CEOInterviews.AIPultegroup Inc ($PHM) Q1 2025 Earnings Call

C

Calvin0:00

Good morning and thank you for standing by. My name is Calvin and I will be your conference operator today. At this time, I would like to welcome everyone to the Pulte Group Q1 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Jim Zeumer. Please go ahead.

J

Jim Zeumer0:34

Great, Calvin. Thank you. Good morning and welcome to today's call. We look forward to discussing our first quarter operating and financial results. With me today are Ryan Marshall, President and CEO, and Jim Ossowski, Executive Vice President and CFO. As always, a copy of our earnings release and this morning's presentation have been posted to our corporate website at pultegroup.com. We'll also post an audio replay of this call later today. I would highlight that today's presentation includes forward-looking statements about the company's expected future performance. Actual results could differ materially from those suggested by our comments today. The most significant risk factors that could affect future results are summarized as part of today's earnings release and within the accompanying presentation. These risk factors and other key information are detailed in our SEC filings, including our annual and quarterly reports. Now, let me turn the call over to Ryan Marshall. Ryan?

R

Ryan Marshall1:30

Thanks, Jim, and good morning. I appreciate the opportunity to speak with everyone today. In addition to discussing Pulte Group's Q1 results this morning, I will also share our views on the current macro environment and how our business model and execution against our strategic initiatives are helping us navigate today's evolving market conditions. Let me start by recognizing the incredible work our teams did in delivering Pulte Group's strong first quarter results. Given the crosscurrents the housing industry has encountered in 2025, we believe our results show the value of Pulte Group's proven operating model, balanced portfolio, and the expertise of our local operating teams. In what proved to be a dynamic operating environment, we met or exceeded our guidance in delivering over 6,500 homes, gross margins of 27.5%, net income of $523 million, and most importantly, a trailing 12-month return on equity of 25.4%. As the country moves through economic cycles, the housing industry will inevitably encounter periods when we are experiencing changes in the operating environment. I truly believe that the balanced and highly diversified operating model that we have built over the past decade, in combination with our strategic focus on generating high returns over the housing cycle, offer important and competitive advantages. Our national footprint and strategy of serving all buyer groups with a targeted offering of spec and built-to-order homes, along with our broader capacity to use both price and or pace to drive returns, give our operators more flexibility when navigating periods of economic transition. In the back half of 2024, many of our meetings with analysts and investors included questions about housing demand and the state of the housing cycle. In response to these questions, we indicated that the spring selling season of 2025 would provide the best opportunity to assess the condition of today's home buying consumer. Having reached the midway point of the spring selling season, I wanted to provide a few thoughts on what we've experienced and how we are responding. First and foremost, I strongly believe people still aspire to home ownership, and if you can provide the right value equation, they are excited to get into a new home. We saw this as the first quarter progressed and demonstrated a typical seasonal pattern with traffic, gross orders, and net new orders trending higher as we moved through the quarter. Within the quarter, we also saw the level of home buying activity respond positively to the 30-year mortgage rate dropping below 7%, which allowed roughly 20% of our divisions to increase prices within many of our communities. Consistent with the relative strength we've seen among move-up and active adult buyers over the past few quarters, we saw the average spend on options and lot premiums per home climb to $110,000 in Q1. This is up from the $102,000 and $107,000 in the first and fourth quarters, respectively, of last year. The financial strength of move-up and active adult home buyers is why we have purposely aligned 60% of our portfolio to serve these key buyer groups. However, the quarter also saw consumers continuing to face affordability challenges that exist for would-be home buyers in metro regions across the country. From the high absolute selling prices of today's homes to the resulting high monthly mortgage payments, consumers are struggling with the affordability challenges when it comes to purchasing a home. These headwinds have only been exacerbated recently by growing concerns about the potential for a slowing economy. As one of the nation's largest home builders, we have developed and deployed a variety of tools to help consumers overcome their personal homeownership hurdles. This includes offering new product designs and more efficient floor plans, as well as offering meaningful incentives, including programs that can offer consumers a below-market rate on a full 30-year fixed-rate mortgage. We leaned into incentives a little more heavily in the first quarter as we executed on our plan to reduce excess spec inventory by actively selling our in-process and finished spec inventory while also adjusting our start pace to better match current demand. As a result, our incentive rate increased 8% for the period, but we lowered specs to 47% of production down from 53% in the fourth quarter while still reporting strong gross margins of 27.5%. In sum, buyer interest and activity in the first quarter were directionally in line with our planning expectations heading into the period. As we've moved from March to April, however, we have seen consumers at all price points impacted by changing macro conditions and any resulting decline in overall consumer confidence. Whether it's the volatility in the stock market, concerns about tariff-induced inflation, the fluctuation in interest rates, or the growing talk of recession, demand in April has been more volatile and less predictable day-to-day. We can certainly empathize with our customers' concerns as our business is having to adapt and manage through a constantly changing and shifting tariff landscape, the potential cost of which could be significant. While our Q1 build costs were effectively flat on a year-over-year basis, proposed tariffs have the potential to add thousands of dollars to the cost of construction. We are a builder with 75 years of experience and a resilient operating model, and as tariffs have been imposed or proposed, our cycle-tested procurement teams have developed and begun implementing response strategies. Let me now turn the call over to Jim Ossowski. You will recall that in February, Jim officially assumed his responsibilities as Pulte Group's Chief Financial Officer. I'm excited to have him in his new role, and I know that our organization will benefit greatly from Jim's leadership and experience. After his remarks, I will offer some additional thoughts on how we plan to manage our business given the current operating environment. Jim?

