, and development totaled $1.75 billion, of which $890 million was for finished lots, $680 million was for land development, and $180 million was to acquire land. Paul? For the third quarter, Forestar, our majority-owned residential lot development company, reported total revenues of $308.5 million and pre-tax income of $52.7 million. For the full year, Forestar now expects to deliver 17,000 lots and generate $1.4 billion of revenue with a pre-tax profit margin of greater than 14%. Forestar's owned and controlled lot position at June 30 totaled 97,000 lots, essentially flat with a year ago. 59% of Forestar's owned lots are under contract with or subject to a right- of- first- offer to D.R. Horton. $258 million of our finished lots purchased in the third quarter were from Forestar. Forestar is separately capitalized from D.R. Horton and had approximately $500 million of liquidity at quarter end with a net- debt- to- capital ratio of 32.8%. Forestar is well positioned to meet changing market conditions with its strong capitalization, lot supply, and relationship with D.R. Horton. Bill? Financial services pre-tax income in the third quarter was $128.3 million, with a pre-tax profit margin of 50.5% compared to $70.3 million and 37.3% in the prior year quarter. The increase in our financial services pre-tax profit margin this quarter was primarily due to a significant acceleration of interest rate lock commitments. During the third quarter, a majority of our buyers in backlog for expected fourth quarter closings entered into interest rate lock commitments. These locks were executed earlier than normal due to the increase in mortgage rates, which resulted in higher- than- normal financial services revenue in the third quarter. This revenue acceleration will likely cause our financial services revenues and profits to be lower than normal in the fourth quarter. For the quarter, 99% of our mortgage company's loan originations related to homes closed by our homebuilding operations, and our mortgage company handled the financing for 69% of our home buyers. FHA and VA loans accounted for 41% of the mortgage company's volume. Borrowers originating loans with DHI Mortgage this quarter had an average FICO score of 724 and an average loan-to-value ratio of 88%. First-time homebuyers represented 56% of the closings handled by the mortgage company this quarter. Mike? Our rental operations generated pre-tax income of $43 million on revenues of $110 million in the third quarter, related to the sale of one multi-family rental property consisting of 298 units and one single-family rental property totaling 84 homes. During the nine months ended June 30, our rental operations generated pre-tax income of $215 million on revenues of $489 million. Our rental property inventory at June 30 was $2 billion compared to $760 million a year ago. Rental property inventory at June 30 included approximately $700 million of multi-family rental properties and $1.3 billion of single-family rental properties. As a reminder, our multi-family and single-family rental sales and inventories are reported in our rental segment and are not included in our homebuilding segment's homes closed, revenues, or inventories. We continue to expect that our rental operations will generate approximately $800 million in revenues during fiscal 2022. We plan to continue growing our rental inventories as we position our rental operations to be a significant contributor to our revenues, profits, and returns in future years. Bill? Our balanced capital approach focuses on being disciplined, flexible, and opportunistic. At June 30, we had $2.8 billion of home building liquidity, consisting of $1.2 billion of unrestricted home building cash and $1.6 billion of available capacity on our home building revolving credit facility. Our home building leverage was 17% at the end of June, and home building leverage net of cash was 12.1%. Our consolidated leverage at June 30 was 24.9%, and consolidated leverage net of cash was 19.3%. At June 30, our stockholders' equity was $18.1 billion, and book value per share was $52, up 35% from a year ago. For the trailing 12 months into June, our return on equity was 35.1% compared to 29.5% a year ago. During the first nine months of the year, our cash provided by home building operations was $125 million. During [audio distortion] for $854.2 million, an increase of 29% compared to the same period a year ago. As a result, our outstanding share count at June 30 was down 3% from a year ago. We still expect our outstanding share count will be approximately 3% lower at the end of fiscal 2022 than the end of fiscal 2021. Jessica? We are providing guidance for our fourth fiscal quarter. However, due to the current uncertainty in the market, the ranges for our volume and margin guidance are wider than normal. Based on the projected completion dates of our homes under construction and current market conditions, we expect to generate consolidated revenues in the fourth quarter of $10 billion-$10.8 billion and homes closed by our home building operations to be in the range of 23,500-25,500 homes. We expect our home sales gross margin in the fourth quarter to be in the range of 29%-29.8% and home building SG&A as a percentage of revenues to be around 6.3%. We [audio distortion] we expect our income tax rate to be approximately 24% in the fourth quarter. We plan to [audio distortion] and c onsistently paying dividends and repurchasing shares. David? In closing, our results and position reflect our experienced teams and production capabilities, industry-leading market share, broad geographic footprint, and diverse product offerings across our multiple brands. Our strong balance sheet, liquidity, and low leverage provide us with significant financial