Good morning and welcome to the First Quarter 2025 Earnings Conference Call for D.R. Horton, America's builder, the largest builder in the United States. At this time all participants are in a listen-only mode. A question-and-answer session will follow the form of presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the call over to Jessica Hansen, Senior Vice President of Communications for D.R. Horton.

Thank you, Paul, and good morning. Welcome to our call to discuss our financial results for the first quarter of fiscal 2025. Before we get started, today's call includes forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Although D.R. Horton believes any such statements are based on reasonable assumptions, there is no assurance that actual outcomes will not be materially different. All forward-looking statements are based upon information available to D.R. Horton on the date of this conference call, and D.R. Horton does not undertake any obligation to publicly update or revise any forward-looking statements. Additional information about factors that could lead to material changes in performance is contained in D.R. Horton's Annual Report on Form 10-K, which is filed with the Securities and Exchange Commission. This morning's earnings release can be found on our website at investor.drhorton.com, and we plan to file our 10-Q in the next few days. After this call, we will post updated investor and supplementary data presentations to our investor relations site on the presentation section under news and events for your reference. Please note that we have added and updated several slides in our investor presentation to highlight our returns focused strategy and performance. Now I will turn the call over to Paul Romanowski, our President and CEO.

Thank you, Jessica, and good morning. I'm pleased to also be joined on this call by Mike Murray, our Executive Vice President and Chief Operating Officer; and Bill Wheat, our Executive Vice President and Chief Financial Officer. For the first quarter, The D.R. Horton team delivered solid results, highlighted by earnings of $2.61 per diluted share. Our consolidated pre-tax income was $1.1 billion on $7.6 billion of revenues, with a pre-tax profit margin of 14.6%. We remained focused on enhancing capital efficiency to produce sustainable returns and cash flow. Our home building pre-tax return on inventory for the trailing 12 months ended December 31st was 26.7%. Our return on equity was 19.1% and return on assets was 13.4%. Our return on assets ranks in the top 15% of all S&P 500 companies for the past three, five, and 10-year periods. During the three months ended December 31st, we generated consolidated operating cash flow of $647 million and returned $1.2 billion to shareholders through share repurchases and dividends. Over the past 12 months, we returned essentially all of the cash we generated to shareholders through repurchases and dividends. Overall, the demographics supporting housing demand remain favorable. And although both new and existing home inventories have increased from historically low levels, the supply of homes at affordable price points is generally still limited. To help spur demand and address affordability, we are continuing to use incentives such as mortgage rate buy downs and we have continued to start and sell more of our smaller floor plans. Our local teams have been successful meeting the market, with net sales orders this quarter decreasing only slightly from the prior year. We typically experience our seasonally slowest sales demand in the first quarter and our tenured local operators seek to find the right balance of sales pace, pricing, incentives, and inventory levels to position each community for optimal returns as we enter the spring. With 53% of our first quarter closings also sold in the same quarter, our sales, incentive levels, and gross margin are generally representative of current market conditions. With our focus on affordable product offerings, homes and inventory, continued improvement in our construction cycle times, and finished lots available in our pipeline, we are well positioned for the remainder of fiscal 2025. Mike?

Earnings for the first quarter of fiscal 2025 decreased 7% to $2.61 per diluted share compared to $2.82 per share in the prior year quarter. The income for the quarter was $845 million on consolidated revenues of $7.6 billion. Our first quarter home sales revenues were $7.1 billion on 19,059 homes closed compared to $7.3 billion on 19,340 homes closed in the prior year quarter. Our average closing price for the quarter was $374,900, down 1% sequentially and roughly flat with the prior year quarter. Bill?

Our net sales orders for the first quarter decreased 1% from the prior year to 17,837 homes and order value decreased 2% to $6.7 billion. Our cancellation rate for the quarter was 18%, down from 21% sequentially and from 19% in the prior year quarter. Our average number of active selling communities was up 2% sequentially and up 10% year-over-year. The average price of net sales orders in the first quarter was $373,000, which was down 1%, both sequentially and from the prior year quarter. Jessica?

Our gross profit margin on home sales revenue in the first quarter was 22.7%, down 90 basis points sequentially from the September quarter as expected due to higher incentive costs. On a per square foot basis, home sales revenues and stick and brick costs were both relatively flat sequentially, while lot costs increased approximately 3%. Our incentive costs are expected to increase further on homes closed over the next few months, so we expect our home sales gross margin to be lower in the second quarter compared to the first quarter. Our incentive levels and home sales gross margin for the full year of fiscal 2025 will be dependent on the strength of demand during the spring selling season in addition to changes in mortgage interest rates and other market conditions. Bill?

In the first quarter, our homebuilding SG&A expenses increased by 6% from last year and homebuilding SG&A expense as a percentage of revenues was 8.9% up 60 basis points from the same quarter in the prior year and in-line with our expectations. Our increased SG&A costs are primarily due to the expansion of our operating platform. Our employee count is up 8% from a year ago. Our community count is up 10% and our market count has increased 7% to 126 markets and 36 states. The investments we have made in our team and platform position us to execute and sustain our strategic plans to produce strong returns, cash flow and market share gains. Paul?

