D R Horton (DHI) Earnings Report: Q2 2016 Conference Call … · 2016-04-22 · conference call,...

CompanyName:D.R.HortonIncCompanyTicker:DHISector:IndustrialGoodsIndustry:Materials&Construction

EventDescription:Q22016EarningsCallMarketCapasofEventDate:11.60BPriceasofEventDate:31.2

DRHorton(DHI)EarningsReport:Q22016ConferenceCallTranscriptThefollowingDRHortonconferencecalltookplaceonApril21,2016,10:00AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

JessicaHansen;D.R.HortonInc;VPofIRDavidAuld;D.R.HortonInc;President&CEOMikeMurray;D.R.HortonInc;EVPandCOOBillWheat;D.R.HortonInc;EVP,CFO

OtherPart icipants

PaulShibelski;Evercore;AnalystKennethZener;KeyBancCapitalMarkets;AnalystAlanRatner;Zelman&Associates;AnalystEricBosshard;ClevelandResearchCompany;AnalystNishuSood;DeutscheBank;AnalystStevenKim;BarclaysCapital;AnalystBobWetenhall;RBCCapitalMarkets;AnalystMichaelRehaut;JPMorgan;AnalystJackMicenko;SusquehannaFinancialGroup/SIG;AnalystSusanMcClary;UBS;AnalystWillRandow;Citigroup;AnalystJohnLovallo;BoAMerrillLynch;AnalystMikeDahl;CreditSuisse;AnalystJadeRahmani;Keefe,Bruyette&Woods,Inc.;AnalystJayMcCanless;SterneAgeeCRT;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

Welcometothesecondquarter2016earningsconferencecallofD.R.Horton,America'sbuilder,thelargestbuilderintheUnitedStates.

(Operatorinstructions)

Asareminder,thisconferenceisbeingrecorded.

ItisnowmypleasuretointroduceyourhostJessicaHansen,VicePresidentofInvestorRelationsforD.R.Horton.Pleasegoahead.

JessicaHansen (VPofIR):

Thankyou,Operator.Goodmorning.WelcometoourcalltodiscussourresultsforthesecondquarterofFY16.

Beforewegetstarted,today'scallmayincludecommentsthatconstituteforward-lookingstatementsas

definedbythePrivateSecuritiesLitigationReformActof1995.AlthoughD.R.Hortonbelievesanysuchstatementsarebasedonreasonableassumptions,thereisnoassurancethatactualoutcomeswillnotbemateriallydifferent.

Allforward-lookingstatementsarebaseduponinformationavailabletoD.R.Hortononthedateofthisconferencecall,andD.R.Hortondoesnotundertakeanyobligationtopubliclyupdateorreviseanyforward-lookingstatements.

AdditionalinformationaboutissuesthatcouldleadtomaterialchangesinperformanceiscontainedinD.R.Horton'sannualreportonForm10-K,andourmostrecentquarterlyreportonForm10-Q,bothofwhicharefiledwiththeSecuritiesandExchangeCommission.

Foryourconvenience,thismorning'searningsreleasecanbefoundonourwebsiteatInvestor.DRHorton.com,andweplantofileour10-Qnextweek.

AftertheconclusionofthecallwewillpostupdatedsupplementaryhistoricaldatatoourinvestorrelationssiteonthepresentationsectionsunderNewsandEventsforyourreference.Thesupplementaryinformationincludeshistoricaldataonourhomebuildingreturnoninventory,grossmargins,changesinactivesellingcommunities,productmix,andourmortgageoperations.

NowIwillturnthecallovertoDavidAuld,ourPresidentandCEO.

DavidAuld (President&CEO):

Thankyou,Jessica.Goodmorning.InadditiontoJessica,I'mpleasedtobejoinedonthiscallbyMikeMurray,ourExecutiveVicePresidentandChiefOperatingOfficer;andBillWheat,ourExecutiveVicePresidentandChiefFinancialOfficer.

ThespringsellingseasonatD.R.Hortonisinfullswing,andourteamdeliveredastrongsecondquarter.

Ourconsolidatedpre-taxincomeincreasedto$301millionon$2.8billionofrevenue,andourpre-taxprofitmarginimproved130basispointsto10.9%.Ourhomessoldincreased10%comparedtothesecondquarterof2015,drivenbyimprovingabsorptions.TheseresultscontinuetoreflecttheconsistentsolidperformanceofourcoreD.R.Hortoncommunities,andourEmeraldHomesandExpressHomesbrands.

Wearestrivingtobetheleadingbuilderineachofourmarketsandtocontinuetoexpandourindustry-leadingmarketshares.Weplantomaintainbroadproductdiversitywithourthreebrandsoverthelong-term.Ourcontinuedstrategicfocusistoproducedouble-digitannualgrowthinbothourrevenueandpre-taxprofitswhilegeneratingpositivecashflowsandincreasingreturns.

DuringthesixmonthsendedMarch,wegenerated$27millioncashfromoperations--ontracktomeetourtargetof$300millionto$500millionofpositivecashflowsfortheyear.Ourreturnoninventory,definedashomebuildingpre-taxincomedividedbyaverageinventory,improvedto13.8%forthe12months,upfrom10.7%ayearago.Withasalesbacklogof13,695homesattheendofMarchandawell-stockedsupplyofland,lots,andhomes,wearewell-positionedfortheremainderof2016.

MikeMurray(EVPandCOO):

Netincomeforthesecondquarterincreased32%to$195million,or$0.52perdilutedsharecomparedto$148millionor$0.40perdilutedshareintheyear-agoquarter.Ourconsolidatedpre-taxincomeincreased31%to$301milliontointhesecondquarter,comparedto$230millionintheyear-agoquarter,andhomebuildingpre-taxincomeincreased36%to$283millioncomparedto$209millionintheprior

yearquarter.

Oursecondquarterhomesalesrevenuesincreased16%to$2.7billionon9,262homesclosed,upfrom$2.3billionon8,243homesclosedintheyear-agoquarter.Ouraverageclosingpriceforthequarterwas$290,000,up3%comparedtotheprioryear,andflatsequentiallyfromourfirstquarter.

Thisquarterentry-levelhomesmarketedunderourExpressHomesbrandaccountedfor23%ofhomesclosedand16%ofhomesalesrevenue.Ourhomesforhigher-endmove-upandluxurybuyers,pricedgreaterthan$500,000,accountedfor7%ofourhomesclosedand17%ofourhomesalesrevenue.Bill?

BillWheat (EVP,CFO):

Thevalueofournetsalesordersinthesecondquarterincreased13%fromtheyear-agoquarterto$3.6billion,andhomessoldincreased10%to12,292homesonarelativelyflat,activesellingcommunitycount.

Ouraveragesalespriceonnetsalesordersinthesecondquarterwas$290,900.Thecancellationratefromthesecondquarterwas19%,consistentwiththeyear-agoquarter.Thevalueofourbacklogincreased14%fromayearago,to$4.1billion,withanaveragesalespriceperhomeof$296,700,andhomesinbacklogincreased12%to13,695homes.

