D R Horton, Inc DHI CEO David Auld on Q1 2020 Results

Thank you, Jessica, and good morning. In addition to Jessica, I am pleased to 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 DR Horton team started the year off strong. Our consolidated pre-tax income for the quarter increased 39% to $523 million on a 14% increase in revenue to $4 billion. Our pre-tax profit margin improved 230 basis points to 13%, and our net sales orders increased 19%. Homebuilding return on inventory for the trailing 12 months ended December 31st was 18.7%, and our consolidated return on equity for the same period was 18.2%. These results reflect the strength of our operational teams, our ability to leverage the scale across our broad geographic footprint, and our product positioning to offer homes at affordable price points across multiple brands. We continue to see good demand and a limited supply of homes at affordable prices across our markets. While economic fundamentals and financing availability remain strong, our strategic focus is to continue consolidating market share while growing our revenues and profits, generating strong annual cash flows and returns, and maintaining a flexible financial position with a conservative balance sheet that includes an ample supply of lots and land for growth. We are well positioned for the remainder of 2020 and future years.

Our diluted earnings per share for the first quarter of fiscal 2020 increased 53% to $1.16 per share compared to $0.76 per share in the prior year quarter. Net income for the quarter increased 60% to $431 million compared to $287 million. Our first quarter results include a tax benefit of $32.9 million related to federal energy efficient home tax credits that were retroactively reinstated. Our consolidated pre-tax income increased 39% to $523 million in the first quarter, and our home building pre-tax income increased 30% to $462 million. Our first quarter home sales revenues increased 13% to $3.9 billion on 12,959 homes closed, up from $3.4 billion on 11,500 homes closed in the prior year. Our average closing price for the quarter was up 1% from last year to $298,100, and the average size of our homes was down 2%, reflecting our ongoing efforts to keep our homes affordable. Net sales orders in the first quarter increased 19% to 13,126 homes, and the value of those orders was $3.9 billion, up 22% from $3.2 billion in the prior year. Our significant sales price increase over the prior year quarter reflects the moderation in demand that occurred in late calendar 2018. Our average number of active selling communities increased 6% from the prior year and was flat sequentially. Our average sales price on net sales orders in the first quarter was $300,900, up 3% from the prior year. The cancellation rate for the first quarter was 20% compared to 24% in the same quarter last year.

Our gross profit margin on home sales revenue in the first quarter was 21%, flat sequentially from the September quarter, up 100 basis points compared to the prior year quarter, and in line with our expectations. Based on today's market conditions, we currently expect our home sales gross margin in the second quarter to be consistent with the first quarter, subject to possible fluctuations due to product and geographic mix, as well as the relative impact of warranty, litigation, and purchase accounting. In the first quarter, home building SG&A expense as a percentage of revenues was 9.2%, down 30 basis points from 9.5% in the prior year quarter. We remain focused on controlling our SG&A while ensuring that our infrastructure adequately supports our growth. We ended the first quarter with 30,200 homes in inventory. 18,400 of our total homes were unsold, of which 5,600 were completed. Our first quarter home building investments in lots, land, and developments totaled $1.3 billion, of which $890 million was for purchases of land and finished lots, while $410 million was for land development. Our underwriting criteria and operational expectations for new communities remain consistent: a minimum 20% annual pre-tax return on the inventory and a return of our initial cash within 24 months.

At December 31st, our home building lots consisted of approximately 320,000 lots, of which 39% were owned and 61% were controlled through purchase contracts. 33% of our total own lots are finished, and at least 56% of our controlled lots are or will be finished when we purchase them. We continue working to increase our lot position being developed by third parties by supporting the growth of Forestar's national lot manufacturing platform and expanding our relationship with lot developers across the country. Our current lot portfolio includes an ample supply of lots for homes at affordable price points and continues to provide a strong competitive advantage. Forestar, our majority owned subsidiary, is the publicly traded residential lot manufacturer operating in 51 markets across 20 states. At December 31st, Forestar's lot position consisted of 44,500 lots, of which 32,200 are owned and 12,300 are controlled through purchase contracts. 80% of Forestar's own lots are already under contract for DR Horton subject to a right of first offer and a master supply agreement. During the first quarter of fiscal 2020, Forestar delivered 2,422 lots and is on track to deliver 10,000 lots in fiscal 2020 and generate $800 to $850 million of revenue. Forestar expects to deliver 12,000 lots and generate $900 million to $1 billion of revenues in fiscal 2021. These expectations are for Forestar's stand-alone results. Forestar is separately capitalized from DR Horton and is committed to maintaining a long-term net debt to capital ratio of 40% or lower. At December 31st, Forestar's net debt to capital ratio was 9.7%. Forestar has approximately $720 million of liquidity to fund its continued growth, which includes $370 million of unrestricted cash and $350 million of available capacity on its revolving credit facility. Forestar hosted their quarterly earnings call last Thursday, and an updated presentation on their investor site at investor.forestar.com describes Forestar's lot manufacturing model and the significant growth and value creation opportunity.