We started 17,900 homes in the December quarter and ended the quarter with 36,200 homes in inventory, down 15% from a year ago and approximately 1,200 homes lower than at the end of September. 25,700 of our homes at December 31 were unsold, relatively flat with year-end. 10,400 of our unsold homes at quarter end were completed, of which 1,300 have been completed for greater than six months. For homes we closed in the first quarter, our construction cycle times improved a few days from the fourth quarter and approximately three weeks from a year ago. Our improved cycle times position us to turn our housing inventory faster in 2025, and we will continue to manage our homes and inventory and start pace based on market conditions and to achieve targeted closings by community. Mike?

Our homebuilding lot position at December 31 consisted of approximately 640,000 lots, of which 24% were owned and 76% were controlled through purchase contracts. We remain focused on our relationships with land developers across the country to allow us to build more homes on lots developed by others, which enhances our capital efficiency, returns and operational flexibility. Of the homes we closed this quarter, 65% were on a lot developed by either Forestar or a third-party, up from 62% in the prior year quarter. Our first quarter homebuilding investments in lots, land and development totaled $2.4 billion, of which $1.5 billion for finished lots, $710 million was for land development and $140 million was for land acquisition. Paul?

In the first quarter, our rental operations generated $12 million of pretax income on $218 million of revenues from the sale of 311 single-family rental homes and 504 multi-family rental units. This quarter's rental pretax profit margin was impacted by recent uncertainty in the capital markets and higher interest rates for purchasers of rental communities. We continue to operate a merchant build model in which we construct and sell purpose-built rental communities. Our rental operations provide synergies to our homebuilding operations by enhancing our purchasing scale and providing opportunities for more efficient utilization of trade labor and absorption of our land and lot pipeline. We are focused on improving our operational execution and efficiencies in both our rental businesses. During the last several quarters, we have been successful monetizing some of our single-family rental communities prior to leasing stabilization. We plan to continue this strategy to improve the capital efficiency and returns of our rental operations. Our rental property inventory at December 31 was $3 billion which consisted of $728 million of single-family rental properties and $2.3 billion of multifamily rental properties. We expect our total rental inventory to remain around the current level for the next several quarters. Jessica?

Forestar, our majority-owned residential lot development company reported revenues of $250 million for the first quarter on 2,333 lots sold with pretax income of $22 million. Forestar's owned and controlled lot position at December 31 was 106,000 lots. 64% of Forestar's owned lots are under contract with are subject to a right of first offer to D.R. Horton. $220 million of our finished lots purchased in the first quarter were from Forestar. Forestar had approximately $640 million of liquidity at quarter end with a net debt-to-capital ratio of 29.5%. Our strategic relationship with Forestar is a vital component of our returns-focused business model. Forestar's strong separately capitalized balance sheet, growing operating platform and lot supply position them well to capitalize on the shortage of finished lots in the homebuilding industry and to aggregate significant market share over the next several years. Mike?

Financial Services earned $49 million of pretax income in the first quarter on $182 million of revenues, resulting in a pretax profit margin of 26.7%. During the first quarter, our mortgage company handled the financing for 79% of our homebuyers. Borrowers originating loans with the DHI Mortgage this quarter had an average FICO score of 724 and an average loan-to-value ratio of 89%. First time homebuyers represented 60% of the closings handled by our mortgage company this quarter. Bill?

Our capital allocation strategy is disciplined and balanced to sustain an operating platform that produces compelling returns and substantial operating cash flows, while positioning for growth. We have a strong balance sheet with low leverage and strong liquidity, which provides us with significant financial flexibility to adapt to changing market conditions and opportunities. During the first three months of the year, consolidated cash provided by operations was $647 million. We repurchased 6.8 million shares of common stock during the quarter for $1.1 billion, which reduced our outstanding share count by 4% from the prior year. As our stock price declined during the quarter, we accelerated some of our planned share repurchases for the year. Our remaining share repurchase authorization at December 31 was $2.5 billion. During the quarter, we also paid cash dividends of $0.40 per share, totaling $129 million, and our Board has declared a quarterly dividend at the same level to be paid in February. At December 31, we had $6.5 billion of consolidated liquidity, consisting of $3 billion of cash and $3.5 billion of available capacity on our credit facilities. Debt at the end of the quarter totaled $5.1 billion with $500 million of senior notes maturing in the next 12 months. Our consolidated leverage at December 31 was 17%, and we plan to maintain our leverage around 20% over the long-term. At December 31, our stockholders' equity was $24.9 billion, and book value per share was $78.53, up 13% from a year ago. For the trailing 12 months ended December 31, our return on equity was 19.1% and our consolidated return on assets was 13.4%. Jessica?