Ourgrossprofitmarginonhomesalesrevenueinthesecondquarterwas19.9%,consistentwiththefirstquarterandup20basispointsfromthesecondquarteroflastyear.Theconsistencyinourgrossmarginreflectsthestabilityofmostofourmarketstoday.

Weareraisingpricesorreducingincentiveswhenpossibleincommunitieswhereweareachievingourtargetedabsorptions,andwearealsoworkingtocontrolcostincreases.Ourgeneralgrossmarginexpectationsremainunchanged.

Inthecurrenthousingmarketwecontinuetoexpectouraveragehomesalesgrossmargintogenerallybearound20%,withquarterlyfluctuationsthatmayrangefrom19%to21%duetoproductandgeographicmixandtherelativeimpactofwarrantyandinterestcosts.Asareminder,ourreportedgrossmarginsincludeallofourinterestcosts.

David?

Inthesecondquarter,homebuildingSG&Aexpensewas$258millioncomparedto$242millionintheprior-yearquarter.Asapercentageofhomebuildingrevenue,SG&Aimproved80basispointsto9.6%comparedto10.4%intheprior-yearquarterasourrevenueincreaseimprovedourleverageoffixedoverheadcost.WeremainedfocusedoncontrollingourSG&Awhileensuringthatourinfrastructureadequatelysupportsourcurrentandexpectedgrowth.

Jessica?

Financialservicespre-taxincomeinthesecondquarterwas$17.4millioncomparedto$21.5millionintheyear-agoquarter.94%ofourmortgageCompany'sloanoriginationsduringthequarterrelatedtohomesclosedbyourhomebuildingoperationsandourmortgageCompanyhandledthefinancingfor53%ofour

homebuyers.

FHAandV.A.loansaccountedfor48%ofthemortgageCompany'svolume,comparedto45%intheyear-agoquarter.BorrowersoriginatingloanswithourmortgageCompanythisquarterhadanaverageFICOscoreof717,andanaverageloantovalueratioof88%.

First-timehomebuyersrepresented45%oftheclosingshandledbyourmortgageCompany,comparedto43%inthesecondquarterlastyear.

AttheendofMarch,wehad24,600homesininventory,ofwhich1,600weremodels.11,700ofourtotalhomeswerespechomeswith8,400invariousstagesofconstructionand3,300completed.Ourconstruction-in-progressandfinishedhomesinventoryincreasedby$361millionduringthequarter,duetoseasonalconstructionactivityforthespringsellingseason.

Oursecondquarterinvestmentsinlots,land,anddevelopmenttotaled$500million,ofwhich$271millionwastoreplenishfinishlotsandland,and$229millionwasforlanddevelopment.

Weexpectourinvestmentsinlandanddevelopmenttoincreaseinthethirdandfourthquarterscomparedtothesecondquarterthisyear.

David?

AtMarch31,2016,ourlandandlotportfolioconsistedof189,000lots,ofwhich112,000areowned,and77,000arecontrolledthroughoptioncontracts.69,000ofourtotallotsarefinished,ofwhich31,000areownedand38,000areoptioned.

Our189,000totallotsownedandcontrolledprovideusastrongcompetitiveadvantageinthecurrenthousingmarket,withasufficientlotsupplytosupportsolidgrowthatsalesandclosingsinfutureperiods.

Althoughourhousinginventorieswillfluctuateaswemanageeachofourcommunitiestooptimizereturns,weexpectourlandandlotinventoriestoremainrelativelystablein2016.Wealsoexpecttogeneratepositivecashflowsfromoperationsforthesecondconsecutiveyear,throughincreasedprofitabilityanddisciplinedinventorymanagement.DuringthesixmonthsendedMarch,wegenerated$27millionofoperatingcash,animprovementof$196millioncomparedtothesameperiodlastyear.

Duringthesecondquarter,werecorded$2.8millioninlandoptionchargesforwrite-offsofearnestmoneydepositsandhisdue-diligencecostsforprojectsthatwedonotintendtopursue.Wealsorecordeda$3.2millioninventoryimpairmentchargeinourEastRegionrelatedtoalong-heldinactivelandparcelthatwesoldduringthequarter.

Wewillcontinuetoevaluateourinventoriesforpotentialimpairment,whichmayresultinfuturechargesbutthetimingandmagnitudeofthesechargeswillfluctuate.Ourinactivelandheldfordevelopmentof$194millionattheendofthequarterrepresents10,100lots,down22%fromayearago.

Wecontinuetoworkthrougheachofourremaininginactivelandparcelstoimprovecashflowsand

returns,andweexpectthatourlandheldfordevelopmentwillcontinuetodecline.

AtMarch31,ourhomebuildingliquidityincluded$1.2billionofunrestrictedhomebuildingcash,and$884millionofavailablecapacityonarevolvingcreditfacility.Ourgrosshomebuildingleverageratioimproved580basispointsfromayearagoto33.6%.ThebalanceofourpublicnotesoutstandingatMarch31was$3.2billion.

OnApril15,werepaid$373millionofseniornotesattheirmaturity,andwehavenodebtmaturitiesinthenext12months.AtMarch31isourshareholders'equitywas$6.2billion,andbookvaluepersharewas$16.85,up14%fromayearago.

Jessica?

WeareupdatingourexpectationsforourFY16profitabilitybasedoncurrenthousingmarketconditionsandourfinancialperformanceto-datethisyear.Aswenotedinourpressreleasethismorning,weareincreasingourannualguidanceforconsolidatedpre-taxprofitmarginsby20basispointstoarangeof10.7%to11.2%forFY16.

WearealsoupdatingourannualguidanceforhomebuildingSG&Atoarangeof9%to9.2%ofhomebuildingrevenuesfromthepreviousrangeof9.2%to9.4%.Alsoasoutlinedinourpressreleasethismorning,wearereaffirmingourpreviouslyissuedoutsideguidancefor2016asfollows.

Consolidatedrevenuesofbetween$12millionand$12.5billion.Homesclosedbetween39,500and41,500homes--ahomesalesgrossmarginforthefullyearof2016inthehigh19%sto20%,andannualfinancialservicespre-taxprofitmarginof30%to33%;anincometaxrateforthefullyearofbetween35%and36%.Andannualdilutedsharecountofapproximately375millionsharesand$300millionto$500millionofpositivecashflowfromoperationsforFY16.

Specifically,forthethirdquarterofFY16,weexpectournumberofhomesclosedwillapproximateabeginningbacklogconversionrateinarangeof76%to80%.Weanticipateourthirdquarterhomesalesgrossmarginwillbeinthehigh19%sto20%consistentwiththefirsthalfoftheyear,andweexpectourSG&Ainthethirdquartertobeintherangeof8.9%to9.1%ofhomebuildingrevenues.

David?

Inclosing,oursecondquartergrowthinsales,closings,andprofits,andtheimprovementinourpre-taxprofitmarginaretheresultofthestrengthofourpeopleandouroperatingplatform.Weremainexcitedandarelookingforwardtotheopportunitiesahead.