Financial services pretax income in the first quarter increased 29% to $30.5 million, and the pre-tax profit margin was 29.6%, up from 27.7% in the prior year. 97% of our mortgage company's loan originations during the quarter related to homes closed by our home building operations, and our mortgage company handled the financing for 65% of our home buyers. FHA and VA loans accounted for 49% of the mortgage company's volumes. Borrowers originating loans with DHI Mortgage this quarter had an average FICO score of 720, an average loan to value ratio of 89%. First-time homebuyers represented 50% of the closings handled by our mortgage company, reflecting our continued focus on offering homes at affordable price points for entry-level buyers. DR Horton Communities is our multifamily rental company focused on suburban garden-style apartment properties, with operations primarily in Texas, Arizona, and Florida. During the quarter, DR Horton Communities sold its third apartment project located in Phoenix for $61.5 million and recognized a gain on sale of $31.2 million. DR Horton Communities has four projects under active construction and one project that was substantially complete at the end of the quarter. DR Horton Communities total assets were $210 million at December 31st.

Our balanced capital approach focuses on being flexible and opportunistic. Our balance sheet strength and operating results are providing increased flexibility, and we are utilizing our strong position to enhance the long-term value of the company. During the first three months of fiscal 2020, our cash used in home building operations was $178.4 million compared to $396.8 million in the prior year period. At December 31st, we had $2.6 billion of home building liquidity, consisting of $1.2 billion of unrestricted home building cash and $1.4 billion of available capacity on our home building revolving credit facility. Our home building leverage improved 370 basis points to 19.5%. The balance of our home building public notes outstanding at the end of the quarter was $2.4 billion, and we have $500 million of senior notes maturing on February 15, which we plan to repay utilizing cash on hand and our revolving credit facility as necessary. At December 31st, our stockholders' equity was $10.2 billion, and book value per share was $27.92, up 14% from a year ago. During the quarter, we paid cash dividends of $64.6 million. We also repurchased 3 million shares of common stock for $163.1 million, resulting in $732.6 million remaining on our stock repurchase authorization at December 31, 2019. Our outstanding share count was down 2% year-over-year.

Looking forward to the second quarter of fiscal 2020, we expect to generate consolidated revenues in a range of $4.25 to $4.4 billion and to close approximately 13,800 to 14,300 homes. We expect our home sales gross margin in the second quarter to be approximately 21%, and home building SG&A in the second quarter to be around 9% of home building revenues. Based on today's market conditions and our first quarter results, we now expect to generate consolidated revenues for the full year of $18.5 to $19.1 billion and to close between 60,000 and 61,500 homes. We expect our income tax rate in the second, third, and fourth quarters to be between 23% and 24%. We still expect to generate cash flow from home building operations in excess of $1 billion for the full fiscal year of 2020, and we expect our outstanding share count to be down approximately 2% at the end of the year compared to the end of fiscal 2019. In closing, our results reflect the strength of our well-established operating platform across the company. We are focused on consolidating market share while growing our revenues and profits and generating strong annual cash flows and returns, while maintaining a flexible financial position. A return on equity of 18.2% and our homebuilding return on inventory of 18.7% demonstrate our consistent focus and efforts. We are well-positioned to continue this performance with our conservative balance sheet, broad geographic footprint, affordable product offering across multiple brands, attractive finished lot and land position, and most importantly, our outstanding experienced teams across the country. Thank you to the entire DR Horton team for your focus and hard work. We are incredibly well positioned to continue growing and improving our operations. This concludes our prepared remarks. We will now host questions.

Well, the cash out in two years is something we've stayed with through the downturn, and I can tell you that model has worked very well for us, and I don't see that changing. As to the overall market for buying land, again, it comes back to the people we have embedded in these markets and the relationships they have with the land owners. We feel very good about our opportunity to place what we're building through this market. We've seen that happen over and over and over again.