Looking forward to the second quarter, we currently expect to generate consolidated revenues of $7.7 billion to $8.2 billion and homes closed by our homebuilding operations to be in the range of 20,000 to 20,500 homes. We expect our home sales gross margin for the second quarter to be approximately 21.5% to 22% and our consolidated pretax profit margin to be in the range of 13.7% to 14.2%. We have added guidance for consolidated pretax profit margin to provide more meaningful insight to our overall profit expectations. As a result, we no longer plan to provide specific guidance for quarterly homebuilding SG&A percentage or our financial services pretax profit margin. Our results for the full year of fiscal 2025 was to largely be dependent on the strength of the spring. For the year, we continue to expect to generate consolidated revenues of approximately $36 billion to $37.5 billion and homes closed by our homebuilding operations to be in the range of 90,000 to 92,000 homes. We now forecast an income tax rate for fiscal 2025 of approximately 24%. Based on our strong financial position, first quarter share repurchase activity and our expectation for increased cash flows from operations in fiscal 2025, we now plan to repurchase between $2.6 billion and $2.8 billion of our common stock for the full year. We also continue to expect annual dividend payments of around $500 million. Paul?

In closing, our results and position reflect our experienced teams, industry-leading market share, broad geographic footprint and focus on affordable product offerings. All of these are key components of our operating platform that sustain our ability to produce strong returns, grow the business and generate substantial cash flows while continuing to aggregate market share. We have significant financial and operational flexibility, and we plan to maintain our disciplined approach to capital allocation by providing compelling returns to our shareholders to enhance the long-term value of our company. Thank you to the entire D.R. Horton family of employees, land developers, trade partners, vendors and real estate agents for your continued efforts and hard work. This concludes our prepared remarks. We will now host questions.

Thank you. At this time we will be conducting a question-and-answer session. [Operator Instructions] And the first question today is coming from John Lovallo from UBS. John your line is live.

Good morning guys. Thanks for taking my question. Maybe starting off with just the gross margin outlook in the second quarter. So looks like sequentially going from 22.7% to 21.5% to 22%. Can you just help us with some of the moving pieces there. I mean, is that really the expectation of just higher incentive levels? Or is there something that changes sequentially in terms of land, labor and materials?

Hi, John really, it is just a matter of incentive levels and what we are seeing in the market today. We've closed 53% of the -- or 53% homes we closed this quarter were sold in the quarter. So we think representative of kind of where we are, and looking throughout the quarter, our margin on closings in December was a little lower than the prior two months. So based on the visibility we have today, what we are seeing in the market, we do expect a slight step down in margin on closings in our second quarter.

Understood. And then in terms of deliveries, it looks like you guys beat by about 1,000 units versus the top end, still kind of maintain that 90,000 to 92,000 guide for the full year. How would you kind of characterize that? Was there anything pulled forward into the first quarter that you didn't expect? Or is this more just a little bit of conservatism, just not knowing what lies ahead as we move into the spring?

I think we are always a little concerned in the fourth calendar quarter, our first fiscal with the sales demand environment. We had the inventory and the teams did a great job of delivering that inventory to closings and putting people on home. So feel really good about the execution across the board. And we're positioned to continue to deliver homes, and we need to sell a fair number of homes this quarter that we are going to close this quarter, but we've got the inventory position to do so.

I think the beat really just reflects our continued improvement in build times and also the fact that we did sell and close 53% of our homes intra-quarter, that's a little bit higher than it typically would be for a December quarter.

Make sense. Thanks guys.

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

Hi guys. Good morning. Thanks for the details so far. First question on the start pace. That's been trending lower here, which I think makes sense given the environment. But three quarters in a row, down year-over-year. Just curious how you are thinking about the start pace going forward. Are you thinking about just given the improving cycle times, bringing back some components of BTO back in the business? Or do you feel like just given that improving cycle time, you can more appropriately match the start of sales going forward and still hit that full year guide?

Yeah, Alan, I believe that just the improved cycle times that we have seen have allowed us to carry a lower number of inventory, and that's why you've seen that sequential decline in our start pace. It does allow us to sell earlier in the process because of our ability to turn these homes faster. So it does allow us to pick up a little broader scale on the buyer demographic or demand that's out there. I’d expect on a go-forward basis that you are going to see our starts to be more in-line with our sales pace. We just replenish the inventory that we have and start to build as we grow throughout the year.

Okay. Great. Second question, we are day one here on the new administration, a lot of uncertainty about which direction some of the housing-related policies might go in, whether we're talking about tariffs or integration or the future of the GSEs. I'm just curious how you guys are thinking about the next several years in the backdrop and whether you are changing any strategies or doing anything in anticipation of that?

Alongside everyone else, we are keeping an eye on what will occur. But we've been through a number of changes in administrations before, and ultimately, we are just focused on what buyers can afford. We are going to continue to open communities and try to price our product as affordably as possible to meet the needs of home buyers. There is a core need for shelter and for homes in our country, and we are going to continue to do the best we can to supply it at an affordable price as we can.

Thanks a lot.

Thank you. The next question is coming from Stephen Kim from Evercore ISI. Stephen, your line is live.

Yeah. Thanks very much guys. Appreciate the color. I was really encouraged to see the share repurchases you did this quarter, and it is a tough environment and the cash flow was impressive. I think you had guided – you are guiding now -- continuing to guide for cash flow above 2024. Can you give us a sense for how you are thinking about cash flow from operations relative to your combined share repurchases and dividends because that I think might help dial in and even a little bit better.