Weremainfocusedongrowingbothourrevenueandpre-taxprofitsatadouble-digitannualpace,whilecontinuinggeneratepositivecashflows,andimprovedreturns.Wearewell-positionedtodosowithoursolidbalancesheet,industry-leadingmarketshare,broadgeographicfootprint,diversifiedproductofferingsacrossourD.R.Horton,Emerald,andExpressbrands,attractivefinishedlotandlandposition,andmostimportantly,ourtremendousteamacrossthecountry.

WewouldliketothankourentireD.R.Hortonteamfortheircontinuedhardwork,andwelookforwardtoworkingtogethertocontinuegrowingandimprovingouroperation.Let'skeepthemomentumgoing

weekbyweek,flagbyflag,throughoutthisyear.

Thisconcludesourpreparedremarks.Wewillnowholdquestions.

Thankyou,Iwillbeconductingyourquestionandanswersession.

QUESTIONS&ANSWERS

(OperatorInstructions)

StevenEastfromEvercoreISI.

PaulShibelski(Analyst-Evercore):

ThankyouthisisactuallyPaulShibelskionforSteven.Youknow,impressedwiththefirsthalfcashflowgenerationgiven,butthatistypicallyyouknowaperiodofheavyspend.Whatisthesustainabilityofthat,goingout?Iknowyouarelookingforthe$300millionto$500millionfortheyear,butshouldweexpectfirsthalfcashgenerationinoutyears?

YouknowthatishardtosayinfutureyearsPaul.ForthisyearweareontrackbasedonourcurrentplansforFY16togenerate$300millionto$500millionforthefullyear.WewouldnotbesurprisedifinQ3weusedcashbecausewearebuildingoutourbacklog,buildingoutourhomesinconstruction,andaswestatedwedoexpectourlandandlotinventory--investmentstobehigherinQ3andQ4thanitwasinthisquarter.Butweareontrackfor$300millionto$500million.

Ourexpectationsforfutureyearsis,ourbusinessmodelisdesignedtocontinuetogeneratepositivecashflowsfromoperationswhilegrowingatadouble-digitpace.Atexactlywhatlevelthatmightbeineachyear,we'lldetermineaswegetbettervisibilityintotheyear.

Okayandthenforfollow-up.Ihaveheardrumblingsthatyouknow,youarelookingatexpandingnotsomuchtheExpressnamebuttheExpressbusinessmodeltohigherpricepoints?Youknowbasically,everything'sincluded.Doyouhaveanycoloronthat?

Wellyouknow,wearelearningalotwiththeExpressrollout,thatefficiencyandvalueisabig-timedriverinsales.Andyes,Imean,aswecreateoperationalefficienciesinExpressthattranslateintotheD.R.Horton,wearemovingthatway.

Nowwewillalwaysbealocallycontrolledbusiness.Wearedecentralized.Ouroperatorsinthefieldwillrespondtothemarket.Andifitisavalue-basedmarket,theyaregoingtohavetodrivemoreefficienthomes.Ifitisa-youknow,acustom-basedpricepoint,thenwearegoingtocontinuetomodifyplansandintroduceplansatthelocallevel.

Thankyou.Appreciateit.

Operator :

NextquestioniscomingfromKenZenerwithKeybanc.

KennethZener (Analyst-KeyBancCapitalMarkets):

Goodmorning.Iwonder,nottogettoospecificinparticularmarkets,butitisusefultotheExpresshomewhereIthinkyouguyshaveopenedupfiveorsixnewExpresscommunities.CanyoutalkaboutthekindoftrendsyouareseeinginDenver?Astheexistinghomesalestightenupthereeitherduetolackofsupply,Imeanyouguysseemtobegrowingwhereasothersarenotseeingthattypeofacceleration.Couldyougiveusalittlemarketdynamiconhowthatproductinthatmarketisworking?

IthinkweopenedupExpressinDenveroverthepastyear.Theteamuptherehasdoneagreatjobgettingthatonline.Itshowsthatthereisarealneedforaffordablehousinginthatmarket,andwearedeliveringavalueproducttothemarket,andit'sbeingabsorbedandpeopleareveryhappywithit.Weareveryhappywecandoitandlookingforwardtotrytodomoreofit.

AndKen,itiskindofconsistentwithwhatwe'veseeninothermarkets.Alotofpent-updemandwhenweopen.Absorptionshavecomeuphigherthanweexpected.Itisapowerfultoolinwhatweareaccomplishing.

(Multiplespeakers)SorryKen.Wearein51marketsand17statestoday.Wearecontinuingtoseethatexpansionaswemovethroughouttheyear.

KennethZener (Analyst-KeyBancCapitalMarkets):

Right,andthenIguessrelativetotheideaofpace.Theideaofpaceandprice,I'mnotabigfanofthatnotion.Butareyouconstrainingyourpace?Orareyoureallyacceptingasmanysalesaswillwalkinthedoor?Canyoudescribethatdynamic,broadlyspeaking?Thankyou.

YouknowKen,wehavebeentryingandsuccessfullysettingabsorptiontargetsoncommunitiesbaseduponwhatwethinkisasustainabledemandinthatsub-market.Andwearebuildingandsellingtothatpace.

Operator :

AlanRatnerfromZelman&Associates.

AlanRatner (Analyst-Zelman&Associates):

Goodmorning,congratulationsonanotherstrongquarter.David,youknow,IguessonthepricepointconversationobviouslyyouguyshavedoneagreatjobwiththeExpressandIthinkthatatleastintheinvestmentcommunitythereisthisperceptionthatentrylevelisacceleratingnicelywhereasmaybethehigher-endluxurysegmentisseeingsomesoftness.YouguyshavebeenexpandingEmeraldaswell.Idon'tthinkitisasmuchofatopicofconversation,butIwaswonderingifyoucouldgivesomeupdatedcolorontheluxuryandhowthatcomparestothe--obviouslythestrengthyouhavebeenseeinginExpressandhowyouthinkaboutallocatingdollarsgoingforwardbetweenthesegments?

Wellfromanallocationofdollars,youknow,itisamarketbymarketprogram.Themarketswheretheupperendiscontinuingtostaystrong,wewillbeputtingmoremoneyinit.Butwhat'sreallydrivingthegrowthrightnow,andtheimprovementinreturns,isthelowerend,eitherExpressorthelowerHortonpricepoints.

Andwouldthatbetrueonthemarginsideaswell?ObviouslyIthinkyouprobablygointoitthinkingthatExpressisgoingtogeneratealowermargin,butseemslikethepricingpowerhasbeenstrongerthere.WhatdoesthespreadlooklikebetweentheEmeraldandtheExpressbrandsrightnow?

Rightnowitisinaprettytightrange.BothareverynearourCompanyaverage.Obviouslywiththepent-updemandinExpressandreallynotenoughsupplyoutthere,we'veseenbettermarginsthatweoriginallyunderwrotethedealsto.Rightnowitisinaprettytightrange.

