Good morning, and welcome to the Fourth Quarter 2024 Earnings Conference Call for D.R. Horton America’s Builder, the largest builder in the United States. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. I will now turn the call over to Jessica Hansen, Senior Vice President of Communications for D.R. Horton.

Thank you, Tom, and good morning. Welcome to our call to discuss our Fourth Quarter and Fiscal 2024 Financial Results. Before we get started, today's call includes forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Although D.R. Horton believes any such statements are based on reasonable assumptions, there is no assurance that actual outcomes will not be materially different. All forward-looking statements are based upon information available to D.R. Horton on the date of this conference call, and D.R. Horton does not undertake any obligation to publicly update or revise any forward-looking statements. Additional information about factors that could lead to material changes in performance is contained in D.R. Horton's Annual Report on Form 10-K, and our most recent quarterly report on Form 10-Q, both of which are filed with the Securities and Exchange Commission. This morning's earnings release can be found on our website at investor.drhorton.com, and we plan to file our 10-K in about three weeks. After this call, we will post updated investor and supplementary data presentations to our Investor Relations site on the Presentations section under News and Events for your reference. Now, I will turn the call over to 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. The D.R. Horton team produced solid results to finish the year highlighted by consolidated pre-tax income of $1.7 billion on revenues of $10 billion with a pre-tax profit margin of 17.1%. Earnings per diluted share for the fourth quarter were $3.92. For the year, earnings per diluted share increased 4% to $14.34 and our consolidated pre-tax income was $6.3 billion on revenues of $36.8 billion, with a pre-tax profit margin of 17.1%. Our homebuilding pre-tax return on inventory for the year was 27.8%, return on equity was 19.9% and return on assets was 13.9%. Our return on assets ranks in the top 25% of all S&P 500 Companies for the past three, five, ten year periods. Our consolidated cash flow from operations for 2024 was $2.2 billion and we returned all of the cash we generated this year to shareholders through repurchases and dividends. Our fiscal 2024 share distributions increased by approximately $700 million or 44% from the prior year. Over the past five years, we have generated $9 billion of cash flow from operations, and we have reduced our outstanding share count by 12%. For the quarter, despite continued affordability challenges and competitive market conditions, our net sales orders increased slightly from the prior year. Our sales pace was in-line with normal seasonality from the third to fourth quarter, but below our expectations. While mortgage rates have decreased from their highs earlier this year, many potential homebuyers expect rates to be lower in 2025. We believe that the volatility of rates combined with general uncertainty during the election season is causing some buyers to stay on the sidelines in the near-term. To help spur demand and address affordability, we are continuing to use incentives such as mortgage rate buydowns and we have continued to start and sell more of our smaller floor plans. With 46% of fourth quarter closings, also sold in the same quarter, our sales incentive levels and gross margin are generally representative of current market conditions. We typically experience seasonally slower demand during the fall and our tenured local operators seek to find the right balance of sales pace, pricing, and incentives in each community that will best position our returns and inventory levels before we enter the spring. For the full year of fiscal 2025, our homebuilding volume and profit margins will largely be dependent on the strength of the upcoming spring selling season. Overall, the demographics supporting housing demand are favorable and we continue to see a generally limited supply of both new and existing homes at affordable price points, in addition to a limited supply of finished lots available for new home construction. With our focus on affordable product offerings, 37,400 homes in inventory, continued improvement in our construction cycle times and adequate finished lots available in our pipeline, we are well positioned for fiscal 2025. We remain focused on enhancing the capital efficiency of all of our operations to produce consistent, sustainable returns and cash flows, so that we can return more capital to shareholders through both share repurchases and dividends.

Earnings for the fourth quarter of fiscal 2024 decreased 12% to $3.92 per diluted share compared to $4.45 per share in the prior year quarter. Earnings for the full year increased 4% to $14.34 per diluted share compared to $13.82 in fiscal 2023. Net income for the quarter decreased 15% to $1.3 billion on consolidated revenues of $10 billion. And for the year, net income increased slightly to $4.8 billion on revenues of $36.8 billion. Our fourth quarter home sales revenues were $8.9 billion on 23,647 homes closed compared to $8.8 billion on 22,928 homes closed in the prior year. Our average closing price for the quarter was $377,600, down 1% both sequentially and from the prior year quarter.

