D.R. Horton Q3 2023 Earnings Call Transcript

Presentation

[Operator]

Good morning, and welcome to the Third Quarter 2023 Earnings Conference Call for D.R. Horton, Americas Builder, the largest builder in the United States. [Operator Instructions]

I will now turn the call over to Jessica Hansen, Vice President of Investor Relations for D.R. Horton.

[Jessica Hansen, Vice President, Investor Relations and Communications at D.R. Horton]

Thank you, Paul, and good morning. Welcome to our call to discuss our results for the third quarter of fiscal 2023.

Before we get started, todays 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 mornings earnings release can be found on our website at investor drhorton.com, and 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 Presentations section under News and Events for your reference.

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

[David V. Auld, President and Chief Executive Officer at D.R. Horton]

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 third quarter, the D.R. Horton team delivered solid results, highlighted by earnings of $3.90 per diluted share. Our consolidated pre-tax income was $1.8 billion, on an 11% increase in revenues to $9.7 billion, with a pre-tax profit margin of 18.3%. Our homebuilding return on inventory for the trailing 12 months ended 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, as the supply of both new homes and existing homes at affordable price points is limited and demographics supporting housing demand remained favorable.

We are focused on consolidating market share by supplying more homes to meet homebuyer demand, while maximizing the returns and capital efficiency of each of -- 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 [Phonetic] 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 homebuyer 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 lot supply and strong capital and liquidity position 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?

[Paul J. Romanowski, Executive Vice President and Co-Chief Operating Officer at D.R. Horton]

Earnings for the third quarter 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 third quarter 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?

[Michael J. Murray, Executive Vice President and Co-Chief Operating Officer at D.R. Horton]

Our net sales orders in the third quarter 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 third quarter 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 size of our homes to provide better affordability to homebuyers. Although home prices and incentives have begun to stabilize, we expect continued 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. However, we will continue to start homes and maintain sufficient inventory to meet sales demand and aggregate market share. Bill?

[Bill W. Wheat, Executive Vice President and Chief Financial Officer at D.R. Horton]

Our gross profit margin on home sales revenues in the third quarter 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 cost per square foot decreased 4%.

As Mike mentioned, we continue to -- we expect to continue offering a higher-level of incentives as compared to 2022. But 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 fourth quarter compared to the third quarter. Jessica?

[Jessica Hansen, Vice President, Investor Relations and Communications at D.R. Horton]

In the third quarter, our homebuilding SG&A expenses increased by 6% from last year and homebuilding SG&A expense 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've maintained the capacity of our platform to grow market share. Paul?

[Paul J. Romanowski, Executive Vice President and Co-Chief Operating Officer at D.R. Horton]

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 third quarter, our construction cycle time decreased by over a month from the second quarter, reflecting improvements in the supply chain. We expect to see a further decrease in our cycle time for homes closed in the fourth quarter. We will continue to adjust our homes and inventory and start pace based on market conditions. Mike?

[Michael J. Murray, Executive Vice President and Co-Chief Operating Officer at D.R. Horton]

Our homebuilding lot position at June 30th consisted of approximately 555,000 [Phonetic] 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 third quarter 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?

[Paul J. Romanowski, Executive Vice President and Co-Chief Operating Officer at D.R. Horton]

During the quarter, our rental operations generated $162 million of pre-tax income on $667 million of revenues from the sale of 1,754 single-family rental homes and 30 multi-family 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 multi-family 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 fourth quarter, we expect our rental revenues to be greater than our third quarter and our rental profit margin to be lower than our third quarter. Bill?

[Bill W. Wheat, Executive Vice President and Chief Financial Officer at D.R. Horton]

Forestar, our majority-owned residential lot development company reported total revenues of $369 million for the third quarter, on 3,812 lots sold with pre-tax 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 third quarter 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 a strong balance sheet lot supply and relationship with D.R. Horton. Mike?

[Michael J. Murray, Executive Vice President and Co-Chief Operating Officer at D.R. Horton]

Financial services earned $94 million of pre-tax income in the third quarter on $29 million of revenues, resulting in a pre-tax 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?