Sure. As we said in our scripted remarks, we've essentially distributed all of our cash flow from operations over the last 12 months to shareholders through repurchases and dividends. And so that would continue to be our general expectation as the substantial majority of our cash flow will go to repurchases and dividends. So our guide of the $2.6 billion to $2.8 billion of repurchases and the $500 million of dividends is a good proxy for generally the range of where we would expect our cash flow from operations to be for the year.

Yes. That's impressive. Appreciate that. And then second question relates to your leverage longer-term. I think you had indicated that your long-term leverage goal is around 20%. Can you give us a sense for like what kind of cash balance you guys would typically carry? So in other words, like what kind of net debt to cap do you think is a good target longer term for the company?

Sure. You are correct on the consolidated leverage target at or below 20%. Net, it is probably closer to approximately 10%. Cash is going to vary though quarter-to-quarter. We typically have our heaviest cash balance or our highest cash balance at the end of the fiscal year, call it roughly $3 billion. And then the other quarter is probably anywhere from $1 billion to $2 billion.

Gotcha. That’s really encouraging. Okay, thanks a lot guys. Appreciate it.

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

Thanks everybody. I want to talk about SG&A for a second. So talk -- Mike I think you had talked about the growth rate in store count, the growth rate in lots and business, people you've added. We'll start to anniversary those growth rates and you've talked about sort of balancing your pace with margins and returns more so and going forward. So especially because you are not going to be guiding on this anymore. Where do you sort of think your target SG&A ought to be? And when do you expect to see some better leverage on those SG&A dollars. Is it going to be later this year? I know seasonally, it will happen? Or will we start to see more in the next couple of years?

As [we commented] (ph), we have made investments. We've expanded our market count, increased our community counts. As you know as well Carl, we are always focused on being as efficient as we can. So we would expect to see leverage overall in our SG&A. I think today, as we look at fiscal '25, we would expect our homebuilding SG&A percentage is probably a little higher than it was in '24, but we certainly expect to leverage those investments as we move beyond '25 into '26 in future years. We will be very focused on maintaining as efficient of an infrastructure as we can to support our growth.

Thank you Bill. And then about, I think 65% or I think -- you said of your total lots, you have with finished lot option contracts from developers. The other 35%, can you talk about self-developed lots and sort of what I call farmer auctions versus land banking transactions. And can you talk a little bit comment at all about your perspective on land bank transactions versus doing self-development on your own books?

I think, Carl the 65% we talked about at the closings in the quarter were on lots that were developed by a third-party or Forestar. So that would be a lot development professional entity that is developing finished lots for us. And that comes from deals they source, projects we source and assign to them and enter into buyback contracts kind of runs the gamut there. On the self-developed lots we -- the homes we closed on lots we self-developed, those were all done on our balance sheet, and we continue to explore other accretive ways for capital efficiency and whether that's sort of that, call it land banking development services, land banking process, we continue to evaluate and are looking to drive the most efficient capital usage in our lot pipeline.

We'll use land or lot bankers if we have an excess supply of finished lots that we are not ready for. But in terms of true traditional land development where you don't technically have a lot of risk transfer, we have little to no of that. We are 100% focused on risk transfer in the structures of our contracts.

Thanks guys. Thanks everyone.

The next question is coming from Michael Rehaut from JPMorgan. Michael, your line is live.

Thanks. Good morning everyone. Congrats on the results. First question, I'd love to circle back to -- you had a comment in your prepared remarks around inventory levels. And the comment was, supply is still generally limited at affordable price points. I would love to dial in into that a little bit and see if there is any regional differentiation that you've seen across inventory levels. And as a result, perhaps which markets or regions that you operate in might be a little stronger versus a little weaker than the corporate average?

We have seen like has been reported, some buildup in the Florida market and certainly in certain of the Florida markets, a little more than others. The same in some of the Texas markets. But across -- generally across the footprint, we feel like inventory is in pretty good shape. We think that we and the other builders being pretty responsible in terms of watching the market, and based on what the market brings, sizing their inventory in kind and the resale market is just going to continue to play out, as people loosen up and eventually move and put their homes on the market.

Okay. Appreciate that. I guess secondly, your option lot percentage of 76%. I think you kind of maybe reached over the last year or two, a high of 80%. I think in the past, you've talked about most likely not going below a year's worth of owned supply. Maybe you kind of stay in that 1 year, 1.5 years range. So as we look forward, I know you are talking still about improving inventory turns or build cycle times. I'm just wondering how you guys think about further improvement on capital efficiency, what are those levers that you look to move. And if there is any rethinking of where that option lot percentage or years owned supply might be able to go over the next three years to five years?

Well, Mike, our average is 76% across our operations. We do have markets that it is higher than that. And we obviously, have markets said it's lower than that as well. So we are still focused on continuing to ensure that we have a good network of third-party developers and we are utilizing Forestar as much as we can. So there still is opportunity for some of those markets that are at a lower option percentage to increase that. As Jessica did state earlier, we are very focused on risk transfer. And so if we are going to pay or to use a third-party to whether it is banking or developing lots, we are balancing what we are paying versus what the risk transfer and the capital efficiency benefits are. And so that's something we do continue to evaluate, as Mike said earlier, and we expect there will be opportunities for us to find ways to get more efficient with our lot pipeline going forward.

