Cash Flow Outlook
Q: Can you update your cash flow guidance for the year?
A: Management did not update the full-year cash flow guidance from operations, which was previously set at $1.8 billion. They expect to generate healthy cash flow due to incremental volume and margins, investing some to achieve 5–10% growth. They remain committed to their capital allocation strategy, including investing in the business, growing dividends with earnings, and buying back stock with excess capital.

Gross Margin Amid Rising Costs
Q: How are you maintaining flat gross margins amid rising costs?
A: Despite mid to high single-digit increases in lot costs and low single-digit increases in labor and material costs , management is maintaining flat year-over-year gross margins by raising prices in many communities by 1–5% and benefiting from market strength. They acknowledged that margins will be influenced by mix shifts, particularly increased volume from lower-margin Western markets.

Demand Trends and Interest Rates
Q: How are current demand trends amid changing interest rates?
A: The first quarter showed strong demand, with trends stronger than normal seasonality. However, in early April, they observed a slight downturn in traffic, likely reflecting changes in the interest rate environment. They believe overall housing demand remains strong but are mindful of affordability challenges.

Land Costs Impact on Margins
Q: What's the impact of land cost inflation on margins?
A: The mid to high single-digit increase in lot costs was reflected in the first quarter and is expected to continue throughout the year. This has been factored into their gross margin guidance, and they do not anticipate land prices declining due to competitive market conditions.

Incentives and Pricing Strategy
Q: Are you adjusting incentives to drive growth?
A: Management is not "margin proud" and is willing to adjust incentives to drive sales. They are offering mortgage rate commitments at 5.75% nationally, with about 25% of buyers utilizing it. They anticipate keeping the incentive load flat at 6.5% going forward.

Land Strategy and Owned Land Targets
Q: What's your long-term owned land target?
A: The company targets 7 years of controlled land, with a long-term goal of 70% of land under option. This would result in just over 2–2.5 years of owned land. They expect to reach this target over several years through organic growth and by approving more optioned deals (74% in the recent quarter).

Construction Cycle Times
Q: Have construction cycle times normalized?
A: Cycle times improved to 128 days, down from 130 days. Some markets are already back to pre-COVID cycle times of under 100 days. They remain on track to reach 100 days by the end of the year.

Regional Strength in Western Markets
Q: What's driving stronger trends in Western markets?
A: Markets like Nevada, Arizona, and California rebounded due to price adjustments and improved buyer sentiment. These markets contributed significantly to recent results, though their relative margin contribution is lower.

Impact of NAR Settlement
Q: How will the NAR settlement affect your business?
A: Management is closely watching the situation. They believe it will bring better transparency to fee structures and may change how services are charged over time. Realtors remain important, as 60% of their sales involve a buy-side realtor.