flexibility to effectively operate in changing economic conditions and continue aggregating market share. We plan to maintain our disciplined approach to investing capital to enhance the long-term value of the company, which includes returning capital to our shareholders through both dividends and share repurchases on a consistent basis. Thank you to the [audio distortion] to more American families. This concludes our [audio distortion] [audio distortion] Also, today, we ask each participant to limit yourself to one question and one follow-up. Please hold while we poll for questions. [audio distortion] In early June, you had mentioned needing about 18,000 orders to hit the full year delivery target. I mean, the market has obviously changed since then, but you've delivered 59,000 year- to- date. There's another 29,000 in backlog, which would give you 88,000 deliveries without even converting any of the fourth quarter orders. What I'm trying to understand is, does the lower delivery outlook reflect, you know, concerns about cancellations, construction delays or both? Both. We have had continued construction delays, but we also recognize the market has softened. We feel like we're very well positioned to deliver on what our new guide is for closings. As I alluded to, I mean, our ranges are bigger than they normally would be because of some of the uncertainty in the market. There's upside to our closings guide. There's also downside. I mean, we really are gonna see how it plays out as we work throughout the quarter, but we're confident our people are gonna continue to improve, and we'll ultimately see some improvement in our construction cycle times and start converting houses to closings. Great. Thank you. You know, what has been your ability to resell the cancellations and, you know, has there been a meaningful ASP or margin hit to those sales? It's been very strong, John. We've still been able to resell those cancellations. Just doesn't happen immediately. By the time you resell it and re-qualify a buyer through the mortgage process, it could be a four- to eight-week to 12-week process sometimes. We're still seeing, you know, good demand for the homes that we have. Great. Thanks, guys. Thank you. The next question is coming from Carl Reichardt from BTIG. Carl, your line is live. Thanks. Morning, everybody. I wanted to ask about the change in cancellations as you guys look at this. Is your sense that this is really just a mathematics issue, high rates, higher prices, folks can't afford, or is this more psychological? In other words, folks are a little scared of what the value of their house might do, they're concerned about the economy or their jobs. I'd just like sort of your sense, especially compared to past cycles, of how you see the acceleration in cans, which you'd attribute that to. John, I think it's probably a little of both. I think payment shock was part of it. Toward the end of June, middle of June, we had a 100 basis point increase in long-term rates over about a three- or four-day period. I think that impacted it. Most people still remember 2008, 2009, 2010 when you know worst housing market I've ever seen. Values deteriorated, which again, not typical in our history of our country. A pause. I mean, I feel very good about where we're headed market-wise and the response we're getting as we continue to sell houses out there. But you increase rates 100 basis points in four days. It does impact buyer psyche. Yeah. Okay. Thanks, David. Second question, just on the delays you're seeing in terms of vertical construction. How are delays related to horizontal? Are you seeing issues that would prevent you from getting the communities open that you have internally in your plan? Or if that were to change, would that be more a function just of a slowing market? Thanks. I think it's a little bit of both, but yes, I mean, we have seen delays, you know, in the permitting process and bringing communities online, you know, in addition to the you know, the delays that we've seen on the vertical side. If you look at that in aggregate and hence our guidance to, you know, lower than what we had previously been guiding to. You know, I don't think that it's getting necessarily better today, any different than, you know, we're starting to see it stabilize some on the vertical side. The horizontal side, I think will continue to be a challenge in terms of bringing new communities online on time. Thanks, Paul. Thanks, everybody. Thanks, Carl. Thank you. The next question is coming from Stephen Kim from Evercore ISI. Stephen, your line is live. Great. Thanks very much, guys. Yeah, I wanted to talk a little bit about your inventory management. You know, you give a lot of statistics that are very helpful in terms of spec levels. Your finished specs are, you know, I think 1,400, still pretty well below normal. Your under construction specs are quite high, and I assume that's due to the cycle time. You gave some numbers around land inventories, land spend. I wanted to just ask, where should we be thinking your finished specs? What is the desired level that you wanna get to? As that number increases, what should we expect to see for your under construction spec levels? With the overarching view, to try to get a sense for where your construction, your CIP, construction in process, inventory in dollars may go over the next couple of quarters as you see it? Well, sure, Steve. In terms of our completed spec homes, we're always looking to, you know, sell those as quickly as we can. We've been at abnormally low levels. Still, the 1,400 we're at today is still, you know, relatively low. If you look historically, we've typically been at levels quite a bit higher. I think we're seeing a return to a more normal level on completed