Great. Thanks guys. Good luck.

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

Morning everyone. Thank you for taking the question. So the closings guidance, I think, for the second half implies something like 52,000 homes closed or maybe 30% or so higher than the first half. I think is a little bit greater than normal or at least history. So I just want to get some color around your confidence in that step-up in closings. And it sounds like better cycle times, as you keep alluding to for sure, as part of that, but just any other assumptions we should consider that you are making in that kind of step up there? Thank you.

No. I think, we feel good about our efficiency today. We feel very good about our position of housing inventory, as well as the lot inventory that we need to achieve those numbers. Of course, we're very early in the spring selling season, and we need the spring to show up for us and to see the sales. But we believe that our operators are positioned to take advantage of the spring selling season be in position to deliver on our guide of 90,000 to 92,000 homes for the year.

Okay. Got it. Thank you for that. And then secondly, back on the gross margin. It sounded like the margin exited December a little lower than the prior two months, if I heard you correctly. So is that second quarter margin guide assuming that the margin on homes, I guess, sold and closed during Q2 would be similar to December or lower than December? And I guess, conceptually, at what point would you look to kind of more hold the line on the gross margin? Thank you.

So we continue to look at traffic and demand we see in the neighborhoods to affect the pricing and the margin in -- about maximizing the returns for us at a community level. But we entered the quarter in a roughly 6% mortgage environment, and we exited the quarter in a 7% mortgage environment, which is what we kind of rolled into Q2 with. And so that's coloring our margin outlook as well, looking at perhaps being a bit lower than December as we work our way through second quarter, but it is the spring and it is historically a better selling season, and we are optimistic about the trends we’ll see.

All right. Thanks guys. Good luck.

Thank you.

Thank you. The next question will be from Sam Reid from Wells Fargo. Sam, your line is live.

Awesome. Thanks so much. So maybe just a follow-up on the prior question here. Could you guys give us a sense as to what gross margin is embedded in your backlog on houses that you plan to close in the second quarter. Kind of just curious for a rough number there. And then maybe one other number on that point would be any sense as to what the bought-down rate is in your backlog. I believe you provided that in past quarters. So just curious if we've got an updated number there.

Sure. With regard to the margin and backlog, that is one of the key items that we do have visibility to when we are preparing our guide. So our margin in backlog is relatively consistent with the range that we are providing here for Q2. And then in terms of prevailing rate that we're offering in the market today, generally between $4.99 to $5.99 range depending on the product is what's prevailing out there really for the last little while across our sales offices.

And there is really no meaningful change in that average rate this quarter versus last quarter.

No, that helps. And then maybe more of a higher level question on labor costs and stick and brick costs. It sounds like those are looking to hold in Q2, although correct me if I'm wrong. But -- maybe could you just talk a little bit more broadly about your ability to manage higher costs on these two buckets from some of these exogenous factors we are seeing, whether it's the new administration's tone on remigration or higher material costs on the back of natural disaster rebuild. Just trying to get your rough sense as to sort of how you manage through those should we see inflation in labor and stick and brick? Thanks.

I think today, we are seeing good access to -- we have the labor we need and we have the materials we need, and that's what's allowed us to continue to see improvements in our cycle time. And given that, we've been able to hold pretty tight on pricing for both materials and labor. It has yet to play out to see what happens with this administration and what that impact is either through tariffs and/or labor, if it becomes a little more scarce but we feel good about our positioning in the markets with our market share and our ability to maintain the labor and the parts and pieces we need and still don't expect to see much inflation in either of those over the next 12 months.

That’s helpful. Thank so much. I will pass it on.

Thank you. The next question will be from Eric Bosshard from Cleveland Research. Eric your line is live.

Good morning thanks. Two things, if I could. First of all, in terms of affordability, I'm curious as you think looking forward, I think your ASP indicated it is down 1%. Is there something more meaningful that you are considering or taking steps towards to address affordability? I know you talked about smaller homes, but is there a need to unlock or an opportunity to unlock demand by doing something more meaningful in changing the product and changing your ASP?

Hard to say that we can make a massive swing in the near-term from what we are doing. I mean, it is kind of an incremental change neighborhood by neighborhood. You are kind of -- I don't want to say locked in, but for the lots that are on the ground and that are approved by the municipalities. Oftentimes, they are also approving some product parameters and guidelines that kind of limit our ability to flex significantly within a short call it, a six-month to nine-month time frame. Longer-term, we continue to evaluate ways to be more efficient in the usage of land and development dollars relative to the stick and brick costs it takes to deliver a certain number of bedrooms, bathrooms and square footage for a homeowner.

For data points this quarter on homes we closed, our average square footage was down 1% from a year ago, which has been down a low single-digit percentage share for the last couple of years. Sequentially, it was relatively flat. And we did see another tick up in the number of attached homes, so call it townhomes and duplexes that we closed that was roughly 17% of our business which was up from 15% sequentially.

