Good morning, welcome to the Q1 2023 earnings conference call for D.R. Horton, America's Builder, the largest builder in the U.S. There will be an opportunity to ask questions on today's call. Please press star one on your phone at any time to enter the Q&A queue. During today's Q&A, we ask that participants limit themselves to one question and one follow-up. 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 Q1 of fiscal 2023. 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's 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, which is filed with the Securities and Exchange Commission. This morning's earnings release can be found on our website at investor.drhorton.com. 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 & 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 solid first quarter, highlighted by earnings of $2.76 per diluted share. Our consolidated pretax income was $1.3 billion on a 3% increase in revenue with a pretax profit margin of 17.5%. Our homebuilding return on inventory for the trailing 12 months ended December 31st was 39.5%, and our consolidated return on equity for the same period was 31.5%. Beginning in June 2022 and continuing through today, we have seen a moderation in housing demand due to affordability challenges caused by the significant rise in mortgage rates, coupled with high inflation and general economic uncertainty. Despite these pressures, we still closed over 17,000 homes and sold more than 13,000 homes in what is typically the seasonally slowest quarter of the year. We have seen increased sales activity in the first few weeks of January. While higher mortgage rates and economic uncertainty may persist for some time, the supply of both new and resale homes at affordable price points remains limited, and the demographics supporting housing demand remain favorable. We are well positioned to navigate the current challenging market conditions with our experienced operators, affordable product offerings, flexible lot supply, and great trade and supplier relationships. Our strong balance sheet, liquidity, and low leverage provide us with significant financial flexibility. We will continue to focus on turning our inventory and managing our product offerings, incentives, home pricing, sales pace, and inventory levels to meet market, optimize returns, consolidate market share, and generate increased cash flow from our homebuilding operations. Mike. Earnings for the first quarter of fiscal 2023 decreased 13% to $2.76 per diluted share compared to $3.17 per share in the prior year quarter. Net income for the quarter decreased 16% to $958.7 million on a 3% increase in consolidated revenues to $7.3 billion. Our first quarter home sales revenues were $6.7 billion on 17,340 homes closed, compared to $6.7 billion on 18,396 homes closed in the prior year. Our average closing price for the quarter was $386,900, up 7% from the prior year quarter and down 4% sequentially. Paul. During the quarter, we continued to sell homes later in the construction cycle to better ensure the certainty of the home close date and mortgage rate for our home buyers, with almost no sales occurring prior to start of home construction. Our cancellation rate for the first quarter was 27%, down from 32% sequentially, still elevated from our typical levels. Our net sales orders in the Q1 decreased 38% to 13,382 homes, our order value decreased 40% from the prior year to $4.9 billion. Our average number of active selling communities increased 4% from the prior year quarter was down 1% sequentially. The average sales price of net sales orders in the first quarter was $367,900, down 4% from the prior year quarter. We are continuing to offer mortgage interest rate locks and buydowns and other incentives to drive traffic to our communities, and we are reducing home prices where necessary to optimize the returns on our inventory investments. Our Q2 sales volume will depend on the strength of the spring selling season, and we currently expect significantly higher levels of net sales orders in the Q2 as compared to the first quarter based on historical seasonal trends. Current market conditions and our inventory of completed homes available for sale. Bill? Our gross profit margin on home sales revenues in the first quarter was 23.9%, down 440 basis points sequentially from the September quarter. On a per square foot basis, home sales revenues were down 4% sequentially, stick and brick cost per square foot increased 2%, and lot costs were flat. The decrease in our gross margin from September to December was in line with our expectations and reflects the increased construction costs we incurred during 2022, along with higher sales incentives and home price reductions. We expect both our average sales price and home sales gross margin to decrease further in our Q2 of fiscal 2023. We are continuing to work with our trade partners and suppliers to reduce our construction costs on new home starts. We are making progress in these efforts, but we do not expect to see much benefit from lower costs on homes closed in fiscal 2023. Jessica? In the first quarter, our home building SG&A expenses increased by 6% from last year, and home building SG&A expense as a percentage of revenues was 7.8%, up 30 basis points from the same quarter in the prior year. We are controlling our SG&A during this market transition while ensuring our platform adequately supports our business. Paul? We slightly increased our home starts from the last quarter to 13,900 homes and ended the quarter with 43,200 homes in inventory, down 21% from a year ago and down 7% sequentially. 27,800 of our homes at December 31st were unsold, of which 7,100 were completed. We are focused on improving our housing inventory turnover. With more completed homes now available for sale, we expect our mix of homes sold and closed in the same quarter to increase back toward our normal historical levels. For homes we closed this quarter, our construction cycle time only increased by a few days compared to fourth quarter, which reflects lingering supply chain issues. We are seeing some stabilization in cycle times on homes we have recently started, and we expect our cycle times to improve during fiscal 2023. We will continue to evaluate demand and adjust our homes and inventory and starts pace based on current market conditions. Mike? Our home building lot position at December 31st consisted of approximately 551,000 lots, of which 25% were owned and 75% were controlled through purchase contracts. Our total home building lot position decreased by 22,000 lots from September to December. 