specs, but the goal will always be to, you know, not have more than one or two completed specs in a community and continue to make sure that we move through those and that they don't age. In terms of our overall production, you know, historically, when we had historically normal cycle times, you could anticipate us turning our housing inventory, our number of homes and inventory twice each year. We've been a little slower than that this year with elongated cycle times, but we're looking to, you know, into next year, you know, hopeful that we'll see the improvements in cycle times and can get back to a more normal level there as well. We're adjusting our starts to reflect the current, you know, moderation in demand, and we'll be monitoring demand very closely to determine the appropriate level of starts going forward. As part of that total, you know, production that we look to turn twice, historically, our spec levels as a percentage of that total have ranged from the low 40s% to the low 50s%. Right now we're kind of in that normal total spec range overall. We'll just be adjusting our starts pace, looking at our overall homes and inventory and our spec levels and alongside demand over the coming months to position ourselves as best we can through the current market. Just to clarify on that, Bill, do you think that your construction in progress, in dollars is likely to rise, as we go forward here over the next couple of quarters? I think on a cost- per- home basis, we have been seeing that rise with cost inflation. I think there's an element of that yes, that will remain. Our homes and inventory, our total number of homes and inventory expect to decline in the fourth quarter, from the current level, and that's fairly normal for us in a fourth quarter as well as we deliver more homes typically than we start in a fourth quarter. Yeah. Okay. You have some seasonal factors there. Shifting gears to the incentive levels, you know, amidst this buyer strike that we got right now, I guess I'm curious where the level of incentives are versus what is normal in your business, recognizing that, you know, recently it's been, you know, incredibly low. Where are we now relative to what you would consider normal, and how much higher than normal do you expect to go near term, meaning in the next quarter or so? I would say right now we're probably still lower than what we would consider a normal incentive. There's still a lot of buyers out there chasing homes, finding qualified buyers a little more difficult. Actually, reopening some of our sales efforts has been interesting. Overall, I'd say the incentive program today is probably less than normal. I anticipate at some point it will return to normal. There's still not a lot of inventory out there for people to buy. Where they go will ultimately be tied to market demand, and we'll do what we typically do, which is manage it market- by- market, community- by- community to maximize return. Absolutely. Well, thanks very much, guys. Appreciate it. Thank you. The next question is coming from Eric Bosshard from Cleveland Research Company. Eric, your line is live. Good morning. Thank you. Just curious if you could drill down a bit more to the last 30 or 45 days where you've seen the inflection, and I guess specifically, I understand the comment there's still a lot of buyers out there, but curious what has happened with cancellation rates. Obviously, the 24 in the quarter feels like that's more elevated in this more recent period of time. Where has that been and what is the expectation for that, as we look into 4Q? Cancellation rates during the quarter, you know, in the first part of the quarter, they were in the normal range. You know, for us, we had been for a while below normal, so it was in the normal range. It did definitely increase sharply in June, which then brought the overall average for the quarter up. As far as you know, to date in July, we still say it's elevated. Has not continued on a trend much higher, but it still is at an elevated level, and so we're monitoring that along with our gross sales activity and responses to, you know, incentives and other affordability measures we're trying to provide for our home buyers, and we'll be monitoring that very closely going forward. like we've said thus far, we're still seeing a very good level of core demand out there. We're reselling our cancellations, you know, rather smoothly thus far. We're hopeful that we'll find some stability here in the demand environment and our sales and cans environment over the next, you know, few months. Secondly, if you could in terms of either mix or geography, I'm curious if there's any variation or any difference in behavior on sort of entry level versus, you know, within the move up or higher end of your price points. From a geographic standpoint, is there any differentiation or is the higher rates had a similar impact across price points, product, and geographies? I think there's certainly more impact potentially on the buyers that are mortgage rate sensitive, but we still saw 56% of our closings were first time home buyers in the quarter. You know, we closed a substantial number of homes in June to those first time home buyers that need a place to live. We've been able to provide some interest rate lock products from our mortgage company that's given those buyers comfort and certainty around payment. But they're still buying a home out of need and necessity. You know, buyers that are more discretionary in nature, you know, and as a question earlier alluded to qualification versus value expectations, they're probably more on the value expectation side of taking a pause this summer and seeing where the housing market goes. The biggest part of our business is focused primarily on