Okay. And then secondly, I know as you look forward to the spring selling season, rates were 7, rates were 6, rates are 7. Is your customer behaving differently with rates back at 7. Curious, especially in an environment where it feels like we are a little bit higher for longer. Is the consumer responding to incentives the same way? Is traffic the same? Or is it different this time back at 7?

We still -- our best incentive and most impactful to the consumer is utilizing some form of rate [dynamic] (ph) -- and that has increased for us throughout the quarter to try and maintain rates that seem to be in at least a comfortable enough place for them to move forward as far as their monthly payment. Still we are successful in achieving what we needed to in the quarter with 53% of the homes closed in the quarter, sold in the quarter. So we were able to navigate it through this past quarter. It is still early. We are only a couple of weeks into this quarter. But so far, I've been pleased with the traffic levels and with the sales pace that we are seeing in our models, we'll see how that continues. It is got a long way to go on the spring selling season.

Thank you.

Thank you. The next question will be from Anthony Pettinari from Citi. Anthony your line is live.

Good morning. I wonder if you can give an update on what you are seeing with consumer debt levels and if you are seeing any real change in sort of availability or ability to qualify? And then when you look at kind of the first -- true first-time buyer versus more of a move, is one group may be holding up better than the other?

I would say that today, we've got the levels of traffic in our offices. It is a little easier for that move up buyer to move forward. Just to get to the sale and get to the final determination, certainly, that's been a little stronger the last quarter. We haven't seen a significant change in really the debt level or the credit makeup of our buyers because we do sell 59% I think, of our buyers through our mortgage company this past quarter were first-time homebuyers. We live in the world where if we could open up -- go down on the credit score significantly, it would significantly open up the buyer available to us, but we spend a lot of time in our sales offices working through those credit challenges and our buyers to get them in a position to buy their first home.

Okay. That's helpful. And then just following up on smaller format homes or products like town homes or duplexes, understanding it varies by community. Is it possible to talk about sort of how the returns or the gross margin profile of smaller-format homes compares with a more traditional offering, if at all?

It is very similar, actually. If we look at our product and project performances, the margin is going to be very similar. If you are well-positioned with the right product, the right price, the right house, whether it is attached or detached, you’re going to get similar outcomes in your margin and your returns. [indiscernible]

Okay. That's helpful.

The next question will be from Mike Dahl from RBC Capital Markets. Mike your line is live.

Thanks for taking my questions. I wanted to ask about the pretax margin guidance. I appreciate that going forward, you want to frame your business this way. But if I look at it, you are guiding pretax margins at the midpoint down 280 basis points year-on-year and gross margins, you are really only guiding down 150 basis points. So can you -- it seems like there is something else kind of underneath the surface, whether it's on rentals or SG&A or Forestar this quarter, specifically in terms of 2Q. So can you help us understand that?

Sure. Rental margins are lower, as we commented on the call that due to the capital markets uncertainty and higher interest rates, buyers of rental properties really over the last year have -- it's been more challenging for them. So margins in that business have been lower. It is a business that we're continuing to move forward with and would expect that in 2025, we are dealing with some supply out there that is a challenge, but that should alleviate as we move to the latter part of '25 and into '26. But I would say, primarily the change in the year-over-year gross margin beyond the homebuilding change would be in the rental segment.

Okay. Got it. So year-on-year rental revenue and margin down significantly biggest driver.

Yes.

Got it. And then I guess going back to kind of the price versus pace discussion. I guess as you think about it, and again, you've added some -- you've made a point of -- that you added some additional slides around the return focus and change the way that you are guiding certain things. So -- I know you've been return focused for a while. But in the current environment, is that focus actually like shifting you to be a little bit more biased towards let's keep things kind of a little bit actually more kind of price and margin focus versus volume in the near-term. How would you say that your views are evolving there?

Well, we continue to evaluate the business at a community level. Community by community, our local operators are making decisions based upon the lot supply they have in a given project or a given submarket relative to demand that they are currently seeing in that market and looking to price and start homes, price those homes and sell those homes at a pace that's going to maximize the margin available at that pace and for what that submarket can absorb. And it is very much, again, I know it's repetitive about saying this, but it is very much a community-by-community buildup of what's happening. And we see the best outcomes there, and we don't, at the corporate level, dictate a pace or a margin to the field. We asked them to maximize the returns. And there are times when you lean more heavily into pace to get pace up and then once pace is up, you can oftentimes bring margin behind the sales momentum to help drive the returns up. But it is a balance that – it is probably a lot more art for us than it is science.

Gotcha. Okay, thank you.

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

Hello everybody. Could you -- and happy to hear. Could you give color around the margin spread between the 47% backlog closings and the 53% spec, as well as comment on -- because you are at 126 markets, most of the builders [are about 50 markets] (ph) are most of their closings. Could you also talk maybe about the margin spread we see between those top 50 markets and your other 76 markets?

So your first part of your question was between backlog and our spec closings --.

Yeah, margin spread.

Between the sold and closed in the same quarter. [indiscernible] I don't think we have that breakdown. I would say the 47% that were sold prior to the quarter and it's slightly different -- in a lower interest rate environment, we're going to be at a higher margin than what we exited the quarter at in December. But I don't have -- I can't give you any magnitude Ken. I'm sorry, I don't have that in front of me.