[Bill W. Wheat, Executive Vice President and Chief Financial Officer at D.R. Horton]

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 totaled $2.7 billion, which includes $400 million of senior notes that were 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 11.3%. At June 30th, our stockholders' equity was $21.7 billion, and book-value per share was $64.3, up 23% from a year-ago. For the trailing 12 months ended June, our return-on-equity was 23%.

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?

[Jessica Hansen, Vice President, Investor Relations and Communications at D.R. Horton]

As we look forward, we expect current market conditions to continue with uncertainty regarding mortgage rate, 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 fourth quarter, we currently expect to generate consolidated revenues of $19.7 billion 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 fourth quarter to be approximately 23.5% to 24%, and homebuilding SG&A as a percentage of revenues in the fourth quarter to be in the range of 6.7% to 6.8%.

We anticipate a financial services pre-tax profit margin of around 30% to 35%, and we expect our income tax rate to be approximately 24.5% in the fourth quarter. 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?

[David V. Auld, President and Chief Executive Officer at D.R. Horton]

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.

Questions and Answers

[Operator]

Thank you. [Operator Instructions] The first question today is coming from Stephen Kim from Evercore ISI. Stephen, your line is live.

[Stephen Kim, Analyst at Evercore ISI]

Thanks very much, guys. Impressive quarter once again. So congratulations on that. I wanted to talk about your construction, you pace of construction and your goals going forward. You talked about growing your starts this quarter versus last quarter. But let me just look back maybe a year, 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?

And then also if you could talk about whether seasonality is going to be a factor we should be thinking about with respect to your starts cadence?

[Michael J. Murray, Executive Vice President and Co-Chief Operating Officer at D.R. Horton]

Yes, Stephen. We have seen as we talked about about a 30-day reduction in our cycle time and can see consistency and improvement as we travel throughout -- throughout our divisions and seen pretty -- 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 fourth quarter 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 keeping that cadence and position ourselves for continued growth.

[Stephen Kim, Analyst at Evercore ISI]

Okay. So, 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, like I said, two quarters in a row. And then also if I could tack on a second question about your rental platform, you did give some guidance regarding rents being higher, but margins being lower relative to -- in 4Q relative to 3Q. But could you talk about your plans for rental inventory in dollars carried on the balance sheet? Where should we be thinking your 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 comfortable with maybe even begin to harvest some of that? Thanks.

[David V. Auld, President and Chief Executive Officer at D.R. Horton]

Hey, this is -- as to the 25,000 starts per quarter, we are very focused on increasing -- incrementally increasing starts quarter-to-quarter to quarter. And 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 a -- it's an ongoing effort. So do we have a target out there of -- 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. And just by the nature of doing that, we're going to get bigger and bigger and bigger. And I'll let Mike reply to the rental question.

[Michael J. Murray, Executive Vice President and Co-Chief Operating Officer at D.R. Horton]

Hey, Stephen. So we expect that the margin on the fourth quarter 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 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.

[Paul J. Romanowski, Executive Vice President and Co-Chief Operating Officer at D.R. Horton]

And then in terms of our forward investment level, 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 couple of years, but we do expect that growth pace to moderate from what it's been in the last two years.

[Stephen Kim, Analyst at Evercore ISI]

Great. Thanks very much guys.

[Operator]

Thank you. The next question is coming from Joe Ahlersmeyer from Deutsche Bank. Joe, your line is live.

[Joe Ahlersmeyer, Analyst at Deutsche Bank Aktiengesellschaft]

Thanks, and good quarter, guys.

[David V. Auld, President and Chief Executive Officer at D.R. Horton]

Thank you.

[Joe Ahlersmeyer, Analyst at Deutsche Bank Aktiengesellschaft]

Wanted to follow-up on the community count, that's up about 9% year-to-date -- calendar year-to-date that is. And 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, but should we expect that to go down into the back half, or are we going to sustain those levels? And then I have a follow-up.

[Jessica Hansen, Vice President, Investor Relations and Communications at D.R. Horton]

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 percentage, and we feel like we're positioned to be closer to the mid-single-digit going forward. So not necessarily 9% going forward, but around the mid single digits quarter-to-quarter. There can be some choppiness, just determining when we close out the communities and ultimately bring them online. But our lot position is there and our operators are focused on growing their flag count.

[Joe Ahlersmeyer, Analyst at Deutsche Bank Aktiengesellschaft]

Makes sense. And just thinking about the homes and inventory number, that was actually sequentially flattish the last couple of quarters even as you did grow those communities. So 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?