32% of our total owned lots are finished, and 53% of our controlled lots are or will be finished when we purchase them. Our capital efficient and flexible lot portfolio is a key to our strong competitive position. We continually underwrite all of our lot and land purchases based on future expected home prices and cost. We are actively managing our investments in lots, land, and development based on current market conditions. During the quarter, our homebuilding segment incurred $4.8 billion of inventory impairments and wrote off $19.4 million of option deposits and due diligence costs related to land and lot purchase contracts. We expect our level of option cost write-offs to remain elevated in fiscal 2023 as we manage our lot portfolio. Our first quarter homebuilding investments in lots, land, and development totaled $1.7 billion, down 21% from the prior year quarter and up 16% sequentially. Our current quarter investments consisted of $900 million for finished lots, $690 million for land development, and $130 million to acquire land. Bill? Financial services pre-tax income in the Q1 was $18.2 million on $137 million of revenues with a pre-tax profit margin of 13.3%. The lower profitability of our financial services business this quarter was primarily due to lower gains on sales of mortgages, increased competitive conditions, and a lower volume of interest rate locks by homebuyers during the December quarter. We expect our financial services pre-tax profit margin for fiscal 2023 to be higher than the Q1, but lower than the full year of fiscal 2022. During the first quarter, 99% of our mortgage company's loan originations related to homes closed by our home building operations, and our mortgage company handled the financing for 77% of our home buyers. FHA and VA loans accounted for 45% of the mortgage company's volume. Borrowers originating loans with DHI Mortgage this quarter had an average FICO score of 722 and an average loan-to-value ratio of 88%. First-time homebuyers represented 55% of the closings handled by our mortgage company this quarter. Mike? Our rental operations generated $328 million of revenues during the Q1 from the sale of 694 single-family rental homes and 300 multifamily rental units, earning pre-tax income of $110 million. Our rental property inventory at December 31st was $2.9 billion, which included approximately $1.9 billion of single-family rental properties and $1 billion of multifamily rental properties. We expect our rental operations to generate significant increases in both revenues and profits in fiscal 2023 as our platform matures and expands across more markets. For the second quarter, we currently expect no multifamily rental sales and to close fewer single-family rental homes than in the Q1. Paul? Forestar, our majority-owned residential lot development company, reported total revenues of $216.7 million on 2,263 lots sold and pretax income of $27.9 million for the Q1. Forestar's owned and controlled lot position at December 31st was 82,300 lots. 57% of Forestar's owned lots are under contract with or subject to a right of first offer to D.R. Horton. $190 million of our finished lots purchased in the Q1 were from Forestar. Forestar is separately capitalized from D.R. Horton and had more than $580 million of liquidity at quarter end, with a net debt-to-capital ratio of 28.7%. Forestar is well-positioned to meet the current challenging market conditions with its strong capitalization, lot supply, and relationship with D.R. Horton. Bill? Our balanced capital approach focuses on being disciplined, flexible, and opportunistic. We are committed to maintaining a strong balance sheet with low leverage and significant liquidity to provide a firm foundation for our operating platforms during changes in market conditions and to support our ability to provide consistent returns to our shareholders. During the first three months of the year, our cash provided by homebuilding operations was $313.9 million, and our consolidated cash provided by operations was $829.1 million. At December 31st, we had $4 billion of homebuilding liquidity, consisting of $2 billion of unrestricted homebuilding cash and $2 billion of available capacity on our homebuilding revolving credit facility. Our liquidity provides significant flexibility to adjust to changing market conditions. Our homebuilding leverage was 12.8% at the end of December, and homebuilding leverage net of cash was 4.4%. Our consolidated leverage at December 31st was 22%, and consolidated leverage net of cash was 13.3%. At December 31st, our stockholders' equity was $20.2 billion, and book value per share was $58.71, up 33% from a year ago. For the trailing 12 months ended December, our return on equity was 31.5%. During the quarter, we paid cash dividends of $86.1 million, and our board has declared a quarterly dividend at the same level as last quarter to be paid in February. During the quarter, we repurchased 1.4 million shares of common stock for $118.1 million. Jessica? As we look forward, we expect challenging market conditions to persist, with continued uncertainty regarding mortgage rates, the capital markets, and general economic conditions that may significantly impact our business. We are providing detailed guidance for the Q2 as is our standard practice, but it is still too early to know what housing market conditions will be during the height of the spring selling season, so we are not providing specific guidance for the full year yet. We currently expect to generate consolidated revenues in our March quarter of $6.3 billion-$6.7 billion and homes closed by our homebuilding operations to be in the range of 16,000-17,000 homes. We expect our home sales gross margin in the Q2 to be approximately 20%-21% and homebuilding SG&A as a percentage of revenues in the Q2 to be approximately 8%-8.3%. We anticipate a financial services pretax profit margin of around 20%, and we expect our income tax rate to be approximately 23.5%-24% in the Q2. We are well positioned to aggregate market share in both our homebuilding and rental operations. Our goal remains to generate consolidated revenues in fiscal 2023 that are slightly higher than fiscal 2022. However, it is realistic to expect that our full year revenues will decline year-over-year, given the environment and pricing actions we are taking. The low end of our current range of expectations includes consolidated revenues down from fiscal 2022 by a mid-teens%, which is unchanged from last quarter. We forecast an income tax rate for the year of approximately 23.5%-24%. We expect to generate increased cash flow from our homebuilding operations and on a consolidated basis in fiscal 2023 compared to fiscal 2022. We also plan to repurchase shares at a similar dollar amount as last year to reduce our share count during this year with the volume of our repurchases dependent on cash flow, liquidity, market conditions, and our investment opportunities. We have $700 million of senior notes that mature during the remainder of fiscal 2023, which we are currently preparing to repay from cash. We plan to continue to balance our cash flow utilization priorities among our core homebuilding operations, our rental operations, maintaining conservative homebuilding leverage and strong liquidity, paying an increased dividend, and consistently repurchasing shares. David? In closing, our results and position reflect our experienced teams, industry-leading market share, broad geographic footprint, and diverse product offerings. 