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Edited Transcript of DHI earnings conference call or presentation 28-Apr-20 12:30pm GMT

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Q2 2020 D.R. Horton Inc Earnings Call FORT WORTH Jun 12, 2020 (Thomson StreetEvents) -- Edited Transcript of D.R. Horton Inc earnings conference call or presentation Tuesday, April 28, 2020 at 12:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Bill W. Wheat D.R. Horton, Inc. - Executive VP & CFO * David V. Auld D.R. Horton, Inc. - President & CEO * Jessica Hansen D.R. Horton, Inc. - VP of IR * Michael J. Murray D.R. Horton, Inc. - Executive VP & COO ================================================================================ Conference Call Participants ================================================================================ * Alan S. Ratner Zelman & Associates LLC - MD * Carl Edwin Reichardt BTIG, LLC, Research Division - MD & Homebuilding Analyst * John Lovallo BofA Merrill Lynch, Research Division - VP * Kenneth Robinson Zener KeyBanc Capital Markets Inc., Research Division - Director and Equity Research Analyst * Matthew Adrien Bouley Barclays Bank PLC, Research Division - VP * Michael Glaser Dahl RBC Capital Markets, Research Division - MD of U.S. Homebuilders & Building Products * Michael Jason Rehaut JP Morgan Chase & Co, Research Division - Senior Analyst * Stephen Kim Evercore ISI Institutional Equities, Research Division - Senior MD & Head of Housing Research Team * Susan Marie Maklari Goldman Sachs Group Inc., Research Division - Analyst * Truman Andrew Patterson Wells Fargo Securities, LLC, Research Division - VP & Senior Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good morning. Welcome to Second Quarter 2020 Earnings Call for D.R. Horton, America's builder, the largest builder in the United States. (Operator Instructions) Please note, this conference is being recorded. I will now turn the call over to Jessica Hansen, Vice President, Investor Relations for D.R. Horton. -------------------------------------------------------------------------------- Jessica Hansen, D.R. Horton, Inc. - VP of IR [2] -------------------------------------------------------------------------------- Thank you, Sherry, and good morning. Welcome to our call to discuss our results for the second quarter of fiscal 2020 in addition to current market conditions. Before we get started, today's call may include comments that constitute 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 issues that could lead to material changes in performance is contained in D.R. Horton's annual report on Form 10-K and subsequent reports on Form 10-Q, all of which are or will be 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 day or 2. 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 David Auld, our President and CEO. -------------------------------------------------------------------------------- David V. Auld, D.R. Horton, Inc. - President & CEO [3] -------------------------------------------------------------------------------- Thank you, Jessica, and good morning. Although we are in different locations while practicing social distancing, I am 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. We'd like to first express our gratitude to our country's dedicated field of health care workers and all who are on the front lines caring for our communities. Our thoughts remain with those affected by this pandemic. And before we talk about our second quarter results, I will address current market conditions while we, along with the rest of the world, navigate through the impacts of COVID-19 on the economy and our business operations. Housing market and economic fundamentals were solid throughout most of the second quarter as interest rates on mortgage loans remained low, new home demand was strong, and there was a limited supply of homes at affordable prices across most of our markets. However, during the latter part of March and into April, the impacts of COVID-19 and related widespread reduction in the economic activity across the United States began to negatively affect our business operations as well as the demand for new homes across all of our markets. We experienced increases in sales cancellations and decreases in sales orders in late March and to date in April as compared to the same period last year. In almost all municipalities across the U.S., where social distancing and other restrictions have been implemented, residential construction, lot development, financial services have been designated as essential businesses as part of critical infrastructure. We have continued our operations in those markets where allowed and have made appropriate adjustments to comply with social distancing and other standards as the health, safety of our employees, customers and trade partners is our #1 priority. We believe we are well prepared to operate in this uncertain environment with our experienced operating teams, low leverage and a strong liquidity position. We plan to maintain our flexible operations and financial position by generating strong cash flows from our homebuilding operations, limiting land acquisition and land development spending and adjusting our product offerings, incentives, home pricing, sales pace and inventory levels to optimize the return on our inventory investments in each of the communities based on local housing market conditions. Our team delivered a strong second quarter during this unprecedented time for our nation and while making significant adjustments to our operational practices in March. Our consolidated pretax income for the quarter increased 34% to $621 million on a 9% increase in revenues to $4.5 billion. Our pretax profit margin improved 260 basis points to 13.8%, and our net sales orders increased 20%. Our homebuilding return on inventory for the trailing 12 months ended March 31, was 20.2%, and our consolidated return on equity for the same period was 19.1%. Mike? -------------------------------------------------------------------------------- Michael J. Murray, D.R. Horton, Inc. - Executive VP & COO [4] -------------------------------------------------------------------------------- Diluted earnings per share for the second quarter of fiscal 2020 increased 40% to $1.30 per share compared to $0.93 per share in the prior year quarter. Net income for the quarter increased 37% to $483 million compared to $351 million. Our second quarter home sales revenues increased 10% to $4.4 billion on 14,539 homes closed, up from $4 billion on 13,480 homes closed in the prior year. Our average closing price for the quarter was up 2% from last year to $300,100, and the average size of our homes closed was down 2%, reflecting our ongoing efforts to keep our homes affordable. Bill? -------------------------------------------------------------------------------- Bill W. Wheat, D.R. Horton, Inc. - Executive VP & CFO [5] -------------------------------------------------------------------------------- Net sales orders in the second quarter increased 20% to 20,087 homes, and the value of those orders was $6 billion, up 22% from $4.9 billion in the prior year. Our average number of active selling communities increased 1% from the prior year and was flat sequentially. Our average sales price on net sales orders in the second quarter was $299,700, up 2% from the prior year. The cancellation rate for the second quarter was 19%, flat with the same quarter last year. As we disclosed in our preliminary release, our March net sales orders increased 6% from last year to 6,491 homes, and our cancellation rate for the month was 24%. As a result of the pandemic, our sales orders began to decrease in late March and into April, and our cancellations have remained elevated throughout April to date. Although April is not quite over yet, our net sales orders month-to-date are approximately 11% lower than the same period a year ago. This month-to-date, net sales trend may not be indicative of the full month of April because a significant number of our sales cancellations typically occur in the final days of each month. However, we have seen an increase in our net sales order volumes in the most recent 2 weeks compared to the preceding 4 weeks. Jessica? -------------------------------------------------------------------------------- Jessica Hansen, D.R. Horton, Inc. - VP of IR [6] -------------------------------------------------------------------------------- Our gross profit margin on home sales revenue in the second quarter was 21.3%, up 30 basis points sequentially from the December quarter, up 200 basis points compared to the prior year and in line with our expectations. We remain focused on managing the pricing, incentives and sales pace in each of our communities during this uncertain environment to optimize the return on our inventory investments and adjust to local market conditions and new home demand. If economic conditions remain difficult and the recent decline in new home demand persists, we expect that our gross margins will decline from current levels. Bill? -------------------------------------------------------------------------------- Bill W. Wheat, D.R. Horton, Inc. - Executive VP & CFO [7] -------------------------------------------------------------------------------- In the second quarter, homebuilding SG&A expense as a percentage of revenues was 8.3%, down 70 basis points from 9% in the prior year quarter. 