Greatthanksalot.IfIcouldsneakinonemoreonthelandsupply,aprettybigspikeinoptionlotsthisquarter,ifIheardthatnumbercorrectly,andIthinkyouarelookingatover40%controllotsareoptionedrightnow.Curiouswhatyouareseeinginthelandmarket,ifthatisallowingyoutopursuethatstrategy?Obviouslyittiesintoyourfocusoncashgeneration.IsthatafunctionofmoreAD&Ccapitalavailabletothedevelopersorsomethingelseyouhavebeenfocusingontodrivethatnumberhigher?

Ithinkwehavebeenfocusingheavilyondeveloperrelationshipsandworkingwiththemwherewecan.Thereisalsoalittlebitofatimingfunctionalitytothat,inthatitcanbeveryhighinthemiddleofaquarter,comedownalittlebitasyouarebuyinglandorlotsthroughthequarterandatthisquarterendwehadalittlebitmorethanwemighthaveatpriorquarterends.Butithasbeenafocusforus.Wearepleasedwiththeresultswearegettinginbeingabletocontrolmoreofourfuturelotsupplywithoptions,andwithdevelopers.Wearegoingtocontinuetofocusonthat.Youareright,itisakeypartofourcashgenerationstrategy,andweareveryexcitedabouttheresultswehaveseen.

But,no,wearenotreallyseeingtheA&Denvironmentwiththebanksimprovemuch.Thisisreallytheresultoftakingtheverybestofthebestdevelopersandtryingtoimproveourrelationshipswiththem.

Gotit.Thanksalotandgoodluck.

Operator :

Thankyou.EricBosshard.

EricBosshard (Analyst-ClevelandResearchCompany):

Curiousaboutthestrategymovingforwardofgrowingcommunitycounts,andthenalsolookingatyourgrowthrelativetothemarketintotal.Lastyearyougrewfasterthanthemarket,reallyrollingoutExpress.Butasyoulookatwheredemandisandwheretrendsareinthemarket,justcuriousabouthowyou

thinkaboutinvestingingrowingcommunitiesandacceleratinggrowth,howyouarefeelingaboutthat?

Well,youknow,wearein51marketsrightnowwithexpress.Sowehave,Ithink,runwaythere.WearerelativelynewwiththeExpressbrandinanother15,20marketsthatwethinkwecancertainlygainmarketshareinthosemarkets.Imean,we'reprettymuchtrackingjobgrowth,andwheretheeconomyissupportinghousing,that'swherewe'relookingtoexpandourinvestments.

Intermsofthepaceoftheoverallgrowth,areyousatisfiedwithwhatyouareseeing?Isthereadesiretoinvestmoretogrowfaster?Oristhiskindofwhatyouaretargetingandwhatyouwouldliketosustain?

Youknow,wethinkasolid,consistentdouble-digitgrowthbothtop-line,bottom-line,willcontinuetocreateseparationfromotherbuildersintheindustry.Andtodayweareveryhappywiththatstrategy.

Andwebelieveourcurrentlotpositionissufficienttosupportthatdouble-digitgrowthpace.

Okay.Perfect,thankyou.

Operator :

NishuSoodfromDeutscheBank.

NishuSood (Analyst-DeutscheBank):

Thankyou.ThisquarteryouhadaterrificSG&Aperformance,andsojustamarketimprovement,justontrend,andoverlastyear.Yourgrossmarginshavealsobeenveryconsistent.Youareonlytakingupyourpre-taxrangebyabout20basispoints,sojustwantedtomakesureIunderstoodthat.DoesthatmeanthatthereweresometemporaryfactorsthatmayhavedepressedSG&A?What--whywouldyouexpectseeminglyterrificperformancetoreverse?Orisitsomethingongrossmarginsidefortherestoftheyear?

Nishu,wedidn'tseeanythingunusualthisquarter.Wediddeliverastrongbacklogconversion.WedeliveredalittlebitaboveourguidancerangeonoutclosingsthisquarterandthathelpedleverageourSG&Aabitfurther.ButwewereverypleasedwiththeleveragewesawonSG&A.

Wearetrackingtoabetterpace,abetterratiofortheyearthanwehadoriginallyguidedto.WewereguidingtosomeimprovementinSG&A.Nowwe'vesimply--showingbetterimprovementonthat.Andcertainlyaswegetfurtherintotheyear,anddependingonwhatourdeliveriesarelaterintheyear,thereispotential,wecouldleverageitabitbetterthanwhatwehaveguidedtohere.Ifweweretobeatthehigh-endofourvolumerange,thenperhapswehaveachanceofbeatingthelowendofourleveragerange,ourSG&Aleveragerange.

Butrightnowwearecomfortablewiththerangeweguidedto.Nothingunusual,nodecliningordegradationinourSG&Aperformanceisexpected.

Gotit.Gotit.AndkindoffollowinguponAllen'squestionfromearlier,youfolks,aswellasmanyoftheotherbuilders,havebeenscalingbacklandpurchases.Allendiscussedobviouslytheincreaseduseofoptions.Iwasjustwonderingwiththestepbackthatmanyofthebuilders,includingyourselves,havetaken,haveyouseenpricingease?Youknow,theoptionswouldarguethatitisalittlebiteasiertogetyouknow,terms--likeoptiontake-downs.Butwhatareyouseeingintermsoftheavailabilityandpricingofdealsasthesteppingbackofthepubliceasethelandpricepressuresthathavebeendiscussedsomuchinthelastcoupleofyears?

Nishu,wearelookingtocontinueourlandinvestment.Infact,we'llbeincreasingourinvestmentthisyearfromwhatwedidlastyear,justtoreplenishlotsandthenprobablyalittlemore.Tobringitupalittlebit.Wedidseeanincreaseinouroptionlotpositioninthecontrolpipeline.Someofthatwillbelandwewillpurchase.That'srepresentedasoptionlotstoday,that'slandthatiscontrolledundercontractsthatwewillpurchaseaslandanddothedevelopmentourselves.

Othercontractswithinthatportfoliowouldbewherewewillbeacquiringfinishedlots,orsuperpadsifyouwill,insomecases,fromthirdpartydevelopers.Butwefeelthattherearestillverygoodopportunitiesoutthereforlandacquisitionforwell-capitalizedbuildersandforwell-capitalizeddeveloperstoworkthrough.Itishardtoquantitativelylookandsaywhat'shappeningwithlandpricingglobally.Iwouldtellthatitseemslikewearegettinganecdotallyasecondlookatafewmoredeals,somethingsseemtocomebackaround,whichisgoodforus.Welikethat.

Greatthanks.Appreciatethecolor.

Operator :

Thankyou.StevenKimfromBarclays.

StevenKim(Analyst-BarclaysCapital):

Thanksverymuch,guys.Letmeaddmycongratulationsonastrongquarter,andjustaremarkthatyourSG&A,ifyouactuallydodoalittlebetterinyourrange,IthinkifI'mnotmistaken,that'sanall-timerecordfortheCompany,sothatisprettyencouraging.