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 entire D.R. Horton team for your focus and hard work. We are incredibly well-positioned to continue improving our operations and providing homeownership opportunities to more American families. This concludes our prepared remarks. We will now host questions. Thank you. The floor is now open for questions. If you have any questions or comments, please press star one on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. We also ask today that participants limit themselves to one question and one follow-up. Please hold while we poll for questions. The first question is coming from Carl Reichardt from BTIG. Carl, your line is live. You may go ahead. Thanks. Morning, everybody. I just want to ask about inventory, unsold inventory. About two-thirds of the inventory that you've got now is unsold. I think normally it's about half when I went back and looked. I just want to make sure, should we be optimistic because you've got product ready to go for the spring when the supply chain perhaps is normalizing a little, which is allowing you to get that ready? Or should we be more pessimistic because you haven't necessarily priced that inventory to move yet? That's my first question. Well, Carl, as you know, I'm always optimistic. We feel very good about our inventory position. You know, through the last three, four quarters, we've limited sales, to better align inventory cost, demand, and our ability to deliver. We are now positioned more in what I would consider a normalized, inventory position, and, again, feel very good about the how we're positioned and where we're heading, into this quarter. Normally coming into the spring selling season, we'd be a little heavier than our normal 50%. Yeah. -spec ratio, but feel really good about what we have in front of us right now for demand. I was looking at the market count now we're about 109 markets, and say four years ago, I think you were about 80 or so. That's a lot. Obviously you all benefited post-COVID by entering a lot of smaller markets that saw a fair amount of demand post the pandemic. Now that that wave is potentially crested, can you talk about how some of the new, especially the smaller, what I call the tertiary city markets, are performing over the course of the last six months? Are they better than some of the major markets, less competitors? Is that growth beginning to wane now that we've seen a little more return to office back to the large cities? Thanks, guys. Carl, we've seen these newer markets and secondary markets performing well for us due to limited competition in those markets. We certainly saw, you know, a strong push to all the secondary markets, you know, with the pandemic and moving people, making them, you know, more mobile. We've been happy with the progression in those secondary markets, and glad that we entered them. You know, Carl. Thanks a lot. Even before the pandemic- Sorry. We did very well in the small markets. Ultimately, it comes back to SG&A and control and the ability to deliver houses incrementally at a competitive advantage to what anybody else out there is able to do. That's been a part of our pro-program. I think you're going to see it continue to be a part of our program. Thanks, David. Thank you. The next question is coming from Matthew Bouley from Barclays. Matthew, your line is live. Morning, everyone. Thank you for taking the questions. Wanted to ask about the construction cost environment. I think I heard you say at the top that you were making some progress, but, you know, I'm paraphrasing, but perhaps not expecting to see as much benefit on the construction cost side on homes closed through fiscal 2023. Obviously, some of your peers have sort of quantified, you know, some of the benefits they might already be seeing on the construction cost side. Just curious if you can, you know, parse that out a little bit as you guys sort of aggregate market share. How should we think about, you know, your ability to press on costs here? Thank you. We've been really successful working with a lot of our trade partners in lowering our cost, and we've gotten a little bit of tailwind from, certainly from the lumber price reductions that have occurred. It just takes a while for those cost changes on the front end to actually show up in a closing, especially with the more recently prolonged build times. It just, it's just a function of the calendar working those new cost structures through the pipeline. The deliveries we see in 2023 were largely you know, first half of the year, especially started in fiscal 2022 in a different cost environment. Typically, lumber prices go up as we move throughout the spring. Although we're seeing a benefit from lumber today, if typical seasonality holds, lumber would actually be a headwind against the cost reductions that we are seeing, on those new home starts that Mike just alluded to. Okay. Got you. Thank you for that color. Then, second one, just kind of following up around the pricing environment. You know, as you've seen sort of some of your peers have, you know, enacted, I guess, different strategies around pricing versus pace here, and perhaps as we get into the spring, we might expect to see. You know, some builders on the grounds, you know, react more aggressively on the pricing side versus, I would argue you guys have been, you know, leading that, you know, first, I guess. as we get into the spring, sort of what are your expectations or perhaps what are you seeing on the ground right now around, you know, your competition and price reductions and, you know, would you expect to see sort of another leg lower on the pricing and margin side through all that? Thank you. You know, we have still, you know, address our incentives with a balance of rate buydowns, you know, financial incentives, along with adjusting price community by community to, you know, drive the returns that we're looking for. You know, as we enter into the spring