J

Jim Ossowski7:53

Thank you, Ryan, and good morning. I appreciate the opportunity to review Pulte Group's quarterly results. In the first quarter, our net new orders totaled 7,765 homes, which is a decrease of 7% from the first quarter of 2024. Lower orders in the period were driven primarily by a 10% decrease in net new orders per store, which is partially offset by the 3% increase in our average community count to 961 for the quarter. Notably, the cancellation rate as a percentage of starting backlog increased only slightly to 11% compared to 10% in the prior year. Specific to the quarter, we would say that demand conditions followed a pretty typical seasonal pattern with net new orders increasing as the quarter progressed. On a sequential basis, net new orders increased 26% from the fourth quarter of 2024. This increase is, however, below historic averages and reflects a consumer that is carefully assessing the high cost of home ownership and, more recently, concerns about the economy and overall employment conditions. On a year-over-year basis, net new orders by first-time buyers were down 11%. Move-up buyers were down 4% and active adult buyers declined 5%. We continue to realize meaningful relative outperformance among our move-up and active adult consumers as they have greater financial flexibility and can more easily adjust to market changes. That being said, the extreme volatility in the financial markets can cause even these consumers to pause from making a large purchase. Moving from orders to closings, home sale revenues in the first quarter totaled $3.7 billion, down 2% from the $3.8 billion in revenues generated last year. Our home sale revenues for the period were the result of a 7% decrease in closings to 6,583 homes, largely offset by a 6% increase in average sales price of $570,000. By buyer group, the breakdown in closings in the first quarter was 39% first time, 40% move-up, and 21% active adult. In the first quarter of last year, our closings were comprised of 42% first time, 35% move-up, and 23% active adult. As we have discussed on prior calls, we have experienced a modest decline in the percentage of closings from active adult buyers driven by the closeout of several Del Webb communities over the past 12-plus months. I'm happy to report that we are extremely pleased with the buyer response to recent Del Webb openings in Cleveland, Indianapolis, and Southern California. We're equally excited about the additional Del Webb community openings coming later this year. Closings from these new Del Webb communities will be more heavily weighted towards 2026 and beyond. Getting these communities open for sales is a critical first step. Based on sales and closings activities in the period, we ended the quarter with a backlog of 11,335 homes, which is down 16% from last year. On a dollar basis, our backlog was $7.2 billion, which is down 12% compared with last year's first quarter. As Ryan mentioned earlier, we adjusted our starts pace as part of a process to lower spec inventory in alignment with our target range. In the first quarter, we started approximately 6,700 homes, which is down from the approximately 7,500 homes we started in both Q1 and Q4 of last year. Reflective of this action, we ended the first quarter with 16,548 homes in production, of which 7,840 were spec homes. In just one quarter, we reduced our spec count by over 900 homes while lowering our spec percentage from 53% to 47% of inventory. This moves us closer to our target range of 40 to 45% of overall units in production. Of our spec units, 1,800 were completed at quarter end, and we expect finished specs to continue trending lower with this slowdown in our starts pace. The goal in aggressively managing our production pipeline is to more effectively balance the need to have units available to meet immediate buyer demand while still selling from a position of strength within our communities. In the current environment, we believe prioritizing price and margin over volume makes the most strategic sense. Based on recent sales paces and the mix of units under construction, we expect to deliver between 7,400 and 7,800 closings in the second quarter. While buyer demand over the next few months will be a key determinant, given the more than 16,000 units we have under production and cycle times of approximately 110 days, we currently expect to deliver between 29,000 and 30,000 homes for the full year, slightly below our prior guidance of 31,000. Embedded within our updated delivery guide is our expectation that quarterly community count will be 3 to 5% higher in 2025 than in the comparable prior year period. Consistent with our first quarter results and our previous guidance, we currently expect the average sales price of closings to be in the range of $560,000 to $570,000 in each of the remaining three quarters. Continuing down the income statement, our gross margin in the first quarter was 27.5%, which is flat on a sequential basis from the fourth quarter, but down from a very strong Q1 of 2024. While sales incentives increased to 8% in the quarter, gross margins in the period benefited from a favorable mix of homes closed both in terms of geography and buyer group. As it relates to gross margins going forward, we continue to expect gross margins in the second quarter to be in the range of 26.5% to 27.0%, and we now expect gross margins in the third and fourth quarters to be in the range of 26.0% to 26.5%, down slightly from our prior range of 26.5% to 27.0%. Our guide on gross margin assumes incentives remain at the elevated levels experienced in the first quarter. Further, gross margins in the back half of the year reflect the estimated impact of tariffs that have been imposed, which are expected to increase our house cost by an estimated 1% of average selling price. In the first quarter, we reported SG&A expenses of $393 million or 10.5% of home sale revenues, which compares with prior year reported SG&A expenses of $358 million or 9.4% of home sale revenues. Reported prior year SG&A expense includes a pre-tax insurance benefit of $27 million. Based on anticipated closing volumes, we now expect SG&A expense for the full year 2025 to be in the range of 9.5 to 9.7% of home sale revenue. Given the uncertainties of the current operating environment, we continue to carefully assess SG&A expenditures as we seek to maintain an appropriate overhead structure. Our financial services operations reported first quarter pre-tax income of $36 million compared to $41 million in the prior year. The lower pre-tax income primarily reflects the impact of lower closing volumes within the company's home building operations. Capture rate in the quarter increased to 86% up from 84% last year. For the first quarter, our reported pre-tax income was $681 million. We recorded a tax expense of $158 million or an effective tax rate of 23.2%. The first quarter effective tax rate was benefited by renewable energy tax credits and stock compensation deductions reported in the period. At this time, we continue to expect our tax rate to be approximately 24.5% excluding the impact of any discrete period-specific tax events. For our first quarter, we reported net income of $523 million or $2.57 per share. In the first quarter of 2024, we reported net income of $663 million or $3.10 per share. Prior year results are inclusive of $65 million or $0.23 per share in pre-tax benefits related to the sale of a joint venture and the aforementioned insurance benefits. Earnings per share for the quarter was calculated based on 204 million diluted shares, which is down 5% from the prior year. We continue to systematically repurchase our shares. In the first quarter of 2025, we repurchased 2.8 million shares for $300 million or an average price of $108.03 per share. As noted in this morning's release, we ended the first quarter with $1.9 billion remaining under our existing share repurchase authorization. In addition to repurchasing our shares, in the first quarter, we allocated $1.2 billion to land acquisition and development. In Q1, 52% of our spend was associated with development of our existing land assets. As Ryan noted, given today's macro uncertainties, we are asking our land teams to review project returns and confirm they still meet our hurdle rates given changing market conditions. We are confident that in this type of operating environment, our disciplined underwriting process will serve us well as it has done during prior periods of uncertainty. Given our current pace of sales and starts, we now expect our land investment in 2025 to be approximately $5 billion. We remain positive on the long-term outlook for housing, but we are prepared to adjust our near-term land spend in response to changes up or down in buyer demand. While we are slowing projected land spend, we are still prepared to use our financial strength to capitalize on land opportunities that could develop during these choppier market conditions. Based on the updated expectations for our homebuilding operations, we continue to expect operating cash flow generation for the full year to be approximately $1.4 billion. We have such flexibility because we already control a strong land pipeline that can support the future growth of our business platform. At the end of the first quarter, Pulte Group had 244,000 lots under control, of which 59% were controlled via option. In just the past year, we have increased our option lot count by almost 30% while reducing our own lot count at the same time. I want to underscore that whether these land options are with the underlying land seller or one-off transactions with a land banker, our ability to mitigate market risk is as important as the rate of return when assessing each transaction. On a deal-by-deal basis, we continue to strike balance in evaluating the profitability and risk management opportunities that might result from optioning the underlying land parcel. And finally, I'm pleased to say that Pulte Group remains in an exceptionally strong financial position at the end of the quarter with a debt to capital ratio of 11.7% with $1.3 billion of cash. Further validating the strength of our operating and financial positions, Moody's recently upgraded our senior unsecured notes to Baa1. Now, let me turn the call back to Ryan for the final comment.