Our net sales orders in the fourth quarter increased slightly from the prior year quarter to 19,035 homes, and order value decreased 2% to $7.1 billion. The sequential decline in our net sales orders was consistent with the prior year and in-line with normal seasonality from the third to the fourth quarter, but both our home sales and closings this quarter were below our expectations. Our cancellation rate for the quarter was 21%, up from 18% sequentially and unchanged from the prior year quarter. Our average number of active selling communities was flat sequentially and up 10% from the prior year. The average price of net sales orders in the fourth quarter was $375,400, down 1% sequentially and 2% from the prior year quarter.

Our gross profit margin on home sales revenues in the fourth quarter was 23.6%, down 40 basis points sequentially from the June quarter. The decrease in our gross margin from June to September was primarily due to higher incentive costs on homes closed during the quarter. On a per square foot basis, home sales revenues were down roughly 1.5% sequentially, while stick and brick costs per square foot decreased 1% and lot cost increased 1.5%. We anticipate our incentive levels to increase further on homes closed over the next few months, so we expect our home sales gross margin to be lower in the first quarter compared to the fourth 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.

In the fourth quarter, our home building SG&A expenses increased by 17% from last year. And homebuilding SG&A expense as a percentage of revenues was 7.6%, up 100 basis points from the same quarter in the prior year. For the year homebuilding SG&A was 7.5% of revenues, up 40 basis points from fiscal 2023. Our increased SG&A costs in both periods are primarily due to the expansion of our operating platform. Our employee and average community count are both up 10% from a year ago, while our market count increased to 125 markets in 36 states from 118 markets in 33 states.

We started 18,400 homes in the September quarter and ended the year with 37,400 homes in inventory, down 11% from a year ago and approximately 5,000 homes lower than at the end of June. 25,700 of our total homes at September 30th were unsold. 10,300 of our unsold homes at year end were completed, of which 1,100 had been completed for greater than six months. The increase in unsold completed homes this quarter resulted from a combination of a seasonally slowing sales pace and further improvement in our construction cycle times. For homes we closed in the fourth quarter, our cycle time decreased by almost a week from the third quarter and a month 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 starts pace based on market conditions.

Our home building lot position at September 30th consisted of approximately 633,000 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 maximize returns. These relationships allow us to build more homes on lots developed by others. Of the homes we closed during the fourth quarter, 64% were on a lot developed by either 4 Star or a third-party, up from 62% in the prior year quarter. Our capital efficient and flexible lot portfolio is a key to our strong competitive position. Our fourth quarter home building investments in lots, land, and development totaled $2.2 billion, of which $1.5 billion was for finished lots, $560 million was for land development, and $170 million was for land acquisition. For the year, our home building investments in lots, land, and development totaled $9.5 billion, up 19% from fiscal 2023.

In the fourth quarter, our rental operations generated $100 million of pre-tax income, $705 million of revenues from the sale of 1,692 single-family rental homes and 868 multi-family rental units. For the full year, our rental operations generated $229 million of pre-tax income on $1.7 billion of revenues from the sale of 3,970 single-family rental homes and 2,202 multifamily rental units. We can continue to operate a merchant-build model in which we construct and sell purpose-built rental communities. Our rental operations provide synergies to our home-building operations by enhancing our purchasing scale and providing opportunities for more efficient utilization of trade, labor, and land parcels. Our rental property inventory at September 30th was $2.9 billion, which consisted of $800 million of single-family rental properties and $2.1 billion of multifamily rental properties. We expect our total rental inventory to remain around the current level for the next several quarters.

4 Star, our majority-owned residential lot development company, reported revenues of $551 million for the fourth quarter on 5,374 lots sold with pre-tax income of $109 million. For the full year, 4 Star delivered 15,068 lots, generating $1.5 billion of revenues and $270 million of pre-tax income with a pre-tax profit margin of 17.9%. 4 Star's owned and controlled lot position at September 30th was 95,100 lots. 65% of 4 Star's owned lots are under contract with or subject to a write-off first offer to D.R. Horton. $430 million of our finished lots purchased in the fourth quarter were from 4 Star. 4 Star had approximately $860 million of liquidity at year end with a net debt to capital ratio of 12.4%. Our strategic relationship with 4 Star is a vital component of our returns focused business model. 4 Star'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.

