Good morning, welcome to the Q3 2023 earnings conference call for D.R. Horton, America's Builder, the largest builder in the United States. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If you wish to enter the Q&A queue, please press star one on your phone 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 Q3 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 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. We plan to file our 10-Q early next week. 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. For the Q3, the D.R. Horton team delivered solid results, highlighted by earnings of $3.90 per diluted share. Our consolidated pretax income was $1.8 billion on an 11% increase in revenues to $9.7 billion, with a pretax profit margin of 18.3%. Our homebuilding return on inventory for the trailing 12 months into June 30th was 31.8%, and our return on equity for the same period was 24.3%. Despite continued high mortgage rates and inflationary pressures, our net sales orders increased 37% from the prior year quarter. The supply of both new home and existing homes at affordable price points is limited and demographics supporting housing demand remain favorable. We are focused on consolidating market share by supplying more homes to meet home buyer demand, while maximizing the returns and capital efficiency in each of our communities. With improvements in both labor capacity and availability of materials, our cycle times are decreasing, positioning us to release homes for sale earlier in the construction cycle. We are pleased that we were able to increase our homebuilding starts to 22,900 homes this quarter, which was supported by a 6% sequential increase in our active selling communities. Our homebuilding operating margins are lower than the record-high margins we reported last year due to cost inflation and pricing adjustments and incentives we implemented to address home buyer affordability challenges caused by higher mortgage rates. However, our margins improved sequentially from the March to June quarter as home prices and incentives have stabilized and some reductions in construction costs are now being realized in our homes closed. We are well-positioned with our experienced operators, diverse product offerings, flexible supply, and strong capital and liquidity positions to produce and sustain consistent returns, growth, and cash flow. We will maintain our disciplined approach to investing capital to enhance the long-term value of our company, including returning capital to our shareholders through both dividends and share repurchases on a consistent basis. Paul? Earnings for the Q3 of fiscal 2023 decreased 16% to $3.90 per diluted share, compared to $4.67 per share in the prior year quarter. Net income for the quarter decreased 19% to $1.3 billion on consolidated revenues of $9.7 billion. Our Q3 home sales revenues were $8.7 billion on 22,985 homes closed, compared to $8.3 billion on 21,308 homes closed in the prior year. Our average closing price for the quarter was $378,600, flat sequentially and down 3% from the prior year quarter. Mike? Our net sales orders in the Q3 increased 37% to 22,879 homes, and order value increased 26% from the prior year to $8.7 billion. Our cancellation rate for the quarter was 18%, flat sequentially and down from 24% in the prior year quarter. Our average number of active selling communities was up 6% sequentially and up 8% year-over-year. The average price of net sales orders in the Q3 was $381,100, up 2% sequentially and down 8% from the prior year quarter. To adjust to changing market conditions and higher mortgage rates over the past year, we increased our use of incentives and reduced the sizes of our homes to provide better affordability to home buyers. Although home prices and incentives have begun to stabilize, we expect to continue utilizing a higher level of incentives as compared to last year. Our sales volumes can be significantly affected by changes in mortgage rates and other economic factors. We will continue to start homes and maintain sufficient inventory to meet sales demand and aggregate market share. Bill? Our gross profit margin on home sales revenues in the Q3 was 23.3%, up 170 basis points sequentially from the March quarter. The decrease in our gross margin from March to June reflects a decrease in incentive costs and lower stick and brick costs on homes closed during the quarter. On a per square foot basis, home sales revenues and lot costs were both flat sequentially, while stick and brick costs per square foot decreased 4%. As Mike mentioned, we expect to continue offering a higher level of incentives as compared to 2022. Due to the recent stabilization in home prices and some reductions in both incentives and construction costs, we expect our homebuilding gross margins to be slightly higher in the Q4 compared to the Q3. Jessica? In the Q3, our homebuilding SG&A expenses increased by 6% from last year. Homebuilding SG&A expenses as a percentage of revenues was 6.7%, up 10 basis points from the same quarter in the prior year. Fiscal year to date, homebuilding SG&A was 7.2% of revenues, up 30 basis points from the same period last year, as we have maintained the capacity of our platform to grow market share. Paul? We started 22,900 homes in the June quarter, up 15% from the March quarter. We ended the quarter with 43,800 homes in inventory, down 22% from a year ago and flat sequentially. 25,000 of our homes at June 30th were unsold, of which 5,700 were completed. For homes we closed in the Q3, our construction cycle time decreased by over a month from the Q2, reflecting improvements in the supply chain. We expect to see a further decrease in our cycle time for homes closed in the Q4. We will continue to adjust our homes and inventory and starts pace based on market conditions. Mike? Our homebuilding lot position at June thirtieth consisted of approximately 555,000 lots, of which 25% were owned and 75% were controlled through purchase contracts. 