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Ryan Marshall19:45

Thanks, Jim. Given our backlog, units under production, and current build cycle, we now expect to deliver between 29,000 and 30,000 homes in 2025, assuming home buying demand is sufficient and in alignment with our prioritizing price over pace to drive near-term returns. As Jim detailed, we lowered our starts pace in the first quarter by approximately 10%. Our strategy has always been about balancing price and pace to drive higher returns. Rather than try to chase a volume number, we will continue with our efforts to reduce any excess spec inventory and move closer to our target of 40 to 45%. We will remain agile and are prepared to make further adjustments up or down to our starts pace in response to changes in buyer demand. For Pulte Group, balancing price and pace with a bias towards price has resulted in gross margin being an important driver of our returns. Our Q1 gross margin of 27.5% is reflective of our approach. In addition to driving top-tier returns, our industry-leading gross margin gives our divisions more room to maneuver in managing their communities on a day-to-day basis. In 2024, we invested $5.3 billion in land acquisition and development and entered 2025 with plans to increase our land spend to $5.5 billion. Given greater macroeconomic uncertainty, we are recalibrating our land spend and expect it will be closer to $5 billion. Given the strength of our existing land pipeline, deferring a small percentage of our land acquisition spend will not impact our ability to grow our operating platform in the future. Bringing changes we will implement over the near term in response to evolving demand conditions, what won't change is our focus on delivering high returns over the housing cycle. As we have demonstrated working through the myriad of macro challenges of the past 5 years, generating high returns requires decision-making that is consistently in alignment with long-term goals and objectives. We have remained disciplined in our business practices while making prudent adjustments, such as moderating our start pace in response to changing market conditions, as we work to successfully navigate the current environment. We continue to believe in the long-term demand dynamics within the housing industry. In a country that has a growing population and is already short several million housing units, it is reasonable to expect that demand will be there in the future. As Jim suggested earlier, disruptions in the marketplace can create exciting opportunities that have the potential to accelerate future performance. We certainly have the balance sheet strength to take advantage of any such opportunities should they emerge. In closing, I want to highlight that we've worked hard over the past decade to build a business platform that is arguably unmatched in terms of its presence across major markets and buyer groups. Our performance over time has demonstrated the competitive advantages of such a portfolio in driving high returns and navigating through market changes. Further, we've shown our commitment to intelligently allocate capital to support the growth of Pulte Group while consistently returning funds to shareholders through dividends and share repurchases. And finally, I want to again thank our entire organization for their efforts in delivering an unmatched home buying experience to our customers. We don't talk about it enough, but I want to recognize our divisions for reaching record built quality and record net promoter scores all while creating a culture that once again put Pulte Group on Fortune's top 100 best companies to work for list for the fifth year in a row. You are truly the best in the business. Now, let me turn the call over to Jim Zeumer.

J

Jim Zeumer23:34

Okay. Thanks, Ryan. We are now prepared to open the call to questions so we can get to as many questions as possible during the remaining time of this call. We ask that you limit yourself to one question and one follow-up. Thank you and I'll now ask the operator to open up Q&A.

C

Calvin23:51

Thank you. Ladies and gentlemen, we will now begin the question and answer session. As we enter the Q&A session, we ask that you please limit your input to one question and one follow-up. And at this time, I would like to remind everyone to ask a question, please press the star button followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. One moment, please, for your first question. Your first question comes from the line of John Lovallo of UBS. Please go ahead.

J

John Lovallo24:22

Good morning, guys. Thanks for taking my questions. The first one I just wanted to kind of zone in on the second half margin expectations and maybe a two-parter here. I mean, I guess were the incentives on orders in the first quarter consistent with the 8% that were on deliveries? And then, can you also provide any color on the second half tariff impact that you're expecting, you know, the total dollars per home, which products, and sort of the ability to push back on suppliers?

J

Jim Ossowski24:50

Yeah, John. So, the incentive load that we've assumed is consistent with the 8% that we had in Q1. So that's embedded in the margin guide. And that's throughout all four quarters of this year. Relating to the tariff question, mentioned it's 1% of average sales price, so we're in the range of $5,000 on the average, and it'll impact every single price point and consumer group that we serve. There might be a few minor nuances, but it's pretty broad across the spectrum. Look, our procurement teams are cycle tested, they're the best in the business, they do a really nice job. Jim highlighted that we've kept our build costs flat on a year-over-year basis, and so I think that's a tremendous accomplishment. We've got good relationships with our suppliers, we want it to be a win-win, but we think we offer value and the volume and predictability, and so we do look for better pricing than I think you'd find in the broader home building universe. Every business is dealing with that at cost, and we're going to work to minimize it. I think keeping it to the 1% that we've talked about is significantly less than what you're hearing from the broader home building universe, so I think you're seeing pretty good execution from us in the guide that we've given about 1% of ASP.

J

John Lovallo26:21

Yeah, we would agree 100% with that. And then maybe the second question just on the share repurchases, $300 million in the quarter, which is a really good level. Just the I guess the question would be that that's consistent with what you guys have done over the past couple quarters. You know, why not lean in a little bit more as the stock, you know, pulled back?

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Ryan Marshall26:39

Yeah, John, look, it's a great question. $300 million is significantly more than pocket change, so we feel pretty good about what we did. Our board authorized an incremental $1.5 billion in share authorization in January. So, our remaining authorization is $1.9 billion. We've had a practice of reporting the news as opposed to giving a guidance. We do think that the equity is a value today and so, we'll check back in with you at the end of the second quarter and let you know where we land on Q2 repurchases.

J

John Lovallo27:18

All right. Thanks, Ryan.

C

Calvin27:23

Your next question comes from the line of Stephen Kim of Evercore ISI. Please go ahead.

S

Stephen Kim27:29

Yeah, thanks very much, guys. Appreciate it. Strong results. Wanted to sort of follow up on a couple of John's questions there. So, one with respect to your cash flow guide, I think you said $1.4 billion. Does this still assume no reduction in homes under construction or homes in progress? Because that actually would be an additional contributor to cash flow. And then you indicated the tariff increase amount, how much of that has actually been recognized or realized in negotiations thus far versus simply being proactively cautious?

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Jim Ossowski28:11

Well, I'll take the first question. So, on the cash flow guide, the $1.4 billion assumes kind of the homes that we need to put in production over the balance of the year to hit our 29,000 to 30,000 guide that we've given. We certainly have the capability to do more than that if the opportunity was there. But that's really what's been factored in. One of the things that I highlighted in my section, Stephen, was that we've adjusted our land spend as we've looked at development opportunities over the balance of the year and acquisition. We factor that into the operating cash flow guide. Stephen, your second question, you broke up just a little bit. Would you mind repeating that about tariffs?

S

Stephen Kim28:51

Yeah, apologies. It was really that you had guided to the one percentage point higher cost and my question was how much of this has actually been recognized or realized in your negotiations with your vendors and providers versus simply you being cautious in your outlook. So I'm wondering how much of this has actually been seen thus far in terms of your negotiation.