Financial services earned $76 million of pre-tax income in the fourth quarter on $222 million of revenues with a pre-tax profit margin of 34.2%. For the year, financial services earned $311 million of pre-tax income on $883 million of revenues with a pre-tax profit margin of 35.3%. During the fourth quarter, essentially all of our mortgage company's loan originations related to homes closed by our home-building operations and our mortgage company handled the financing for 77% of our buyers. FHA and VA loans accounted for 60% of the mortgage company's volume. Borrowers originating with DHI Mortgage this quarter had an average FICO score of 724 and an average loan-to-value ratio of 88%. First-time home buyers represented 59% of the closings handled by our mortgage company this quarter.

Our capital allocation strategy is disciplined and balanced to sustain an operating platform that produces consistent returns, growth, and cash flow. We have a strong balance sheet with low leverage and substantial liquidity, which provides us with significant financial flexibility to adapt to changing market conditions and opportunities. During fiscal 2024, our consolidated cash provided by operations was $2.2 billion and we distributed all of the cash we generated through share repurchases and dividends to enhance shareholder returns. During the quarter, we repurchased 3.4 million shares of common stock for $561 million. And for the year, we repurchased 12.5 million shares for $1.8 billion, which reduced our outstanding share count by 3% from the prior year end. Our remaining share repurchase authorization at September 30th was $3.6 billion. During the quarter, we also paid cash dividends of $98 million for a total of $395 million of dividends paid during the year. On September 30th, we had $7.6 billion of consolidated liquidity, consisting of $4.5 billion of cash and $3.1 billion of available capacity on our credit facilities. In August, we issued $700 million of senior notes due 2034. Our debt at September 30th totaled $5.9 billion. Subsequent to year end, we repaid $500 million of senior notes at maturity and we have no additional maturities in fiscal 2025. Our consolidated leverage at September 30th was 18.9% and leverage net of cash was 5.2%. We plan to maintain our leverage around 20% over the long term. At September 30th, our stockholders equity was $25.3 billion and book value per share was $78.12, up 15% from a year ago. For the year, our return on equity was 19.9%, and our return on assets was 13.9%. Based on our strong financial position and cash flow, our board recently increased our quarterly cash dividend by 33% to $0.40 per share.

Looking forward, our fiscal 2025 business plan was built from the community level up, beginning with our lot position. With a return to more normal seasonality, we expect our results for the full year will largely be dependent on the strength of the spring. As outlined in our press release this morning, for the full year of fiscal 2025, we expect to generate consolidated revenues of approximately $36 billion to $37.5 billion and homes closed by our home-building operations to be in the range of 90,000 to 92,000 homes. We forecast an income tax rate for fiscal 2025 of approximately 24.5%. We expect to generate more cash flow from operations in fiscal 2025 than fiscal 2024, and to utilize a substantial portion of our cash flows to enhance shareholder returns. We currently plan to repurchase approximately $2.4 billion of our common stock this year, in addition to making annual dividend payments of around $500 million. For our first fiscal quarter, ended December 31st, we currently expect to generate consolidated revenues of $6.8 billion to $7.3 billion, and homes closed by our home-building operations to be in the range of 17,500 to 18,000 homes. We expect our home sales gross margin in the first quarter to be around 22.5% and homebuilding SG&A, as a percentage of revenues to be approximately 8.9%. We anticipate a financial services pre-tax profit margin of around 20% in the first quarter, and we expect our income tax rate for the quarter to be approximately 24.5%.

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 consistent returns, growth, and cash flow while continuing to aggregate market share. We have significant financial flexibility and we plan to maintain our disciplined approach to capital allocation and provide consistently high 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. We look forward to working together to improve our operations and provide home ownership opportunities to more individuals and families during 2025.

Thank you. Ladies and gentlemen, the floor is now open for questions. Your first question this morning is from Stephen Kim from Evercore ISI. Stephen, your line is live. Please go ahead.