Okay. I think in the past, you guys talked about a couple of hundred basis points, I mean multi-years ago. So I didn't know if that might be a --.

That would have been build-to-order versus spec.

Okay. Regional margins, you guys stand out versus many of the peers in having very similar regional margins across your business. Is there any reason we didn't necessarily see more dispersion of margins in your business because Florida, Texas, the West, they are all pretty similar in that 16% range LTM. Just curious as to why perhaps we didn't see more of a spike in some markets versus others. Thank you very much.

I think not exactly sure, Ken, I think there is just an aggregation of enough markets in each one of our regional groupings that it kind of blends out any specific market differences where the market is performing differently or our execution is different.

All of our markets are focused on maximizing returns community by community. And so it's a balance between margin and pace and inventory turns. And so yes, the better the margin, the better returns generally as well. And so that is focused across the board.

Thank you.

Thank you. The next question will be from Rafe Jadrosich from Bank of America. Rafe your line is live.

Great. Good morning. Thanks for taking my questions. First, I want to -- just on the land inflation that you're seeing today. I think you said up 3% quarter-over-quarter. Can you just run us in what that implies for the year-over-year trend? And then how do we think about that for the remainder of the year? I mean how does that compare to what you are contracting today, like are you seeing any relief there that we'll see flow through later on?

On a year-over-year basis, we were up 10%, which we've been up a high single to low double digit year-over-year for the last at least four quarters to six quarters. And on a sequential, it has continued to be just a low to mid-single-digit increase. I think our base case is going forward, it will remain a low-to-mid single for the foreseeable future. We are not necessarily seeing land prices come down, certainly not development costs when you look at an all-in lot cost. But we do think, on a year-over-year basis here at some point over the next couple of quarters, that should moderate to a mid to maybe just high-single digit.

Okay. That's helpful. And then just on the change in the share repurchase outlook especially like the pace, if you stepped it up in the guidance. Can you talk about -- have you continued that pace of buyback quarter-to-date? And then how do we think about sort of the pace as we go through the year? Was the step-up in buyback in the quarter related to just where the stock price was? Or is there any change in sort of philosophy or strategy in terms of like the pace of capital return relative to free cash flow?

Yes, no change overall in strategy. We will manage our repurchases within our liquidity availability and our balance sheet targets, but we do have the flexibility within that liquidity to be able to accelerate repurchases when the share price is under some pressure. Obviously, we saw that this quarter and that continued really through the end of the quarter. So we continue to be a bit more aggressive in our repurchases. And judging based on where the stock price has been early this quarter, obviously, we are still out in the market. And so we are still being active. I would characterize some of the increase in the first quarter as an acceleration implied by our guide of the $2.6 billion to $2.8 billion. We did increase that guide, but not by the full amount that you -- that the acceleration would have occurred in Q1. So we continue to -- we manage based on our overall plan, what we feel like our liquidity and balance sheet and our cash flow will allow. But we will see it ebb and flow a bit depending on where the valuation of the stock is and when we see some opportunities to take advantage of dips in the stock.

Thank you. Appreciate it.

The next question will be from Trevor Allinson from Wolfe Research. Trevor your line is live.

Hi, good morning. Thank you for taking my questions. First, can you just talk about any different demand trends geographically, Southeast and South Central were two weaker regions for you guys on a year-over-year basis. So perhaps any demand commentary in Texas and Florida would be helpful.

Yes. I think that as we talked to a little earlier, some of the buildup we've seen in inventory has had some impact on sales when you look at portions of the Florida market and as well isolated to some of the Texas markets where they saw a significant run-up in valuations. We've seen some moderation there. But generally, as we enter into the spring, we've been pleased with what we've seen in these first few weeks in our sales offices across our footprint.

Okay. Thank you. That's helpful. And then second question, understanding it is early and a lot of unknowns with the new administration. Can you just give us some color on some potential impacts that you think could be possible if we were to see a major change on immigration or then also tariffs on China and Mexico? Just what kind of impact do you guys think that could potentially have on you all? Thanks.

Hard to foresee what the impact would be, and we're not sure what the change is going to be yet. So we continue to, as Bill said before, prepared to provide an affordable product for our buyers that we can get a homeowner into and qualify for the mortgage. And so we do everything we can to bring that affordability into play. And if there is cost increases, that is not going to be helpful for housing affordability. And I do think housing affordability is a stated goal of the administration. So we are hopeful that they're able to do some things that will help drive affordability.

And we have had to deal with both immigration changes and tariffs in the past. So it is something that we are familiar with. And likely, although it is way too early to say the ultimate outcome, likely it is more regional in nature than something sweeping across our entire footprint, but it remains to be seen.

Thank you. The next question will be from Buck Horne from Raymond James. Buck your line is live.

Hi, thanks good morning. Just one quick one for me. I was wondering if you've seen any inbound or uptick in inbound interest from single-family rental investors in some of the longer-dated finished unsold inventory? Or would you consider maybe negotiating or doing a bulk deal if an SFR investor wanted to come in and take some of that inventory off your hands?