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Jim Ossowski29:19

Yeah, Stephen, the latter. So things that are already in production, there's no tariff impact on that and things that were already on the water, largely there's no tariff impact there either. So it's more about looking at our supply chain, where things come from and anticipating what the impact could look like as we hit the fourth quarter. So we're not expecting much of any impact until probably mid to late fourth quarter closings of this year.

S

Stephen Kim29:53

Okay, great. That's helpful. Second question I had relates to the overall environment. I think that you did a good job of laying out sort of what you've been seeing in terms of market conditions.

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Ryan Marshall30:04

Yeah, Stephen, I think the best way to characterize it is that the first quarter was largely in line with our expectations. We saw a typical seasonal pattern with traffic and orders building as we moved through the quarter. We saw a positive response when rates dipped below 7%. But as we've moved into April, we've seen a shift. The volatility in the stock market, the uncertainty around tariffs, and the growing talk of a recession have caused consumers to pause. It's not that the desire for homeownership has gone away, but the confidence to make a large purchase decision has been impacted. We're seeing demand that is more volatile and less predictable on a day-to-day basis. We're empathetic to our customers' concerns, and we're focused on providing the right value equation to help them overcome affordability hurdles. We're also managing our business to be agile, adjusting our start pace and spec levels to match the current demand environment while prioritizing price and margin over volume.

S

Stephen Kim31:15

That's very helpful. And then just a quick follow-up on the spec inventory. You've made good progress reducing it. Can you just talk about the mix of finished versus in-process specs and how you see that trending over the next couple of quarters?

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Jim Ossowski31:30

Sure, Stephen. As I mentioned, we ended the quarter with 7,840 spec homes in production, of which 1,800 were completed. So the vast majority are still in process. Our goal is to continue to reduce the overall spec count and bring the percentage down towards our target range of 40 to 45%. We expect finished specs to continue trending lower as we slow our starts pace. The focus is on selling through the existing inventory, particularly the finished homes, while being more selective about new starts. This allows us to maintain a healthy balance between having homes available for immediate delivery and not overbuilding in an uncertain demand environment.

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Calvin32:15

Your next question comes from the line of Michael Rehaut of JPMorgan. Please go ahead.

M

Michael Rehaut32:20

Thanks. Good morning, everyone. I wanted to follow up on the comments around April and the more volatile demand. I was wondering if you could provide a little more color on what you're seeing in terms of traffic and cancellation rates in April relative to the first quarter. And then, secondly, on the gross margin guidance for the second half, you talked about the tariff impact. Could you also talk about the impact of the higher incentive levels? How much of that 8% incentive level is flowing through in the second half versus the first quarter?

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Ryan Marshall32:55

Sure, Michael. On the first part, I think it's important to note that April is a relatively short month in terms of selling days, and we're still early in the month. But directionally, we are seeing traffic that is more hesitant. Buyers are taking more time to make decisions, and we're seeing a bit more back-and-forth in negotiations. Cancellation rates have ticked up slightly from the first quarter, but they remain within a manageable range. We're not seeing a fundamental shift in demand, but rather a pause as consumers digest the macro headlines. On the second part, Jim, do you want to take the incentive question?

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Jim Ossowski33:40

Yes. So, the 8% incentive level we saw in Q1 is what we've embedded in our guidance for the full year. We expect incentives to remain elevated as we continue to work through the spec inventory and compete for buyers in this environment. The mix of incentives will vary by community and buyer group, but the overall level is expected to be consistent with what we saw in the first quarter. This is a key assumption in our gross margin guidance for the second half of the year.

M

Michael Rehaut34:15

Okay, that's helpful. And then just one more, if I could. On the land spend, you talked about recalibrating to $5 billion. Could you give a little more color on the mix between development and acquisition? And are you seeing any opportunities to pick up land at more attractive returns given the choppier market?

J

Jim Ossowski34:35

Sure. The $5 billion expectation is a mix of both development of our existing pipeline and new acquisitions. We're being more selective on the acquisition front, focusing on deals that meet our strict return hurdles. We are seeing some opportunities emerge as other builders pull back, but we're being disciplined. Our focus is on protecting our returns and managing risk, so we're not going to chase volume for the sake of it. The strength of our existing land pipeline gives us the flexibility to be patient and wait for the right opportunities.

C

Calvin35:10

Your next question comes from the line of Alex Rygiel of Citigroup. Please go ahead.

A

Alex Rygiel35:15

Good morning. I was hoping you could talk a little bit about the community count outlook. You mentioned it would be up 3 to 5% in 2025. Could you talk about the geographic mix of that growth? And then, secondly, on the first-time buyer segment, which was down 11% in orders, are you seeing any shift in the type of product or price point that first-time buyers are looking for?

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Ryan Marshall35:45

Sure, Alex. On the community count, the growth is fairly broad-based across our footprint, but we are seeing a bit more growth in the Sunbelt markets where we have strong positions. We're also seeing growth in some of our Midwest markets. The key is that we're opening communities that are well-positioned to serve the demand in those specific markets. On the first-time buyer segment, we are seeing some shift. Affordability is the primary challenge, so we're seeing more interest in our smaller, more efficient floor plans and in communities where we can offer more aggressive incentives. We're also seeing some first-time buyers stretch into the move-up segment where they can get more value for their money. Our ability to offer a range of products and price points across our portfolio is a key advantage in this environment.

A

Alex Rygiel36:35

That's helpful. And then just a quick follow-up on the SG&A guidance. You mentioned it would be 9.5 to 9.7% of revenue. Could you talk about the drivers of that increase from the first quarter level of 10.5%? Is it purely volume leverage, or are there other factors at play?

J

Jim Ossowski36:55

Yes, Alex. The improvement from the first quarter level is primarily driven by volume leverage. As we deliver more homes in the second and third quarters, we expect to see better absorption of our fixed overhead costs. We're also continuing to carefully manage our discretionary spending, but the primary driver is the expected increase in closing volumes. We feel comfortable with the 9.5 to 9.7% range for the full year given our current outlook.

C

Calvin37:30

Your next question comes from the line of Susan Maklari of Goldman Sachs. Please go ahead.

S

Susan Maklari37:35

Thank you. Good morning. I wanted to ask about the move-up and active adult buyer segments, which have been relatively stronger. Could you talk about what you're seeing in terms of pricing power and incentive levels in those segments compared to the first-time buyer segment? And then, secondly, on the backlog, you mentioned it's down 16% in units. Could you talk about the margin profile of that backlog relative to what you're delivering today?

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Ryan Marshall38:05

Sure, Susan. On the first part, the move-up and active adult segments continue to show relative strength because these buyers have more financial flexibility. They're less sensitive to monthly payment changes and more focused on the overall value and lifestyle proposition. We are seeing better pricing power in these segments, and while incentives are elevated, they are not as aggressive as in the first-time buyer segment. The average spend on options and lot premiums in these segments is also higher, which supports our margins. On the backlog, the margin profile is solid. The backlog was built during a period of strong pricing, and while we've seen some normalization, the margins in the backlog are in line with or slightly above our current delivery margins. We feel good about the quality of the backlog.