the first-time buyer, first-time move-up, and providing an affordable home. We're still seeing people that buying our homes out of need. That's helpful. Thank you. Thank you. The next question is coming from Mike Rehaut from JPMorgan. Mike, your line is live. Thanks. Good morning, everyone. Appreciate all the comments and guidance. I wanted to drill down a little bit, if possible, on the you know, gross margin guidance and the current rate of incentives that we've heard have increased, you know, over the last one or two months. I mean, we've heard in our conversations with different, you know, private builders, incentives are up anywhere from 100-300 basis points. You know, your guidance midpoint is down only about roughly 100 basis points sequentially. It seems that, you know, you're at the lower end of that, you know, let's say if that range is accurate, 100-300 basis points. Just wanna make you know... Does that make sense to you in terms of, you know, those comments that make sense in terms of what we've heard? Do you think, you know, this increase that you've had in the last one or two months, has that, in effect, kind of brought sales pace back into you know, a desired level, or are you seeing incentives continue to rise as we're working through July? Mike, I'll start with the gross margin guide, and these guys may chime in a little bit more on the trends on incentives going forward. Gross margin guide itself, it starts with our backlog as we enter the quarter. As we mentioned, we had a lot of buyers that locked in their mortgage rates that they're expecting to close in Q4. So we have more visibility to those homes that we expect to close in Q4 and to the margins we expect to see there. That's the biggest piece of our visibility into our guide. We do still have some homes that we are selling in the current quarter that we will close, and those homes are more likely to be a little more exposed to the current incentive environment. We'd expect there to be a few more incentives in some of those homes, which is then factored into the guide as well. I think your comments in the market around level of incentives, I don't, I wouldn't say those are, you know, any, you know, inaccurate at all. Our closings in the coming quarter will partially reflect some of the current environment, but will also reflect some buyers that are in backlog and have their rates locked and are, you know, marching towards closing, you know, in Q4. The margin guidance we talked about earlier is also reflective of the cost environment that we faced over the past six-nine months as we started homes at different times and at different lumber pricing, frankly, was a big, big driver of it. General inflationary pressures across most of our cost categories, but certainly the lumber had a great deal of variability over the past 12 months. You know, it rose significantly, fell off a bit, it went back up again, and now it's back down. As those homes push through the production process and deliver, they're gonna have an impact on the gross margin as well. Great. No, that's very helpful. Appreciate that color. Secondly, you know, you highlighted earlier in your prepared remarks about, you know, the continued levels of share repurchases. You know, I know it's a little forward-looking and, you know, but you've been on a pace, you know, over the last couple of years where you've been reducing your share count, you know, low single digits. You know, to the extent that we're in, obviously, a little bit of a softer market and that, you know, moderately softer, you know, levels continue, you know, how should we think about share repurchases, you know, for fiscal 2023? I mean, assuming, you know, things don't fall off a cliff, but they're obviously still at a more moderate rate, would you dial it back? You know, given the strength of your balance sheet and still, you know, strong cash flows and, you know, very healthy margins, should we expect some level of continued share repurchase in 2023? You know, our plan from day one has been consistent over time, balanced with supporting the homebuilding inventories and funding the growth. I don't see that changing in 2023, 2024 or 2025. We just, our goal is to be out there operating consistently, growing our market share, expanding homeownership opportunity for as many families as we possibly can. I don't see that changing. Great. Thanks so much. Thank you. The next question is coming from Matthew Bouley from Barclays. Matthew, your line is live. Good morning, everyone. Thank you for taking the questions. Just another one on gross margins, asked a different way here. You know, I know the visibility to 2023 is limited here. I guess in an environment where incentives do return to normal, as David alluded to earlier, just curious if you could outline kind of how the gross margin of the business, you know, might look in such a scenario. Well, anytime we see a change in market conditions, and right now we do expect the level of price increases to moderate and start to flatten out, we've already talked a bit about incentives rising. The top line is impacted quicker than our costs are. We usually see, you know, two or three quarters where our higher costs are still coming through, and that puts some pressure on near-term margins. You know, as that inflection begins, that opens the door up to be able to start addressing on the cost side. We've already seen some relief from lumber, which will start to be more of a tailwind for us in coming quarters. Other categories really beginning with labor becomes an opportunity as well. Our goal will be to do as much as we can on the cost side to offset the impact that we see from, you know, prices flattening and incentive levels, to maintain as good a margin as we can, balanced