Yeah, thanks very much guys. Appreciate the color. I wanted to ask a couple of questions regarding your guide. First of all, I think in particular your revenue guide can be influenced a lot by rental revenue. And the other factor that you didn't give was also the ASP for closing. So I just wanted to see if you could help us disaggregate a little bit. What are you assuming in terms of rental revenue – maybe sequentially or year-over-year? However you think is best? I'm thinking about it in revenue dollars, and both for the first quarter and for the full year guide.

Yes, Steve. Implied in our consolidated revenue guide would be relatively flat rental revenues year-over-year. We would expect those revenues to be weighted a little heavier in the back half of the year than in the first half of the year, and so a little bit lighter in the first quarter as well. In terms of ASP, we are assuming relatively flat ASP with recent trends. Of course, that's going to be subject to market conditions going forward into the spring as well.

Got it. That's helpful. Okay. Moving on to my second question regarding your comments on market conditions, which we all recognize are challenging. You mentioned that buyers seem to be waiting, possibly due to the election or affordability concerns. I would like to break this down further. Can you share what you are observing regarding your interest list or traffic? Also, could you help us differentiate what you're experiencing now compared to past periods when buyers have held back, such as the latter half of 2022? This would help us understand how much of the current situation is due to actual unaffordability versus psychological factors keeping people on the sidelines.

Yes, Steve. It certainly is a combination of both, but we are seeing our buyers sit on the sidelines, sit on the fence. A little less motivated today than they were previously in prior quarters. And affordability has been challenged. We still see consistent traffic. It was below our expectations in the quarter. Hence the results in terms of total sales. But still, we were up year-over-year. I’d say that for the quarter and our sales were in-line with normal seasonality. I don't think this is a structural issue with demand. There is just a lot of noise in the market today. The rate volatility we've seen combined with the election news that's out there, I just think we are seeing people take a pause. But it certainly is a stretch today, and we got to continue to focus on affordability to make sure we get product and monthly payment and position for our people to move forward.

Just a clarification there. Are you looking for mortgage rates to come down next year? Is that what's embedded in your guide?

No, we would expect to continue responding to the market week to week and month to month, and we aren't going to manage our business based on that expectation.

Got it. Okay, thank you so much.

Thank you. Your next question is coming from Matthew Bouley from Barclays. Matthew your line is live. Please go ahead.

Good morning everyone. Thank you for taking the questions. Looking at the delivery guide of 90,000 to 92,000 in 2025 and comparing it to the 37,000 homes in inventory currently, that ratio appears to be somewhat higher than usual for a year. Is there an expectation for a larger increase in starts as we approach spring? Or are you suggesting that cycle times have decreased to the point where this ratio can be maintained? Thank you.

Matt, I think we are looking at both actually to come into play in 2025. We have seen tremendous improvement in our cycle times over the past year and continuing through the fourth quarter with our lot position that we have, our ability to lean into starts with the market. As we see the market unfold, we'll be able to press into the starts. And we feel really good about our ability to turn that opening housing inventory, what it implies almost 1.5 times in fiscal 2025.

Yes. So for the first quarter, our starts probably only stepped up slightly from where they were in Q4, and they are lower than the average for the full year. We would expect it to pick up as we move into the spring.

Okay. Got it. Thank you for that. And then on the topic of building smaller floor plans, apologies if I missed the number. But I guess what was your home size down in Q4? And kind of what is the expectation for home sizes that you're embedding in 2025? And beyond just the numbers, I'm curious if you could just speak about that kind of balance of affordability versus kind of how you think about the efficiency of building smaller homes. So kind of what goes into that decision? Thank you.

Yes, I will begin with the details, and then Paul can provide his insights on our direction. For this quarter, our square footage was down by 1% both sequentially and compared to last year. One factor contributing to this is the increase in the proportion of attached products, mainly townhomes, in our closing mix. Approximately 15% of our closings this quarter were attached products, in contrast to detached single-family homes.

And we do see efficiency in the smaller plans, and that helps us to position as we enter into the spring market for our ability to deliver. We have purposefully reduced the number of homes we have in the market because of that ability. No significant shift overall, other than we just need to continue to drive to affordable price points and affordable monthly payments. And that comes from a lean towards smaller product. That being said, we still do have our move-up in the freedom buyers that we'll continue to provide what it is that they are looking for in the marketplace.

All right. Thanks guys. Good luck.