All right. Hello, everyone. Yet again, I'm Matt Bouley, Barclays U.S. Homeb uilding and Building Products Analyst, so really pleased to have here for our next session Jessica Hansen, VP of IR for D.R. Horton, America's builder, largest home builder in the country, so everyone knows how this works. We're going to start with our audience response questions. We'll run through that quickly, get a sense for everyone's sentiment, and then we'll dive right into Q&A, so first question, please. So do you currently own D.R. Horton? Overweight, market weight, underweight, or no? All right. Audience of largely new investors. Next question, please. Your general bias towards D.R. Horton right now? Positive, negative, or neutral? Do you like having to do these? You know. Or you can't say it out loud. It's interesting to get the answers. OK. The audience for. You need a donut on how? OK. Leaning negative to neutral. Sounds similar to the questions I'm getting. Next question, please. In your opinion, through cycle, EPS growth for D.R. Horton will be above, in line with, or below peers? All right. Above peers. Great. Next question, please. In your opinion, what should D.R. Horton do with excess cash, bolt-on, or larger M&A, share repurchases, dividends, debt pay down, or internal investment? There's no ESG question this year. Were there last year? I think last year, no. It was two years ago. The audience thinks share repurchases. Flat out. OK. Next question, please. In your opinion, what multiple of 2025 earnings should D.R. Horton trade range from less than 10 to higher than 21? And the audience leans towards 10x- 12x. That's roughly where it is now. Next question, please. And the most significant share price headwind facing D.R. Horton today? Core growth, margin performance, capital deployment, or execution strategy? All right. A little bit towards margin performance, followed by core growth. OK. So Jessica, thank you for being here. It's my own words. A lot of cross currents in the housing market today. Maybe it would help if you would just kind of overall level set us in how you guys are thinking about the spring selling season, what were you kind of seeing when you reported earnings, and just kind of the general view might evolve? Yes. Great. Thanks, Matt, for having us and to everyone for your time today. February is always kind of an awkward time of year, January into February, to be talking about current trends because we're right on the cusp of the beginning of the spring selling season. As we said on our call in January, we feel very good about D.R. Horton's setup and positioning going into the spring and to deliver on what we've guided to for the full fiscal year of 2025. We haven't seen the spring yet, so there's still a lot of uncertainty, but we do feel like there's a setup for solid demand. I think most everything right now is tied to rates. Affordability is still an issue, so we've continued to employ the rate buy down as our most meaningful incentive to try to directly impact the affordability constraints in the market today. And as Paul Romanowski, our CEO, said on our call in January, I think the rate moves is really what's driving the biggest change to our traffic and our sales office and our sales pace. And so when rates are choppy or volatile, we tend to see that translate into our sales office. And so really, of course, we would take rates going down with a good economy, but right now, just a little bit of rate stability as we move throughout the spring, we believe, would be a good setup. I think every buyer, at least the headlines were pointing most buyers, particularly entry-level buyers, to the fact that rates were potentially going to come down in 2025. So I think there was a pause in the back half of last year while people waited for that to happen. I think if rates just settle out here as they have kind of rangebound, consumers' expectations are going to reset and recognize this is the rate environment we're in and go ahead and move forward with that home purchase transaction. Got it. I'm kind of thinking about one thing that's maybe changed a little bit on the ground on the new construction side over the past years. I mean, it feels like there's been a little bit of an inventory buildup in some markets. I guess, could you kind of give us the lay of the land around the state of competitive inventory out there? Are there pockets that are better or worse, and just how do you see D.R. Horton positioned to kind of weather what's out there? Yeah. I think competitive inventory is a great way to phrase it, right? Not all inventory out there is equal or directly competitive with the new house market. I think that we're sitting kind of in the state right now that has probably gotten the most headlines, starting in Southwest Florida, but I think inventory is up kind of across the board. Existing home inventory is really up across our entire footprint across the United States, but it's coming off of still very low levels. And so we don't really have any particular part of the country we would call overly concerning today. I think a lot of the Florida inventory that we've seen has been more coastal in nature. It's been condos. It needs a lot of repairs in a lot of cases, and insurance costs are clearly becoming more of an issue. They're rising across the entire country. I think I haven't talked to anybody whose homeowner's insurance hasn't gone up recently, but new homes are built to better codes than existing homes. And so as a result, insurance is more attainable on a new home in Florida and also more economical than an existing home. So you layer in also the rate buy down that you're generally not going to find in the existing home market. And we feel very confident about our ability to continue to affect rising inventory on the existing home side. And then I think more has come into play as well