selling season, you know, we're seeing, you know, some seasonality that we're happy with, as the market starts to lead. We'll continue to adjust to drive the absorptions, you know, by community. All right. Thank you very much, and good luck. Thank you. The next question is coming from John Lovallo from UBS. John, your line is live. Good morning, guys. Thanks for taking my questions. The first one is, you mentioned the first few weeks of January saw increased activity. Can you maybe just elaborate a little bit on that or maybe frame it sequentially or year-over-year? How were incentives in the first few weeks of January relative to December? We talked about on the call that we do expect to see normal seasonality in terms of the move from Q1 to Q2 sales. What we saw in terms of the increased sales activity in the first few weeks of January was a positive early indicator. It is still too early to ultimately say what's gonna happen this spring, but it gave us the confidence to say that we could see normal seasonality, which typically would be about 50% up from Q1 to Q2 in terms of net sales orders. We also did see a slight improvement. It's only a few weeks, which doesn't make a quarter, but we've seen a slight improvement in our cancellation rate in January as well, which also helped give us the confidence to say an increased level of net sales orders in Q2 versus Q1. Got it. That's helpful. Maybe could we talk just about cash flow expectations? It seems like it's gonna be pretty robust here. I mean, you're buying back stock, paying dividends, paying down $700 million in debt. Maybe just your expectations for cash flow and what the expectation for rental investment might be. Yeah, we still expect increased cash flow from our home building operations in fiscal 2023 versus fiscal 2022. You know, we saw our inventory step down slightly this quarter. We will be increasing our starts pace as we move into the spring and then adjusting that to what we see in market demand. We may not continue to see the same pace of cash generation as we did in our first quarter, but we do still expect to see robust cash. We're gonna continue to take our balanced approach to deploying that first and foremost to the home building business next to the rental business. We will still see a substantial increase in our assets in the rental business this year. We're not guiding to a specific growth number there quite yet for fiscal 23 because we're still evaluating the market and evaluating investments as we move through the year. We do expect that level of inventory to increase while we see a significant increase in revenues in that business. Past that, we will continue to pay dividends and continue to repurchase shares. We expect to repurchase shares at a similar dollar volume as last year, which would indicate greater than $1 billion of share repurchases for fiscal 23. Finally, on the balance sheet front, while we're very pleased with our leverage level, we do have $700 million of senior notes that mature in fiscal 2023, $300 million in February, $400 million in August. Currently, just given the overall environment, and our cash flow expectations, we're preparing to pay those debt maturities off from cash. Obviously, we'll evaluate the capital markets along the way to determine whether we want to refinance or not. Right now, preparing to pay those from cash. Great. Very helpful. Thank you. Thank you. The next question is coming from Stephen Kim from Evercore ISI. Stephen, your line is live. Great. Thanks very much, guys. Lots of good information. I wanted to follow up on, I think, Matt's question regarding the cost negotiations, though. I think last quarter you had suggested that you could see the benefit starting to certainly from repositioning your product at least to benefit you by your fiscal Q3. Was just wondering whether or not that process is maybe taking a little longer, or if that was sort of separate from your comments on the labor and product negotiations. Then in your answer to him, I think you also sort of mentioned or volunteered that, you know, you were sort of assuming lumber costs were gonna increase. I just wanted to get a sense of how much of an increase are you assuming you might see in lumber? Are you sort of just conservatively modeling it might go like halfway back to where it was last year? Just give us a sense for what you're incorporating in your outlook for lumber, knowing that you don't know yet, obviously. Most importantly, we don't know. We're taking a probably conservative stance in looking at the fact that seasonally, in a normal seasonal environment, we do see lumber costs increase through the spring. If we are seeing some normalized demands coming back with spring selling season seasonality, would expect that to drive lumber prices higher, which would offset some of the efforts we've made on like-for-like cost reductions. We have been able to get new product starts out, new home starts out that are more reflective to today's environment, smaller homes More affordable homes that should help. On terms of a like for like cost benefit increase, it's just gonna take a little while for that product to move through the system in a material way. I didn't hear a number there. I think I was getting ready to write a number down. I didn't hear a number. You wanna give us a sense or, you know, sort of like how much of the way back, you're sort of thinking lumber might increase? Yeah. We don't have a sense for a number, Stephen. I'm sorry. We're not that good at predicting. We're just taking a conservative approach that seasonally lumber tends to go up in the spring, and that's probably gonna have an impact on our cost and our deliveries later in the year. All right. It does feel, Stephen, like there is some normalcy returning to the market. So, you know, you go back pre-pandemic and, you know, you look at what happened, and did costs get inflated during the last year, 18 months? Yes. Are we fighting to get that back? Yes. But, you know, a commodity price like lumber may go up, may go down, may stay the same. But are we gonna be conservative in our guidance? Absolutely, we are. Yeah. No, no complaints here. I'll say that if lumber goes up because of normalization, I think we'll take it. In regards to your lot count, I noticed that your owned lot count in numbers, you know, numbers of lots, went up a little bit, I think, quarter-on-quarter. It had declined, I believe, you know, in the last two quarters preceding that. I'm curious, are you... Or at least in the last two quarters preceding that. Do you feel like your lot cost, sorry, your lots owned will increase from here? Or do you think we might actually see a further reduction