55 basis points of the reduction in SG&A this quarter related to a decrease in the liability for our employee deferred compensation plan resulting from the decline in the stock market during the quarter. Our homebuilding SG&A expense as a percentage of revenues is at its lowest point in our history, and we remain focused on controlling our SG&A while ensuring that our infrastructure appropriately supports our business. Mike? -------------------------------------------------------------------------------- Michael J. Murray, D.R. Horton, Inc. - Executive VP & COO [8] -------------------------------------------------------------------------------- We ended the second quarter with 33,400 homes in inventory. 16,700 of our total homes were unsold, of which 4,700 were completed. We also had 1,900 model homes at the end of the quarter. We are cautiously managing our inventory of homes under construction relative to demand in each of our communities by controlling our construction starts of unsold homes and closely monitoring the number of unsold completed homes in inventory. At March 31, our homebuilding lot position consisted of approximately 330,000 lots, of which 36% were owned and 64% were controlled through purchase contracts. 32% of our total owned lots are finished and at least 54% of our controlled lots are or will be finished when we purchase them. David? -------------------------------------------------------------------------------- David V. Auld, D.R. Horton, Inc. - President & CEO [9] -------------------------------------------------------------------------------- Our second quarter homebuilding investment in lots, land and development totaled $1 billion, of which $460 million was for finished lots, $350 million was for land development, and $230 million was for land. Beginning in late March, we have temporarily stopped our purchase of raw land, and we are closely managing all finished lot purchases and development spending. We are also working closely with our third-party lot developers, including Forestar, to adjust the timing of our takedown schedules to match current demand levels. Mike? -------------------------------------------------------------------------------- Michael J. Murray, D.R. Horton, Inc. - Executive VP & COO [10] -------------------------------------------------------------------------------- Forestar, our majority-owned subsidiary, is a publicly-traded residential lot manufacturer operating in 50 markets across 21 states. At March 31, Forestar's lot position consisted of 52,300 lots. Of which 35,800 are owned and 16,500 are controlled through purchase contracts. 80% of Forestar's owned lots are already under contract with D.R. Horton or subject to a right of first offer under our master supply agreement. Forestar is separately capitalized from D.R. Horton and has approximately $790 million of liquidity which includes $440 million of unrestricted cash and $350 million of available capacity on its revolving credit facility. During the quarter, Forestar issued $300 million of 5% senior notes due 2028 and repaid $119 million of 3.75% convertible senior notes in cash at maturity. At March 31, Forestar's net debt-to-capital ratio was 19.5%, and their next senior note maturity is in 2024. With low leverage, ample liquidity and its relationship with D.R. Horton, Forestar is in a very strong position to navigate through these uncertain economic conditions. Jessica? -------------------------------------------------------------------------------- Jessica Hansen, D.R. Horton, Inc. - VP of IR [11] -------------------------------------------------------------------------------- Financial services pretax income in the second quarter was $24.7 million with a pretax profit margin of 23.6% compared to $34 million and 33.5% in the prior-year quarter. In late March and April, our mortgage company experienced lower pricing and gains on sales of mortgage loans and servicing rights due to disruption in the secondary mortgage markets. Many purchasers and servicers have limited their purchases and tightened their credit standards due to liquidity and operational challenges caused by COVID-19 and the uncertainty of the impact of forbearance provisions from the CARES Act. We are closely monitoring developments in the mortgage markets and are prepared to make adjustments in our operations to adapt to further changes in market conditions. For the quarter, 98% of our mortgage company's loan originations related to homes closed by our homebuilding operations and our mortgage company handled the financing for 67% of our home buyers. FHA and VA loans accounted for 48% of the mortgage company's volume. Borrowers originating loans with DHI Mortgage this quarter had an average FICO score of 720 and an average loan-to-value ratio of 89%. First-time homebuyers represented 53% of the closings handled by our mortgage company, reflecting our continued focus on offering homes at affordable price points. David? -------------------------------------------------------------------------------- David V. Auld, D.R. Horton, Inc. - President & CEO [12] -------------------------------------------------------------------------------- DHI Communities is our multifamily rental company focused on suburban garden-style apartments with operations primarily in Texas, Arizona and Florida. During the quarter, DHI Communities sold an apartment project in Florida for $67 million and recorded a gain on sale of $28.2 million. This was DHI Communities fourth project sale and it was the final sale we were expecting this year. DHI Communities has 3 projects under active construction and 1 project that was substantially complete at the end of the quarter. We are continuing lease-up and construction of these 4 projects but are delaying new acquisitions and deferring starting construction on other projects until we have clear visibility into market conditions. DHI Communities' assets totaled $203 million at March 31. Bill? -------------------------------------------------------------------------------- Bill W. Wheat, D.R. Horton, Inc. - Executive VP & CFO [13] -------------------------------------------------------------------------------- Our balanced capital approach focuses on being disciplined, flexible and opportunistic. Our strong balance sheet, ample liquidity and low leverage provide us with significant financial flexibility to withstand difficult economic conditions. And we plan to maintain our disciplined approach to investing capital to enhance the long-term value of our company. During the first 6 months of fiscal 2020, our cash provided by our homebuilding operations was $52 million compared to $216 million of cash used in the prior-year period. At March 31, we had $2 billion of homebuilding liquidity, consisting of $1 billion of unrestricted homebuilding cash and $1 billion of available capacity on our homebuilding revolving credit facility. Our homebuilding leverage improved 370 basis points to 19.2%. The balance of our homebuilding public notes outstanding at the end of the quarter was $1.9 billion, and we have $400 million of senior note maturities in the next 12 months. At March 31, our stockholders' equity was $10.5 billion, and book value per share was $28.77, up 15% from a year ago. For the trailing 12-month period ended March 31, our return on equity was 19.1% compared to 17.6% a year ago. During the quarter, we paid cash dividends of $64 million, and our Board has declared a quarterly dividend at the same level to be paid in May. We also repurchased 4 million shares of common stock for $197 million. Our outstanding share count was down 3% year-over-year. We plan to cautiously manage our level of share repurchases in the near term to maintain financial flexibility until we have better visibility to future market conditions and our expected operating results. Jessica? -------------------------------------------------------------------------------- Jessica Hansen, D.R. Horton, Inc. - VP of IR [14] -------------------------------------------------------------------------------- As we mentioned in our press release, we have withdrawn our previously issued fiscal 2020 guidance due to the current uncertainty in the U.S. economy and our business operations resulting from COVID-19. We