with pace to generate the best returns that we can generate. Where that will be will be dependent on the strength of the housing market and demand. Ultimately, it's gonna come down to what drives the best return for that individual flag. Same formula we've been working on, working with coming out of the downturn, where we've— Our number one focus is returning the best we can with the inventory that we put out there, and that's not gonna change. We de-emphasize gross margins when we could deliver every house we wanted to build. As the construction process became more and more challenging, we expanded margin because we were delivering every house we possibly could. At the end of the day, it's returns, it's ROI, it's ROE. That's our focus. Gotcha. No, that's really helpful, gentlemen. Thank you for that. Second one, I have to ask the impairment question, which, you know, obviously at a 30% gross margin, we're not near anything like that at this point, but given it is an investor concern here. You know, I guess the way to ask the question is, within your portfolio, you know, certainly there's gonna be communities below the average by definition, but is there any, you know, would you be able to highlight or point to any portion of the portfolio that might be more vulnerable to something like impairments where the home price declines, you know, may not be as severe as you might look on a national average? You know, just basically what portion of the portfolio would you consider to be potentially more vulnerable to impairments, you know, the longer that this type of softness in housing persists? Thank you. Sure, Matt. I think you led with the most important point, which is we're starting at a 30% gross margin. That really signifies that we're a long way off from any sort of broad-based impairments. It would take significant margin erosion from declines in home prices. We don't have any projects right now that are what we deem internally on our watch list because they're approaching a gross margin that we would have to do a more thorough impairment analysis. To really see even any sort of pickup in a watch list before we even get to the point of impairments, we'd have to see pretty big home price declines. I wouldn't say there's any one piece of our portfolio right now that we would point to as being at higher risk than others. Certainly as we continue to move through a market transition, if there's certain markets where home prices come down further than others, those would be the ones we'd point to first. All right. Thank you, Jessica. Thanks, everybody. Thank you. The next question is coming from Alan Ratner from Zelman & Associates. Alan, your line is live. Hey, guys. Good morning. Thanks for taking my questions. You know, first one on incentives, and I know it's early innings as far as, you know, any meaningful increases there. Curious what you're seeing on the elasticity of those incentives where you are offering them. You know, are there certain markets where, you know, perhaps the incentives have been more effective at driving increased traffic and orders? Are there markets where, you know, based on what you're seeing so far, you know, demand seems less elastic or maybe even inelastic to any increase in incentives? You know, Alan, I don't think we've seen a definite pattern as of yet. You know, I think that the incentives that we have put out, as we've stated, you know, are still at this point below, you know, historical norms, are being effective in terms of driving the traffic. You know, traffic in total has slowed just based on the market conditions and the change and that we've already talked about. You know, but, generally speaking, those incentives have accomplished what we've been, you know, trying to do in terms of driving additional traffic and converting the homes. As our cancellation rate has risen, you know, we've been able to convert those homes that are completed, and we still have a lot of buyers with a near-term need to get into a house. We'll adjust as the market needs to flag-by-flag, community- by- community, drive the returns we're looking for, and the pace is the driver of that. Got it. Appreciate that. Second question. You know, would love to drill in a little bit on your build- for- rent business. You know, only one community sold this quarter, which was a bit lower than the last few quarters. You know, a lot of people have kind of talked about the, you know, maybe the bull point where if kind of the core demand does soften for an extended period of time, that there's all this capital on the sidelines, targeting build for rent that perhaps, you know, might be able to fill at least part of that void. Curious what you're seeing in your conversations, you know, with build- for- rent investors and the parties that you're selling these communities to. Have you seen any shift in their appetite? As you market the next round of communities, I know you have some guidance for sales in the fourth quarter or maybe even thinking about early 2023, what's your expectation for the demand in the BFR space? We still see very strong interest when we take communities to market and still very encouraged by that. You know, certainly the valuation equation is heavily impacted by long-term financing costs for those investors. You know, in periods of volatility in those costs and their underwriting, it's a little longer to get the process completed with these transactions, but there's still tremendous demand for them. There's still, you know, on the front end of it, as we see these communities begin to complete units, and we open up the leasing, we're still seeing strong demand for people moving into the homes. That's ultimately very encouraging as we're creating cash flow assets that there