IguessmyfirstquestionrelatestoM&Aandtheopportunityforit.Youknow,obviouslythere'sbeen,andtherestillis,aprettybigdisparityinvaluationsbetweenthelargeandthesmallbuilders,andyouallareprettymuchleadingthepack.Iguessmyquestionis,doyouseethiskindofdisparitymirroredintheprivatemarket?Andyouknow,particularlywheresomeofthesmallercappublicsaretradingatbookvalueorbelow.Areyouseeingthatkindofvaluationmirroredintheprivatemarketinexpectations?Andcanyoutalkaboutwhetherornotyouthinkthisgenerallyistherighttime,oryouwouldbeamenabletoacquiringassetsinthatkindofway,M&A?Giventhefactyourstrategicfocusisonreducingyourlandinvestmentrelativetoyourrevenuesrightnow?Thanks.

Weare,youarecorrectSteven.Wedohaveastrategicfocustoimproveourratioofrevenuestoourlandinvestmenttoday.Alwayslookingtodothat,thatmakesusabetterstewardofthecapitalweareentrustedwith.

WedolookatM&Aasanopportunitytoacquirelots,acquireassets,andacquirepeopleinoperatingplatformsandteams,andwedolookatseveralopportunities.Theycanbeverygoodifbuyerandsellerexpectationsarealignedandsomethingcanworkthat'saccretivetoboth.SowewillalwaysbelookingatM&Aopportunitiestogrowthebusiness.Butthere'salotofexpectationgapssometimesbetweenwhatsomepeoplethinkwhattheirflatformshouldfetchandwhatthebuyersarewillingtoactuallytransactfor.Sothere'snotbeenasmanytransactions,Ithink,assomepeopleexpectedtooccur.

Steven,thisisDavid.I'llalsoadd,wearegoingtolookatalot.Youknow,anybodyoutthere,wearegoingtotakealookat.Andtrytoseeiftheyfit,culturally.Strategically,withinourCompany.Butit'sgottobeaverygoodCompanyforittomakesensetous.Weare--welikewhereweare,welikewhatweareaccomplishing,andwereallydon'twanttojumpoutthereanddoanythingthat'sgoingtobreakthatfocus.

Okayfairenough.Yes.GoodluckfindinganotherCompanyasstrongasyouguysarethough.

Welltheyarethere.They'rethere.Therearesomesmalloperators,orevenmid-sizedoperators,thataredoingagreatjob.Ifyoulookbackatthefouracquisitionswe'vemade,wehavelearnedandbecomebetterwitheveryoneofthose.

Sure.Yesthat'safaircomment.

WetakewhattheyaredoingandintegrateitintoourCompany.

Great.Iguessmysecondquestionrelatestotheroleofmasterplannedcommunities,andsomeoftheopportunitiesthatthoselargerparcelsprovide--couldpotentiallyprovideforyou.Iwaswonderingifyoucouldgiveussomehandleonwhatpercentofyourbusinessyouthinkiscomingfrommasterplannedcommunitiestodayandwhereyouthinkthatcouldgoto?Andasafollowontothat,wouldyougenerallythinkthat,insomeoftheselargerparcels,youhavetheabilitytomaybetakeonalittlebitofmulti-familyconstruction?Oreven,like,commercialopportunitieslonger-term?

ThemasterplansIwouldsayisprobably10%,15%ofourbusiness,andthat'sjustaguessreally.Itisnotsomethingwehavebrokendown.Andyes,Ithinkaswegetbiggerorcontinuetogetbigger,thatpercentageisgoingtogrow.It'sjustalotmoreefficienttodelivermorehousesoutofonelocationthanitismultiplelocations.

Andthen,Steve,asyouknow,wealwaysinvestigatenewbusinesslinesiftheycouldcomplementourbusiness.Sowehavebuiltfor-rentonlandweownonalimitedbasiswhenitmakesbusinesssense,andwedocurrentlyownafewlargeprojectswithparcelsthatarezonedmulti-familythatweareevaluating

orareintheprocessofbuildingapartmentson.Butwewouldn'texpectthattohaveanyfinancialimpactonour2016results.

Fairenoughthanksverymuchguys.Goodjob.Thankyou.

Operator :

BobWetenhallfromRBC.

BobWetenhall(Analyst-RBCCapitalMarkets):

Youguysarecrushingit.Nicejob.

ThanksBob.

Thatisatechnicalterm.TalktomeaboutASPappreciationduringthebalanceoftheyear.Howdoyouthinkthatplaysout?Whatkindofgrowthrates,youknow,shouldwebeexpecting?AndI'mreallytryingtothinkaboutthisinthecontextofnotincludingmix.Ifyoutooklikeforlikeandblendittogether,whatdoyouseegoingoninthenextcouplequarters?

Wewouldexpecttocontinuetosee,ifyouarelookinglikeforlike,someabilitytomovepriceup.We'vecontinuedtoseeourrevenuespersquarefootoutpaceourstickandbrickpersquarefootnow,oncewegotthatbackincheckacoupleofquartersago.Verypositiveonthatfrontanddefinitelystilltheabilitytopushprice.IntermsthoughofouroverallASP,wedidseeonoursalesfrontthatreallykindofflattenoutsequentially.Whichisn'tsurprisingbecauseoftheheaviermixthatcontinuestocomefromExpress.

Gotit.Butyouarestillgettingtheoperatingleverageoffthatwhichoffsetstheweakermix.Butyouifyouhadtosay,onalikeforlikebasis,wouldyouexpectlowsingle-digitormid-single-digit?

Yeslowsingledigits.

Allright,that'shelpful.Andthenjustkindofthinkingabout,like,TexasandCalifornia,youknow,someofyourmajormarketswhereyouarealeader.Wouldyousaythatthetrendsyousawthisquarterwereinlinewithyourexpectationsacoupleofmonthsago?Orwouldyousaythatinyourcoremostimportantmarkets,thatdemandisstrongerandbetterthanyouhadanticipated?I'mjusttryingtounderstandalittlebitbetter.Ifyouaregaugingstrengthofdemandinyourmostimportantmarkets,isitcomingoutaheadofyourexpectations?Thanksandgoodluck.

ThankyouBob.Kindofamix.LikeTexas,atleastinmymind,Houstonhasprobablyunderperformedmyexpectationsoverthelastcoupleofquarters.Butit'sbeenoffsetbyanoverperforminAustin,Dallasand

FortWorth,andSanAntonio.Thebalanceofthestateisdoingincrediblywell.

Andoverall,weexpectedagoodspringandweareseeingagoodspring.SooverallIthinkitisinlinewithourexpectationsforagood,solid,consistentmoderatelygrowingmarketwithvariationsfrommarkettomarket.

Ourabsorptionshavepickedupthemostinthesoutheastandsouthcentralregions,whichiswhatyouhaveheardussay.ReallykindofTexasacrosstoFloridaandupintotheCarolinasisabigpieceofourbusinessthatweexpecttobeveryrobust.Andwe'veseenaverygoodlevelofdemandinthosemarketsandagoodreturnonourinventoryinvestments.