[Paul J. Romanowski, Executive Vice President and Co-Chief Operating Officer at D.R. Horton]

Yeah. Very focused on improving our inventory churn as our construction cycle times have improved. That's facilitating, that you look historically, we've typically when we go into a year with our number of homes and inventory, we've been able to turn that two times in the following year. The last couple of years has been slower than that, and so we're looking to get back to that more historic inventory turn level as we looked at fiscal '24.

[David V. Auld, President and Chief Executive Officer at D.R. Horton]

That is a -- actually I'll go back -- 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. So it's all flows together. So that we can actually deliver more houses with fewer homes and inventory quarter-to-quarter, quarter-to-quarter.

[Joe Ahlersmeyer, Analyst at Deutsche Bank Aktiengesellschaft]

That's great to hear. Thanks very much and good luck.

[Operator]

Thank you. The next question is coming from John Lovallo from UBS. John, your line is live.

[John Lovallo, Analyst at UBS Group]

Good morning, guys. Thank you for taking my questions. The first one is, it looks like the sequential improvement or the sequential cadence of orders from the second quarter to third quarter 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 fourth quarter, how should we sort of think about seasonality, which looks like it's typically down, call it 15% to 20% on a quarter-over quarter basis. Is that a reasonable way to think about the fourth quarter? Or the dynamics getting a little bit better out there where you might be able to do a bit better than that?

[Michael J. Murray, Executive Vice President and Co-Chief Operating Officer at D.R. Horton]

Yeah. Thanks, John. I think we are seeing more normal seasonality this year in terms of just demand traffic patterns, and so I think our base expectations would be that -- that orders would show a bit and closer to normal seasonality going forward. But to our approach to trying to be as consistent as we can and providing starts pace and a consistent level of inventory with still a short supply of inventory out there in the existing home market and in the new-home market, we're going to make sure we've got enough homes out there to capture whatever demand there may be, and so our hope would be over the longer-term we could see a bit more consistency there. But 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.

[David V. Auld, President and Chief Executive Officer at D.R. Horton]

And I do -- I do believe that we're going to have a lot more houses to sell this year given the shortened cycle time and our ability to to give people a date-certain to close. So, that we were limited in the number homes last year. So the comparison this quarter to last quarter -- a year-ago quarter is probably going to -- it's going to look better than typical seasonality.

[John Lovallo, Analyst at UBS Group]

That makes sense. Okay. And then maybe just a bigger-picture question. If we look at 2019, D.R. Horton delivered 57,000 homes in that ballpark versus the close to 83,000 homes expected this year. Industry-wide, single-family starts were pretty similar in 2019 to what's expected today. Obviously, Horton and the publics have been gaining share for years, but this is close to 45%, 50% jumps since 2019. So, I guess the question is, how sustainable are these gains? How important is your build strategy to this performance? And maybe how important is the lack of existing home inventory just to overall homebuilder success today?

[David V. Auld, President and Chief Executive Officer at D.R. Horton]

I thin, yes, yes and yes. We've been focused for years now on simplifying this business, kind of creating a level of consistency that didn't exist in the 80s, 90s or early 2000s. And jokingly I call it building a real business. And I believe we have and are doing that since 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. So as we have grown through this last 15, 20 years -- the 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. And since 2019, it just seems like at least quarterly you are either coming out of it or going into it and other disruption. So, it's the power of the platform and when we talk a lot about it, I think you're seeing that play out. Its people, it's location, product, it's just trying to simplify the business and create affordability to a level nobody else can achieve. And that's going to consolidate this market.

[John Lovallo, Analyst at UBS Group]

Thank you very much.

[Operator]

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

[Carl Reichardt, Analyst at BTIG Research]

Thanks. Good 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 help them most, obviously lumber and then labor. And the reason I ask is, I'm assuming that we're starting to see some leverage from the single-family and multi-family 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. So I'm wondering if that's starting to help there?

[Bill W. Wheat, Executive Vice President and Chief Financial Officer at D.R. Horton]

Yeah. Right now as we look at the components of the home across the materials, it is primarily lumber right now. There are 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. But I think we still expect a bit more improvement there with lumber, and then really the forward cost structure really depends on what the capacity of the industry is and what all builders are doing. So a bit a bit more improvement there. But 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 down, especially relative to the rest of the industry.