I think there's always going to be that pressure on the cost side. Definitely the labor is getting tighter and continues to restrict a lot of people's ability to deliver houses. But again, it goes back to the operating profile we have adopted and continued. Consistent starts throughout the community, expanding the labor base, the efficiency, not necessarily just bodies. We feel very good about what we've accomplished. We have a very loyal trade base, and our subs don't have to chase their paychecks. All of that combines to put us in a great position. So is it going to be a problem? I think less so for us than other people.

Part of it is regionally driven. If you look at our orders this year, the South Central was down 2% in terms of overall mix, and that's actually our lowest ASP region. So we continue to expect just modest sales price increases as we move throughout the year, enough to cover our cost increases. But on a like-for-like basis, nothing significant in the way of price.

We're still on track with our plan there, John, to ultimately deconsolidate Forestar. We were pleased when they were able to issue their first primary equity offering in September, which diluted our position down from the original 75%. Here in December, we're sitting at 60-65%. We would expect additional equity issuances proportional over time that could continue to dilute our position. And then as we've also said all along, there's the potential we could sell some of our shares. At the point in time that we are ready to do that, we will have a plan in place that will complement the primary equity issuance, and those two things together would result in further dilution of our ownership position.

I think we're going to see some stabilization in the second quarter, and then frankly, as usual this time of year, the spring selling season will really dictate where margins go in Q3 and Q4. Early returns on the spring selling season are very positive, so we're confident in giving our guidance of consistent margins in Q2, but we're going to have to wait and see what happens in the next several weeks.

A couple of things going on with that number, Alan. One, on a comparison to the prior year, we're actually down 5%. We changed the way we report homes in inventory to exclude the model homes. So last year if we were where we are going, last year we had about 31,800 homes. This year we're at 30,200, so we're down slightly from last year. Last year may have been a bit elevated with the sales operating environment we saw in the fourth calendar quarter of 2018. Another thing we've talked about is getting better at turning our housing inventory to drive a higher return with those investment dollars. And we're also seeing the ability to push starts. We're seeing demand come on. We're not noticing any kind of a difference in the mix between to-be-builds versus our spec starts. Continuing probably an 80/20 consistent approach.

Sure, Stephen. As you know, if you study our land spend, there is some lumpiness from quarter to quarter. So one quarter just based on the timing of when deals close and when they get ready to go, and based on our business plans, there can be a bit of lumpiness. One thing I would point out is that over half of our land acquisition spend is for finished lots, so we continue to dedicate a lot of our spend to finished lots which turn very quickly. So I wouldn't say there's necessarily any changes in our plans, but I would attribute this to a bit of lumpiness and point out that finished lots are a heavy part of this spend. But we are optimistic. We do see growth certainly in fiscal 2020. We still see very good underlying fundamentals for the business, so we're still actively replenishing our lot supply. And we have to replenish it at a faster rate as we continue to grow our sales and closing pace. You've seen our own lot count remain relatively flat for quite some time, so it's really just a function of having to replenish at a faster rate.

Sure. And at the high level, I think we'd agree with what you're saying. That being said, it's super early out there, and it's not something that we've spent a lot of time on. I'm sure our mortgage company would have a much more detailed response for you. But anything that continues to improve mortgage standards and makes it easier for people to get into a house clearly would be a benefit for our business. And as David mentioned in his opening, financing availability is still good. People that should be buying houses are buying houses today. We're not necessarily in favor of people with a significantly high DTI or really low credit score getting into a house because we're very cognizant of what happened last cycle and we don't want any repeat of that.

Certainly. We're really excited about the way this year started, the first quarter and through the first several weeks of January. And we have increased our guidance as a result of that. Structurally, it's a question of the lots that are out in front of us. We feel good about the community positioning we have, getting some communities open. But right now we're not going to increase our guidance based on where we are today in the spring selling season. But we will certainly look to deliver all the homes we can at the best returns we can do in fiscal 2020. So to put another way, there is a finite number of homes we can build over the next eight and a half, nine months and deliver by September 30th. But we're comfortable with our guidance range today. We're just going to have to see what the spring is going to give us and where we end up in our inventory positioning in March and into April. Our guidance already incorporates a higher housing inventory turnover than what we did last year, so it reflects an improvement in terms of building, selling, and closing more houses this year than last year. That is what we continue to be focused on, those efficiencies in the business. But that is what limits further upside to our current guidance.