Bob,wedohave--youknowus,wedohaveveryhighexpectationsatalltimes.Andwearepleasedwithwheretheresultsofthespringhavecomeoutandreallyacrosstheboardinallofourmarkets.

Greatexecutionguys,youarekillingit.Goodlucknextquarter.

ThankyouBob.

Operator :

MichaelRehautfromJPMorgan.

MichaelRehaut (Analyst-JPMorgan):

Thanks,goodmorningeveryone,andI'lladdmycongratsonthequarteraswell.Firstquestionjustonthesalespace.Youknow,continuedexpansionthere,wehaveitroughlyup8%.Justwanttomakesureintermsofthedriversthere,seemslikeprimarilythat'sduetothecontinuedexpansionofExpressaspartofyourbusiness.Justwanttomakesurethatthatstillisthecase,ineffect.Andyouknow,wouldyouexpect--itseemslikethereisstillmoreroomtogo.WasthatsomethingthatyouwouldexpecttocontinuetobenefityourresultsevenintoFY17?

Yes.Imean,weare--Iwouldsayfullyrolled-outinTexasandtheCarolinasontheExpressmodel.Stillgotroomtogrowinalltheothermarkets.SoIthinkwearegoingtobenefitfromthatbrandandthatinitiative.Forthisyear,nextyear,andtheyearafterthat.Wearefullyintegrated,fullyrolledout.

Andyouknow,justisitfairtosaythatthat'sreallythe--thelet'ssaybiggestdriveroftheimprovementinyouroverallsalespaceasreportedthisquarter?

Iwouldsayitisamajorcontributor.Theotherbrandsaredoingwellalso.Butthere'sjustawholelotlesscompetitionatthatentrylevel.

Right.

Thereforemorepent-updemand,anditiseasiertodriveabsorption.

Right.Certainly.Secondquestion,justontheimprovedSG&Aguidancethatyourolledoutthisquarter,thathelpsyourpre-taxby20BPsnowyouhaveexpandedthatguidance.Youknow,giventhatyoustillkindofhavesimilarexpectationsontheunits,anditseemsliketheASPs,itwouldkindofsuggestthatyouarenotnecessarilyexpectingbetter--thattheimprovedleverageisn'tcomingoffofimprovedvolumesperse.AnditseemslikeExpressandyouroverall,again,toplineseemstobecominginasexpected.SoarethereotherthingsintheSG&Alineitemthat'shelpinghereintermskindofconcreteitems,aroundperhapsadvertisingorothertypesofSG&Acontrollablesthatarecominginbetterthanexpected?Oristhisjusttheoverallmodelineffect--justtheoverallefficiency,justbeingthatmuchbetterevenwiththesametypeofclosingsthatyouexpected3monthsago?

Mikeyouknow,itisreallyjustaresultofouroverallfocusonSG&A.It'snotanyonething.It'salwaysbeenahallmarkofourbusinessandsomethingweareveryfocusedon.Weseta9.6%SG&AinFY15,whichwasthebestSG&AwehadhadotherthantwoyearsintheCompany'shistorywhenwehada9handleaswell.Andwe'venowguidedto9.0%to9.2%.AndIwouldjustsayitisafocus,andsomethingthatallofourguysinthefieldarelookingat,ishowcanwerunthebusinessmoreefficientlyandleverageouroverheadbetterthanwehaveinthepast?

Michael,thisisDavid.Wegetupeverydayandtrytofigureouthowtomakeitalittlebiteasiertobuildahouse,alittlebiteasiertosellahouse,andalittlebiteasiertogetthehouseclosed.Andweworkonthateverysingleday.Becausethatisa--thatisasustainablecompetitiveadvantage.Andthatis--that'swhatwetrytobe.

No,that'sgreatandobviouslyit'sgreattosee,astherecoverycontinues.Onelast,quickquestionifIcould.Communitycountnowflattishforabout4quarters.Isthatsomethingyouwouldexpecttoreaccelerateatsomepoint?Maybeintothe,youknow,mid-single-digitorhighsingle-digitgrowthintonextyear?Orshouldwejustcontinuetoexpectsalespaceoverthenextcoupleofyearstodrivethebus?

Mike.Forthisyear,westatedweexpectourcommunitycounttobeinthatlowsingledigitorrelativelyflatthisyearwiththeimprovementinsalescomingfromimprovedabsorptionsandcertainlytheExpressrolloutisadriverofthat.Ithinkitwillcontinuetobeadrivernextyear,asExpressmatures,ifyouarelookingoverthenextyearortwo,youwouldnaturallyexpecttogrowatthedouble-digitpace.Youwouldseeastrongercommunitycountgrowthoverthelongerterm.Wedon'treallyhavethevisibilityfullyfor2017yettomakeanyspecificcommentsonthatthough.

Rightnow,Michael,wearereplacingcommunitieseveryquarter,everymonth.Andyouknow,ifyoutrade

acommunitythat'sdrivinganabsorptionlevelof2or3foranewcommunitythatisanExpressmodelthatisdriving6or8,flatcommunitycount,thereisalotofefficienciesandabsorptionimprovement.Soyes,butovertime,wewillbeexpandingourcommunitycounttomeetthemarket.

Greatveryhelpful.Thanksagain.

Operator :

JackMicenkofromSIG.

JackMicenko (Analyst-SusquehannaFinancialGroup/SIG):

Goodmorning.HeyfirstquestionforBill,youknowyouaregeneratingatonofcash.Itsoundslikethattrendisgoingtocontinueinthenextyearandyearsbeyond.Yourleveragelevelsaregettingtothelowerendof,Ithink,probablyoptimal.Youknowyourlandstrategy'schangedabit,anditsoundslikeyouknow,youaregoingtokeepitaboutthesamepointeventhoughthemixisgoingtochangefromanabsolutelevel.Iguessthequestionis,whatdoyoudowiththecash?

Iknowinthepasttherehasbeensharerepurchase,therehasbeendebtrepurchase.Youknow,whatdowethinkaboutyouknow,longertermgoalswiththecash?Beyondsortofsecond-halfspend,thatsortofthing,aroundcapitalmanagement?

Certainlythisyear,Jack,wearegenerating$300millionto$500millionandwearepayingoffover$500millionofdebtthisyear.ForFY16itisessentiallydebtretirementandcontinuingtoinvestinthebusiness.WedocontinuetolookatM&Aopportunities,we'vedoneseveraldealsoverthelastseveralyears.Totheextentthatweseegooddealsthatareagoodfitforusaswedescribedearlier,thatwillbeapriorityaswell.Andthenbeyondthat,wewanttostayopportunistic.Wearenotgoingtotieourselvesdowntoanythingspecificbeyondthisyear.Butrightnow,wearefocusedon,youknow,debtretirement,beingopportunistic,investinginthebusiness,andthenwe'llassessfurtheraswegetvisibilityinto2017.