[Carl Reichardt, Analyst at BTIG Research]

Okay. Thank you, Bill. And then, David, the private builders we're talking to have seen, sort of you mentioned normal seasonality to a slower market maybe than they had expected starting to simmer [Phonetic] up. I don't know if that's just a particular vagaries of being small and private, can -- how did you do buy downs, more capital constraints due to higher-end, but 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?

[David V. Auld, President and Chief Executive Officer at D.R. Horton]

Carl, we will talk about it a lot, it 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. And these private guys, now they've got to struggle with capital from either private or banks, increasing in cost. So, do we have the opportunity to talk to a lot of these guys? Yes, we do. But it's going to take unique opportunities for us to invite them into the family because we do have a special culture here and we're not going to screw it up, trying to force a square peg and around them.

[Jessica Hansen, Vice President, Investor Relations and Communications at D.R. Horton]

Excited about the most recent one [Technical Issues] and in terms of already and having been one of our largest lot developers in our Gulf Coast region. And so we picked up through in 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.

[David V. Auld, President and Chief Executive Officer at D.R. Horton]

And I will say I've had a personal relationship with Nathan Cox for. 15 plus years, and he is an example of somebody that absolutely mirrors our culture. He is a super quality. He's built a good company. And somebody we're going to be in business with for a long, long term.

[Carl Reichardt, Analyst at BTIG Research]

Great. I appreciate it. Thanks, all.

[David V. Auld, President and Chief Executive Officer at D.R. Horton]

Thank you, Carl.

[Operator]

Thank you. The next question is coming from Mike Rehaut from J.P. Morgan. Mike, Your line is live.

[Mike Rehaut, Analyst at J.P. Morgan]

Great, thanks. Appreciate it. Wanted to circle back to an earlier answer that you gave around -- thoughts around your 4Q demand in order trends. Last month you had Lennar talk about their third quarter orders being a little bit above 2Q and KB talking about normal seasonality being muted in the third -- in their third quarter, all based on not only strong demand but also Kind of filling a void for the lack of supply that's out there and the strong demand for that new homebuilders can provide as a result. So 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? Again, is there an ability to take orders that is similar to your third quarter 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 or going back to an earlier question as well, is there any type of production constraints that might hold you back there a little bit?

[Jessica Hansen, Vice President, Investor Relations and Communications at D.R. Horton]

Sure, Mike. So, I mean we're not in this for a quarterly results. We're in this for the long-term and to build as much shareholder value as we can over the long-term. So quarter-to-quarter to quarter as you've heard David say over and over, we're focused on being consistent. And as we talked about, it's all tied to our starts pace. So, we're not managing to a sales number in Q4, its the markets there and our cycle times continue to improve, we might be able to see a little bit better than normal seasonality if the market were to weaken for some reason or we don't get as many homes started, ultimately it could be less than normal seasonality.

Right now we feel like we're positioned to increase our starts slightly from where we were in Q3 and also as we've talked about our construction cycle times have continued to improve and our count has grown, so we feel like we're very well-positioned. But frankly, we're more focused on positioning for '24 at this point than we are worried about Q4. I mean, we're going to 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.

[Mike Rehaut, Analyst at J.P. Morgan]

Okay. I appreciate that. I guess maybe then turning to '24. When you look at your backlog conversion at the beginning of the year relative to what you deliver, at best you kind of hit a four times, you maybe low four times turnover. In other words, your backlog turned over four times in terms of the amount of closings you were able to achieve that the height was in 2020 at 4.8. It looks like, you know, on a rough basis you'd probably be closer to five times or above, maybe even six times, given where potentially your backlog could be at the end of this fiscal year. So given the fact that you're looking for 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 or again, just given the physical constraints of turnover and other, the fact of cycle times are improving, but not back to where they were, any other items to consider?