34% 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. Our Q3 homebuilding investments in lots, land, and development totaled $2.2 billion, up 25% from the prior year quarter and 27% sequentially. Our current quarter investments consisted of $1.2 billion for finished lots, $700 million for land development, and $290 million for land acquisition. Paul? During the quarter, our rental operations generated $162 million of pretax income on $667 million of revenues from the sale of 1,754 single-family rental homes and 230 multifamily rental units. Our rental property inventory at June 30th was $3.3 billion, which consisted of $1.9 billion of single-family rental properties and $1.4 billion of multifamily rental properties. Our rental operations are generating significant increases in both revenues and profits this year as our platform expands across more markets. For the Q4, we expect our rental revenues to be greater than our Q3 and our rental profit margin to be lower than our Q3. Bill? Forestar, our majority-owned residential lot development company, reported total revenues of $369 million for the Q3 on 3,812 lots sold, with pretax income of $62 million. Forestar's owned and controlled lot position at June 30th was 73,000 lots. 57% of Forestar's owned lots are under contract with or subject to a right of first offer to D.R. Horton. $270 million of our finished lots purchased in the Q3 were from Forestar. Forestar is separately capitalized from D.R. Horton and had more than $780 million of liquidity at quarter end, with a net debt-to-capital ratio of 19.1%. Forestar is uniquely positioned to capitalize on the shortage of finished lots in the homebuilding industry and to aggregate significant market share over the next few years with its strong balance sheet, lot supply, and relationship with D.R. Horton. Mike? Financial Services earned $94 million of pretax income in the Q3 on $229 million of revenues, resulting in a pretax profit margin of 41.2%. During 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 74% of our buyers. FHA and VA loans accounted for 51% of the mortgage company's volume. Borrowers originating loans with DHI Mortgage this quarter had an average FICO score of 723 and an average loan-to-value ratio of 88%. First-time homebuyers represented 56% of the closings handled by our mortgage company this quarter. Bill? Our balanced capital approach focuses on being disciplined, flexible, and opportunistic to support and to sustain an operating platform that produces consistent returns, growth, and cash flow. We continue to maintain a strong balance sheet with low leverage and significant liquidity, which provides us with flexibility to adjust to changing market conditions. During the first nine months of the year, our cash provided by homebuilding operations was $2.1 billion, and our consolidated cash provided by operations was $2.3 billion. At June 30th, we had $4.6 billion of homebuilding liquidity, consisting of $2.6 billion of unrestricted homebuilding cash and $2 billion of available capacity on our homebuilding revolving credit facility. Homebuilding debt at June 30th totals $2.7 billion, which includes $400 million of senior notes that we redeemed early in July. Our homebuilding leverage was 11.1% at the end of June, and homebuilding leverage net of cash was 0.7%. Our consolidated leverage at June 30th was 22%, and consolidated leverage net of cash was 11.2%. At June 30th, our stockholders' equity was $21.7 billion, and book value per share was $64.03, up 23% from a year ago. For the trailing twelve months into June, our return on equity was 24.3%. During the quarter, we paid cash dividends of $85 million, and our board has declared a quarterly dividend at the same level as last quarter to be paid in August. We repurchased 3.1 million shares of common stock for $343 million during the quarter, for a total of 7.7 million shares repurchased fiscal year to date for $764 million. Jessica? As we look forward, we expect current market conditions to continue, with uncertainty regarding mortgage rates, the capital markets, and general economic conditions that may significantly impact our business. For the full year, we currently expect to close between 82,800 and 83,300 homes in our homebuilding operations and between 6,500 and 7,000 homes and units in our rental operations. We expect our consolidated revenues for fiscal 2023 to be in a range of $34.7 to 35.1 billion. We expect to generate greater than $3 billion of cash flow from operations in fiscal 2023, primarily from our homebuilding operations. We also expect our fiscal 2023 share repurchases to be approximately $1.1 billion, similar to last year. For the Q4, we currently expect to generate consolidated revenues of $9.7 to 10.1 billion and homes closed by our homebuilding operations to be in the range of 22,800 to 23,300 homes. We expect our home sales gross margin in the Q4 to be approximately 23.5 to 24%, and homebuilding SG&A as a percentage of revenues in the Q4 to be in the range of 6.7 to 6.8%. We anticipate a financial services pretax profit margin of around 30 to 35%. We expect our income tax rate to be approximately 24.5% in the Q4. We will 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. All of these are key components of our operating platform that sustain our ability to produce consistent returns, growth, and cash flow while continuing to aggregate market share. We will 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 continued focus and hard work. This concludes our prepared remarks. We will now host questions. Thank you. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. Also, we ask that each participant limit yourself to one question and one follow-up on today's call. One moment, please, while we poll for questions. The first question today is coming from Stephen Kim from Evercore ISI. Stephen, your line is live. Thanks very much, guys. Impressive quarter once again. Congratulations on that. I wanted to talk about your construction, your pace of construction, and your goals going forward. You talked about growing your starts this quarter versus last quarter. When we just look back, you know, maybe a year and a half ago, there were a couple of quarters where you started even more. You started about 25,000 units a quarter. I wanted to get a sense from you as to whether or not you feel like that's a level that you could achieve in the near term, and if not, why not? Also, if you could talk about whether seasonality is gonna be a factor we should be thinking about with respect to your starts cadence. Yes, Stephen, we have seen, as we talked about a 30-day reduction in our cycle time and can see consistency and improvement as we travel throughout our divisions, and seeing pretty good balance with our trades and all the supplies that we need to continue with improvement in cycle time. If you look at our starts pace, it did tick up some and stayed pretty consistent with our closings, which is a cadence that we expect to see as we look towards the Q4. Based on our sales pace and the strength of the market, and where we have the lots and the ability to push that up a little bit, we will