Okayandmyfollow-upquestionyouknow,throughourtravels,Ithinkoneofthethingsthatwe'veseenisyouknow,theExpress-typeproductisappealingtoabuyergroupmaybebeyondtheentryorfirst-timebuyer.Andreallywearesurprisedatthetrade-downemptynester.Everybodythinksoftheactiveadultassortofmaybeamid-toupper-endproduct,butweareseeingalotinthelowerpricepointsaswell.Areyouseeingthatinameaningfulway?HasitchangedthetrajectoryorthedirectionoftherolloutoftheExpressproductormaybeevenlocation?Whatcanyousharewithusaboutthatdynamic?

Iwouldn'tsaythatit'schangedthedirection.Wehaveseenthattakeplace.EspeciallyinFlorida.Itsurprisedmeaswell.Whereyouknow,whenwelaunchedExpressinFlorida,40%,45%wereactuallythepeoplebuyingtheirlasthome,nottheirfirsthome.Andthat'ssomethingwearetakingnoteof.Andmakingsurethatweareinapositiontoaccommodatethosebuyers.

Okaythanks.

Operator :

SusanMcClaryfromUBS.

SusanMcClary(Analyst-UBS):

Goodmorning.Myfirstquestionisgoingbacktoyourthirdquarterguidanceintermsoftheconversionrate,Ibelieveyousaid76%to80%.Thatjustfeelsalittlelight,relativetowhereweweremodelingourexpectations.Wouldyousaythatyousawanypullforwardindemandinthesecondquarter?Perhapsmaybeduetotheoverallbetterweatherthatmostofthecountrysaw?

Youknow,Sue,notnecessarilythatweareattributingittobetterweather.ButouroperatorsdidconverttheirbacklogatahigherratethanweanticipatedandthanwhatwetoldyouforQ2.WhenwelookatourbusinessplanforQ3,whichweareexpectingtodeliveron,itisrightinthatheartofthat76%to86%rangewehaveguidedtoforQ3.

Thetimingofdeliveriesthroughtheyearisafunctionofreallytheroll-upofallofourcommunitiesandthetimingofwhencommunitiescomeonlineandwhenhousingstartsgetstarted,andrightnowthewayitisrollingup,divisionbydivision,pointstothatrange.Butstillfortheyear,pointstothesamerangewegaveatthestartoftheyear.

Historically,wetypicallydoseeatickdowninourconversionratefromQ2toQ3.Thatisanormalseasonaltrendforus.

Okay.Andthenlookingatyourspeclevels,seemslikethosearecontinuingtosortoftrenddownovertime.Canyoujusttalkalittlebitaboutwhat'scontributingtothat?Andwhatshouldwemakeofthat?

Ithinkwecanattributeittoaverystrongdemandinthemarketplacerightnow.Andthatwearestartingspecsandgettingthemoutthereandgettingthemsoldearlyintheconstructionprocess.Youhavetostartmorehouses,soyougetthosestartedandyougetthosesold.Inaddition,wearestartingsomehousestobebilledjobsaswell.Ouroverallmixofbuildversusspecisstayingthesame,wearejustseeingstrongdemandinthemarketplace.Moreefficientwiththeturningofourhomesisoneofthekeydriversofourcashflowgeneration.Doingmorerevenue,moreclosings,withthesamenumberofhomesunderconstructionatanypointintime

Okaythankyou.

Operator :

WillRandowfromCitigroup.

WillRandow(Analyst-Citigroup):

Goodmorningandcongratsonthequarter.

Thankyou.

BacktoSusan'squestion.Whenyoulookatyourcurrentpercentageofclosings,thatarespec,couldyoutalkaboutthat?Andhowyoufeelgoingintokindofthepeakconstructionperiodinregardstopotentiallaborinflationand/ordelays?

Sointermsofourspecsthatweclosedinthequarter,itwasinournormalrange,whichiseveryquarteris70%to80%ofwhatweareclosingisaspec.Andsowhenyoulookatourreportedgrossmarginyouareessentiallyseeingourspecgrossmargin,intermsoflabor.

Wearenotseeingatremendousamountoflaborinflation.Infact,wehavebeenabletostayaheadofthecostincreaseswehaveseenonstickandbrick,which,anycostincreasesthathavecomethroughhavebeenmorelabor-orientedversusthematerialsandthecommoditiestoday,butwehaven'tseenatremendousamountofpressure.Andintermsofshortagesaffectingdelays,ourcycletimeshaveremainedveryconsistentandwehavenothad,asevidencedbyourbacklogconversionratelastquarter,wehavenothadareallaborconstraintwidespreadthathasaffectedclosings.

Again,asyoudrivehigherabsorptioninacommunity-by-communitybasisyoutakealotofpressureoffthetradebase.Becauseit's--alotoftheirtimeisjustgoingfromcommunitytocommunity.Ifwecangetthemouttothecommunityandkeepthemtheretheycanmakemoremoney,alotlesspressureonpricing.

Andjustasafollow-up,youmentionedyourstickandbrickpricesarefairlystable.Anywayyoucouldparsedownonthecategoriesintermsofthemovements?Forexample,lumberandhowyouthinkaboutthatgoingthroughtheyear?

Intermsofoverall,ourrevenuepersquarefootyear-over-yearwasupabout4%andourstickandbrickwasupabout2.5%.Sequentiallyitwasclosertobothbeingupabout1%.Themajorityofthecostinflation,asMikementioned,wecontinuetoseeisonthelaborside,notthematerialsside.Andtolumberspecifically,Iwouldn'tsaywe'veseenanythingunusualinlumberprices.Theytendtofollowaseasonaltrend,andwehaven'tseenanythingunusualthisyear.

Thankyouandcongratsagain.

Thankyou.

Operator :

Thankyou.JohnLovallofromMerrillLynch.

JohnLovallo (Analyst-BoAMerrillLynch):

Thankyoufortakingthecall,guys.Firstquestion,lastquarterIbelieveyoumentionednotheavilyreinvestinginHoustonatthispoint,butkindoftakingmoreofareplenishingstrategy.Wasthatthecaseinthesecondquarter?Anddidanythinghappeninthequarterwhereyoumighthave,mightchangethatstrategygoingforward?

Thatwouldstillbethecaseinthesecondquarter.Itmaychangeinthefuture,asyouknow,we've--wearepositionedtotakeadvantageofopportunisticbuys.Andasstressgetsputonamarket,sometimesthatcreatesanopportunityforus.

Okaythat'shelpful.Thenintermsofthecashflowguide,$300millionto$500million,itisafairlywiderange.Canyoujustreminduswhatwouldkindofdrivetheupperendoftherangeversusthelowerend?

Itreallycomesdowntoouroverallrevenuevolume,ourclosingsvolume.Themaindriverweexpectthepredominanceofthatcashflowtocomeinourfourthquarter.Whenwehaveourlargestclosingsquarter.Thenitisessentially--thenthewiderangeisattributablealittlebittheunpredictabilityonthetimingofwhenlandpurchaseswillclose.Aswegetalittleclosertotheendoftheyearwemightbeabletotightenthatabit.Butthereissomeunpredictabilityinthetimingofwhenlanddealswillclose.