[Bill W. Wheat, Executive Vice President and Chief Financial Officer at D.R. Horton]

Sure, Mike. As we're looking to fiscal' 24, and we've talked about this before. We always try to position ourselves with our -- with our lot position, with our homes and inventory so that we are in position to deliver close to a double-digit growth, high single 10% type growth. And so that's what we're doing again, is positioning our inventory so that we're in position there. And in the market that we see today, I think it's there for us if we can get our lot positions and our homes in inventory ready for that. And 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 starts pace, 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. So every home we start, we will close. And if we're turning those faster, then that will improve the inventory turnover and honestly improves your visibility to see what our closings are going to be as well. So it's really about our starts pace, our inventory positioning and then how efficiently can we turn that.

[Jessica Hansen, Vice President, Investor Relations and Communications at D.R. Horton]

And 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 a quarter end anyway, which is why builds are leading to home starts in our homes and inventory being a better driver and an indicator of what we're going to close in forward period.

[Mike Rehaut, Analyst at J.P. Morgan]

Great. Thanks so much.

[Jessica Hansen, Vice President, Investor Relations and Communications at D.R. Horton]

Thanks. Mike.

[Operator]

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

[Matthew Bouley, Analyst at Barclays]

Good morning. Thank you for taking the questions. I wanted to ask about lot costs. I think you said lot -- 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 what's implied near-term in your margin guidance around lot costs? And then just sort of more broadly, how are you thinking about managing inflation in lots going forward? Thank you.

[Michael J. Murray, Executive Vice President and Co-Chief Operating Officer at D.R. Horton]

What we're seeing today in the closings for 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 lots scarcity, we're expecting to see lot cost coming through in forward margins at a higher level. There's certainly been inflation in land and in lot development costs and in finished lot prices. So we expect to see that, but that's factored into our guidance and the way we're planning for the business next year.

[Matthew Bouley, Analyst at Barclays]

Okay, got it. Thank you for that. And then secondly just on the topic of mortgage rate buy downs. I'm curious if you can kind of educate us a little around how that dynamic may change depending where prevailing mortgage rates go? So if we were to see a rise in mortgage rates from here, for example, what level or what ability do you have to -- what's kind of the maximum level of rate buy down, I guess you could do? And 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 buy downs? Just curious around how all that may play out. Thank you.

[Michael J. Murray, Executive Vice President and Co-Chief Operating Officer at D.R. Horton]

Yeah, the rate buy down 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. And we have stayed roughly a point below the market and we'll have to measure that as we move forward depending on where rates more, whether that be up or down. But we have found it to be one of our most effective incentives. And we have been consistent in that execution and we'll continue to explore that as the -- as the interest rates move and on a go-forward basis.

[Matthew Bouley, Analyst at Barclays]

All right. Well, thank you and good luck.

[Operator]

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

[Eric Bosshard, Analyst at Cleveland Research]

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?

[Bill W. Wheat, Executive Vice President and Chief Financial Officer at D.R. Horton]

Yeah, Eric, it's -- what we have visibility to is basically what's in our backlog and what's been in our recent sales and then we certainly have visibility to what our recent cost levels have been. So we've been seeing the costs on our more recent starts be lower. So we've got some visibility to what that could produce. So right now as we look at our recent backlog and 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 use that word quite a bit and so we -- and we're still seeing that. And so I think we are kind of settling into a more stable period here in terms of our costs and demand has been pretty steady as well. So, I think we certainly don't see a trajectory in margin forever upward, but the modest improvement into the coming quarter looks like a pretty sustainable level here in the near-to-medium term.

[Michael J. Murray, Executive Vice President and Co-Chief Operating Officer at D.R. Horton]

But lot of tailwind from limited inventory supply at affordable price points are helpful to margins and then interest rates are the biggest risks to margins. Significant increases in interest rates will compress our margins.

[Eric Bosshard, Analyst at Cleveland Research]

Within this, you've 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 to go ahead and sign a contract. I'm curious if you're seeing that's just the way it's going to be or if you're seeing consumers becoming more comfortable with the reality in the days of a 3% mortgage are long gone? I guess what I'm trying to figure out is that can you get away with buying down rates less? Now, are you seeing consumers a bit less sensitive or is this that medium-term reality that we should expect?

[Michael J. Murray, Executive Vice President and Co-Chief Operating Officer at D.R. Horton]

You know, the interest rate buy down is an incentive like many that we use 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. That has certainly been a hot button today because of the meteoric rise in rates and people's adjustment to that. As that adjust, it will just ebb and flow with different incentives, whether that's closing costs or price or included features. It's been a good tool for us today, we will adjust to the market as it comes on us.