expect to provide new annual guidance when we have clear visibility into our business and market conditions. David? -------------------------------------------------------------------------------- David V. Auld, D.R. Horton, Inc. - President & CEO [15] -------------------------------------------------------------------------------- In closing, our results reflect the efforts of our dedicated operational teams who continue to provide homes to families across the United States. We are well positioned to effectively operate in this uncertain environment with our experienced team, industry-leading market share, broad geographic footprint and diverse product offerings. Our strong balance sheet, ample liquidity and low leverage provide us with significant financial flexibility to withstand difficult economic conditions and we plan to maintain our disciplined approach to investing capital to enhance the long-term value of our company. Thank you to the entire D.R. Horton team for your focus and hard work. Your efforts and positive caring spirit during this unprecedented time have been remarkable. We are proud of your work ethic and creativity and finding ways to safely continue helping our customers close on their much anticipated new homes. This concludes our prepared remarks. We will now host questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first question is from John Lovallo with Bank of America. -------------------------------------------------------------------------------- John Lovallo, BofA Merrill Lynch, Research Division - VP [2] -------------------------------------------------------------------------------- And I hope everyone is doing well. First question is, can you just help frame the magnitude of the improvement in order activity over the past 2 weeks, maybe on a year-over-year basis? I mean, are we talking about kind of down mid-single digits? Is it closer to flat year-over-year? Any color would be helpful. -------------------------------------------------------------------------------- Bill W. Wheat, D.R. Horton, Inc. - Executive VP & CFO [3] -------------------------------------------------------------------------------- John, this is Bill. We're not commenting on specific weeks. From week-to-week, sales -- [gross sales -- can activity], net sales can be quite volatile. So we provided our commentary on a month-to-date basis because we feel like that's the most representative information that we can provide. We did indicate that our translation level has remained elevated into April, which obviously affects net sales as well. -------------------------------------------------------------------------------- John Lovallo, BofA Merrill Lynch, Research Division - VP [4] -------------------------------------------------------------------------------- Okay. I understand. And then maybe just in terms of the order decline in April. Were there any particular regions that stood out maybe on a positive or on a negative basis? And then in the regions that are starting to open up in some of these states, are you guys doing anything different in preparation there? -------------------------------------------------------------------------------- Michael J. Murray, D.R. Horton, Inc. - Executive VP & COO [5] -------------------------------------------------------------------------------- John, this is Mike. We've seen probably Texas and Florida hold up pretty well, but I would say every market is down and down fairly consistently outside of Texas and Florida. It's been a pretty broad-based impact. -------------------------------------------------------------------------------- John Lovallo, BofA Merrill Lynch, Research Division - VP [6] -------------------------------------------------------------------------------- Got it. And then are you guys doing anything different in some of the states that are planning to open early? -------------------------------------------------------------------------------- Jessica Hansen, D.R. Horton, Inc. - VP of IR [7] -------------------------------------------------------------------------------- Well, fortunately, as we mentioned in our prepared remarks, residential construction has been designated an essential business as part of critical infrastructure. So we really haven't been heavily impacted in terms of shutdowns. The biggest place we would have been impacted is Seattle since the state of Washington did not consider residential construction as part of an essential business. The state of Washington was about 3% of our closings in calendar 2019. And then the other areas that have been shut down for construction has been the Bay Area, New Jersey and Pennsylvania. And when you combine those with the state of Washington, we're still only around 4% of our closings last year. So really, the biggest impact has more been on just the ability to interact with consumers face-to-face as we want to make sure we comply with social distancing protocols. So a majority of our offices, our sales offices are by appointment only. Our trades are limited to 1 trade per job site at a time among numerous other new operational protocols we've put in place which has slowed our build cycles and impacted the business. But by and large, the true shutdowns had happened mainly in markets where we don't operate heavily. -------------------------------------------------------------------------------- Operator [8] -------------------------------------------------------------------------------- Our next question is from Carl Reichardt with BTIG. -------------------------------------------------------------------------------- Carl Edwin Reichardt, BTIG, LLC, Research Division - MD & Homebuilding Analyst [9] -------------------------------------------------------------------------------- Hope everyone is safe and well. My first question is on pricing and incentives. And maybe you could talk generally, Dave or whoever would like to about generally how you're looking at pricing and incentives now? Where you've adjusted? What kinds of price incentive adjustments you've made? And how consumers are responding to them? -------------------------------------------------------------------------------- David V. Auld, D.R. Horton, Inc. - President & CEO [10] -------------------------------------------------------------------------------- Carl, this is David. We are responding, I guess, community by community. We've kind of reset expectations on absorption, rerun pace. Again, it kind of gets to the whole thing, but it's to me, it's a flag-by-flag operation. You've got to maintain a certain level of pace, and we've adjusted the incentives to maintain that pace. So reality is Texas, Florida have held up better, given all the constraints. And really after the shock of the first couple of weeks, our people out there have kind of got a rhythm and figured out how to sell houses. And all-in, from my perspective, things are better than I had -- than I was concerned they might be. -------------------------------------------------------------------------------- Carl Edwin Reichardt, BTIG, LLC, Research Division - MD & Homebuilding Analyst [11] -------------------------------------------------------------------------------- And then as a follow-up, can you talk a little bit about construction cycle times? And if your supply chain has struggled at all, from a labor hold perspective? We've heard mixed things about labor availability, obviously social distancing making it harder to get houses up. And then, of course, inspection delays, things like that. Maybe what percentage have your cycle times increased, if they have, in terms of sort of start to see above? -------------------------------------------------------------------------------- Michael J. Murray, D.R. Horton, Inc. - Executive VP & COO [12] -------------------------------------------------------------------------------- Carl, this is Mike. We haven't really seen a lot of the cycle time changes coming through in the data yet because these are fairly recent operational changes that we've made in the field, both ourselves and a lot of our governing municipalities with the cadence of inspections. So we'll let you know as we see those trends develop through the quarter, what they actually work out to be. I've been very impressed with our teams and their ability to keep each other safe and respond to demand for housing and be out there building with labor. We see a lot of our labor on-site wants to work. We've not had a -- seen lots of labor shortages at all. I've not been able to travel like I normally have. So I haven't seen as much coming into this call as I would have in prior calls. But driving to the Dallas/Fort Worth markets, I have seen a lot of activity, the trades, a lot of signage around in our neighborhoods and other neighborhoods about maintaining social distancing and seeing a lot of