Okaygreat.IfIcouldstickonehousekeepinginhere,theflatcommunitycountyouguystalkedabout,wasthatyear-over-yearorwasthatsequentially?

Yeswementionedthatouryear-over-yearcommunitycountwasessentiallyflat.Itwasactuallydownslightly,andreallywhenwelookatthatgoingforwardwewouldexpect,youknow,nomorethanalowsingle-digitmovement.Eitherway.Itcouldbeupordowninthelowsingledigitpercentagehereoverthenextcoupleofquarters.

Great.Thanksverymuch.

Operator :

MikeDahlfromCreditSuisse.

MikeDahl(Analyst-CreditSuisse):

Thanksfortakingmyquestionsandnicequarter.

Thankyou.

WantedtogobacktosomeofthecommentsandobviouslyalotofquestionsandremarksabouttheExpressside.Butjustfroma,youknow,madeacommentaboutjustseeingalotlesscompetitionthere.Andclearly,youhavehadaperiodof--anumberofquartersofsuccess,competitorshavetakennotice.Feelslikethemarket,ingeneral,thereisamorepositivetoneontheentrylevelandsomeacknowledgementthatitseemslikethatdemandispushingoutward.SoI'mjustcurioustohearyourtakeonyouknow,we'vekindofheardthatsomeotherbuildersarestartingtoexploresimilarthings,maybenotquitethesame.Butasyouarelookingatnewlanddeals,areyourunningupagainstmorecompetitionthanyouwouldhaveseen6,9,12monthsago?Orhowdoyouthinkyouarepositioned?Whatdoyouthinkthattheyaredoingdifferently?

Wetendtofocusalotonwhatwearedoing,andwedoseesomecompetitiononthelandfront.It's,youknow,constantoutthere,anditismarketbymarketanditvaries.Youknowwhatothersaregoingtodowiththeirentrylevelentrants,Ihaveheardofotherscomingtomarket.Thereissomeofitoutthere.Butbroadly,wearenotseeingwidespread,heavycompetitiontoday,withusflagbyflag.Certainlytherearepocketswherethereismorecompetition,butgenerally,wearenotseeingit.Howotherstendtoapproachthatmarket,thatwillbeuptothem.Wearefocusedonprovidingagreatvalueforthehomebuyersoourcustomercanbeintheirhouse,theycanbeinthereatagoodpricetheycanafford,andaplacefortheirfamily.

Butasentry-levelgrowswedoexpectmorecompetitiontocomeandwe'recertainlypreparedtodealwiththatasitcomes.

Okay,great,thankyou.

Operator :

JadeRahmaniwithKBW.

JadeRahmani(Analyst-Keefe,Bruyette&Woods,Inc.):

Yes,hi,thanksfortakingmyquestion.Justwantedtoask.Regardingleverageatthispointinthecycle,isthereaplantoretirenear-termdebtmaturitiesaswasindicatedinthepressrelease,toreduceleverage?Ordoyouplantoeventuallyreplacethosematuritieswithsimilar-sizeddebtofferings?

We'llalwayslookatthedebtmarkets,andwe'llremainopportunisticthere.Therearecertainly,itisafavorablemarketrightyounow.Butwherewesittoday,withourcashposition,withourexpectationsforcashflows,werightnowdonotexpecttobeinthedebtmarketintheshort-term.Wehavealreadypaidoffthe$373millionthatcamedueonApril15th,wepaidthatoutofcash.Andwebelieveourcashposition,ourliquidityavailableonourrevolverandourcashflowsaresufficientfortheremainderoftheyearaswesitheretoday.

Andjustregardingotherincome,canyoucommentonwhatdrovethespikeinthesecondquarter?

Yeswedidhave,wesoldaninvestmentthatwehadindebtsecurities.Youcanlookbackinour10-Qs,therehasbeenadisclosurearoundthatinvestment.Wehadsomedebtsecuritiesthatwehadacquiredawhilebackthatgaveusaccesstosomeland,thatwehavenowacquiredthelandandareactivelydevelopingit.Andwewereabletorestructurethosedebtsecuritiesandreselltheminthemarketandsowehadagainonthatsaleof$4.5million,whichwasanimprovementinourOtherIncomelinethisquarter.

Thanks,justlastly,thecapitalmarketsuncertaintyandspreadwideningthatwehaveseenthisyear,youmayhavealludedtoitonthelandside,thesecondlookyoureferredto.Buthaveyounoticedanyimpactoneitherthelandmarketorsalestrendsduetothevolatility?Thanksalot.

Hardtoattributeittoanyonefactor.Justacompetitiveenvironment,dealbydealisdifferent.Weareseeingafewmoresecondlooks,sothat'sbeenverypositiveforus.

Thanks.

Thankyou.

Operator :

Thankyou.NextquestiontodayiscomingfromJayMcCandlessfromSterneAgee.

JayMcCanless (Analyst-SterneAgeeCRT):

Goodmorningeveryone.Firstquestion,IknowHoustonisasmallermarketforyouguys.Butifyoucouldupdateusonwhat'shappeningonthegroundthereandwhatyouthinkyouaregoingtoseeintermsofdelaysforeitherlaborormaterialstogethomesfinished?

YouknowJay,it'sbusinessasusual.WefeelforthepeopleandwhattheyaregoingthroughinHoustonrightnowwiththehorrendousflooding,butouroperationsarefine.Andwedon'texpectany,anynoticeableimpactonourbusinessinHouston.Clearlythemarkethasjustsoftenedduetotheloweroilprices.Butwecontinuetoseeveryconsistent,steadydemandatpricepointsbelow$300,000.

WeliketheHoustonmarket.Bigbelieversinit,long-term.Andyouknow,ifitbecomes,ifweseeanopportunitytobuysomethingataveryadvantageousprice,wearegoingtobealloverit.

Gotit.ThesecondquestionIhad,therewasasmallorderdeclineintheeastgeographythisquarter.Couldyoutalkaboutwhat'sgoingon,inthatmarket?

YestheeastforusistheCarolinasandnorth.SoitisreallymoreNortheast,forus.WeweredownI

believe2%insalesunits.Ourcommunitycountinthatregionwasactuallydown,soourabsorptionswereactuallyupmid-single-digits.Reallyjustreflectsprobablyafewfewerinvestmentsoverthelastfewyearsmanifestingitselfinthecommunities.

WearekindofgoingthrougharesetupintheNortheast.Welikewhereweareheaded.Butit'snotgoingtobeastellarperformancethisyear.

Great.Thankyou.

Operator :

Thankyou.Wehavereachedtheendofourquestion-and-answersession.Iwouldliketoturnthefloorbackovertomanagementforanyfurthercomments.

Thankyou,Operator.Weappreciateeveryone'stimeonthecalltodayandlookforwardtospeakingwithyouagaininJulytoshareourthirdquarter.Iwouldalsoliketo,onceagain,thanktheentireD.R.Hortonteam.Youaretrulythebestintheindustry,andyourquarter-to-quarterconsistentperformanceprovesthatout.Thankyou.

Operator :

Thankyou,thatdoesconcludetoday'steleconference.

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