[Jessica Hansen, Vice President, Investor Relations and Communications at D.R. Horton]

It was still on a majority of the homes we closed in the third quarter, but it was at a lower percentage than it was in Q2 in terms of the number of buyers utilizing that incentive.

[Eric Bosshard, Analyst at Cleveland Research]

Great. Thank you.

[Operator]

Thank you. The next question is coming from Ken Zener from Seaport Research Partners. Ken, your line is live.

[Ken Zener, Analyst at Seaport Global Securities]

Good morning, everybody.

[Michael J. Murray, Executive Vice President and Co-Chief Operating Officer at D.R. Horton]

Good morning, Ken.

[Ken Zener, Analyst at Seaport Global Securities]

Want to take two questions here. One, I just want to kind of focus on capital and cash flow, and the other is going to be about just where we are on kind of the level of business by community versus the past. So your ability to match EPS to cash flow has been improving. I think $3 billion cash flow, I think about $4 billion net income. So that's 75%. Obviously, multi-family plays into that. But could you specifically talk to the 53% of option lots that you expect to be finished? What limits this from going higher, perhaps? And what kind of factors determine whether you're taking down finished or raw land in those option structures and just refresh us on what that first developed lot cost is so we can understand the inflation inherent in those lots?

[Jessica Hansen, Vice President, Investor Relations and Communications at D.R. Horton]

Sure, I'll start, Ken, and then I'm sure Mike or someone is going to chime in the the true-ups piece of it. But 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. So that's where we've already determine 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 percent of our houses quarter-to-quarter on a lot purchased from a third-party developer. And so in the normal course the business will contract with the land seller as deal are important for the option on the contract and then we'll go find land a developer. So the 53% is more of a floor and then necessarily behind.

[Bill W. Wheat, Executive Vice President and Chief Financial Officer at D.R. Horton]

I think you said it very well. We're going to take a piece of dirt, entitle and then in that process look to work with a third-party developer in some cases to assign that contract to acquire the land parcels and then complete the lot development and sell s finished lots, that will then start constructing homes on overtime. So 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.

[Michael J. Murray, Executive Vice President and Co-Chief Operating Officer at D.R. Horton]

And 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 this year and that's what we were expecting to see this year. I would tell you that, 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 in our homes and inventory, because we're turning those faster. Definitely our lands 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.

[Ken Zener, Analyst at Seaport Global Securities]

Great. And so the -- I guess just a follow-up to that. Why would you want to develop a layout as opposed to other builders or one specifically that is after that? And then the other question which I'm still struggling with when I just tried to normalize housing, is your starts pace or your pace per community is about 4.6 this year and 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, but you could explain that. Thank you.

[Michael J. Murray, Executive Vice President and Co-Chief Operating Officer at D.R. Horton]

Yeah. I think on the lot development question, we have talented teams across our platform and there are instances where it's important to us in our starts spaces we have to have a lot on the ground. And so controlling that process and being good at producing that largest talent that we're going to retain and we have to continue to exercise that in order to do so, and some deals just make more sense for us to develop from a timing perspective and/or structure and/or size. And so we're going to make that decision community-by-community across across the platform.

In terms of our absorption per community, I just -- I think that you've seen some larger communities that may be a portion of that impacting sales and positioning of those communities to drive more efficient activity, both on the construction and sale side.

[Bill W. Wheat, Executive Vice President and Chief Financial Officer at D.R. Horton]

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 is improved. Only thing I can come up with, as you have seen a shift in this industry to focus more on returns. And as we focused on returns, that really comes down to being more efficient with every asset you have. And so if you can improve your absorption, improve your returns in each community, your returns on capital are improving. And so, perhaps you're seeing a little bit of that come through in your observation of looking at higher pace, higher absorptions over-time across the industry.

[Ken Zener, Analyst at Seaport Global Securities]

Thank you.

[Operator]

Thank you. The next question is coming from Mike Dahl from RBC Capital. Mike, your line is live.

[Mike Dahl, Analyst at RBC Capital Markets]

Good morning. Thanks for taking my questions. Couple of follow-ups on the rental side. So if there was a pretty well-publicized deal between yourselves and a large SFR company, within this quarter and the guide, any color you can provide on how much of that deal already closed in 3Q and whether or not 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 '24?