S

Susan Maklari38:55

That's helpful. And then just a quick follow-up on the land option strategy. You mentioned you've increased your option lot count by almost 30% while reducing your owned lots. Could you talk about the terms of these options? Are you seeing any change in the option periods or the terms from land sellers given the market conditions?

J

Jim Ossowski39:15

Yes, Susan. We are seeing some flexibility from land sellers, particularly in markets where demand has softened. We're seeing longer option periods and more favorable terms, which allows us to better manage our risk. Our focus is on structuring deals that give us the flexibility to start when we have demand, while protecting our returns. The increase in our option lot count is a reflection of our disciplined approach to land investment, and we expect to continue to leverage our strong relationships with land sellers to secure attractive terms.

C

Calvin39:50

Your next question comes from the line of Rafe Jadrosich of Bank of America. Please go ahead.

R

Rafe Jadrosich39:55

Hi, thanks for taking my question. I wanted to ask about the gross margin bridge from the first quarter to the second quarter guidance of 26.5 to 27%. Could you walk us through the key puts and takes? And then, secondly, on the tariff impact, you mentioned it's about 1% of ASP. Could you talk about the timing of when you expect to see that flow through in the cost structure?

J

Jim Ossowski40:25

Sure, Rafe. On the gross margin bridge, the sequential decline from Q1 to Q2 is primarily driven by the mix of homes closing. We expect a less favorable geographic and buyer group mix in the second quarter compared to the first. Incentive levels are expected to remain similar, so that's not a major driver. The tariff impact is not expected to flow through until the second half of the year, so that's not a factor in the Q2 guide. On the tariff timing, as I mentioned earlier, we're not expecting a significant impact until mid to late fourth quarter closings. The tariffs that have been imposed or proposed will primarily affect materials that are sourced internationally, and it takes time for those costs to work their way through the supply chain and into our cost structure. We're working with our suppliers to mitigate the impact, but we do expect some cost increase in the back half of the year.

R

Rafe Jadrosich41:15

That's helpful. And then just a quick follow-up on the cash flow. You mentioned the $1.4 billion operating cash flow guide. Could you talk about the expected working capital changes and how that factors into the guide?

J

Jim Ossowski41:30

Yes, Rafe. The $1.4 billion operating cash flow guide assumes normal working capital changes. We expect to see some use of cash in inventory as we build homes to meet our delivery targets, but that will be partially offset by collections from our backlog. We also expect to see a reduction in our land spend, which will free up some cash. Overall, we feel comfortable with the $1.4 billion guide given our current outlook for closings and land investment.

C

Calvin42:05

Your next question comes from the line of Matthew Bouley of TD Cowen. Please go ahead.

M

Matthew Bouley42:10

Good morning. I wanted to ask about the competitive landscape. Are you seeing any change in competitive behavior from other builders, particularly in terms of pricing or incentives? And then, secondly, on the spec inventory, could you talk about the geographic mix of where the spec homes are concentrated?

R

Ryan Marshall42:35

Sure, Matthew. On the competitive landscape, we are seeing some increased competitive activity, particularly in markets where inventory levels are higher. Some builders are being more aggressive on pricing and incentives, but we're focused on our own strategy of balancing price and pace. We believe our diversified portfolio and strong brand give us a competitive advantage, and we're not going to chase volume at the expense of margins. On the spec inventory, it's fairly well distributed across our footprint, but we do have higher concentrations in some of our Sunbelt markets where we've been more active in building spec homes. We're focused on selling through that inventory and adjusting our starts pace to better match demand in those markets.

M

Matthew Bouley43:20

That's helpful. And then just a quick follow-up on the Del Webb communities. You mentioned you're excited about the response to recent openings. Could you talk about the buyer profile and the price points in those communities?

J

Jim Ossowski43:35

Yes, Matthew. The recent Del Webb openings in Cleveland, Indianapolis, and Southern California have been very well received. The buyer profile is consistent with our typical active adult buyer, generally 55 and older, looking for a low-maintenance lifestyle with amenities. The price points vary by market, but they are generally in line with our overall active adult portfolio. The strong response to these openings is encouraging, and we're excited about the additional Del Webb communities coming later this year. The closings from these new communities will be more heavily weighted towards 2026 and beyond, but getting them open for sales is a critical first step.

C

Calvin44:15

Your next question comes from the line of Truman Patterson of Jefferies. Please go ahead.

T

Truman Patterson44:20

Good morning. I wanted to ask about the mortgage rate environment. You mentioned that demand responded positively when rates dipped below 7%. Could you talk about the rate sensitivity of your buyer groups? And then, secondly, on the incentives, could you talk about the mix between price reductions, rate buydowns, and other types of incentives?

R

Ryan Marshall44:50

Sure, Truman. On the rate sensitivity, the first-time buyer segment is the most sensitive to rate changes because they are more constrained by monthly payments. The move-up and active adult segments are less sensitive because they often have more equity from their current homes and more financial flexibility. That said, we did see a positive response across all buyer groups when rates dipped below 7%. On the incentive mix, we use a variety of tools depending on the market and buyer group. Rate buydowns are a key tool, particularly for first-time buyers, as they help with monthly affordability. We also use price reductions and closing cost assistance. The mix varies by community, but the overall incentive level is what we've guided to at 8% of revenue.

T

Truman Patterson45:40

That's helpful. And then just a quick follow-up on the build cost trends. You mentioned build costs were flat year-over-year. Could you talk about the key drivers of that and what you expect going forward?

J

Jim Ossowski45:55

Yes, Truman. The flat build costs year-over-year are a testament to our procurement team's efforts. They've done a great job negotiating with suppliers and managing our supply chain. Key drivers include favorable lumber pricing, which has been volatile but has come down from peak levels, and our ability to leverage our scale to get better pricing. Going forward, we expect build costs to remain relatively stable, but we are monitoring the potential impact of tariffs closely. As I mentioned, we've guided to a 1% increase in house cost from tariffs in the back half of the year, but we're working to mitigate that through our supplier relationships and product design.

C

Calvin46:35

Your next question comes from the line of Jade Ramani of KBW. Please go ahead.

J

Jade Ramani46:40

Hi, thanks for taking my question. I wanted to ask about the capital allocation framework. You talked about the share repurchase and the land spend. Could you talk about how you're thinking about the balance between returning capital to shareholders and investing in the business? And then, secondly, on the dividend, could you talk about the outlook for dividend growth?

R

Ryan Marshall47:10

Sure, Jade. Our capital allocation framework is focused on investing in the business first to drive growth and returns, and then returning excess capital to shareholders. We're committed to maintaining a strong balance sheet and financial flexibility. On the share repurchase, we've been systematic and will continue to be. We think the stock is a good value, and we'll continue to buy back shares when it makes sense. On the dividend, we're committed to growing the dividend over time, and we'll continue to evaluate that as part of our overall capital allocation process. We feel good about our ability to balance investing in the business and returning capital to shareholders.