as more builders have completed homes. And the point we make there is it's February. If you're ever going to have a little bit of extra inventory, going into the spring selling season is the right time to have it because you have plenty of time to adjust according to market conditions as you move throughout the remainder of the year. Got it. Yeah. And I was going to ask this later, but just on that point, I mean, I think the number right now is something like 10,000 finished spec across the whole country for D.R. Horton. I guess, how long are you willing to kind of hold on to finished spec before you do start to press on the incentives a little bit heavier if needed or if not? And just how do you think about kind of the carrying costs of that inventory? Sure. There's a couple of reasons we have more completed specs, at least on a percentage basis of our overall inventory than we normally would have. The first one is a high-class problem. Our build times have reverted to historical and now better than historical norms, and so homes were getting completed faster than we would have originally anticipated, so our operators did slow their starts in the December quarter, so we can work to get that back in check. Really comfortable with our overall housing inventory level of roughly 37,000 homes today but continue to be very focused on moving aged specs. A lot of that 10,000+ completed is very fresh, and so that's not a concern for us at all. A lot of buyers in the market today still want a home that's available to move in relatively quickly. It also allows them the certainty of being able to get that rate lock and participate in the rate buy down that we're offering. But if the home's been sitting and unsold, completed for an extended period of time, we disclose our greater than six months number on a quarterly basis, which is now just over 1,000 houses. That's where we really get focused on moving it because if it has been sitting unsold for an extended period of time, we miss the market in some shape or form. And that's really where the biggest gross margin differential typically lies. It's not on a fresh completed spec that we sell close to completion. It's on the aged ones. And so we have a big focus. We do a Red Tag sale every single quarter that focuses on any of that completed aged inventory. And it's very targeted at moving it. Got it. OK. And so you mentioned this a couple of times, the effectiveness of incentives and, of course, the rate buy down for D.R. Horton. I guess as now we're in year three of high rates, and I mean, the incentives clearly work with these rate buy downs. But the longer we get into this, I mean, is there any change to the philosophy on you talk about the one to one and a half points below market? Do buyers want more? Do they need more? Or does that one to one and a half point really just, hey, that's all you need to kind of get the job done? Sure. The one to one and a half is we followed the market in terms of we're doing a 30-year fixed rate buy down for the life of the loan because that is what directly impacts affordability. You'll probably see a lot of other things advertised, teaser rates that are lower than that, but that doesn't really help affordability because the buyer still has to qualify for the top tier rate in that loan. So the lion's share of what we're doing is the point to point and a half that Matt referenced below kind of the current market. And we've followed that just wherever rates have gone, and our mortgage company navigates it day to day and tries to time it best they could when we're entering into those forward commitments. It's felt pretty good. I know a lot of people talk about five and a half as being like the holy grail and the number you have to be at. That's not necessarily the case. It's impactful at a point to point and a half, and we layer in other incentives where necessary if we need to get a buyer across that finish line. To go more than a point to point and a half, I think, would be pretty cost prohibitive. And you've got also a counterparty on the other side of that transaction that wants to enter into and provide you with that forward commitment. So I think we probably stick in that range for the time being. And it feels like the rate buy down's probably in some shape or fashion here to stay because it is such an effective tool. Got it. And I think one of the other tools you've mentioned that aiding with buyer affordability is what you've done with home sizes, attached product, things like that. Are you at a point where I mean, this is kind of it? We're going to talk about home sizes just kind of continuing to drift a little bit lower. Or does it kind of hit a point where maybe it becomes less efficient to be building homes that are too small, right? Kind of the cost per square foot would go up, I suppose, the smaller the home you build. So how do you kind of think about that balance of how much left is there to press down on that versus, hey, there's not a whole much more we can do? Sure. I think drift lower is a great way to characterize it, right? We're closing a lot of homes and starting a lot of homes, and it takes a lot to move the needle in terms of our average square footage. But it has been the last few years coming down a low single digit percentage, really no more than 1%-3% on a year-over-year basis. We're at about 1,950 sq ft on average today. Part of that is just a function of continuing to start more of our smaller single-family detached homes. But to your point on attached, we've also seen a tick up in terms of the attached product that we're building and closing, which would predominantly be townhomes and duplexes. That's about 17% of the homes we closed in the December quarter, and that's the highest attached percentage we've seen since probably back in 2005 and 2006. So most people, if they can afford it, would like