We have really maintained our single-family for rent business as more of a merchant build. We have plenty of opportunity for those buyers to sell into those, and that can -- as we stated in our prepared remarks, we’ve started to do some of those more on a forward sale ahead of final stabilization. So we have plenty to offer to those buyers. We tend to haven't been heavy at all in selling in bulk our inventory. We are very comfortable with the inventory we have. We've largely maintained the number of completed inventory units, and that's exactly where we want to be as we enter into the spring selling season. So we feel good about our inventory on both sides of that on a for sale and on a build for rent basis.

Okay. Thanks. That’s all from me. Thanks. Appreciate it.

The next question is coming from Susan Maklari from Goldman Sachs. Susan your line is live.

Okay. Good morning everyone. My first question is on the consumer and the rate environment. If the Fed does cut less than expected or fewer times than expected this year versus, say, last year. But rates realize some level of stability as a result of that. Do you think that, that could be enough to ease some of the uncertainty or some of the fears that are leaving people on the sidelines? Or do you think that we actually need to see rates come down to see more of a lift in confidence and activity?

I think we'd take great stability all day long. If we could pick something today, it's much easier to manage our business and drive affordability if we know what the rate is going to be. And I think if rates remain stable for an extended period of time, that's going to get consumers off the fence that need to buy a house. They will ultimately reset their expectations on what they can afford, if they thought rates were going to go lower and they ultimately don't. So -- we don't have a base case scenario, nothing in our guidance assumes rate declines as we move throughout the year. Certainly, that would be helpful. But really, we would just take rate stability as pretty positive as we move throughout the year.

Okay. That's helpful. And then just one last question on the rental side of things. You did mention efforts to realize greater efficiencies and some operational execution there. As you think about eventually improving that margin, how much of that can come from your own efforts versus a shift in the overall market?

I think what we are looking at there Susan, is the ability to sell some of the projects prior to stabilization from a greater capital efficiency perspective from us. So in terms of – we are always looking to control our stick and brick cost and operate efficiently. That's just part of the DNA in the homebuilding for sale platform, as well as across the rental platform. But to see materially different changes in the financial performance and selling those assets, it takes a fundamental increase in rents, net operating income and decrease in cap rates to thoroughly change the valuation on those, everything we can control the cost side. But the efficiency side we're focusing on now is working with some of the buyers of the build-to-rent communities to sell them earlier in the process, prior stabilization.

Okay. That’s helpful. Thank you. Good luck with everything.

Thank you.

The next question will be from Alex Barron from Housing Research Center. Alex your line is live.

Thanks everybody. Good start to the year. I wanted to ask some of your competitors seem to have a philosophy of trying to sell a certain number of homes and do whatever it takes to get there, even if it means offering super low interest rates. Wondering if you guys have maintained the same approach to the business that you have historically or whether you guys have maybe approached it a little differently in terms of your willingness to balance margin versus pace. If you can comment on that.

I think as we have alluded to earlier, it is always a community-by-community buildup. And we are looking for a consistent pace in those communities that allows us to drive margin and a return community-by-community. So we aren't making that decision from here. We do rely on our local operators to balance what they need to. They need to be competitive in the market. So sometimes we may offer a rate or an incentive beyond where we would hope to. But at the end of the day, we're going to be competitive in the market to achieve the absorptions we need. And when we get on pace, it allows us to drive margin and therefore, returns at a higher level. But it's a community-by-community, market-by-market daily activity for our operators.

Got it. And then wondering if you can comment on Forestar. It seems like there are a number of lots sold, I suppose, mostly to you was lower than expected generally, but they seem to maintain the same number for the year. So was that just a timing issue? Or anything you can comment on that?

Yes, it was purely timing. Alex, they do expect their lot deliveries to increase throughout the remainder of the year. They had a pretty heavy percentage that they sold to us in Q4, and it was a little bit lighter in Q1, but we would just say that's timing related.

Got it. Thank you so much.

Thank you. The next question will be from Jade Rahmani from KBW. Jade your line is live.

Thank you. Can you comment on the pricing environment that's out there and whether the guidance assumes any price cuts because to get to the consolidated revenue guidance, it seems like we need to assume somewhat lower average sale prices.

Our average sales price does reflect the level of incentives from our rate buydowns largely. And so that does have some impact on the average selling price. And yes, we've seen slight declines in our net average selling price over the last year, and we do still expect probably a little bit further downward movement in our net average selling price, largely because of the cost of the incentives that we are having to pay in terms of rate buy downs with the rates -- mortgage rates prevailing in the market being higher at the end of the quarter, we expect those costs to be higher in Q2, which will have an impact on the net ASP.

So what's a reasonable range for ASP to assume, would it be around 370,000?

Yes, we are not guiding to that specifically. But we've seen modest generally sequentially 1% or 2% change. Really not expecting much more than that.

Thanks a lot.

There were no other questions in queue at this time. I will now turn the call back to Paul Romanowski for closing remarks.

Thank you, Paul. We appreciate everyone's time on the call today and look forward to speaking with you again to share our second quarter results in April. Congratulations to the entire D.R. Horton family on producing a solid first quarter. We are honored to represent you on this call and greatly appreciate all that you do.

Thank you. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.