but not looking to outpace the market and continue to keep in that cadence and position ourselves for continued growth. Okay, it sounds like, I didn't really get a sense for whether 25,000 is a significant figure in your mind, and why is that a level that we couldn't achieve or revisit simply because it wasn't that long ago where you actually did that for, you know, like I said, 2 quarters in a row? Also, if I could tack on a second question about your rental platform, you did give some guidance regarding revs being higher, but margins being lower, relative to in 4Q, relative to 3Q. Could you talk about your plans for rental inventory in dollars carried on the balance sheet? Where should we be thinking, you're going to take that, level of investment, which I think is $3.3 billion, if I'm not mistaken, right now. Is that going to grow, meaningfully as we look into 2024 and beyond? Or is that a level that you feel, you know, comfortable with, maybe even begin to harvest some of that? Thanks. Hey, Stephen, as to the 25,000 starts per quarter, we are very focused on incrementally increasing starts quarter to quarter to quarter. We believe that as we continue this process, we will consolidate the labor availability, capacity, and with labor and material consolidation, our ability to program out our starts and then continue to build the houses and gain efficiency in that process, it's just an ongoing effort. Do we have a target out there of, you know, we got to get to this number? No. Our target is market by market, flag by flag, how do we consolidate these markets and increase our market share? Just by the nature of doing that, we're going to get bigger and bigger and bigger. I'll let Mike reply to the rental question. Stephen, we expect that the margin on the Q4 closings in the rental segment will probably have a lower profit margin, largely on the basis of mix of projects that are delivering between Q3 and then into Q4. A lot of it's on a cost basis difference between those homes that were built at different times and when they're delivering. In terms of our forward investment level, you know, we're at a total of about $3.3 billion of inventory today. We've seen a significant growth ramp in that over the last two years. We do expect to continue to grow that platform, and we will see our inventory levels continue to grow over the next, you know, couple of years, but we do expect that growth pace to moderate from what it's been the last two years. Okay, great. Thanks very much, guys. Thank you. The next question is coming from Joe Ahlersmeyer from Deutsche Bank. Joe, your line is live. Thanks, and good quarter, guys. Thank you. Thanks, Joe. Wanted to follow up on the community count. That's up about 9% year-to-date, calendar year-to-date, that is. I'm just wondering, is there anything in there that we should consider that's more temporary in nature? I'm not going to straight line that release or anything, or that sequential number, should we expect that to go down into the back half, or are we going to sustain those levels? I have a follow-up. Sure, Joe. We've been really focused on our flag count. I mean, we clearly have the lot position to open new communities and to grow our community count, whereas the last couple of years, it's not moved more than a low single-digit%. We do feel like we're positioned to be closer to the mid-single digits going forward. Not necessarily 9% going forward, but around the mid-single digits, quarter to quarter. There can be some choppiness, just determining, you know, when we close out of communities and ultimately bring them online, but our lot position is there, and our operators are focused on growing their flag count. Makes sense. Just thinking about the homes and inventory number, that was actually sequentially flat, flattish the last couple of quarters, even as you did grow those communities. Is it right to think that maybe this is part of returning to higher levels of inventory unit turnover, or should we expect that the total homes and inventory will sort of catch up on a lag as you continue to grow starts? Yep, very focused on improving our inventory turn as our construction cycle times have improved. That's facilitating that. You know, you look historically, we've typically, when we go into a year with our number of homes in inventory, we've been able to turn that 2 times in the following year. The last couple of years has been slower than that. We're looking to get back to that more historic inventory turn level as we look to fiscal 24. Yeah, that, you know, going back to the start question, that is a factor in our start pace, is making sure that we have the capacity to continue to deliver these houses in a more, in a faster and more efficient way. It's a, you know, it all flows together, so that we can actually deliver more houses with fewer homes and inventory quarter to quarter to quarter to quarter. That's great to hear. Thanks 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. Thank you for taking my questions. The first one is, it looks like the, you know, sequential improvement or the sequential cadence of orders from the Q2 to the Q3 was better than normal seasonality by a bit. I mean, I think normal seasonality would suggest down about 5%. It looks like they were down about 1%. As we move into the Q4, how should we sort of think about seasonality? Which looks like it's typically down, called 15 to 20%, you know, on a quarter-over-quarter basis. Is that, is that a reasonable way to think about the Q4, or are the dynamics getting a little bit better out there where you might be able to do, you know, a bit better than that? ... Yeah, thanks, John. I think we are seeing more normal seasonality this year in terms of just demand traffic patterns. I think our base expectations would be that orders would show a bit closer to normal seasonality going forward. you know, but to our approach in trying to be as consistent as we can in providing, you know, a starch pace and a consistent level of inventory, you know, with still a short supply of inventory out there in the existing home market and in the new home market, you know, we're gonna make sure we've got enough homes out there to capture whatever demand there may be. you know, our hope would be over the longer term, we can see a bit more consistency there. There still is a natural seasonality and an ebb and flow to consumer demand that I think is getting back to a more normal level. I do believe that we're gonna have a lot more houses to sell this year, given the shortened cycle time and our ability to