[Jessica Hansen, Vice President, Investor Relations and Communications at D.R. Horton]

Sure. Our guide on rental does and will continue to just incorporate that the homes that we've closed in our leasing pace and when those projects are available to be sold and marketed, and so 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 -- there's institutional money that doesn't necessarily want to buy just one project at a time, they are 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. But when we look at our rental communities, whether we're selling multiple projects to one investor or not, they're all individual real estate transactions. And so 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.

[Mike Dahl, Analyst at RBC Capital Markets]

Okay, got it. And I guess, a follow-up there, so without the specifics. 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 n 4Q, and so fully understand that this is the growth part of your business for the next couple of years, but just circling back to question, I think earlier on the call around specifics on '24, 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 '23 versus '24? So maybe it's a little -- little lower in '24, or are you really in a position where even with this increase guide you can keep growing in '24 offset?

[Jessica Hansen, Vice President, Investor Relations and Communications at D.R. Horton]

We've generally been talking about our rental platform combined with our 10-Q, you can see a breakdown and we do give our unit breakdown separately. So, '24 is going to be a pretty big growth here from a multi-family perspective and we're going to continue to scale the single-family. But as we scale both sides of the business, it could still be choppy quarter-to-quarter and year-to-year, with ultimate overall growth on an annual basis expected.

[Mike Dahl, Analyst at RBC Capital Markets]

Okay, great. Thank you.

[Operator]

Thank you. The next question is coming from Alan Ratner from Zelman and Associates. Alan, your line is live.

[Alan Ratner, Analyst at Zelman & Associates]

Hey guys, good morning. So very impressive progress on the cycle times on the cost front. I'm guessing what we're seeing now is probably somewhat of a lag 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're not the only ones [Technical Issues] ramping you 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 private, but I think it's clear, the industry start pace is going to be accelerating here for the next handful of quarters, at least. So, what are your thoughts on the sustainability of the progress you've made on cycle times and costs heading into '24? And more specifically, what are you seeing from your trades? Are they ramping their head count in anticipation of an accelerating start pace going forward or are they -- are you seeing more capacity out there that would -- that would support this type of growth without cost inflation following?

[David V. Auld, President and Chief Executive Officer at D.R. Horton]

Yeah, some we work on every day. Aggregating market share involves aggregating trade base and materials within those communities. And we've been talking about a consistent start pace and 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. And 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. So is it sustainable? Yes. I think that we're going to continue to focus on that. And as time goes on will get better and basically build capacity month-to month, quarter-to-quarter on a continual basis.

[Alan Ratner, Analyst at Zelman & Associates]

Got it. I appreciate the -- appreciate the thoughts there. Second, Jessica, you mentioned earlier that while you're still offering mortgage rate buy downs on the majority of closings, it did take a little bit lower quarter-over quarter in terms of the share of closings that had those buy downs. I was curious if you -- and if had that specific data you could share with us, but are you seeing any sensitivity to demand in the communities maybe where you are dialing back those those buy downs? On one hand, the buy downs of probably putting you guys in such a strong competitive advantage versus the resale market, but on the other hand with inventory as tight as it is and demand seeming similarly pretty strong, it would seem like you should have some ability to pull-back on those about impacting demand too much. I'm just curious the interplay between that.

[Bill W. Wheat, Executive Vice President and Chief Financial Officer at D.R. Horton]

Use of the rate buy downs is about 10% less than it has been as we look over the last few quarters. And that sensitivity is a -- is a community-by-community and buyer-by-buyer process. 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. And so we'll continue, as we mentioned, to utilize that and certainly that reduction shows 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.

[Alan Ratner, Analyst at Zelman & Associates]

Great. Appreciate the color. Thanks guys.

[Operator]

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

[Truman Patterson, Analyst at Wolfe Research]

Hey, good morning, everyone. Thanks for fitting me in. First just, this has been touched on a little bit earlier in the call, but just trying to get a big picture overview of the banking environment and what it means for Horton. Has the banking environment 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, etc.,?

[Bill W. Wheat, Executive Vice President and Chief Financial Officer at D.R. Horton]

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 they're banking or financing sources are kind of looking through their developer to -- looking through to the land contracts and working with us and they take great comfort in that. And 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 is 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 are 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. So it's -- it has been, if anything, a bit accretive to the business and we're just here to help.