is, as you mentioned, a lot of capital interested in investing in those assets today. A follow-up on that, if I could. Have you shifted any communities that are earlier in the planning process from for- sale to for- rent? You know, when you look at your total lot pipeline pushing 600,000 lots. You know, if you're selling 80,000 homes a year, which is kind of your run rate for the year, roughly, it would seem like that's a lot of land, probably more land than you need. You know, perhaps there's an opportunity to shift some of that to BFR more so than perhaps you thought a quarter or two ago. We certainly evaluate that in terms of demand for the for sale in our portfolio. You know, if pace slows down in a given market, then our land position gets a little longer in that market. Looking for ways, we always thought build-to-rent is a great way to more rapidly monetize land positions without cannibalizing for sale business because it's a different user of that real estate and different owner of the real estate, so it brings other capital pools to bear. We certainly have repurposed projects that we originally may have identified three- four years ago as for sale. Today, they're being executed as for- rent, and that process continues. I mean, we underwrite our land buys on the basis of a for- sale purchase. We do not look at the valuations from a build-to-rent aspect in underwriting land buys. Appreciate that color. Thanks a lot, guys. Thank you. Thank you. The next question is coming from Truman Patterson from Wolfe Research. Truman, your line is live. Hey, good morning, everyone. Thanks for taking my questions. You know, hoping you all could just give an update on your June order exit rate, as well as what you're seeing in July. Then, following up on Eric's question, one of your peers kind of gave a lay of the land based on, you know, metro or even regional performance. Just hoping you can give some color on the out or underperforming metros. I think we're all looking at each other. Can you specify your first question on exit rate again, so we make sure we answer the right question? Yeah. Your June orders. Just trying to get an update there, what kind of decline was and how July is trending? Okay. Well, we don't ever speak to monthly orders specifically. That being said, you know, we did guide at a conference in early June that we expected our sales to be essentially flat for the quarter on a year-over-year basis, and we came in down 7%. That does tell you that in, you know, most of June, because rates spiked pretty quickly after we made those comments, most of June, we did see softening, and June would have been our worst sales month of the quarter, as a result of both the moderation in demand and the uptick in cancellation rate that we've already talked to. I think Bill said earlier in one of his Q&A responses that our cancel rate hasn't necessarily gotten worse since June, but it has stayed elevated into July. Sales, you know, have continued to be a challenge, but we do still see a decent level of demand out in the market and are selling and closing homes every day so far in July. Okay, perfect. Any color on any kind of problem metros or metros you're seeing outside strength? You know, Texas, Florida, I think are gonna continue to drive national numbers. Carolina has continued to be stable and strong for us. We're really, you know, from a historical norm, from my history with the company and my history in the industry, it's a good market. I mean, to talk about some areas being stressed or problematic just doesn't exist today. Is there a pause? Is there a reset in kind of the buyer expectation? Yes, absolutely. Payment shock when rates go up 100 basis points in four days? Yes, absolutely. Demographics, demand, the desire to get out of urban areas, all those are in force and continuing, y ou know, our expectations for next year are that we're gonna get back on pace. All good in D.R. Horton land. Okay, perfect. You know, Matt asked about kind of owned- land impairments. But I wanna ask a little differently. You know, you all have really transformed your balance sheet compared to the prior cycle, you know, heavy option land position. Have you all started to rework any of those deals? You know, what sort of market conditions would you really need to see in order to, you know, perhaps walk from any of the more recent contracts? We're constantly evaluating the land portfolio. That's, you know, one of the benefits of having the option position we have is that we get the chance to continue to make decisions about projects as we move through them. Those land projects that we've and neighborhood projects that we've identified in the portfolio, very important to the future deliveries of the company, and we're gonna continue to work through those neighborhoods. You know, everybody we work with understands that we're all working together in the same market conditions, and a change at the front end of selling homes to home buyers will ripple all the way through the value chain, and it starts ultimately with the land. We will continue to rework our portfolio as needed. We always, you know, are continually making adjustments to reflect current on-the-ground conditions, whether it's an acceleration or deceleration of a given project. Okay. Thank you, all. Thank you. Once again, ladies and gentlemen, to remind you to please limit yourself to one question and one follow-up per participant. The next question is coming from Susan Maklari from Goldman Sachs. Susan, your line is live. Thank you. Good morning, everyone. My first question is going back to lumber. There's some changes that are coming through in the futures, better aligning them with how builders actually take the lumber in. Given the volatility that you're seeing