our labor activity being executed with people not heavily congregating in the streets or on the job sites. So I've been very pleased with that and very pleased with the pace that we've been able to maintain in our communities. -------------------------------------------------------------------------------- Operator [13] -------------------------------------------------------------------------------- Our next question is from Stephen Kim with Evercore ISI. -------------------------------------------------------------------------------- Stephen Kim, Evercore ISI Institutional Equities, Research Division - Senior MD & Head of Housing Research Team [14] -------------------------------------------------------------------------------- Appreciate all the information. And likewise, I hope you guys are staying safe. David, I wanted to follow up on the comment you made about how the tone of business thus far has been a little bit better than you would have initially feared they might be. And your indication that orders improved in the last 2 weeks prior to the previous 4 -- relative to the prior 4 weeks. Is it fair to say that in -- what you have observed is that this increase was not driven by pricing actions, but by something else? And if the latter, what do you think that surprising strength was related to? -------------------------------------------------------------------------------- David V. Auld, D.R. Horton, Inc. - President & CEO [15] -------------------------------------------------------------------------------- Yes. Stephen, I, like everybody else, was a news junkie coming when this thing first broke. And you turn on the President's briefing and the world is going to end, and so you kind of get hunkered down mentality. And as news has come out more and more and more, it just -- you get a sense that it's not going to be as bad as the initial thought might have been. And -- the key, I guess, to me, there's 2 things that really separate us from everybody else. It's the people we have out there representing the brand, and then it's just the price points. And people want to be in the house right now. And by being affordable, we have more opportunities to put them in a house than our competitors. So that to me is probably the -- the mood of the country seems to have improved significantly over the last 30 days. And our ability to kind of manage the process through systems and communications and just being more comfortable, I think, has given us a lot -- an opportunity to make things happen. But this is unprecedented times. -------------------------------------------------------------------------------- Stephen Kim, Evercore ISI Institutional Equities, Research Division - Senior MD & Head of Housing Research Team [16] -------------------------------------------------------------------------------- No doubt. And -- but it's certainly encouraging that you're seeing, what you're seeing in -- even in advance of many parts of almost any part of the country really opening up, which I guess, began this past weekend. My second question relates to cancellations and sort of tempering your commentary on the orders improving. You mentioned the cancellations tend to be clustered in the last few days of a month. I was curious if you could give us a sense for roughly how much of the cancellation activity occurs in those last few days. Are we talking like 3 quarters of your monthly cancellations occur? Are we talking more like 25%? Just dimensionalize that for us a little bit, and in general, are those cancellations that you have been seeing, the degree to which you have been seeing them already, are they tied to mortgage credit standards tightening? Or is it tied to something else as far as you can tell? -------------------------------------------------------------------------------- David V. Auld, D.R. Horton, Inc. - President & CEO [17] -------------------------------------------------------------------------------- I think it's just timing. Everybody wants to -- our sales agents want to see people close, the buyers want to close. You push through on the credit to get to a closing point. And majority -- in this industry, the majority of people close at the last week of the month. And when you're bringing everything to the point of closing, things fall out. And whether it's a cancellation or a push to the next month, that tends to happen. Now the percentage, I don't have any idea. I would -- I mean we have been very purposeful in making sure that our buyers in our backlog are going to be in a position to close. So historically, that number, maybe 15%, 20% the last week, I don't know, maybe a little more. That's just not anything I track. It just -- go ahead, Jessica, sorry. -------------------------------------------------------------------------------- Jessica Hansen, D.R. Horton, Inc. - VP of IR [18] -------------------------------------------------------------------------------- And clearly, right now, it's always true that more happened at the end of the quarter, but we're anticipating there could be even more right now due to the current uncertainty in the market. Typically, the main reason people cancel is because they can't ultimately qualify for the mortgage. So are we going to have some fallout because of tightening credit standards, potentially, I think the bigger driver right now is just job loss and loss of income certainty. And so there's a lot of buyers that are canceling because of some sort of impact of COVID-19 that's out of their control. And so I think that's the main driver for us putting that cautionary language in there, as there are still a few more days in April, and we just don't know. -------------------------------------------------------------------------------- Bill W. Wheat, D.R. Horton, Inc. - Executive VP & CFO [19] -------------------------------------------------------------------------------- This is a phenomenon we do see every month and we saw it at the end of March. -------------------------------------------------------------------------------- Michael J. Murray, D.R. Horton, Inc. - Executive VP & COO [20] -------------------------------------------------------------------------------- We did see at the end of March. -------------------------------------------------------------------------------- Bill W. Wheat, D.R. Horton, Inc. - Executive VP & CFO [21] -------------------------------------------------------------------------------- So there was definitely a higher level of cancs around the last days of the month of March. -------------------------------------------------------------------------------- Michael J. Murray, D.R. Horton, Inc. - Executive VP & COO [22] -------------------------------------------------------------------------------- And David touched on it before is that most homebuyers are trying to schedule their home closing towards the end of the calendar month because of the way their pre-trades and the escrows are funded, it reduces their out-of-pocket cash requirement. And so their -- the outside realtors often advise that. So we see more of our closings in a given month scheduled trying to be scheduled by the buyers and their realtors for the last week of the month. So as you bring those things together at the end of the month, that's when you find out, you might have had an outside lender who could not get mortgage taken care of. Or something happens, it just a lot pushes all the once. And so that's why we added the language to the press release and to our commentary this morning. -------------------------------------------------------------------------------- Stephen Kim, Evercore ISI Institutional Equities, Research Division - Senior MD & Head of Housing Research Team [23] -------------------------------------------------------------------------------- Yes, that's encouraging. That's very helpful. I mean I suppose it's encouraging that the credit standards have already tightened, and hopefully, it will tighten a whole lot more from here, which would obviously help. But that's a very great color. I appreciate it, and good luck with the rest of the quarter. -------------------------------------------------------------------------------- Operator [24] -------------------------------------------------------------------------------- Our next question is from Alan Ratner with Zelman & Associates. -------------------------------------------------------------------------------- Alan S. Ratner, Zelman & Associates LLC - MD [25] -------------------------------------------------------------------------------- Glad to hear everyone's doing okay, and congrats on the strong performance so far in this difficult environment. My first question, historically, specs have accounted for, I think, about 70% to 80% of your sales just in terms of that level of homes that have started as a spec home, and you might