give people a date certain to close. You know, we were limited in the number of homes last year. The comparison this quarter to last quarter, a year ago quarter, is probably gonna look better than typical seasonality. That makes sense. Okay. Then maybe just a bigger picture question. If we look at 2019, D.R. Horton delivered 57,000 homes in that ballpark versus the, you know, close to 83,000 homes expected this year. Industry-wide, single-family starts were pretty similar, you know, in 2019 to what's expected today. Now, you know, obviously, Horton and the publics have been gaining share for years, but this is, you know, close to, you know, 45 to 50% jump since 2019. I guess the question is, how sustainable are these gains? You know, how important is your build strategy to this performance? You know, maybe how important is the lack of existing home inventory just to overall homebuilder success today? I think yes, and yes. You know, we've been focused for years now on simplifying this business and creating a level of consistency that didn't exist in the, you know, the 80s, 90s, or early 2000s. Jokingly, I call it building a real business, and I believe we have and are doing that. Coming out of the downturn, there was tremendous opportunity to consolidate market, but we didn't have the liquidity or balance sheet to do it. As we have grown through this last 15, 20 years, or 15 years, I guess, our goal has been to create a company with a balance sheet and the liquidity to take advantage of any disruptions in the market. Since 2019, it just seems like at least quarterly, you know, you're either coming out of it or going into it, another, you know, disruption. It's the power of the platform, and we talk a lot about it. I think you're seeing it play out. It's people, it's location, product. It's just trying to simplify the business and create affordability to a level nobody else can achieve. That's gonna consolidate these markets. Thank you very much. Thank you. The next question is coming from Carl Reichardt from BTIG. Carl, your line is live. Thanks. Morning, everybody. Bill, you mentioned stick and brick down 4% per foot, I think, year-on-year. Could you break that out in terms of what materials are helping most, obviously, lumber and then labor? The reason I ask is, I'm assuming that we're starting to see some leverage from the single-family and multifamily rental platform. Part of the reason you're trying to grow that business is to add scale in your markets to lower overall construction costs. I'm wondering if that's starting to help there. Yeah, right now, as we look at the components of the home across the materials, it is primarily lumber right now. You know, there's some minor moves in both directions, really, across the other components of the homes. It's primarily lumber there. I think we are on the front edge of starting to realize some improvement in labor as the homes that we have been starting over the last quarter or two have been at a lower cost than what we had there for a while. I think we still expect a bit more improvement there with lumber. Really, the forward, you know, cost structure really depends on what the capacity of the industry is and what all builders are doing. A bit, you know, a bit more improvement there. As we continue to add scale, which does include our rental platform as well, we definitely have advantages and opportunities to continue to leverage that to drive our cost structure, you know, down, especially relative to the rest of the industry. Okay. Thank you, Bill. David, the private builders we're talking to, we've seen sort of, you mentioned normal seasonality to a slower market maybe than they had expected starting the summer off. I don't know if that's just a particular vagaries of being small and private, you know, harder to do buy downs, more capital constraints to do higher end. You purchased a private during the quarter, and you've got presence in a lot of markets where the smaller privates really make up the bulk of your competitors, in some cases, all of them. Has there been much movement in terms of interest, willingness, or need to sell among the privates, right now, just given what they're facing relative to what the publics have, advantage-wise? Thanks. Yeah, Carl, we talk about it, a lot, seems like in the last couple of years, but it is really hard to put a lot on the ground. It is really hard to build houses. These private guys, now they've got to struggle with capital from either private or banks, increasing in cost. Do we have the opportunity to talk to a lot of these guys? Yes, we do. But it's gonna take unique opportunities for us to invite them into the family because we do have a special culture here, and we're not gonna screw it up, trying to force a square peg in a round hole. Excited about the most recent one we announced, so Truland, in terms of already, having been one of our largest lot developers in our Gulf Coast region. We picked up Truland's homebuilding operations, but Nathan Cox and his team will continue to be a key component in terms of developing lots to us, and for us in the Gulf Coast. I will say, I've had a personal relationship with Nathan Cox for 15 plus years. He is an example of somebody that absolutely mirrors our culture. He's a super quality guy. He's built a good company. Somebody we're gonna be in business with for a long, long time. Great. I appreciate it. Thanks, all. Thank you, Carl. Thank you. The next question is coming from Michael Rehaut from JP Morgan. Mike, your line is live. Great, thanks, appreciate it. Wanted to circle back to an earlier answer that you gave around thoughts around your 4Q demand and order trends. You know, last month you had Lennar talk about their Q3 orders being a little bit above 2Q, and KB talking about normal seasonality being muted in their Q3. All based on, you know, not only strong demand, but also kind of filling a void for the lack of supply that's out there and the strong demand that new home builders can provide as a result. You know, just going back to your comments, I think, Bill, you kind of said perhaps normal seasonality. David, I think I heard you say perhaps better than normal seasonality. I was hoping to kind of get a finer tuned answer there in terms of what you think your capacity is to meet demand. You know, again, is there an ability to take orders that is similar to your Q3 level? If you see the demand there, and I would assume you'd be just as interested in taking as much share as you can. Going back to an earlier question as well, is there any type of production