I guess we're not going to set a hard target internally. We talk about goals, but that's an internal conversation. It's a balanced program. I think the Forestar platform is getting built out, we're very happy with the progress we're making there. But we are also equally focused on our third-party developers, and they are a part of the DR Horton family, and that pipeline continues to get better and bigger. So it's a collection of the two. Prime Minister's focus? No, we're treating capital as if it's a precious commodity, and we're going to try to treat it better than anybody else in the industry.

You know, as I've said, we're delivering on our closings guidance. It's showing your mid to high single-digit growth in revenue. We do expect to see leverage on our SG&A and improvement year-over-year. Very pleased with the 30 basis points we saw in the first quarter. Based on what we see today in the volume we see in Q2, we do expect SG&A to be relatively flat with last year in Q2, but overall we do expect such levers for the year.

You know, it gets back to the immediate effect of relationships with the trade base. For the last, I don't know, ever since the downturn, we've had a steady and consistent level of production going in our communities. And so our trade base has gotten better at building the houses. And you know, when they're not out there chasing work, they can build more houses. Well, what I look at is the same labor, same thing. We build more square footage with the same labor hours. Thank you. So it's a process. It's something we've worked on all the way through this cycle. I think early on we felt like labor was going to be the constraint on housing, and we have done, I think, a great job of managing the trade base and making sure that those guys will make good money and we were still delivering houses at a reasonable cost. The other thing we look at here, from a high-level perspective, is what our build times are doing in our process. When we start a house, we get it completed and then closed, and we're not seeing those times lengthen, which would be more acute indicators of labor shortages in various markets. So the long-standing deep relationships we have with a lot of the labor suppliers, combined with the more efficient plan set, if you will, in our communities and focus on the first-time homebuyer and affordability, has driven our ability to continue to turn houses. They're better, and we're going to see a lot of improvement in that metric this year.

Sure. So when we think about community count, it's the hardest one for us to project quite honestly, which is why we never give formal guidance on it. I think our base book would be that we would anticipate it to tick up at some point as we move throughout the year, but when that inflection point actually happens, it's hard to call exactly. In terms of the sales paces, as we mentioned in the script, that does reflect the moderation in demand we saw in late calendar 2018. And so we did have, although we generally don't talk about comps, we did have a relatively easy comp when you look at that. And what our guidance reflects for the year from a closings perspective would infer that our sales pace year-over-year increase is going to moderate from Q1 and it will flush the way to two, three, four in a range that supports that closings growth guidance. So we've alluded to that.

My kids, we expected to be just continued incremental improvement on all fronts. We do expect to continue to, and our goal is to continue to push our option percentage upward. We're not going to set necessarily an upward target, but we do expect to incrementally improve that as Forestar grows and builds on its platform even further. That's going to continue to be part of that growth story as well, as expanding relationships with our developers. We've already alluded to on this call where we're expecting to turn our housing inventory faster this year, and so that's going to be an incremental lever in terms of returns this year. And then as our operations are more cash flow sufficient and generate more cash flows, that gives us more flexibility on the capital allocation side. Over the last several years, we have instituted an increasing level of share repurchase and dividend payouts to shareholders, which has enhanced overall returns. So as we continue to incrementally improve, I think use of levers is going to allow us to continue to incrementally improve both operational returns and returns to shareholders.

I think we're seeing generally increased absorption at our more affordable price points, whether that's the entire community or certain plans within more traditional Horton branded communities. We are not heavily exposed to the luxury end of the market, so we're not experiencing if there is any lift there or not. We can't speak to that very well. But across all of our geographies, we're feeling pretty good about the traffic and the demand in the most recent quarter and in the quarters leading up to it. And then maybe the January trend in the last couple weeks, would it be consistent with what we saw in the fiscal first? That build sort of continued in the most recent couple weeks. We've seen normal seasonality week to week as we progressed in January. It seems like people talked about Super Bowl Sunday being the kickoff to the spring selling season, and we've noticed the past few years that seems to be starting a little bit earlier. Maybe it's to get the Cowboys, you know, I didn't make the playoffs, people are buying houses sooner. For what it's worth, I think the 49ers are an equal opportunity.

Okay, yeah. We're currently, I think about the business, we're still early stages on it and we're trying to get in and really understand the operations of the business and see where we add the most value to that process. Today it's probably more dipping our toe in the water on the build side, but we are certainly looking at it hard and haven't shut the door on any possibility today.