in your actual number of owned lots? Just try to give us a sense for what that number might be, not in year supply, but more like in absolute units. Yes, Stephen. You know, we have worked hard for the lot position that we have and the relationships that we've built and with those developer relationships, we're continuing, you know, It's still hard to get a lot on the ground. So, you know, our lot count as a% of owned, and total numbers, we expect to continue to increase. You know, and some of that will depend on what we see with the spring selling season and through the rest of fiscal 2023. We don't expect that to go down. You know, we expect to see potentially our owned lot supply as a% increase marginally, you know, through this market. As a reference, again, our owned lot finished percentage is only 32%, which is roughly 43,000 lots. We're by no means oversupplied from a finished lot perspective, which is what we're trying to continue to position ourselves for community by community. Gotcha. Thanks so much, guys. Thank you. The next question is coming from Michael Rehaut from JP Morgan. Mike, your line is live. Thanks. Good morning, everyone. Thanks for taking my questions. I just wanted to, you know, circle back to your more recent trend and demand comments. You know, obviously, you mentioned that the first few weeks of January saw some increased activity, and that, you know, you could see a typical 50% improvement in orders in 2Q versus 1Q. That would imply, I mean, if we were to take that, you know, just on a straightforward basis, an order decline of only roughly 20% down year-over-year. I'm curious around, you know, if that's kind of... I know you haven't given, you know, hard guidance or a range, but directionally, if that's how we should be thinking about things. Also, you know, to this point around the improvement that you saw in January, I was curious also if you could kind of give any color around trends intra-quarter during the past first quarter, if that improvement in January was a continuation of perhaps a change in trend that you saw, you know, during your December quarter? I would say during the December quarter, as we mentioned on the call, as you know, Mike, is the seasonally slowest quarter of the year, so we generally don't extrapolate anything that happens in October, November, and December. We don't generally give a whole lot of monthly color, but we felt like based on current market conditions, it warranted talking about the first few weeks of January. That's what we're pleased with, is we've seen what we would typically expect to see as we move through these first few weeks. In terms of the math that you laid out- Yeah. if we do see that normal seasonality, yes, it still would result in net sales down year-over-year, but up very nicely sequentially. Right. All right. You know, secondly, you know, I know there's been a couple questions around the construction costs and the impact there. I think that's kind of been covered pretty well. You know, obviously, another big part is the gross margin guidance for the Q2. You're expecting further declines. You know, I wanted to also focus, though, on pricing trends in the market. You know, if you could kind of give us a sense of, you know, on a total basis, you know, how much net pricing, you know, has come down from, you know, June of last year to today, and, you know, how much of that has occurred in the last month or two? Well, you know, in terms of just pricing, really our net sales orders in the quarter and the average sales price on that is the best indication. Our net sales order price this quarter is around $367,000, I believe. Of course, we peaked last year a little over $400,000. You're already looking at, you know, roughly a 10% decline in our net sales orders. As then we look at our margin guide, you know, going forward, we're taking recent pricing, you know, into effect. You know, we're hopeful that if we see, you know, some normal seasonality and normal demand during the spring that further significant pricing reductions, you know, would not be necessary. We're gonna assess that week to week and month to month as we go through the spring. Our gross margin guide takes into account recent pricing along with the cost trends that we've already been discussing. Just to add, it is very hard to put a lot on the ground. It's very hard to build houses. The overall market is still undersupplied. Long term, I think we've got a great, a great outlook. What happens in the next quarter, you know, we're gonna deal with the market as it comes. Great. Thanks so much. 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. First, has the land market started to capitulate at all on takedown pricing with your all's ASPs down kind of 8% quarter-over-quarter? Are you actually starting to see the land market correct at all with more meaningful price declines, or is it still just too early to tell? I think generally it's still a little too early, Truman. Land is typically one of the stickier parts of the process. As David and Paul both mentioned earlier in the call, it is increasingly difficult to get a lot entitled and on the ground. That is something that has held up pretty well. Anecdotally, there are situations where we're able to make some progress on the land residual with some of our land sellers. Not, not broad trends yet, for sure. Okay. Okay, thanks for that. You all made a recent acquisition in Arkansas. Could you all just kind of walk through the drivers of that purchase? Are you seeing, you know, more small privates, their willingness to sell at, you know, a relatively attractive, you know, valuation kind of pop up given the market slowdown? Yeah. The acquisition of Riggins in Northwest Arkansas gave us a, you know, now I want to say an entrance into the market. We were in there with a couple of communities, but gave us a solid position in a market that has remained strong with good employment growth and limited housing supply. Again, to the earlier question of these secondary markets, a solid market that we are happy to be in. It was a good acquisition and tuck-in for us, with a well-established community with a great lot supply. Gave us immediate inventory and homes in progress, well-respected builder in the market that we're happy to have as part of the family. You know, as far as other acquisitions, we continue to look at those, and, you know, where we have tuck-in opportunities similar to this, we have things that we would explore, but no broad-based change in how we look at builders in the market. All right. Thank you all. Appreciate it. Thank you. The next question is coming from Eric Bosshard from Cleveland Research. Eric, your line is