[Truman Patterson, Analyst at Wolfe Research]

Perfect. Thank you. And then, you all have discussed previously about rotating the smaller square footage offerings to combat affordability. Any way you can help us think about -- are you seeing consumers actually prefer these smaller square footage homes over the past six months? Or based on the offerings that you have out there, are consumer still kind of preferring the larger square footage homes?

[Jessica Hansen, Vice President, Investor Relations and Communications at D.R. Horton]

They prefer what they can afford. So, what we -- we generally see is that buyers continues to want as much square footage 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. So, we would expect just continued very gradual moves down in our average square footage today.

[Truman Patterson, Analyst at Wolfe Research]

All right, thank you, and good luck in '24.

[Jessica Hansen, Vice President, Investor Relations and Communications at D.R. Horton]

Thanks, Truman.

[Operator]

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

[Rafe Jadrosich, Analyst at Bank of America]

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 fourth quarter. Can you just talk about where they are now versus historical levels? And then beyond the fourth quarter as you look into next year, how should we think about further potential improvement, like what that could do for your asset turns?

[Michael J. Murray, Executive Vice President and Co-Chief Operating Officer at D.R. Horton]

Yeah, we are today down that 30 days, puts us at about 5.5 months in our current cycle time, which is still slightly above our historical averages and so we see a trend towards -- more towards our normalized and consistent cycle times. That's going to 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 out in the markets today.

[Paul J. Romanowski, Executive Vice President and Co-Chief Operating Officer at D.R. Horton]

Our build time of that at 5.5 months has come down about a month and we probably have another month, month and a half to go to get back to where we have been historically when we're operating at a more efficient level. And then there's probably another 45 days to 60 days after that, what we call construction completion until we hit the home closing date. So on average, we're looking to get into a two or a little better than two times turn of inventory units, implies to six to slightly less than six months start to closing cycle time.

[Rafe Jadrosich, Analyst at Bank of America]

Got it. Thank you. That's helpful. So, there is still more opportunity. And then just under the rental profit outlook for the fourth quarter, the guidance is units will be up on quite a bit, but you're thinking about rental profits being down. Or should we think about gross margins there being lower than kind of core homebuilding longer-term? Is there any dynamic that's driving that margin kind of cadence short-term, or is it something we should be thinking about it longer-term?

[Bill W. Wheat, Executive Vice President and Chief Financial Officer at D.R. Horton]

Yeah, it's really a short-term thing 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 we're seeing higher construction costs as well. So we really see that as a Q4 event. And 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 homebuilding margins overall, maybe a little bit of anomaly here in Q4, but not a long-term phenomenon.

[Rafe Jadrosich, Analyst at Bank of America]

Great. Very helpful. Thanks.

[Operator]

Thank you. That's all the questions we have time for today. I would now like to hand the call back to David Auld for closing remarks.

[David V. Auld, President and Chief Executive Officer at D.R. Horton]

Thank you, Paul. We appreciate everyone's time on the call today and look forward to speaking with you again to share our fourth quarter results in November. And finally, congratulations to the entire D.R. Horton family on producing a solid third quarter, continue to compete, win every day. Thank you.

[Operator]

[Operator Closing Remarks]

Participants

Corporate Executives

• Jessica Hansen, Vice President, Investor Relations and Communications
• David V. Auld, President and Chief Executive Officer
• Paul J. Romanowski, Executive Vice President and Co-Chief Operating Officer
• Michael J. Murray, Executive Vice President and Co-Chief Operating Officer
• Bill W. Wheat, Executive Vice President and Chief Financial Officer

Analysts

• Stephen Kim, Evercore ISI
• Joe Ahlersmeyer, Deutsche Bank Aktiengesellschaft
• John Lovallo, UBS Group AG
• Carl Reichardt, BTIG Research
• Mike Rehaut, J.P. Morgan
• Matthew Bouley, Barclays PLC
• Eric Bosshard, Cleveland Research
• Ken Zener, Seaport Global Securities
• Mike Dahl, RBC Capital Markets
• Alan Ratner, Zelman & Associates
• Truman Patterson, Wolfe Research
• Rafe Jadrosich, Bank of America Co.