You are correct that we beat that this quarter. It was 40% that we've sold and closed in the same quarter, which is slightly higher than we would typically do. I don't know that I have last year. Last year was 37%. See, okay.

On the first part, I would say it's pretty much in line with what we would expect, especially with the number of completed specs that we have that allows this opportunity to sell and close more homes within a quarter. So I would expect that trend to continue. Last year in the second quarter, we actually sold and closed 45% of homes in the same quarter. If you look at the margin differential, that stayed relatively consistent. There is a slight differential, a slightly lower margin on that than there is on build jobs. That being said, really the only big differential is on our completed specs that have been completed and unsold for a period of multiple months. So the earlier we sell it as a spec, the tighter that differential is. And as a reminder, about 80% of what we close in a quarter started as a spec. So when you see that 21% homebuilding margin we reported this quarter, that's by and large the gross margin. Why is that spec margin a bit lower than first backlog? If there's price appreciation, I mean what is that? What is the best moving? Is that you have to discount it? That seems inconsistent with orders, right? No, it's that we're underwriting to a return. And as we turn our spec housing more quickly than build jobs, we're able to work for a slightly lower gross margin and get an equivalent return. In a build job, you're actually going to lose the price appreciation if you lock in before you start construction. And so we like selling more in real time and capturing that margin as we move along the way. A lot of our build-for-sale sales are actually sales of homes that we had planned to start anyway. They were in the production planning process to start, they just had not started yet, but they were released to sale on the sales floor. Our average time in backlog for a customer-led build job is not terribly long because our homes generally we're building to an affordable price point, we build fairly efficiently, and the customer is not sitting for a long period of time going through a large design selection process or lengthy permitting process. So a lot of these homes will be starting very soon after they sign the contract. So it's a very tight margin differential between a traditional spec sale to the marketplace.

No, I don't think so. We're responding to the market out there. And certainly the solar mandate is going to increase cost, but pulling a permit and building a house when there's not a market for it is going to create a whole lot less return than paying any additional costs. It just kind of defines for us out there. And the solar mandate, we've known about that for several years. We've had the ability to prepare, and that's in our underwriting. We knew those costs were coming, and as more and more homes are being built with solar, our base case expectation is that those costs will come down.

A certain type of week? We expect to close a total of two projects in fiscal 2020. We closed our first one here in Q1. We did state that one of our communities is substantially complete, and so the process of stabilizing the rental situation and marketing it, we would expect to close that one later in fiscal 2020. Don't have a specific quarter guide for you on that. And then we do expect the investment level in DHI Communities to grow this year. We expect it to grow approximately 100% from the point at the start of the year over the course of this year. Their pipeline is growing, and their number of projects will begin to grow more directly over the course of fiscal 2020, which will ultimately result in future years delivering more than two a year. But the lead time on those deals is two to three years long, so we're still a couple years out from a significant increase in volume of project sales in DHI Communities.

That day, and that's something we're aware of as well. That's one of the things that we're studying as we get further into this business. Our goals early on have been to ensure that we have an efficient operating platform, beginning with multifamily, and as we look at the single-family rental space, we're looking to do the same thing there. And as we get that established, we then look to growing the platform and setting the capital base for it. So as we look at the medium and longer-term plans for the capital base for both of those businesses, that's certainly something that we will be considering for the longer term.

Where we are today, we don't expect to increase our leverage. We expect as we are generating cash and adding to our equity base that our leverage would not increase from here, and we could see further decreases. Our stated maximum leverage is 35% or below, but obviously we've got a lot of headroom on that today. But that does give us room in certain areas to invest further and increase leverage, but we don't see that in the short run.

You know, we continue to work on that product offering, presentation, and lifestyle. It's something we're happy with. I think it will be a larger and larger portion of our deliveries in the future. It's the retiring demographic, and we think we can provide a product and lifestyle that people are going to move into.

It is still the entry-level buyer driving the market. The Freedom brand for us is part of our long-term goal to meet the needs of as many buyers out there as we can. And I think as the market loosens, it will become a more and more important part of what we're doing.

I'm really just more of the same. So modest increases. Labor has stayed in the low single-digit percentage range. Now that we've kind of cycled through the lumber headwinds that we had, materials we essentially would expect to be net neutral. We always have some categories where costs are going up, but our purchasing teams do a fantastic job of finding other categories to lower our cost and offset whatever increases we're not able to push back on. And then land really has been kind of a low to mid single-digit percentage increase, at least on a per-square-foot basis, and that really is not expected to change either. Land costs are coming down as home prices rise, land costs typically follow. So really just more of the same as we experienced in 2019 if you take out the late calendar 2018 incentive environment and the lumber cost that we cycled through.