to be in a single-family detached home. But if they can't and they can get into a townhome that still provides them a two-car garage and in a lot of cases even a small backyard area, that can be pretty attractive versus an apartment. So I think in terms of how much further there is to go, I think it's going to continue to be gradual. The 1,950 isn't going to drop overnight to 1,500, but we do build floor plans that are roughly 1,500-1,600 sq ft that are very livable as a single-family detached house. We've introduced a cottage product in very select parts of the country where we think it'll work and be successful. That's 1,000-1,200 sq ft. In those cases, it's probably a one-car or no-car garage. So that's clearly not going to be a predominant piece of our business, but it is a product that continuing to go smaller from a cost and it just penciling is the lot size, right? Our finished lots, they already are what they are. Predominantly, we'd be buying 40- and 50-foot lots. We do have 30-foot lots that we can put a smaller product on, but that takes time and planning before we can get those lots to the market. You can put an attached townhome on a 20-foot lot. Yep. Got it. No, that's helpful. And so as we think about, I'll call it uncertainty around policy and things like that, around government policy, maybe just starting off on the labor side, we say sort of X policy changes, what are you seeing now from a labor perspective? And then how are you thinking about potential changes to the availability of labor in 2025? Yeah. That's probably the great thing about our starting point, at least. We don't know what we don't know yet with some of these changes that are coming with the new administration. But as I mentioned, our build times are back to better than historical norms at about 3.3 months on the homes we close. That wouldn't happen if our labor capacity wasn't in a good place pretty much across the board. And so we really don't have any labor constraints today. We feel very good about our relationships with trades. And we've also seen a moderation in the cost, particularly on the stick and brick front, which would be our labor and materials combined, relatively flat this most recent quarter, both year-over-year and sequentially. I think our base case outlook, not taking into account any of the potential changes coming, would be roughly flat for the full year of fiscal 2025 versus 2024 on the labor and materials front. Got it. Yeah, and that was going to be my next question. So roughly flattish labor and materials. I guess what's anticipated around tariffs and Canadian lumber and things like that? And if there were to be additional inflation on that side, how would you go about kind of mitigating that? Sure. You can imagine a lot of those conversations are ongoing. We've talked to our national accounts team in the last day or so as we knew this was going to be a hot topic as we sat in investor meetings, and it really is still too early to tell. I mean, I think Canadian lumber is kind of the certain one. We've had Canadian lumber tariffs in the past. We have them again today. We don't have perfect insight to how much of D.R. Horton's lumber on our job sites is coming from Canada just because we're sourcing it from U.S. lumber yards, but we do have a predominant piece of our business in Texas across to Florida and up into the Carolinas, and that likely is not coming from Canada, so our rough estimate is probably approximately 20%, give or take. But I think there's also some chatter out there that maybe just what's going on with tariffs drives up the cost of lumber across the board in the States. We'll see what happens. I mean, lumber is a commodity. It always fluctuates. It's a key component to our house. And we're used to navigating those fluctuations. The good thing for us is we have 85+ operating divisions across the country that are all entering into their lumber contracts at different points in time to where we generally see that smoothing out. And we don't see big gyrations in the lumber cost flowing through our P&L. It's probably other tariffs that are more of an uncertainty right now. I think the good thing about COVID is our suppliers, not that I would call anything good about COVID if that's the way that came across, but the supply chain challenges that came out of COVID, our suppliers largely have diversified where they get a lot of their materials. A lot of things that were a problem out of China just aren't coming from China anymore. There are some components and some things that our products partners source from Mexico, though, and I think that's been the biggest latest headline on tariffs. In the recent conversations we've had, appliances, drywall, HVAC, our products partners are holding firm that they really think it's posturing from the administration and more of a threat than anything, and it's probably not going to transpire, so really no way to proxy what that could ultimately cost, but we'll navigate it like we do anything successful. If we've got a cost category that's inflating and we're in a gross margin compression environment, we're going to renegotiate anything and everything that we can. Got it. OK. And so then that leads to the other component, the land side and lot costs. I'm thinking about the gross margins, obviously. But I think you talked about low- to mid-single-digit sequential inflation in lot costs, is at least how you're thinking about the next couple of quarters going forward. Are we getting near a point where you'd like anniversary that and you could see a little bit of stabilization or flattening? Or does it feel like that's what lot cost inflation is going to be like for the foreseeable future? Yeah. Unfortunately, land prices are a lot more sticky than the other pieces of our supply chain. They tend to follow home prices up very quickly when home prices