J

Jade Ramani47:55

That's helpful. And then just a quick follow-up on the financial services segment. You mentioned the capture rate increased to 86%. Could you talk about the drivers of that improvement and the outlook for the segment?

J

Jim Ossowski48:10

Yes, Jade. The improvement in capture rate is driven by our efforts to provide a seamless experience for our homebuyers. We've invested in our mortgage platform and our team to make it easier for buyers to finance their homes with us. The outlook for the segment is positive, but it is dependent on closing volumes. As we deliver more homes, we expect to see continued strength in the financial services segment. We're also focused on cross-selling other products, such as title and insurance, to enhance the overall value proposition for our buyers.

C

Calvin48:45

Your next question comes from the line of Carl Reichardt of BTIG. Please go ahead.

C

Carl Reichardt48:50

Good morning. I wanted to ask about the order trends by region. Could you talk about which regions are performing better or worse than the company average? And then, secondly, on the community count growth, could you talk about the expected openings in the second half of the year?

R

Ryan Marshall49:15

Sure, Carl. On the regional trends, we're seeing some variation. Our Sunbelt markets, which are a large part of our portfolio, are performing relatively well, although they are not immune to the macro headwinds. Our Midwest markets are also holding up reasonably well. The Northeast and West Coast markets are a bit more challenged due to higher price points and affordability constraints. Overall, our diversified footprint helps us navigate these regional differences. On the community count, we expect to open a number of new communities in the second half of the year, which will support our delivery targets for 2025 and beyond. The openings are spread across our footprint, with a focus on markets where we see strong long-term demand.

C

Carl Reichardt50:00

That's helpful. And then just a quick follow-up on the gross margin outlook for the third and fourth quarters. You mentioned it would be 26 to 26.5%. Could you talk about the key assumptions behind that guidance?

J

Jim Ossowski50:15

Yes, Carl. The gross margin guidance for the third and fourth quarters assumes a continuation of the elevated incentive levels we saw in the first quarter. It also assumes a less favorable mix of homes closing compared to the first quarter. The tariff impact is expected to flow through in the back half of the year, adding about 1% to our house cost. We're also assuming that build costs remain relatively stable. We feel comfortable with the 26 to 26.5% range given these assumptions, but we'll continue to monitor the market and adjust as needed.

C

Calvin50:55

Your next question comes from the line of Ken Zener of Seaport Research. Please go ahead.

K

Ken Zener51:00

Good morning. I wanted to ask about the spec inventory reduction. You've made good progress, but you're still above your target range. Could you talk about the expected timeline to get to the 40 to 45% target? And then, secondly, on the starts pace, you mentioned you lowered it by 10% in the first quarter. Could you talk about the expected starts pace for the rest of the year?

J

Jim Ossowski51:30

Sure, Ken. On the spec inventory, we expect to continue to make progress towards our target range of 40 to 45% over the next few quarters. The pace of reduction will depend on demand, but we're focused on selling through the existing inventory and being more selective about new starts. We expect to be closer to the target range by the end of the year. On the starts pace, we've adjusted it down by about 10% in the first quarter, and we expect to maintain a similar pace for the rest of the year, subject to changes in demand. Our goal is to balance the need to have homes available for delivery with the need to manage our inventory levels and protect our margins.

K

Ken Zener52:15

That's helpful. And then just a quick follow-up on the land spend. You mentioned you're recalibrating to $5 billion. Could you talk about the expected mix between development and acquisition in the second half of the year?

J

Jim Ossowski52:30

Yes, Ken. The $5 billion land spend expectation is a mix of both development and acquisition. In the second half of the year, we expect a slightly higher proportion of development spend as we work on our existing pipeline. On the acquisition front, we're being more selective and focusing on deals that meet our return hurdles. We're not in a rush to acquire land, and we'll wait for the right opportunities. The strength of our existing pipeline gives us the flexibility to be patient.

C

Calvin53:05

Your next question comes from the line of Mike Dahl of RBC Capital Markets. Please go ahead.

M

Mike Dahl53:10

Good morning. I wanted to ask about the buyer mix shift. You mentioned that the move-up and active adult segments are performing relatively better. Could you talk about the implications for your average sales price and margins going forward? And then, secondly, on the first-time buyer segment, are you seeing any change in the loan-to-value ratios or the use of down payment assistance programs?

R

Ryan Marshall53:40

Sure, Mike. On the first part, the shift towards move-up and active adult buyers is positive for our average sales price and margins because these buyers typically spend more on options and lot premiums. We expect this trend to continue, which should support our average sales price in the $560,000 to $570,000 range for the rest of the year. On the first-time buyer segment, we are seeing some changes. Down payment assistance programs are becoming more important as affordability challenges persist. We're also seeing some first-time buyers stretch their budgets to get into a home. We're working with our financial services team to provide solutions that help first-time buyers overcome these hurdles.

M

Mike Dahl54:30

That's helpful. And then just a quick follow-up on the SG&A outlook. You mentioned it would be 9.5 to 9.7% of revenue. Could you talk about the expected leverage in the second half of the year?

J

Jim Ossowski54:45

Yes, Mike. The improvement in SG&A as a percentage of revenue in the second half of the year is primarily driven by volume leverage. We expect higher closing volumes in the second and third quarters, which will help absorb our fixed overhead costs. We're also continuing to manage our discretionary spending carefully. The 9.5 to 9.7% range for the full year reflects our expectation of continued leverage as we deliver more homes.

C

Calvin55:20

Your next question comes from the line of Jay McCanless of Wedbush Securities. Please go ahead.

J

Jay McCanless55:25

Good morning. I wanted to ask about the cancellation rate. You mentioned it increased slightly to 11% in the first quarter. Could you talk about the trend in April? And then, secondly, on the backlog, could you talk about the expected conversion rate in the second quarter?

J

Jim Ossowski55:50

Sure, Jay. On the cancellation rate, it has ticked up slightly in April from the first quarter level, but it remains within a manageable range. We're not seeing a significant increase in cancellations, but we are monitoring it closely. On the backlog conversion, we expect to convert a significant portion of our backlog in the second quarter, given our delivery targets. The conversion rate will depend on demand and our ability to deliver homes on time, but we feel confident in our ability to meet our guidance.

J

Jay McCanless56:30

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected geographic mix in the second quarter?

J

Jim Ossowski56:45

Yes, Jay. In the second quarter, we expect a slightly less favorable geographic mix compared to the first quarter. We'll have a higher proportion of closings in markets with lower margins, which will weigh on the overall gross margin. The buyer group mix is also expected to be slightly less favorable. These mix shifts are the primary drivers of the sequential decline in gross margin from Q1 to Q2.

C

Calvin57:20

Your next question comes from the line of Deepa Raghavan of Wells Fargo. Please go ahead.

