Gross Margin Impact
Q: Why is Q2 gross margin expected to be flat despite one-time Q1 hedging charge?
A: Despite the $65 million hedging charge in Q1 impacting gross margin by 100 basis points , management expects Q2 margins to remain flat because earlier sales with higher incentives are closing in Q2. While rates have fallen, the benefit is offset by lower margins from these prior sales.

Capital Allocation Plans
Q: How is D.R. Horton allocating its capital amidst sufficient cash position?
A: The company plans to increase share repurchases by 25% to $1.5 billion this year. They will also pay $400 million in dividends. While open to small acquisitions, they do not anticipate significant large acquisitions. Additionally, they will invest in land and rental inventory to support growth.

SG&A Expense Outlook
Q: What caused higher SG&A expenses and what's the outlook?
A: SG&A rose due to a 14% increase in average selling communities and $13 million in stock-based compensation timing. Management expects higher SG&A as a percentage of revenue for a couple of quarters but anticipates returning to historical levels as revenues grow.

Gross Margin Sensitivity
Q: How sensitive are margins to future rate changes and hedging positions?
A: Significant rate volatility can affect hedging positions, as seen with the $65 million charge in Q1. Management strives to manage this exposure but notes that sudden rate changes can impact margins. Margins may improve later in Q2 as lower-cost rate buy-downs from recent sales take effect.

Constraints on Closings Guidance
Q: Are there constraints to achieving increased closings guidance?
A: Management is confident in achieving approximately 89,000 closings, above prior peaks. Improved cycle times to around 4 months , strong finished lot positions, and supportive trade partnerships mitigate constraints. However, they acknowledge that finished lots remain an industry constraint.

Land Investment and Lot Supply
Q: Can land investment be reduced further, and how is lot supply managed?
A: The company maintains roughly a one-year supply of owned land to support production. They aim to control more land and acquire finished lots from others but need sufficient land on the balance sheet to maintain production velocity.

Materials Cost Outlook
Q: What is the outlook for materials costs and potential inflation?
A: Management observes relative flatness in costs and expects similar trends next quarter. However, increased starts by peers could pressure labor and materials, potentially leading to cost increases.

Acquisition Strategy
Q: Is D.R. Horton considering large acquisitions?
A: While they continue to consider acquisitions, they are more interested in smaller, tuck-in builders to enhance market share. They do not foresee significant large acquisitions imminent.

Sales Incentives and Market Approach
Q: Has the company reduced incentives as rates dropped recently?
A: They have maintained consistency in incentives and have not made significant changes yet. Incentives are managed locally, and they will respond to market conditions as needed.

SG&A Impact from Community Expansion
Q: Is higher SG&A due to community count expansion and new markets?
A: Yes, the 14% increase in average selling communities contributed to higher SG&A. As they expand into new markets, they expect to achieve leverage over time, reducing SG&A as a percentage of revenue.

Lot Costs Trend
Q: How did lot costs trend, and what's expected ahead?
A: Lot costs increased by low double digits year-over-year, mainly due to geographic mix, but adjusted to high single digits after stripping out geography. Sequentially, lot costs were up 1.5%. This trend should moderate after cycling a full year.

Build Cycles Improvement
Q: How much can build cycles improve, and what's driving it?
A: Build cycles improved to just over 4 months, down from 7 months a year ago. Further improvements may be modest, but reduced cycle times enhance flexibility and support their closings target.

Affordability and Buyer Trends
Q: Are buyers responding to measures other than rate buy-downs?
A: Buyers are opting for smaller homes to manage payments, with average square footage down about 3% year-over-year. Product selection and focus on affordability remain key strategies.

Market Conditions and Sales Trends
Q: What are the current market conditions and sales trends?
A: Early signs in January are encouraging, with good traffic and conversions. Management is cautiously optimistic about the spring selling season.