are rising. And then they don't really tend to adjust unless there's a true correction in home prices. And we've seen a pretty stable market outside of a slight decline in our ASP when interest rates first started to rise. So land development costs also had continued to accelerate for quite some time. I think a lot of the actual components that go in the horizontal piece of lot development aren't necessarily continuing to inflate, but we aren't really seeing much relief in terms of permitting costs to get lots entitled and on the ground. And so as a result, we have seen pretty significant lot cost inflation in our P&L to date. This most recent quarter, we were up about 9% on a per sq ft basis, or at least a high single digit percentage on a year-over-year basis. That had moderated from low double digit for several quarters. And so I do think here in the next couple of quarters, we would expect it to moderate a bit further. I'm talking on a year-over-year, not sequential, to a mid-single digit percentage. But we really aren't expecting much relief past that. So a little bit of moderation, but expected continued lot cost inflation in the coming years. Got it. OK. I don't want to get back to the land market in a moment, but while we're still on gross margins, just thinking about the model, I think the guide is 21.5%-22% gross margins in the next quarter. I guess just what are the kind of simple ins and outs assumptions around that? Sort of where's your backlog margin and kind of what were the assumptions around what you're going to sell and close during the quarter in order to hit that margin? Sure, so as we talked to on our January earnings call, December was our weakest gross margin of our first fiscal quarter, and so our exit rate was lower than our actual gross margin for the quarter, so that coupled with just kind of the starting point and our backlog, the homes we know that we're going to close in the March quarter was the starting point for our guide, and so we did mention that the predominant driver of a continued decline in our margin from Q1 to Q2 was just higher incentive cost load. The December quarter was pretty challenging. It was very volatile rates. There was also just the noise of the election and the uncertainty around that. I already mentioned the fact that there was so much chatter out there about rates potentially coming down. Our sales were a little bit less than we would have expected. And we incentivized pretty heavily to drive the sales that we did achieve in that quarter. And so that's the main reason that we expect the additional step down in our gross margin into Q2. Further out than that, because to your point, we sell and close a lot of homes intra quarter. This most recent quarter, I think it was a high 50% range. It's probably at least that in the March quarter. We don't have a whole lot of good gross margin visibility further than that because we do sell and close so many homes intra quarter. As a result, though, when you see a D.R. Horton gross margin, it's really the best read on current market conditions. A build-to-order builder that may be producing higher gross margins than what they're reporting today, typically a couple of quarters. It's going to follow what a spec builder like D.R. Horton's reporting can. Yep. Got it. So then jumping over to the land side, higher level topic, but just kind of the evolution of the land banking market, I guess what portion of your business today would actually be sourcing from the kind of, I'll call it traditional private equity land banking? And what's sort of the Horton mantra around how you view the risk profile of those types of counterparties? Sure. An option can take all shapes and forms, as you know, Matt. And I think it's important to really ask builders about their option bank. I mean, you can talk about your percentage all day long. But because an option can take so many different forms, it could be with a land seller. It could be with a private equity fund. It could be directly with the lot developer. It could be with a traditional land banker, which typically comes with a lot of strings attached. To date, we've been very focused on risk transfer. And we don't do much in the way of traditional land banking. There's obviously another structure that's very new. And we'll see how it unfolds. We'd be remiss if we didn't watch what everybody else in the industry is doing. If it's successful and it disrupts the traditional land banking environment and changes some of that, it's certainly something we'll be looking at. To date, we've been focused on just really doing what we can from a structure to take down finished lots from third-party developers that really are only exposure. What we have under option is the earnest money deposit that we have against the purchase price. For us, that's roughly on average an 8% deposit against the total purchase price of the contract. In reality, that skews quite a bit. If we're going to take down finished lots from a third-party developer, we're going to be willing to put down probably 10%, maybe even 15% option deposit against that purchase. If it's raw land, we're probably only putting down a single digit percentage. Got it. So I guess on that point of looking at this new structure that's out there, I mean, what you're going to be looking at, how does that potentially change what you may do with Forestar? Or would these just be completely separate? Or could it actually have some implication on how you think about strategically Forestar? Yeah. No. I mean, as I said, we're going to pay. It'll certainly be something that we'll be interested in following and could potentially pursue. That being said, we're very excited about Forestar and what we've done with Forestar. And we look at those as completely different strategies, right? What Millrose is, is essentially a financing vehicle, whereas