have sold it at various points of the construction. So I guess I'm a little bit curious how your spec starts have been trending? First, I guess, is there any reason to think that, that percentage might move lower here just given some change in strategy that you guys might be imparting on. But the question is, like how much are your starts down year-over-year for April? Because that, I guess, in my mind, should be a fairly good leading indicator of what future order activity might look like? -------------------------------------------------------------------------------- Michael J. Murray, D.R. Horton, Inc. - Executive VP & COO [26] -------------------------------------------------------------------------------- Alan, we don't have the April starts month-to-date number here with us. We can probably follow-up with you on that or certainly by the end of the quarter we'll be putting that information out for the starts. But we're managing our spec strategy the same way we always have. It's at a community-by-community level, measuring demand in that community and looking at what inventory is available today, the construction status of that inventory and seeing what needs to be available for those buyers in that given community. And so that's a very local decision that our teams are making on a daily and weekly basis. It's nothing we're anticipating changing at this point in time. We are obviously looking at what we would call a build job, making sure that, that buyer is still committed to the home before we start the house. If there's anything unusual with that house that it wouldn't otherwise be acceptable as a spec if something happened to that buyer contract, we'd be happy to have that home in inventory to sell to another buyer if need be. That happens from time to time as well. -------------------------------------------------------------------------------- Jessica Hansen, D.R. Horton, Inc. - VP of IR [27] -------------------------------------------------------------------------------- So we would anticipate the 70% to 80% that you referenced not changing. What we have done is slower starts pace to match the reduction in current demand levels, and we'll continue to make those adjustments community by community. -------------------------------------------------------------------------------- Alan S. Ratner, Zelman & Associates LLC - MD [28] -------------------------------------------------------------------------------- Got it. Yes. That's what I was trying to get at is if that slowing of the starts, it's tracking, call it, somewhere down 10% to 15%, kind of what you're experiencing on the orders or for some reason it's coming in lower than that, but you could follow-up with me on that, if you don't have the data handy. Second question, if I could, just on the mortgage data you guys provided. I'm curious if you have any additional granularity there? We've heard some tightening specifically on FHA, VA, which is about half of your business below certain FICO scores, whether that's 640, 660. I'm not sure if there's a magic cutoff from the investors you're dealing with. But do you have the percentage of your business that falls below, say, a 660 FICO score? And does the piece of your business that your mortgage company does not capture the 30% plus, does that profile look any different? -------------------------------------------------------------------------------- Jessica Hansen, D.R. Horton, Inc. - VP of IR [29] -------------------------------------------------------------------------------- So I don't have insight to the outside mortgage company. But when you look at our inside mortgage company, we've been running about a 720 FICO score on average. And even our Express buyer has been around 700 to 710. So do we have some buyers that fall in the band you're talking about? Sure, but it's not a large piece. And typically, our mortgage company does a fantastic job of when those credit overlays and changes in terms of FICO scores happen, working to figure out a different mortgage product to get that buyer into. So it's not generally 100% fallout, although there can be some fallout. -------------------------------------------------------------------------------- Operator [30] -------------------------------------------------------------------------------- Our next question is from Michael Rehaut with JPMorgan. -------------------------------------------------------------------------------- Michael Jason Rehaut, JP Morgan Chase & Co, Research Division - Senior Analyst [31] -------------------------------------------------------------------------------- And congrats on the results so far and also hope everyone is safe across the D.R. Horton organization. The first question I had was trying to look at or think about the April results from a different angle. Obviously, very encouraging in terms of the down 11% even with perhaps even a higher canc rate in the last few days expected. When you think about that relative to your competitor reporting last week in terms of a sharper fall-off in April and other companies talking about even more challenging March quarter. So I'm trying to get a sense, I was wondering if you could comment around how you guys are operating or perhaps how you're positioned that has allowed for the better results versus several of your peers, be it price point? Or you had also mentioned that if the current demand level persists, you'd expect gross margins to contract. So I'm curious if the relative outperformance versus some of your peers in some of the stats, is driven by existing, again, price point or geographic exposure, or if you have made some more aggressive adjustments in your pricing or incentives? That's my first question. -------------------------------------------------------------------------------- Michael J. Murray, D.R. Horton, Inc. - Executive VP & COO [32] -------------------------------------------------------------------------------- Thanks, Michael. Completely appreciate the question. And I will say that I'm most impressed with, as David mentioned before, the teams of people we have out there that are operating that are empowered to make decisions at the local level and they're generally operating a business model that has inventory on the ground. It has specs, quick move-in homes that are available. And we're seeing a buyer come to us that may have been looking for an existing home, and that's a very challenging transaction to make happen today. And so we're seeing some benefit of that and -- in working with our realtor relationships, able to execute against that and bring those buyers to a new home situation, where we have inventory on the shelf, ready to go. As David mentioned before, we're generally positioned to be an affordable option for the buyers in the markets. And finally, we're very encouraged by the level of activity we've seen in the more recent weeks in April and that there are people out there that want a home and are able to qualify to getting their contract for this home, and very enthusiastic as we see in watching our social media as those buyers are super excited about the home they're able to acquire at this point in time. -------------------------------------------------------------------------------- Jessica Hansen, D.R. Horton, Inc. - VP of IR [33] -------------------------------------------------------------------------------- In terms of incentives, which I think was the other piece of your question, we have started utilizing just the typical incentives we would in a period of market weakness. So generally, that will include higher co-broke commissions, more dollars towards closing costs if you use our internal mortgage company, and then just the array of ploys that our marketers come up with in terms of free fridge Friday, throwing in backyard landscaping, a lot of different things they can just repackage from week-to-week to where it's not necessarily a bigger hit to gross margin down the road. But it drives buyer urgency to get a different incentive out there from week-to-week or month-to-month. So we have started to utilize a slightly higher level of incentives because of the market weakness, but that's what we would typically do in this kind of environment. -------------------------------------------------------------------------------- Michael J. Murray, D.R. Horton, Inc. - Executive VP & COO [34] -------------------------------------------------------------------------------- And oftentimes, that's very helpful to energize and motivate our internal sales agents and their activity and their outreach program. So that's one of the reasons we would generally do activities like that. -------------------------------------------------------------------------------- Michael Jason Rehaut, JP Morgan Chase & Co, Research Division - Senior Analyst [35] -------------------------------------------------------------------------------- No, that's helpful. And again, clearly, your relative performance is impressive either way you look at it, so congrats on that. I guess the second question, also perhaps along these lines, but from a different angle, is Forestar, as you'd alluded to their results, in your prepared remarks, they reported last week, one interesting data point that they had was roughly only about 150 lot deliveries in the month of April or so far in April versus a rate of 650 to 700 in the February, March months. And so obviously, that kind of points to a much sharper falloff, more similar perhaps to some of the other competitors that I alluded to before in terms of the falloff in order pace that they had been seeing. So I was just kind of curious, I was hoping perhaps you can reconcile how your April results have held up much better than that, obviously, as D.R. Horton is the major overwhelming customer of Forestar, if they are -- if you guys aren't seeing as that type of a degree of magnitude of falloff, why has the Forestar lot deliveries fallen so much more dramatically? -------------------------------------------------------------------------------- Bill W. Wheat, D.R. Horton, Inc. - Executive VP & CFO [36] -------------------------------------------------------------------------------- Sure, Michael, this is Bill. It's really a matter of timing. And as Forestar pointed out on their call, they're working with each of their builder customers. Obviously, we are the majority of their deliveries right now. And it's a matter of sitting down community by community, looking at the inventory levels of lots that the builder currently has, looking at the revised expectations of pace and then determining the timing of what takedowns need to be adjusted to. And so for the first few weeks post the change in the market conditions, it's really a matter of -- I think everyone hits the pause button for just a short period of time to reassess. And so pushing out takedowns will most affect the first month. And I think that's where Forestar is. But as we work through our adjustments, we would expect that their takedowns would become more steady going forward, and it's going to be community by community really as we work our way through this. So there is a timing difference on lot purchases relative to home sales, but ultimately, to the extent that we're delivering -- we're purchasing most of their lots, ultimately, Forestar's pace will ultimately match or start to approximate Horton's after a period of time. -------------------------------------------------------------------------------- Michael Jason Rehaut, JP Morgan Chase & Co, Research Division - Senior Analyst [37] -------------------------------------------------------------------------------- Are any of those adjustments and delays related to a change in strike price for those lots? Or is it more primarily driven within a degree around timing of the takedowns? -------------------------------------------------------------------------------- Bill W. Wheat, D.R. Horton, Inc. - Executive VP & CFO [38] -------------------------------------------------------------------------------- It's primarily timing. That the initial adjustment is to adjust to the pace community by community. So it's -- the vast majority of adjustments are all in timing. -------------------------------------------------------------------------------- Operator [39] -------------------------------------------------------------------------------- Our next question is from Truman Patterson with Wells Fargo. -------------------------------------------------------------------------------- Truman Andrew Patterson, Wells Fargo Securities, LLC, Research Division - VP & Senior Analyst [40] -------------------------------------------------------------------------------- I'm glad to hear you all are safe and healthy. First on SG&A. You had a very good number this quarter, great control. Could you just run through the drivers of this? And then also looking forward, how are you all planning to adjust headcount going forward? Or whether or not you are planning on adjusting any headcount? -------------------------------------------------------------------------------- Jessica Hansen, D.R. Horton, Inc. - VP of IR [41] -------------------------------------------------------------------------------- So as Bill indicated on the call, the main driver of our year-over-year improvement on, our SG&A was down 70 basis points. 55 basis points of that was due to a decrease in the liability for our deferred comp plans for our employees resulting from the significant declines in the stock market this quarter. So really, only 15 basis points of the improvement was true leverage from the improved volumes we've seen in the market. And then I think Mike or Bill is going to chime in on your other question. -------------------------------------------------------------------------------- Michael J. Murray, D.R. Horton, Inc. - Executive VP & COO [42] -------------------------------------------------------------------------------- On the headcount stream, I would say that we are continually looking for ways to be as efficient as possible in the business. Right now, we don't have any broad-based layoff or headcount adjustment plans. We're responding to what we see in demand in the marketplace, and we will continue to do that market by market. Our most important asset are the teams and the people that we have out there in the field, and we've done a lot of work over the past 12, 15 years positioning the company to be prepared for whatever economic situation that we're forced to navigate through. And our people are the most important part of helping us get through all this. -------------------------------------------------------------------------------- Jessica Hansen, D.R. Horton, Inc. - VP of IR [43] -------------------------------------------------------------------------------- We have, in the near term, instituted a hiring freeze just during the current market uncertainty. -------------------------------------------------------------------------------- Bill W. Wheat, D.R. Horton, Inc. - Executive VP & CFO [44] -------------------------------------------------------------------------------- Truman, I'd add, as you well know, we're a very overhead conscious company, and we're at actually the lowest point in our history in terms of SG&A as a percentage of our revenues. And so clearly, we know how to manage our overhead relative to our revenues. And as we see where things go on a local basis moving forward, you can count on us to manage it well. -------------------------------------------------------------------------------- Truman Andrew Patterson, Wells Fargo Securities, LLC, Research Division - VP & Senior Analyst [45] -------------------------------------------------------------------------------- Okay, okay. And then just jumping over to capital allocation. You guys have $1 billion in cash, $2 billion in liquidity. Assuming that the market just stays down in the, we'll call it, 10% to 15% range moving forward. Do you think you'd be able to restart the share repurchase in relatively short order? And then also jumping over to the M&A environment. I realize that's probably too soon. But have you seen any increase in potential deal flow or any kind of distressed builders out on the market? -------------------------------------------------------------------------------- Bill W. Wheat, D.R. Horton, Inc. - Executive VP & CFO [46] -------------------------------------------------------------------------------- Sure. I'll start with the share repurchase question, Truman. As we stated, we are cautiously managing that. It's too early to say exactly when or how we might be able to address that going forward. Base case, we would not expect to repurchase any shares in our third quarter as we assess market conditions and we see how things progress. But we do expect to maintain a balanced capital allocation over the long term, and we are focused on investing in our business, maintaining a strong balance sheet, maintaining a flexible position and still delivering strong returns to our shareholders. -------------------------------------------------------------------------------- Michael J. Murray, D.R. Horton, Inc. - Executive VP & COO [47] -------------------------------------------------------------------------------- And then Truman, to the comment on M&A, I do believe it is still a bit early in the situation to see any opportunities that may present as a result of the most recent market change. But we continue to evaluate opportunities generally with smaller private builders that are complementary to our platform in various markets or product offerings. So -- but we'll continue to evaluate opportunities as they present. It's nice to have the capital