D

Deepa Raghavan57:25

Good morning. I wanted to ask about the land option strategy. You mentioned you've increased your option lot count by almost 30%. Could you talk about the expiration profile of these options? And then, secondly, on the land spend, could you talk about the expected return on investment for the land you're acquiring today?

J

Jim Ossowski57:55

Sure, Deepa. On the expiration profile, the options are structured with varying expiration dates, generally ranging from 12 to 24 months. This gives us flexibility to start communities when we have demand. We're not expecting a significant number of options to expire without being exercised because we've been disciplined in our optioning process. On the land spend, we're targeting returns that are in line with our historical averages. We're being more selective in this environment, focusing on deals that meet our strict return hurdles. We're confident that our disciplined underwriting process will serve us well.

D

Deepa Raghavan58:40

That's helpful. And then just a quick follow-up on the financial services segment. You mentioned the capture rate increased to 86%. Could you talk about the expected capture rate for the rest of the year?

J

Jim Ossowski58:55

Yes, Deepa. We expect the capture rate to remain in the mid-80s range for the rest of the year. We're focused on providing a seamless experience for our homebuyers, and we expect to continue to see strong capture rates as we deliver more homes. The outlook for the segment is positive, but it is dependent on closing volumes and the overall mortgage rate environment.

C

Calvin59:30

Your next question comes from the line of Alex Rygiel of Citigroup. Please go ahead.

A

Alex Rygiel59:35

Good morning. I wanted to ask about the competitive dynamics in the entry-level segment. Are you seeing any change in the competitive behavior from other builders in that segment? And then, secondly, on the product mix, could you talk about the expected mix of spec versus built-to-order homes in the second quarter?

R

Ryan Marshall1:00:05

Sure, Alex. On the competitive dynamics, the entry-level segment is the most competitive because it's the most price-sensitive. We are seeing some builders be more aggressive on pricing and incentives in that segment, but we're focused on our own strategy. We believe our ability to offer a range of products and price points gives us a competitive advantage. On the product mix, we expect the mix of spec versus built-to-order homes to be similar to what we saw in the first quarter. We're focused on reducing our spec inventory, but we'll continue to build spec homes where we have demand. The goal is to balance the need to have homes available for immediate delivery with the need to manage our inventory levels.

A

Alex Rygiel1:00:50

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the incentive levels are expected to remain elevated. Could you talk about the expected trend in incentive levels over the next few quarters?

J

Jim Ossowski1:01:05

Yes, Alex. We expect incentive levels to remain elevated for the foreseeable future as we continue to compete for buyers in this environment. The exact level will depend on demand and competitive dynamics, but we've guided to 8% of revenue for the full year, and we expect that to be a reasonable assumption. We'll continue to monitor the market and adjust our incentive strategy as needed to balance volume and margin.

C

Calvin1:01:40

Your next question comes from the line of Susan Maklari of Goldman Sachs. Please go ahead.

S

Susan Maklari1:01:45

Thank you. I wanted to ask about the long-term demand outlook. You mentioned the housing shortage and growing population. Could you talk about how you're positioning the business to capture that long-term demand? And then, secondly, on the balance sheet, you mentioned you have $1.3 billion of cash. Could you talk about how you're thinking about the use of that cash?

R

Ryan Marshall1:02:15

Sure, Susan. On the long-term demand outlook, we're very positive. The housing shortage is a structural issue that will take years to address, and the growing population supports continued demand for housing. We're positioning the business to capture that demand by investing in our land pipeline, expanding our community count, and continuing to innovate on product design and customer experience. Our diversified portfolio across major markets and buyer groups gives us a strong platform for growth. On the balance sheet, we're in an exceptionally strong position with $1.3 billion of cash and a low debt-to-capital ratio. We'll continue to allocate capital to invest in the business, return capital to shareholders through dividends and share repurchases, and maintain financial flexibility to take advantage of opportunities as they arise.

S

Susan Maklari1:03:05

That's helpful. And then just a quick follow-up on the community count. You mentioned it would be up 3 to 5% in 2025. Could you talk about the expected community count at the end of the year?

J

Jim Ossowski1:03:20

Yes, Susan. We expect the community count to be up 3 to 5% at the end of the year compared to the end of 2024. The growth is fairly broad-based across our footprint, with a focus on markets where we see strong long-term demand. We're opening new communities that are well-positioned to serve the demand in those specific markets, and we expect that to support our delivery targets for 2025 and beyond.

C

Calvin1:03:55

Your next question comes from the line of Matthew Bouley of TD Cowen. Please go ahead.

M

Matthew Bouley1:04:00

Good morning. I wanted to ask about the build cost outlook. You mentioned build costs were flat year-over-year. Could you talk about the expected trend in build costs for the rest of the year? And then, secondly, on the tariff impact, could you talk about the specific products or materials that are most affected?

J

Jim Ossowski1:04:25

Sure, Matthew. On the build cost outlook, we expect build costs to remain relatively stable for the rest of the year, with the exception of the tariff impact. We've guided to a 1% increase in house cost from tariffs in the back half of the year. The specific products and materials most affected include appliances, fixtures, and some building materials that are sourced internationally. We're working with our suppliers to mitigate the impact, but we do expect some cost increase. Our procurement team is cycle-tested and has developed response strategies to minimize the impact on our margins.

M

Matthew Bouley1:05:10

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected buyer group mix in the second quarter?

J

Jim Ossowski1:05:25

Yes, Matthew. In the second quarter, we expect a slightly less favorable buyer group mix compared to the first quarter. We'll have a higher proportion of closings from first-time buyers, which typically have lower margins compared to move-up and active adult buyers. This mix shift is one of the factors contributing to the sequential decline in gross margin from Q1 to Q2.

C

Calvin1:06:00

Your next question comes from the line of Truman Patterson of Jefferies. Please go ahead.

T

Truman Patterson1:06:05

Good morning. I wanted to ask about the order trends by price point. Could you talk about which price points are performing better or worse? And then, secondly, on the incentives, could you talk about the expected trend in incentive levels by price point?

R

Ryan Marshall1:06:30

Sure, Truman. On the order trends by price point, we're seeing the most strength in the mid-to-upper price points, which are typically served by our move-up and active adult buyers. The lower price points, which are typically served by first-time buyers, are more challenged due to affordability constraints. On the incentive levels, we're seeing higher incentives at the lower price points to help first-time buyers overcome affordability hurdles. At the higher price points, incentives are lower because these buyers are less price-sensitive. The overall incentive level is what we've guided to at 8% of revenue, but the mix varies by price point.

T

Truman Patterson1:07:15

That's helpful. And then just a quick follow-up on the community count. Could you talk about the expected community count by region in the second half of the year?

J

Jim Ossowski1:07:30

Yes, Truman. We expect community count growth to be fairly broad-based across our footprint in the second half of the year. We're seeing the most growth in our Sunbelt markets, where we have strong positions and see continued demand. We're also seeing growth in some of our Midwest markets. The Northeast and West Coast markets are expected to be relatively flat. Overall, we expect the community count to be up 3 to 5% at the end of the year compared to the end of 2024.