live. Morning. Two things. First of all, the 40% reduction in starts, I'm curious if there's what the discipline or logic is in what you're not starting, if there's buckets of this. You mentioned trying to change the product a bit to fit a price point. Curious if there's something to learn from how you're making those decisions of where you're reducing starts. A lot of our starts decisions, you know, are made within the quarter on the basis of what the sales trends are occurring at that point in time, certainly through late summer and into fall, our first quarter. Mortgage rates spiking up, cancellations increasing. Looking at our current inventory positions, neighborhood by neighborhood, relative to recent sales paces, you know, certainly led us to slow down our starts. Coming into this calendar year into the Q2 some improvement in our cycle time and supply chain issues unsnarling, and we feel like we'll be able to start homes and complete them in a more timely fashion this year. We are trying to meter our starts out a little bit to more closely match our sales demand right now. Eric, I think it's just, I think it's just indicative of the entire industry and lessons learned in the last downturn. I mean, I do believe that there is a discipline around the industry, and it's not just short-term chase every market every day. It's, you know, we're trying to align inventory levels with demand, and it, you know, ultimately it comes back to if you look at the long-term position of industry, there aren't enough lots or houses for the population, and demand that we see taking place over the next 3-5 years. Okay. Related to this, the inventory per community number looks like it's up, and I guess the follow on would be the path forward with starts. From here is, you know, down 40 a pace you maintain for another quarter and then lift your heads up. How do you think about the pace of managing the supply path going forward? I think we saw that the starts kind of align with our sales pace in the quarter, and I think we're gonna look to try to maintain that relationship as through this time of year. As we're seeing good sales demand in the early spring selling season, we'll be replacing those homes with new starts to continue having inventory on the shelf available to sell. We are certainly seeing more homes selling later in the construction process, certainty of delivery date, certainty of mortgage rate and payment are big, important factors for our buyers. We're also focusing very heavily on recovering our housing inventory turnover metrics and getting more efficient with those inventory dollars. Gotta get our turns back up on our housing inventory. As with everything, our starts are managed community by community, market by market by our local operators to focus on not piling up excess completed homes that have been sitting there for an extended period of time. Okay, that's helpful. Thank you. Thank you. The next question is coming from Anthony Pettinari from Citi. Anthony, your line is live. Good morning. Can you talk about the tenure of buyers who canceled this quarter? Were those contracts that were signed in fiscal 4Q or maybe even earlier? You know, is there a larger cohort of buyers who maybe placed orders in the fall but are still at risk of cancellation with rates rising? Just wondering if you can give any color around kind of cancellation trends there. I think as you've seen our cancellation trend moderate and cancellation rate moderate, you know, we have younger backlog that have signed contracts more recently. As Mike spoke to, you know, certainty of home close date and mortgage rate is very important. As we have cycled through, you know, and we're improving our housing inventory turns, I think that's where you're seeing our reduction in cancellation rate. Okay, that's helpful. Then just in terms of renegotiating prices for homes in backlog, has that sort of normalized or died down now that rates have stopped rising and to your point, cancellations have come down? Hopefully, with the rate stabilization we've seen, we'll see stabilization in incentives and pricing environment going forward. Okay. That's helpful. I'll turn it over. Thank you. The next question is coming from Buck Horne from Raymond James. Buck, your line is live. Hey, thanks. Good morning, guys. I wonder if I could dive in a little bit more on the incentives that are out there, you know, the tools that you're using out in the field. It sounds like a lot of builders are having some success with a mortgage rate buydown program, you know, where you're buying down or fixing the mortgage rate below market for, sounds like, for the life of the loan. It seems to be popular out there. I'm wondering if you could maybe elaborate on are you using mortgage rate buydowns? How does that mechanically work, and kinda what does that cost you in terms of, you know, upfront, you know, you know, margin hit or as a% of sales? Yeah, Buck. You know, we do, as ordinary course, use mortgage rate buydowns, and many of those are for the life of the loan. That's been a program we've had in place for quite some time. The costs do vary from time to time, depending on market conditions and timing of when you know, tie up those positions. That's something that we try to make sure that we have in the toolbox for our salespeople, is to be able to offer an attractive mortgage rate to buyers who come in. Okay. Would you say that that's the most effective sales tool at the moment is a buydown, or are you using some other level of incentives? It's gonna vary community by community and over time as to what the most attractive incentive is. We try to put a lot of tools in our division operators' hands to make the best decisions about what's gonna motivate and drive their realtor and buyer traffic into their communities and excite our sales agents with a reason to call and a reason to drive some traffic this week. It might be a little bit of pricing adjustment on a few homes. It might be the rate buydowns, the mortgage financing incentives have been very popular, very heavily utilized, you know. It might be that supply chain's working back out, that we're back to washer/dryer Wednesdays. I mean, there's plenty of incentives out there that we're gonna use to drive a pace to hit a return we need to hit at every given neighborhood. Okay. Thank you. One quick separate topic. On single-family rentals, and it sounds like the guidance quarter-over-quarter is slightly lower in terms of projected sales of single-family rental homes. I'm wondering if that's strategic to kinda hold back the pace of those sales. Just curious, you know, what the demand is like in the marketplace for, you know, and/or the pricing for stabilized SFR homes these days. It's just timing of projects and when they'll be ready, completed and ready and through a sale process. We'll just have fewer this quarter ready to close than we had this past quarter. The first quarter benefited from a few projects that were lined up to close in the fourth quarter of fiscal 2022, had some storm impact and delayed some timing of a few closings there. That 1Q number was probably a little higher than the original production sales schedule was set up for. The business model is still, complete lease up, market and sell. You're starting to see some level of closings each and every quarter, but it is still choppy here in the earlier stages, and we would expect that to become more consistent over time as we get further along with the lots and the houses we have under construction. Awesome. All right. Thanks, guys. Appreciate it. 