to make those decisions to invest in the business. -------------------------------------------------------------------------------- David V. Auld, D.R. Horton, Inc. - President & CEO [48] -------------------------------------------------------------------------------- And I'll just add, even though we're very happy with what we're seeing today, these are uncertain times, and nobody really knows what the ultimate impact of all this is going to be and being in a very liquid, deleveraged, derisked position I think we'll afford a lot of opportunity for -- in the event, there is distressed situation out there down the road. So we're looking at liquidity deleverage as a very strong competitive advantage for us today. -------------------------------------------------------------------------------- Operator [49] -------------------------------------------------------------------------------- Our next question is from Matthew Bouley with Barclays. -------------------------------------------------------------------------------- Matthew Adrien Bouley, Barclays Bank PLC, Research Division - VP [50] -------------------------------------------------------------------------------- I hope everyone is well. Thanks for all the detail. So I wanted to ask on the construction labor side, maybe thinking a little more medium term. I think there's sort of a debate out there around perhaps increasing availability of labor that could emerge in the coming months as industry volumes come down and perhaps there's a wider pool of labor just given the unemployment situation we've seen across the market. What are you guys hearing on that front? Are you seeing the subs perhaps trying to attract additional labor here? Just how are you thinking about whether that labor tightness we've seen over these past few years will continue? -------------------------------------------------------------------------------- Michael J. Murray, D.R. Horton, Inc. - Executive VP & COO [51] -------------------------------------------------------------------------------- Matthew, as you mentioned, if there's a reduction in the activity level of the industry broadly, that would create more labor available for the remaining starts that are out there. And then obviously, if unemployment levels stay at elevated rates, that would create the opportunity to attract more people to the construction trades, if they are -- as builders are starting homes. So we've seen adequate supply of labor largely from our long relationships and large market positions. We've not been heavily constrained with our labor. And I expect that going forward, we'll continue to be able to partner with those people and perhaps with additional labor available to us in a given market, it would create some other efficiencies for us. -------------------------------------------------------------------------------- Matthew Adrien Bouley, Barclays Bank PLC, Research Division - VP [52] -------------------------------------------------------------------------------- Okay. Understood. And then I wanted to follow up on the orders, month-to-date, they're down 11%. Any sense of how that shakes out by buyer group, I guess, specifically, what you're seeing with the entry-level buyer through all this? -------------------------------------------------------------------------------- Jessica Hansen, D.R. Horton, Inc. - VP of IR [53] -------------------------------------------------------------------------------- It's really been across the board in terms of reductions in demand. So a little too early for us to parse exactly if there's 1 buyer type that ultimately is going to be hit harder by the overall impact of what the whole world is going through right now. Right now, it has just been broad-based declines in demand across all price points and buyers. -------------------------------------------------------------------------------- Operator [54] -------------------------------------------------------------------------------- Our next question is from Susan Maklari with Goldman Sachs. -------------------------------------------------------------------------------- Susan Marie Maklari, Goldman Sachs Group Inc., Research Division - Analyst [55] -------------------------------------------------------------------------------- My first question is just, can you talk a little bit to what you're seeing in terms of input costs? Have you seen any deflation may be coming through? Or how are you thinking about that as you look over the next few quarters? -------------------------------------------------------------------------------- Michael J. Murray, D.R. Horton, Inc. - Executive VP & COO [56] -------------------------------------------------------------------------------- Susan, our teams have done a really good job of keeping control of the input cost for materials, especially. We've seen our stick and brick cost per square foot basically flat as a percentage of revenue sequentially and year-over-year this quarter. And so with that, we've been really good. We've got national agreements in place with a significant portion of our manufactured materials that have been able to give us very strong pricing in the marketplace, but we've not seen any significant deflationary effects come through yet. -------------------------------------------------------------------------------- Susan Marie Maklari, Goldman Sachs Group Inc., Research Division - Analyst [57] -------------------------------------------------------------------------------- And then looking a little bit further out, perhaps thinking about what's going on, on the ground, do you expect that there could be a shift -- or a material shift in your buyer segment and the breakout of the business? And what could that potentially mean as we think about maybe the margins and some of the trajectory on that going forward? -------------------------------------------------------------------------------- Jessica Hansen, D.R. Horton, Inc. - VP of IR [58] -------------------------------------------------------------------------------- See we're just going to continue to focus on homes at affordable price points. So that doesn't necessarily only mean entry-level buyers. We want to make sure we have an affordable or at least a value-priced product offering across our entire family of brands. I think a core piece of our business will always remain entry-level first-time buyer because there's just such a big population. And clearly, the more affordable you can be, the bigger that pool is of potential buyers. So really, the focus for us isn't necessarily a specific demographic or buyer type, it's just being affordable across multiple price points and product offerings. -------------------------------------------------------------------------------- Operator [59] -------------------------------------------------------------------------------- Our next question is from Mike Dahl with RBC Capital Markets. -------------------------------------------------------------------------------- Michael Glaser Dahl, RBC Capital Markets, Research Division - MD of U.S. Homebuilders & Building Products [60] -------------------------------------------------------------------------------- First question, just on the lending side. I think David, you mentioned kind of purposefully managing the backlog with respect to just getting visibility on the ability to close, but at the same time, everyone's pushing and invested in taking it as far along and as close to the finish line as possible. And I think, Jessica, you mentioned that job loss or income uncertainty has been the main driver of cancellations so far. But when we think about the 3 buckets of kind of broad issues, you've got job loss, you've got income loss or DTI issues, and then you've got the other credit standards, maybe you'd bucket those slightly differently. But when you think across those, how -- what percentage of your backlog have you been able to actively verify all 3 of those buckets or all necessary closing conditions at this point? -------------------------------------------------------------------------------- Bill W. Wheat, D.R. Horton, Inc. - Executive VP & CFO [61] -------------------------------------------------------------------------------- Mike, this is Bill. Probably not going to have specific percentages on that. We do turn our backlog rather quickly because our backlog conversion rate was over 100% this quarter. So we do see fairly quickly with our spec strategy. We're selling homes during the construction process. We're getting to a scheduled closing date, probably relatively quickly. And so we're essentially 6 weeks into this change, this significant change in market conditions. We believe we've probably worked through a very good portion of the backlog. And as we work past the end of the month of April, I think there's another step in that process, where