and the uncertainty in demand, are you considering or would you think about perhaps starting to hedge some of those costs? Susan, is that a sales pitch for Goldman? Oh, not at all. Sorry. No. We have historically not tried to hedge any of those positions, and we work with our local suppliers and partners to bring the lumber to the job sites at the best value possible. We have not yet seen how those markets are gonna function or evaluate it yet if that's a possibility for us. We will certainly look at things that make sense to offset risk in our business. Yes. Okay. Okay, I appreciate that. My second question is on land spend. You know, you obviously talked about, you know, what you allocated in the quarter. As you think about the upcoming year, any initial thoughts on, you know, where that may go and how to think about it relative to where you've been this year and perhaps last year even? Yeah, Susan, we only own about 130,000 lots today, so we are constantly buying lots. More and more, a larger percentage of our purchases are of finished lots, and that we essentially put into production almost on a just-in-time basis. We'll be continuing to replenish our own lot supply along the way, as Mike said, adjusting our optioned portfolio on a constant basis. I would expect there to still be a steady reinvestment and replenishment of our land pipeline. You know, obviously, as we see how the current market conditions transition here, we'll be evaluating, you know, the depth of demand, the strength of the demand, and then positioning our land and our lots and our homes and inventory to match those conditions as we go into next year. Our spend will then, you know, align with the plans that we set. Okay. All right. Great. Thank you. Good luck with everything. Thanks, Susan. Thank you. The next question is coming from Deepa Raghavan from Wells Fargo Securities. Deepa, your line is live. Hi. Good morning, everyone. Thanks for taking my question. I had a follow-up on the prior question asked by Truman on market color. Wasn't clear if that was a volume comment that you provided or pricing. I had a question on pricing, though. Can you talk through any surprise elements within your orders pricing trends, you know, moderation or declines, or were you surprised by resilience in some of your markets? Surprised? I don't know if surprised is probably a great term. We're responding to you know, it's my belief, I think our belief that buyer demand is, I mean, there's still more housing formations, job creations than there are homes being built. You know, I think we've talked about elongated cycles in the past. This pause, disruption, you know, could it get worse? Absolutely, it could. But you know, I've been doing this a long time, and in a conversation with one of our regional presidents a couple of days ago, you know, we were talking about the market, and you know, he and I both have been doing this a long time, both have been in sales models when selling homes was very difficult. You know, this is probably the second-best market I've ever seen. I guess, you know, I understand that there's uncertainty out there, but when you have people that want to buy homes, I mean, we're gonna adjust. We're gonna figure out how to put those people in homes. That's what we do. That's market- by- market, flag- by- flag, division- by- division, however you wanna cut it up, we're gonna build, sell, start— We're gonna start, build, sell, and close homes, and create homeownership opportunities. That's what the mission of this company is, so that's what we're gonna do. Even just in the current trends, it's still very early to determine exactly what magnitude of adjustments may occur. We're still evaluating that on a week- by- week basis. When, as David said earlier, rates spike, there's an adjustment period, and we're in that adjustment period right now where buyers are, there's a little bit of a rate shock or a payment shock. They're adjusting expectations, and we're figuring out how to adjust with them to make sure we get them into the homes that they want to purchase. Fair enough. My follow-up is on start pace this quarter. The 17K start pace, how much was trimmed by supply chain issues? And any thoughts on what could be a reasonable start pace near term? I mean, look, frankly, I'm aware you're unable to provide volume thoughts through into 2023, but under what circumstances would you expect to grow over the 85K units guided here for 2022, just based on the start pace that you've been printing recently? Deepa, looking at our starts, and we purposefully reduced that start pace over the last quarter, again, to meet the market, and that's, you know, largely from production and production capacity. We had to have big start pace in the prior quarters leading into this. With continued, you know, challenges in the supply chain and the labor markets, you know, giving our people and our vendors the ability to catch up and move those homes forward. On a go-forward basis, we'll adjust those start pace to market conditions. You know, as we've mentioned, we're still early in this pause period and adjustment, and as we find our pace, we'll maintain the starts pace that we want to drive, you know, drive the units and deliveries we're looking for. Too early to say anything on fiscal 2023. You know, we'll reassess in November. If we have a little bit more certainty in the market, then, you know, hopefully we'll be in a position to give some high-level guidance for the full year, but it's gonna depend on the market. If it's settled out and we feel comfortable doing that or not. We're always gonna position ourselves to grow and consolidate market share, but it's really gonna be up to market conditions and what makes the most sense in terms of us maximizing