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. First, you know, I was hoping maybe you could just help me a little bit reconciling kind of the closings results versus the orders. You know, the closings for this quarter came in well above your guidance. The orders were a bit lighter versus what you signaled in mid-November. I thought I heard you say that cycle times, you know, have been relatively stable, maybe even ticked up a little bit. How did you drive the upside to closings without, you know, stronger order activity? Was it just that much of a greater mix of completed sales versus, you know, homes that were a month or two out from completion than you were anticipating? You know, I'm sure that ties into the 2Q guidance as well with your delivery guidance above your beginning backlog. I'm just maybe looking for a little bit more color to understand what's going on there. Yeah. As we see marginal improvement in our inventory turns and home construction times, you know, you're starting to see, and you see that in our numbers, a larger percentage of our inventory homes on the completed side, which allows us to meet the market, which quite frankly is available to us today, which is a shorter term close. We're seeing more homes sell and close in the quarter, getting back more towards historical norms, and we expect to see that on a go-forward basis with the maturity of the home inventory that we have. Got it. Okay. No, that's helpful. Second question, kind of related, but, you know, tying in maybe the margin conversation as well. When you look at your 7,000 completed specs, you know, are you able to provide a little bit more detail on how many of those are, you know, maybe less than 30 days completed? What's more than 30? How is your pricing strategy differ on completed specs as it hits kind of certain thresholds? Is there a level or a point where you get more aggressive on price adjustments, or do you kind of just look at it more holistically? Generally, we talk about a completed spec. We have a pretty aggressive definition of what's completed. It's when it gets into the final flooring stage. Typically, from a home hitting that completion milestone for us, normal conditions, it's probably gonna take between two weeks to four weeks for that home actually to be move-in ready, and more likely to the four week side of that. If we look at how many houses we have out there that are kind of aging in the buckets, you know, we have about 190 houses that have been past our completion date by more than six months, by six months or more. We still feel very comfortable about the freshness of that spec inventory, and this is the exact right time of the year to have that inventory, especially with the backdrop of very low, you know, existing home sale inventory available in the marketplace. That's something we manage very closely. Obviously, we've been building specs for a very long time. We have a lot of discipline around that. We do watch those completed specs as they start to age, and they get longer. If they get longer than 90 days, yes, we will start to step up the efforts to ensure that we move them. Right now, we still have a very fresh batch of completed specs out there for the spring selling season. Great. I appreciate that. Thanks, guys. Thank you. The next question is coming from Michael Dahl from RBC Capital Markets. Mike, your line is live. Great. Thanks for taking my question. The first one, just to follow up on the margin discussion. I understand there's, you know, not a lot of forward guidance you're gonna give beyond this next quarter and a level of uncertainty. I'm wondering just, you know, as you see it today, as you look at your current orders, as you look at what you're expecting to sell in the quarter versus kind of the timing of some backlogs still coming through in that gross margin that'll be reported in fiscal 2Q, how should we be thinking about the likely cadence of margin beyond 2Q? Is it still, you know, barring some quick improvement in the market, going to be lower as you cycle off your backlog and into the recent sales as you get into, you know, fiscal 3Q, or any color on that? Yeah, Mike, we're only guiding the Q2 margin. The reason we're only guiding the Q2 margin is we don't know what margins, or what the environment will be beyond Q2. There's the spring selling season. Obviously, we've got some early, you know, encouraging, signs, but we don't know what the conditions will be at the height of the spring selling season. We have visibility to where our margins and our sales and our backlog and our pricing and our costs are today heading into the quarter. Even Q2 has some level of uncertainty to it. We would expect to sell and close, you know, 40% of our closings in the same quarter in the coming quarter. While we, you know, believe that, you know, there's some, you know, possibility of some stability in the market with mortgage rates stable, that could change this afternoon. Right now, we're giving you what we get, what we have. Our guidance for margins of 20%-21% is what we can see today for Q2. There is some risk both upside and downside there. I would say it's possible we could beat that range, but it's certainly possible that we might not. Past Q2, we simply don't have the visibility right now. We're gonna continue to meet the market and do what we need to do to maximize returns community by community. Okay. Fair enough. My second question, you know, there's been a lot in the press around, you know, Arizona in particular tightening up on some of the, you know, some of the water rights and kind of permitting or lack of issuing permits in certain parts of the Phoenix metro area, given some of their requirements around water usage. You guys obviously had your Vidler acquisition last year. I think they do have some