constraints that might hold you back there a little bit? Sure, Mike. I mean, we're not in this for quarterly results, we're in this for the long term and to build as much shareholder value as we can over the long term. Quarter to quarter to quarter, as you've heard David say over and over, we're focused on being consistent. As we've talked about, it's all tied to our start space. You know, we're not managing to a sales number in Q4. If the market's there and our cycle times continue to improve, we might be able to see a little bit better than normal seasonality. If, you know, the market were to weaken for some reason or, we don't get as many homes started, ultimately, you know, it could be less than normal seasonality. Right now, we feel like we're positioned to increase our start slightly from where we were in Q3. Also, as we've talked about, our construction cycle times have continued to improve and our flag count has grown. We feel like we're very well positioned, but, you know, frankly, we're more focused on positioning for 2024 at this point than we are worried about, Q4. I mean, we're gonna finish out the year very strong, and generate strong returns and continue to add to book value and position ourselves to go do the same in 2024. Appreciate that. I guess maybe then turning to 2024, when you look at, you know, your backlog conversion at the beginning of the year, relative to what you deliver, you know, at best, you kind of hit a 4 times, maybe low 4 times, turnover. In other words, your backlog turned over 4 times in terms of the amount of closings we're able to achieve. The height was in 2020, at 4.8. It looks like, you know, on a rough basis, you'd probably be closer to 5 times or above, maybe even 6 times, given where potentially your backlog could be at the end of this fiscal year. You know, given the fact that you're looking for, you know, community count growth, is it still reasonable to expect kind of a high-single or even low-double-digit closings growth number for next year? Again, you know, just given the physical constraints of turnover and other, you know, the fact that cycle times are improving, but not back to where they were, any other items to consider? Sure, Mike. As we're looking to fiscal 2024, you know, and we've talked about this before, we always try to position ourselves with our lot position, with our homes and inventory, so that we're in position to deliver close to a double-digit growth, you know, high single, 10% type growth. That's what we're doing again, is positioning our inventory, so that we're in position there. In the market that we see today, I think it's there for us if we can get our lot positions and our homes and inventory ready for that. With improved cycle times, that helps us improve our inventory turnover, and I think we focus a lot more on our inventory turn, our inventory conversion than we do backlog. backlog is just really just a factor of when we choose to sign a sales contract on a home. We focus on our start space. what homes we have in inventory, and then we adjust when we're going to release those for sale based on when we have confidence that we can deliver that home. Every home we start, we will close. If we're turning those faster, then that will improve the inventory turnover and improve honestly, improves your visibility to see what our closings are gonna be as well. It's really about our start space, our inventory positioning, and then how efficiently can we turn that. As a reminder, we sell and close generally 35 to 40% of our homes intra-quarter, so you never see those in our backlog that we're reporting at a quarter end anyway, which is why Bill's alluding to home starts and our homes and inventory being a better driver and indicator of what we're going to close in a forward period. Great. Thanks so much. Thanks, Mike. Thank you. The next question is coming from Matthew Bouley from Barclays. Matthew, your line is live. Good morning. Thank you for taking the questions. I wanted to ask about lot costs. I think you said lots on a per square foot basis were actually flat sequentially, which is maybe a little surprising, given the shortage of lots out there, as you alluded to. Could you speak to a little around, you know, what's implied near term, you know, in your margin guidance around lot costs? Then just sort of more broadly, how are you thinking about managing inflation and lots going forward? Thank you. What we're seeing today in the closings are lots that were contracted and acquired quite some time ago and coming through, so we're not seeing a lot of cost pressure coming through. Going forward, along with the lot scarcity, we're expecting to see lot costs coming through in go-forward margins at a higher level. There has certainly been inflation in land and in lot development costs and in finished lot prices. We expect to see that, but that's factored into our guidance and the way we're planning for the business next year. Okay. Got it. Thank you for that. Then, secondly, just on the topic of mortgage rate buydowns, I'm curious if you can kind of educate us a little around, you know, how that dynamic may change depending where, prevailing mortgage rates go. You know, if we were to see a rise in mortgage rates from here, for example, you know, what level or what ability do you have to, you know... What's kind of the maximum level of rate buydown, I guess, you could do? Conversely, if rates were to come down, would you continue to buy down rates by the same amount, or would you actually reduce kind of the size of your mortgage rate buydowns? Just curious around how all that may play out. Thank you. The rate buydown for us has been an effective incentive, and to help us provide, as we've improved our cycle time as well, a certainty of close date and a certainty of home payment. We, you know, have stayed roughly a point below the market, and we'll have to measure that as we move forward, depending on where rates move, whether that be up or down. We have found it to be, you know, one of our most effective incentives, and we have been consistent in that execution, and we'll continue to explore that as the interest rates move and on a go-forward basis. All right. Well, thank you, and good luck. Thanks. Thank you. The next question is coming from Eric Bosshard from the Cleveland Research Company. Eric, your line is live. Thanks. The gross margin progress in the quarter was notable, and you talked about, I guess, a bit more progress in 4Q. I'm curious if you could help us get a sense of how we should be thinking about the path of