So we've got price protection on most everything, and if there is a modest impact from any of the tariffs, we've identified ways to offset that.

The primary thing is the order trends. I mean, that's the first read we're getting on what's coming through, and they're coming in at a great pace that we've expected. And we're seeing good seasonal build week to week with that. And anecdotally, we're not hearing about any pushback or pressure on pricing from the customer side of the marketplace today.

Feeling really good about the market conditions we're seeing today and the buyers that are coming in and their urgency to buy. So I would say we have some cushion to work with in that. But again, we're not just looking at a margin number. It is a return measure, as you alluded to before, the pace versus price. And so driving the communities at the planned absorptions we found drives the highest returns. And then the activity that comes out of buyers seeing activity and momentum drives generally some pricing power and margin expansion at the community level. That's really where our focus is. And as it's rolling up, we've seen pretty consistent margins in the last couple quarters, and we're looking at that into next quarter. If we're optimistic about spring, that's going to tell us where margins ultimately go for this year.

So we have a lot of our homes today are put together with trusses, roof trusses that are manufactured off-site. Others we're doing wall panels in certain markets. And it's something we continually evaluate to look at the most efficient from both a time and a cost perspective as to how to deliver the home at the best value to the buyer. So we're always evaluating it. We haven't seen a sea change in the economics to that today. Most of our homes are probably stick-framed with trusses. That's a broad generalization to say, but there are some markets where we still build roofs on-site.

Pretty stable environment. On a year-over-year basis, our incentives are down significantly, but over the last couple of quarters been pretty stable. It's a normal environment where there's usually some level of incentives related to closing costs. And then community by community, there could be some specific incentives, but nothing out of the ordinary certainly in our business. And we're seeing a pretty rational environment across the other builders as well. Not hearing anything out of the ordinary. I'd say the market is good. People are, as Bill said, performing rationally. It dipped down to the elbow.

It slightly trended up here over the last couple of years. As our absorptions have improved, that does allow our underwriting to hit our standards and use slightly larger communities. So I would say that is incorporated in what we're expecting for fiscal 2020. But that's really just been more of the same of what we've experienced each of the last few years. Multiple product types and larger communities allows us to drive more absorption. I don't have our current average lot size or lot count. Roughly I would say 150 to 200 lots, but obviously we've got significant variation. We've got communities that are 30 lots, we've got communities that are a thousand lots. It's on more options somewhere else. There's a big mix there.

So Alex, and not to be repetitive, but really it is a function of where we sit today, the number of houses we have, the number of houses we had going into the year. And we did have a much easier comp this quarter compared to calendar last year when the market was completely different. And in December of that year, we heavily incentivized into December and really into the spring to continue those sales increases that we saw. I think we were the only builder in calendar fourth quarter that had an up quarter. Our sales were up about 3%. That really was just a function of how heavily we incentivized in December to get there. So October and November, you can read into, were very tough months. And that led into a good comp. This year, 19% up though. I mean, it's a good market, as Mark alluded to several times, and we feel very good about the market today. But we sit here today, we haven't seen the spring selling season yet. We've got 5% fewer houses in the ground. And so if we're able to push and get a few more starts in and the spring is stronger than expected, there'd be a little upside potentially. But we don't see a whole lot, and we did already raise the higher end of our guidance by about 500 homes. And on balance, we're looking at better returns in fiscal 2020 because we're still seeing a good pace. Even at the guidance level, we're seeing a good pace at better margins, better returns, and a better turn of our inventory this year as well. So we're very pleased with our positioning with a good market backdrop and with our plan for the year.

See, it depends on the community, Alex. It really just depends. If we've got another replacement community ready to go behind it, we're going to most likely push more pace than we are price because that's the best thing we can do: continue to turn our inventory, generate more revenue and profits in a shorter period of time. But if it's in an area of the country where we don't have a replacement community, or for whatever reason that community is not replaceable, we're going to be more likely to push price. So it's always a balance.

Thank you, Kevin. We appreciate everybody's time on the call today and look forward to speaking to you again in April. And to the D.R. Horton team, outstanding first quarter. Thank you for your focus and hard work. We've got a great year set up. Let's go deliver it.