we'll see really an appreciable move in terms of scrubbing the backlog. After we really get past the month of April, I would say largely, we will have a pretty good feel for where we stand with our backlog because a lot of our contracts in backlog at that point will have been entered more recently, not 100%, but more recently. And buyers who are signing new contracts after the beginning of the pandemic are probably looking at things a little differently than those that were in backlog prior to. -------------------------------------------------------------------------------- Michael Glaser Dahl, RBC Capital Markets, Research Division - MD of U.S. Homebuilders & Building Products [62] -------------------------------------------------------------------------------- And my follow-up question still on the lending side. When we look at mortgage loans held for sale, those are up over 70% year-on-year on the balance sheet. And clearly, revenues are only running up 10% for the quarter or potentially lower going forward. So can you explain that differential? Are you effectively underwriting more risk or balance sheeting more risk in order to get loans done today? Or what else explains that move? -------------------------------------------------------------------------------- Bill W. Wheat, D.R. Horton, Inc. - Executive VP & CFO [63] -------------------------------------------------------------------------------- No change in those factors, Mike. The -- our volume increase on the homebuilding side is 1 factor. Also, our mortgage company is now capturing. Their capture rate of mortgages in the builder business has increased significantly over the last year or so. And so that -- so the mortgage loans held for sale, the mortgage origination volume by our mortgage company is much stronger than actually our homebuilding revenues. -------------------------------------------------------------------------------- Michael J. Murray, D.R. Horton, Inc. - Executive VP & COO [64] -------------------------------------------------------------------------------- Yes. At this point, in April, we've effectively sold all of our March loan originations from the mortgage company. So no change there, servicing and loans. -------------------------------------------------------------------------------- Jessica Hansen, D.R. Horton, Inc. - VP of IR [65] -------------------------------------------------------------------------------- So the data point on the capture rate. Today, their capture rate for the second quarter was 67%. I think that might be the highest quarterly capture rate we've reported for the mortgage company. They've been actively working to capture more of the builder business. And so that's been purposeful, and that compares to only a 56% capture rate last year at this time. -------------------------------------------------------------------------------- Michael Glaser Dahl, RBC Capital Markets, Research Division - MD of U.S. Homebuilders & Building Products [66] -------------------------------------------------------------------------------- Okay. Got it. So to be clear, I guess, you are not underwriting any loans at this point that would not be eligible or from a practical standpoint, couldn't be sold into the secondary market with current standards? -------------------------------------------------------------------------------- Jessica Hansen, D.R. Horton, Inc. - VP of IR [67] -------------------------------------------------------------------------------- Correct. We're continuing to underwrite. Virtually everything is agency eligible. -------------------------------------------------------------------------------- Operator [68] -------------------------------------------------------------------------------- Our next question is from Ken Zener with KeyBanc Capital Markets. -------------------------------------------------------------------------------- Kenneth Robinson Zener, KeyBanc Capital Markets Inc., Research Division - Director and Equity Research Analyst [69] -------------------------------------------------------------------------------- So Jessica, can you guys talk about how many of your orders in 2Q or intra-quarter closings? And if that shifted and if you have it for April, that would be great. But if you saw something shift in March versus that overall quarterly rate? -------------------------------------------------------------------------------- Jessica Hansen, D.R. Horton, Inc. - VP of IR [70] -------------------------------------------------------------------------------- I don't have it for the quarter or for -- or I don't have it for March or April specifically, Ken, but for the quarter, we sold and closed 48% of our homes in the same quarter which was up from 40% sequentially and up from 45% year-over-year. So we did have a very strong backlog conversion rate, which is why you would anticipate that to have been more sold and closed in the same quarter this year than last year at this time. -------------------------------------------------------------------------------- Kenneth Robinson Zener, KeyBanc Capital Markets Inc., Research Division - Director and Equity Research Analyst [71] -------------------------------------------------------------------------------- Yes. So the reason I asked that question is -- and the trend seems to be that you closed more based on what you just said. Therefore, your pre-build approach, which obviously helps turn your assets faster, also allows you to compete with the existing market. So my question is, with your 33,400 units under construction, being that you're in 2Q -- done with 2Q, historically, you closed about 95%, give or take, a couple of points of your under construction over the next 6 months, therefore, it seems -- and your comments don't seem to be that closing is the issue. You haven't really talked about a lot of construction delays, though, Michael. So it seems like I understand you pulled guidance. So is you -- are you -- would your concerns more be about margins? Or -- I mean you have your units under construction. So is it just -- David, is it just that the demand might disappear? I mean, is it just that it's so wise to not offer guidance than potentially miss it because I mean you have these units under construction? And it seems like you're closing units you finished. So what -- where is the real volatility you think in your normal cadence of closings disappearing versus margins versus demand fading? -------------------------------------------------------------------------------- David V. Auld, D.R. Horton, Inc. - President & CEO [72] -------------------------------------------------------------------------------- I would just say that this has been an unprecedented event taking place. And we're managing through the process and responding to what we see so far. I would say it has been a better environment because of the -- I think primarily because the way we are positioned with inventory and with a very creative and energized sales force out there. And as we get more clarity, I think we will probably share that with you. But it's just an unprecedented time. -------------------------------------------------------------------------------- Kenneth Robinson Zener, KeyBanc Capital Markets Inc., Research Division - Director and Equity Research Analyst [73] -------------------------------------------------------------------------------- Yes. No, I think it makes sense, but it just that it seems though your closings won't be off that much, given you already have these units under construction and you're still closing a lot of units and -- with your prebuild model, it helps. So totally understand. Thank you very much for your time. -------------------------------------------------------------------------------- Operator [74] -------------------------------------------------------------------------------- We have reached the end of our question-and-answer session. I would like to turn the conference call back over to David Auld for closing remarks. -------------------------------------------------------------------------------- David V. Auld, D.R. Horton, Inc. - President & CEO [75] -------------------------------------------------------------------------------- Thank you, Sherry. We appreciate everyone's time on the call today and look forward to speaking with you again in July. And to the D.R. Horton team, stay safe, stay strong. You are proving once again, you're the best in the industry. Don Horton and the entire executive team, thank you for all you do every day. Have a great day. -------------------------------------------------------------------------------- Operator [76] -------------------------------------------------------------------------------- Thank you. This concludes today's conference. You may disconnect your lines at this time, and thank you for your participation.