gross margins from here. You've done a good job historically outlining ranges, but in the world, which seems like it's stabilizing for you now, how should we think about the range or path of gross margin? Yeah, Eric, it's, you know, what we have visibility to is basically what's in our backlog and what's been in our recent sales, we certainly have visibility to what our recent cost levels have been. You know, we've been seeing the costs on our more recent starts be lower, so we've got some visibility to what that could produce. Right now, as we look at our recent backlog in sales, we see a sequential modest improvement in margin up to kind of the high 23s to 24% range in Q4. You used the word stabilization. Last quarter, we used that word quite a bit, and we're still seeing that. I think we are kind of settling into a more stable, you know, period here in terms of our costs, and demand has been pretty steady as well. I think we certainly don't see a trajectory in margin, you know, forever upward, but the modest improvement into the coming quarter looks like a pretty sustainable level here in the near to medium term. Lot of tailwind from limited inventory supply at affordable price points are helpful to margins, interest rates are the biggest risk to margins. Significant increases in interest rates will compress our margins. within this, you mentioned a moment ago, buying rates down a point below market has been a silver bullet or something that's been a catalyst for consumers to go ahead and sign a contract. I'm curious if you're seeing, you know, that's just the way it's going to be, or if you're seeing consumers becoming more comfortable with the reality and the days of a 3% mortgage are long gone. I guess what I'm trying to figure out is, can you get away with buying down rates less now? Are you seeing consumers a bit less sensitive, or is this the medium-term reality that we should expect? You know, the interest rate buydown is an incentive like many that we use, you know, and we have a lot of different levers that we may pull market by market or community by community based on the needs of the buyers walking in the door. It has certainly been a hot button today because of the meteoric rise in rates and people's adjustment to that. As that adjusts, it'll just ebb and flow with different incentives, whether that's closing costs or price or included features. You know, it's been a good tool for us today. We will adjust to the market as it comes at us. It was still on a majority of the homes we closed in the Q3, but it was at a lower% than it was in Q2 in terms of the number of buyers utilizing that incentive. Great. Thank you. Thank you. The next question is coming from Kenneth Zener from Seaport Research Partners. Ken, your line is live. Good morning, everybody. Good morning, Ken. I wanna, well, two questions here. One, I just wanna kind of focus on capital and cash flow, and the other is gonna be about just where we are on kind of the level of business by community versus the past. Your ability to match EPS to cash flow has been improving, I think, $3 billion cash flow, think about $4 billion in net income. About 75%, obviously, multifamily plays into that. Could you specifically talk to the 53% of option lots that you expect to be finished? What limits this from going higher, perhaps? What kind of factors determine whether you're taking down finished or raw land in those auction structures? Just refresh us on what that raw first development lot cost is, so we can understand the inflation inherent in those raw lots. Sure. I'll start, Ken, and then I'm sure Mike or someone's gonna chime in on the true ops piece of it. In terms of the 53% that we said in our scripted remarks of our option lots that we expect to be purchase finished, that's just at a point in time. That's where we've already determined who's going to develop those lots for us, and we know we're going to take them down as a finished lot. That's by no means a ceiling. We're now closing 60%-plus of our houses quarter-to-quarter on a lot purchased from a third-party developer. We, you know, in the normal course of business, will contract with a land seller as D.R. Horton, put the option under contract, and then we'll go find a land developer. The 53% is more of a floor, than necessarily a ceiling. I think you said it very well. We're gonna take a piece of dirt and title it, and then in that process, look to work with a third-party developer in some cases, to assign that contract to. They'll acquire the land parcels, and then they'll complete the lot development and sell us finished lots that we'll then start constructing homes on over time. That 53% expected would go up, but we will choose, in some cases, to develop the neighborhood ourself. In every one of our markets, we have great teams in place that are capable of developing their own lots, as well as negotiating to buy finished lots from third-party developers. Ken, to circle back to your initial comment about capital and cash flow and percentage of cash flows relative to our earnings, we are seeing a big improvement in that this year, and that's what we were expecting to see. This year, I would tell you that big move is being driven primarily by the improvement in our cycle times, by our construction cycle times. We don't have as much capital tied up per home, you know, in our homes and inventory because we're turning those faster. Definitely our land shift over many years has been a component of that over time, but this year specifically, it's more about our homes and inventory turnover improving. Great. I guess, just a follow-up to that, why would you want to develop land, as opposed to, you know, like, other builders or one specifically that is absent that? The other question, which I'm still struggling with when I just try to normalize, you know, housing, is your starts pace or your pace per community is about 4.6 in this year. It used to be about 3.6. Why is that the new normal, basically? I mean, don't want to push down sales pace for no reason, but, like, why are we so far above where we used to be as an industry? It's not just you guys. If you could explain that. Thank you. Yeah, I think on the lot development question, you know, we have talented teams across our platform. There are instances where it's important to us in our starts paces, we have to have a lot on the ground. Controlling that process and being good at producing that lot is a talent that we're gonna retain, and we have to continue to exercise that in order to do so. Some deals just make more sense for us