projects in Arizona. Can you give us a sense of if the counties or municipalities are just outright refusing to issue permits to certain areas, does your ownership of Vidler and the projects in those regions exempt you from that? Are you able to still get permits for your planned projects? Any color on what you're seeing there would be I think interesting in light of some of the press that's been out there. Well, yeah. I think there has been a lot in the press on water is and will continue to be a headwind throughout the West, you know, not just in Arizona. Certainly, you know, our acquisition and integration of Vidler has helped our positioning, and that's really, you know, some benefit to the short term, but mostly a long-term strategic decision on our part, knowing that we're gonna head these, you know, face into these headwinds for the foreseeable future. I don't think there's been a significant change on a local basis. It's still difficult to get lots on the ground, to get entitlements through the process and to get those permits. It has been for a while, and that continues. We feel good about our position, the lot positions we have in the Phoenix market, and we've got a great team on board there that continues to navigate through that environment. Okay, great. Thank you. Thank you. The next question is coming from Jay McCanless from Wedbush. Jay, your line is live. Hey, good morning, everyone. Bill, going back to what you talked about looking to sell and close 40% of the 2Q closings, I guess how in, say, pre-COVID times, what would that percentage have been in normal Q2? Sure, Jay. Our typical percentage ranges pretty consistently up until the last year or two, in the 35%-40% range. A quarter ago, we were in the high teens. A year ago, it was even lower than that. This quarter, we were roughly 34%. When we talk about reverting to normal, we started to see that reversion in the Q1, but we expect that to continue to tick up. Whether it's actually 40 or closer to the 35, 36, we don't know, but typically 35%-40% would be a pretty consistent range for us. Okay. The second question I had, you know, assuming you pay down the $1 billion in debt like you've talked about, any idea of what benefit that might be to gross margin since it's gonna be less amortized interest or interest being amortized? Yeah, Jay. We have $700 million of home building notes that mature this year. Right now we plan to pay those off with cash. That's out of just under $3 billion of home building debt, roughly 25% of the balance would be paid down. That if we do not replace that debt, that would reduce our interest carry in time. That benefit would really primarily be probably noticed in fiscal 2024 and beyond because it takes time for the interest to be capitalized and move through inventory. It would take our interest carry down, you know, probably 20, 30 basis points as a percentage of margin over time. Longer term benefit. Okay, great. Thanks for taking my questions. Thanks, Jay. Thank you. In the interest of time today, the last question will be coming from Rafe Jadrosich from Bank of America. Rafe, your line is live. Hi. Good morning. Thanks for taking the question. I just wanted to ask on the rental side, what are you seeing in terms of demand? Margins have been really strong last year and obviously this quarter. Just do you anticipate any type of normalization going forward, or do you think you'll have to hold those properties longer if demand comes down? I think we're still seeing demand for the properties. I think the pricing and the margins we realized on our early project sales benefited from construction and lower construction cost environments, coupled with a very attractive rate environment when we sold those. That continued, to some degree, into our Q1 deliveries. We would expect to see some kind of a more normalized reversion to demand to a mean, and I think we'll see our margins come back in line to be closer to, slightly above on what we're seeing on the for sale side, the traditional for sale side. Our business model is to develop the communities and sell them into the marketplace. That's what we do best. Finding the land, building the homes and bringing people to those communities is what we've been very successful with so far. Still learning, still gonna get better, but we do like that business. Just 1 more on the in terms of the improvement in demand that you're seeing in the quarter and quarter outlook for orders in the Q2 relative to the Q1. Can you talk about, you know, what you think is driving the stronger demand? Is it the fact that mortgage rates have come down a little bit? Is there anything happening with consumer confidence? You know, what's sort of giving you that confidence and supporting the view that we're gonna get back to normal seasonality after what's been sort of a very tough housing market at the end of 2022? I do think the credit markets have stabilized somewhat. consumer confidence improved a little bit. Job growth continues to be very good. You know, overall, if you look at Pent-up demand and just a generalized economy, becoming less bad. Very good signs for housing. You know, we monitor sales, we monitor cancellations week to week to week to week and so when we see that trend returning to more of a normalized market, it's hard not to be optimistic that we're gonna have a good spring. That's the way we're positioned and we get up every day and respond to what happens out there in the field. Yeah. Specific to Horton, those are all the industry reasons, right? Specific to Horton, our inventory position puts us in a more confident place to be able to say we're gonna see that pick up with the level of completed homes we have and the stage of construction the homes behind those are at. What we're seeing the most success in today is buyers who do want a home quickly because they can get that certainty of not only close date, but most importantly, interest rates. That is the majority of our buyers today, and that's why we feel very confident and are very happy with our inventory position right now. Great. Appreciate all the color. Thank you. Thank you. I would now like to hand the call off to David Auld for some closing remarks. Thank you, Paul. We appreciate everyone's time on the call today and look forward to speaking with you again to share our Q2 results in April. Finally, congratulations to the entire D.R. Horton team on producing a solid first quarter while navigating changing market conditions. Go compete and continue to win every day. Thank you. Thank you. This does conclude today's conference. You may disconnect your lines at this time and have a wonderful day. Thank you for your participation.