Forestar has actually built their own team, their own operating platform where they have land development professionals and land professionals who are sourcing their own land and doing their own land development work and then delivering D.R. Horton a finished lot. Today, about 65% of the homes we close are on a lot either developed by Forestar or another third party. We don't have another third party that delivers us more than a low single digit percentage of our lots. Forestar is delivering us about 15%. So we wouldn't have achieved the 65% without what we've done with Forestar. And we're really excited about their ability to continue to grow. And we'll see how Millrose ultimately unfolds. Yep. Got it, so then jumping over to the rental side of the business, I guess as a sort of two-parter, just kind of near term, given where interest rates and cap rates are, how are you kind of thinking about the margin profile of the rental business in the near term? And then the higher level question is just kind of the positioning or the willingness to kind of continue to invest further in that business, again, given the type of, I guess, cyclical backdrop we have. Yeah. I'll start with the latter part of it. They go hand in hand, but we have been very open about the fact that our rental business is not at the level of returns or the margin profile that we had initially in the early days or that we would like to see in the future because we don't want to do anything at the long term on maximizing and keeping our returns high through cycles, and rental has come under some pressure for a couple of different reasons. There's been a decent amount of capital market uncertainty. Interest rates certainly have impacted cap rates to the negative for most of those buyers. And then more recently, I think it's been being talked about for several years, but we are now in the heart of most of the multifamily deliveries that I feel like have been talked about for a long time. And so we did have a pretty weak pre-tax profit margin in the first quarter on rental. It's probably not a whole lot better in the second quarter. We still have a wide range of outcomes because the timing of when we actually close that is a little more uncertain than us just closing an individual single-family for-sale house. But instead of just waiting for interest rates to go down or the institutional buyers to have a better capital market scenario to where cap rates are in a better position for us, right now we're focused on what we can control, which is the. So we're going to maintain roughly only $3 billion-$3.3 billion, both single-family and multifamily combined. And we've started having some success doing what we're referring to as a forward sale. So instead of building out the entire community, getting it leased up ourselves, stabilized, and then taking it out to market and selling it in bulk, we've started working with some institutions who have their own property management, their own lease-up capability. And they're willing to take down homes on more of a CO or a completed basis so we can generate revenue along the way rather than waiting for the bulk sale. And we don't need to have as much of a differential on the margin to drive a better return. So very focused on what we can do to increase the return profile, but as I said, not going to increase the investment until we get that to a different level. Yep. Got it. And then so capital allocation, I think D.R. Horton's in the market today for a bond deal. I believe in fiscal Q1, you bought back $1 billion of stock. So how are you thinking about share repurchase? And just the context is that, I mean, years past, you were buying back roughly 3% of your shares for many years. Have any thoughts shifted around the prioritization of share repurchase? Sure. I wouldn't really say anything shifted other than we've been on a path to get to this point. We've been very focused on deleveraging coming out of the financial crisis and building as strong a balance sheet as we can. We had pretty significant goals in terms of where we were going to take our leverage target. We're now at our leverage target today, consolidated gross leverage around 20%. I think we're at about 17% at the end of December. We also want to maintain significant liquidity just so we can have as much financial flexibility as possible, recognizing that we are not in control of the macroeconomic environment and what actually happens with market conditions. Now that we are at our target leverage and liquidity ratios, that's led us to increase what we're returning to shareholders because we're also increasing our cash flow that we're generating. We've now committed to returning the majority, or at least a substantial portion on an annual basis of the cash flows we generate to shareholders through both repurchases predominantly. That's the larger piece. Dividends, which are dividend right now, is at about a $500 million annual run rate. Matt called out our bond offering. We're in the market. We might have priced. I don't know. I've never missed a bond offering, so this is weird for me. I do want to call out that we got an A rating from Moody's last night. We are the first-ever homebuilder in Moody's history to rate a homebuilder at an A level. Super excited about that and really pleased with where our balance sheet is today and what it's going to allow us to continue to do, particularly on a share repurchase front. The $1.1 billion was by far the most we've ever done in a quarter. The $2.5-$2.8 we've guided to for the full fiscal year will be the largest dollar amount we've done on an annual basis in company history and also the largest percentage share reduction most likely. Absolutely. Well, perfect. It's a great place to finish. So Jessica Hansen, D.R. Horton, thanks for being here. Absolutely. Thanks. Appreciate it. Thanks. OK. Thank you.