to develop from a timing perspective and/or structure and/or size. We're gonna make that decision community by community across the platform. In terms of our absorption per community, I think that you've seen, you know, some larger communities that may be a portion of that impacting, you know, sales and positioning of those communities to drive more efficient activity both on the construction and sales side. Yeah, I'm not sure I've got an answer for you for sure, Ken. If you don't know the answer, I'm sure we don't either in terms of why the industry's improved. Only thing I could come up with is, you have seen a shift in this industry to focus more on returns. As we focused on returns, that really comes down to being more efficient with every asset you have. If you can improve your absorption, improve your turns in each community, your returns on capital are improving. Perhaps you're seeing a little bit of that come through in your observation of looking at, you know, higher pace, higher absorptions over time across the industry. Thank you. Thank you. The next question is coming from Mike Dahl from RBC Capital. Mike, your line is live. Morning. Thanks for taking my questions. Couple of follow-ups on the rental side. There was a pretty well-publicized deal between yourselves and a large SFR company. You know, within the quarter and the guide, any color you can provide on how much of that deal already closed in 3Q, and whether or not, you know, the increase in the guide for the year reflects the full closing of that, or if there's going to be some carryover into fiscal 2024? Sure. Our guide on rental does and will continue to just incorporate the homes that we've closed and our leasing pace and when those projects are available to be sold and marketed. We've sold projects on a one-off basis, but as we continue to scale that business, it's opening up additional, interested investors who, you know, there's institutional money that doesn't necessarily want to buy just one project at a time. They're interested in buying a portfolio of projects. The deal you're talking about was press speculation. We haven't publicly commented on any specifics of that transaction. When we look at our rental communities, whether we're selling multiple projects to one investor or not, they are all individual real estate transactions. We would continue to point to our disclosures on a unit basis in terms of the number of completed homes we have and rental units, in terms of what that forward pace of sales looks like, and we'll continue to do sales of individual projects, and I'm sure we'll continue to do packages of sales going forward. Okay, got it. I guess a follow-up there, so without the specifics, if, given the total units you're now guiding to and the inventory that you've outlined, you will close a significant portion of your existing inventory, in 4Q. Fully understand that this is a growth part of your business for the next couple of years, but just circling back to a question, I think earlier on the call around specifics on 2024, should we be thinking that you've kind of pulled forward the timing of when some of that inventory you might have expected to close in terms of closing in 2023 versus 2024? Maybe it's a little lower in 2024, or are you really in a position where even with this increased guide, you can keep growing in 2024 off that? We've generally been talking about our rental platform combined, but in our 10-Q, you can see a breakdown, and we do give our unit breakdown separately. 2024 is going to be a pretty big growth year from a multifamily perspective, and we're going to continue to scale the single family. As we scale both sides of the business, it could still be choppy quarter to quarter, year to year, with ultimate, you know, overall growth on an annual basis expected. Okay, great. Thank you. Thank you. The next question is coming from Alan Ratner from Zelman & Associates. Alan, your line is live. Hey, guys, good morning. You know, very impressive progress on the cycle times and the cost front. You know, I'm guessing what we're seeing now is probably somewhat of a lagged effect of the big pullback in starts the industry saw late last year and the negotiating power you had over the trades at that time, and of course, the pullback in lumber. You know, you're not the only ones ramping your start pace now. I think we're hearing similar messages from most of your larger competitors. Maybe some of that's at the expense of the smaller privates, but I think it's clear the industry start pace is going to be accelerating here for the next handful of quarters, at least. What are your thoughts on the sustainability of the progress you've made on cycle times and costs, you know, heading into 2024? More specifically, what are you seeing from your trades? Are they ramping their headcounts in anticipation of an accelerating start pace going forward? Are they, are you seeing more capacity out there that would support this type of growth without cost inflation following? Something we work on every day. Aggregating market share involves aggregating trade base and materials within those communities. We've been talking about a consistent start pace when we've been talking about simplifying the process and making it easier for our trades to get to and from the job with the right materials, with a complete understanding of what they're doing. That is allowing us to aggregate these trades. Our goal, our communication is we want to be the builder they want to work for. We do a lot of things to try to make their job easier and more profitable without coming in and trying to renegotiate price every quarter. Is it sustainable? Yes. I think that we are going to continue to focus on that. As time goes on, we'll get better at it and, you know, basically build capacity month to month, quarter to quarter, on a continual basis. Got it. Appreciate the thoughts there. Second, you know, Jessica, you mentioned earlier that, while you're still offering mortgage rate buydowns on the majority of closings, it did tick a little bit lower quarter-over-quarter in terms of the share of closings that had those buydowns. I was curious if you, A, if you had that specific data you could share with us, but B, you know, are you seeing any sensitivity to demand in the communities, maybe where you are dialing back those buydowns? You know, on one hand, the buydowns are probably putting you guys in such a strong competitive advantage versus the resale market. On the other hand, with inventory as tight as it is and demand seemingly pretty strong, it