our returns. Part of that positioning going into next year is our number of homes in inventory. We have 56,000 homes in inventory today, and we're guiding to, you know, closing between 23,500 and 25,500 in the coming quarter. We're gonna go into the year with inventory as well, and we'll supplement it with our starts pace in Q4 and beyond to then drive to the volume levels that we'll drive next year. Fair enough. Thanks very much, and good luck. Thank you. The next question is coming from Anthony Pettinari from Citigroup. Anthony, your line is live. Hi, this is Asher Sohnen on for Anthony. I just wanted to ask, I think you're currently selling homes on land that was largely or at least partially put under control prior to the pandemic. Just looking at the prices for lots that you're, you know, putting under contract now and then trying to hold all else equal, would it be possible to sort of quantify, you know, how those gross margins on these new lots might compare to, you know, current gross margins? You know, and just generally, very roughly, how long before you start to exhaust that favorable cost basis? Land prices vary across the country, and the rate of increases in land prices have varied. You know, we've talked about each quarter, what our lot costs have done, on a square foot basis, and we've really not seen more than a low- to mid-single-digit increase in terms of what's flowing through our closings each quarter. With the vast amount of land we're buying on a quarter-to-quarter basis and it all being contracted for at different dates over, you know, it may be in the last year, it may be in the last three years that we contracted for it, we would expect to continue to see a relatively modest increase in lot costs flowing through in our future quarter closings. Understood. Thanks. Then, you know, you slowed starts this quarter to better sort of match, you know, anticipated demand, if I heard correctly. Just on a strategic level, do you see D.R. Horton as maybe trying to gain share in the housing slowdown? You know, how do you think about the level of discipline around supply-demand maybe among your peers and competitors, you know, compared to prior cycles? I think compared to prior cycles, the entire industry is much more disciplined, much more focused on cash flow, much more focused on return versus speculating on accelerating land prices. You know, you look at our starts, you look at the industry starts in June. I think very, very fast reaction to the rate increases. We'll see what happens in July and August, but our expectation is that you know, you're gonna see starts stay disciplined. When the rates stabilize and we can adjust pricing and offerings to the buyers and they're comfortable buying, then I think you'll see starts pick back up. It's just a different world today than it was in 2004, 2005, 2006. You got real businesses building houses today. Specific to market share gains, that's always a core part of our strategy. Okay, thanks. I'll turn it over. Thank you. The next question is coming from Rafe Jadrosich from Bank of America. Rafe, your line is live. Hi, good morning. Thanks for taking my question. I just wanted to follow up on some of the comments on the July trend. In June, you talked about the moderation with the affordability shock and the spike in mortgage rates. Has demand sort of continued to decelerate, or have we seen sort of a stabilization and reset? Hard to say. You know, it's early into the quarter as to where we are. You know, the past few summers, we've not seen much seasonal fall off. This year, I think we're seeing a little more seasonality. We still see traffic in the models. We still see people out buying homes. It's not a zero environment. People are still moving into the homes that we complete and close. It's probably coming back to a little more normal seasonality, where the middle of the summer gets a little bit slower from a traffic perspective. Okay. Thank you. That's helpful. You commented on the material cost outlook and labor potentially coming down. Are you seeing land prices come down? Has there been any relief on that side, with the slower demand in the market? No, we really, you know, I think as you look at this process and, you know, again, we're really, you know, at a pause in the market. One of the last things we see to come down is gonna be the land. It's slower to react than, you know, first we should probably see it in the labor on a localized basis and then materials and then land. We'll adjust over time based on market conditions, just like it always has. It's gonna rise and flow a little behind housing demand. I will say, Rafe, we have a very deep pipeline of lots and land that we've controlled for multiple years. It does put us in a position where if we see the imbalance in land pricing versus future market expectations, we don't have to buy it. We've got the ability to pause in our land acquisition for an extended period if we want, if we think that's the prudent decision. That makes sense. Thank you. Thank you. Ladies and gentlemen, that's all the time we have for questions today. I would now like to hand the call back to David Auld for closing remarks. Thank you, Paul. We appreciate everybody's time on the call today and look forward to speaking with you again to share our fourth quarter results in November. To the D.R. Horton family, you are a driving force in the creation of affordable housing in this country. What you do is important. Don Horton and the entire executive team thank you for your focus and hard work. Let's finish this year and move on to 2023. Thank you, ladies and gentlemen. This does conclude today's conference. You may disconnect your lines at this time and have a wonderful day. Thank you for your participation.