would seem like you should have some ability to pull back on those without impacting demand too much. I'm just curious, the interplay between that. ... You know, the use of the rate buydowns is about, 10% less than it has been as we look, over the last few quarters. That sensitivity is a community by community and buyer by buyer process. You know, we have great sales agents, in each of our communities that go through that experience with every buyer that walks in, and finding what's important to them is what they do very well. We'll continue, as we mentioned, to utilize that. Certainly, that reduction shows, you know, some stability in rates. Although they've moved up, they've remained in a similar range, and I think people getting comfortable with their purchasing power has allowed some of, some of the relief of that use and, or them not being as concerned about it, as the thing that is important to them, in a purchase. Great. Appreciate the color. Thanks, guys. Thank you. The next question is coming from Truman Patterson from Wolfe Research. Truman, your line is live. Hey, good morning, everyone. Thanks for fitting me in. First, just this has been touched on a little bit earlier in the call, just trying to get a big picture overview of the banking environment and what it you know, means for Horton. Has the banking environment, you know, currently negatively impacted your developer partners, kind of outside of Forestar, their ability to access capital for future projects, for smaller private builders? Are you actually seeing them kind of pull back on spec construction, land deals, et cetera? I think with a lot of the third-party developers we work with, we have a long relationship with them, and in a lot of cases, their banking or financing sources are kind of looking through their developer to. Looking through to the land contract and working with us, and they take great comfort in that. We've been able to continue to sign up new deals over the past quarter that have secured new financing commitments for the third-party developers through the process. Is it as easy as it was or as inexpensive as it was? Certainly not. It is more challenging. I do think that the banking industry is being more selective in who and at what levels they're choosing to support third-party developers. On the private builder side, we've probably seen a little more opportunity to step into some positions and help those builders with some liquidity and opportunities by taking some of their lots or stepping into different positions. It has been, if anything, a bit accretive to the business, and we're just here to help. Perfect. Thank you. And then, you all have discussed, you know, previously about rotating to smaller square footage offerings to, you know, combat affordability. Any way you can help us think about, are you seeing consumers actually prefer these smaller square footage homes over the past 6 months? You know, based on the offerings that you have out there, are consumers still kind of preferring the larger square footage homes? They prefer what they can afford. What we generally see is that buyers, you know, continue to want as much square footage as they can get, but they're constrained by what they can afford, which is why we continue to start more and more of our smaller floor plans. We did see a slight tick down on a year-over-year basis again, by about 2% in the terms of square footage on our homes closed. It was flat sequentially, we would expect just continued very gradual moves down in our average square footage today. All right. Thank you, and good luck in 2024. Thanks, Truman. Thank you. The next question is coming from Rafe Jadrosich from Bank of America. Raph, your line is live. Hi, good morning. Thanks for taking my questions. You mentioned that build cycles have come down 30 days from peak levels, and you expect them to continue in the Q4. Can you just talk about where they are now versus historical levels? Beyond the Q4, as you look into next year, how should we think about further potential improvement, like what that could do for your asset turns? Yeah, we are, today, down that 30 days puts us at about 5 and a half months in our current cycle time, which is still slightly above our historical averages. We see a trend more towards our normalized and consistent cycle times. You know, that's gonna depend on labor availability and our ability to continue to aggregate that labor. As you see starts pace increase across the country, we could certainly see some pressure on that, but feel comfortable in our position and with the trade capacity that we have in labor in the markets today. Our build time of that at 5 and a half months has come down about 1 month, and we probably have another 1 and a half months to go to get back to where we have been historically, when we're operating at a more efficient level. Then there's probably another 45 days to 60 days after that, what we call construction completion, until we hit the home closing date. On average, you know, we're looking to get to a 2 or a little better than 2 times turn of inventory units implies a 6 to slightly less than 6-month start to closing cycle time. Thank you. That's helpful. There's still more opportunity. Then just on the rental profit outlook for the Q4, the guidance is units will be up quite a bit, but you're thinking about rental profits being down. Like, should we think about gross margins there being lower than kind of core home building longer term? Is there any dynamic that's driving that margin kind of key in short term? Or is this something we should be thinking about at longer term? It's really a short-term thing, and as Mike mentioned earlier, it's part of it is the mix of the projects that we see coming through and the time in which those homes were constructed was a time when we were seeing higher construction costs as well. We really see that as a Q4 event. As we look longer term, from a gross margin perspective and really pre-tax margin perspective, we would expect the rental to still be higher than our home building margins overall. Maybe a little bit of anomaly here in Q4, but not a long-term phenomenon. Great. Very, very helpful. Thanks. Thank you. That's all the questions we had time for today. I would now like to hand the call back to David Auld for 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 Q4 results in November. Finally, congratulations to the entire D.R. Horton family on producing a solid Q3. Continue to compete, win every day. Thank you. Thank you. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.