C

Calvin1:08:05

Your next question comes from the line of Jade Ramani of KBW. Please go ahead.

J

Jade Ramani1:08:10

Hi, thanks for taking my question. I wanted to ask about the share repurchase. You mentioned you repurchased $300 million in the first quarter. Could you talk about the expected pace of repurchases for the rest of the year? And then, secondly, on the dividend, could you talk about the expected payout ratio?

R

Ryan Marshall1:08:35

Sure, Jade. On the share repurchase, we've been systematic and will continue to be. We repurchased $300 million in the first quarter, which is a good level. We'll continue to buy back shares when it makes sense, and we'll report the results as we go. We're not going to give specific guidance on the pace of repurchases. On the dividend, we're committed to growing the dividend over time. The payout ratio is something we evaluate as part of our overall capital allocation process, and we'll continue to balance returning capital to shareholders with investing in the business.

J

Jade Ramani1:09:20

That's helpful. And then just a quick follow-up on the financial services segment. Could you talk about the expected pre-tax income for the rest of the year?

J

Jim Ossowski1:09:35

Yes, Jade. We expect the financial services segment to perform in line with our homebuilding operations. As we deliver more homes, we expect to see higher pre-tax income from the segment. The capture rate is expected to remain in the mid-80s range, and we'll continue to focus on providing a seamless experience for our homebuyers. The outlook for the segment is positive, but it is dependent on closing volumes and the overall mortgage rate environment.

C

Calvin1:10:10

Your next question comes from the line of Carl Reichardt of BTIG. Please go ahead.

C

Carl Reichardt1:10:15

Good morning. I wanted to ask about the competitive landscape in the active adult segment. Are you seeing any change in the competitive behavior from other builders in that segment? And then, secondly, on the Del Webb communities, could you talk about the expected openings in the second half of the year?

R

Ryan Marshall1:10:40

Sure, Carl. On the competitive landscape, the active adult segment is less competitive than the entry-level segment because it's more niche. We are the leader in that segment with our Del Webb brand, and we continue to see strong demand. We're not seeing significant changes in competitive behavior. On the Del Webb openings, we have several new communities opening in the second half of the year, which will support our delivery targets for 2025 and beyond. The closings from these new communities will be more heavily weighted towards 2026 and beyond, but getting them open for sales is a critical first step.

C

Carl Reichardt1:11:25

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected geographic mix in the third and fourth quarters?

J

Jim Ossowski1:11:40

Yes, Carl. In the third and fourth quarters, we expect a similar geographic mix to what we saw in the second quarter. We'll have a higher proportion of closings in markets with lower margins, which will weigh on the overall gross margin. The buyer group mix is also expected to be similar. These mix shifts, along with the elevated incentive levels and the tariff impact, are the primary drivers of the gross margin guidance for the back half of the year.

C

Calvin1:12:15

Your next question comes from the line of Ken Zener of Seaport Research. Please go ahead.

K

Ken Zener1:12:20

Good morning. I wanted to ask about the spec inventory. You mentioned you reduced it by over 900 homes in the first quarter. Could you talk about the expected reduction in the second quarter? And then, secondly, on the starts pace, could you talk about the expected starts pace in the second quarter?

J

Jim Ossowski1:12:45

Sure, Ken. On the spec inventory, we expect to continue to make progress towards our target range of 40 to 45% in the second quarter. The pace of reduction will depend on demand, but we're focused on selling through the existing inventory and being more selective about new starts. We expect to reduce the spec count by a similar amount in the second quarter as we did in the first. On the starts pace, we expect to maintain a similar pace to what we saw in the first quarter, subject to changes in demand. Our goal is to balance the need to have homes available for delivery with the need to manage our inventory levels and protect our margins.

K

Ken Zener1:13:30

That's helpful. And then just a quick follow-up on the land spend. Could you talk about the expected land spend in the second quarter?

J

Jim Ossowski1:13:45

Yes, Ken. We expect the land spend in the second quarter to be in line with our overall expectation of $5 billion for the year. The mix between development and acquisition will be similar to what we saw in the first quarter, with a focus on development of our existing pipeline. We're being more selective on the acquisition front, focusing on deals that meet our return hurdles.

C

Calvin1:14:20

Your next question comes from the line of Mike Dahl of RBC Capital Markets. Please go ahead.

M

Mike Dahl1:14:25

Good morning. I wanted to ask about the order trends by buyer group. You mentioned first-time buyers were down 11%. Could you talk about the expected trend in first-time buyer orders for the rest of the year? And then, secondly, on the move-up and active adult segments, could you talk about the expected trend in orders for those segments?

R

Ryan Marshall1:14:55

Sure, Mike. On the first-time buyer segment, we expect orders to remain challenged due to affordability constraints. We're working to provide solutions that help first-time buyers overcome these hurdles, such as rate buydowns and more efficient floor plans. On the move-up and active adult segments, we expect orders to remain relatively strong because these buyers have more financial flexibility. We're seeing good demand in these segments, and we expect that to continue for the rest of the year.

M

Mike Dahl1:15:40

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the incentive levels are expected to remain elevated. Could you talk about the expected trend in incentive levels by buyer group?

J

Jim Ossowski1:15:55

Yes, Mike. We expect incentive levels to remain elevated across all buyer groups, but the mix will vary. First-time buyers will see higher incentives to help with affordability, while move-up and active adult buyers will see lower incentives because they are less price-sensitive. The overall incentive level is what we've guided to at 8% of revenue, but the mix by buyer group will continue to vary.

C

Calvin1:16:30

Your next question comes from the line of Jay McCanless of Wedbush Securities. Please go ahead.

J

Jay McCanless1:16:35

Good morning. I wanted to ask about the backlog. You mentioned it's down 16% in units. Could you talk about the expected backlog at the end of the second quarter? And then, secondly, on the conversion rate, could you talk about the expected conversion rate in the second quarter?

J

Jim Ossowski1:17:00

Sure, Jay. On the backlog, we expect it to be down slightly at the end of the second quarter compared to the end of the first quarter. The decline is driven by our expectation of higher closings in the second quarter. On the conversion rate, we expect to convert a significant portion of our backlog in the second quarter, given our delivery targets. The conversion rate will depend on demand and our ability to deliver homes on time, but we feel confident in our ability to meet our guidance.

J

Jay McCanless1:17:45

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected buyer group mix in the third and fourth quarters?

J

Jim Ossowski1:18:00

Yes, Jay. In the third and fourth quarters, we expect a similar buyer group mix to what we saw in the second quarter. We'll have a higher proportion of closings from first-time buyers, which typically have lower margins compared to move-up and active adult buyers. This mix shift, along with the elevated incentive levels and the tariff impact, are the primary drivers of the gross margin guidance for the back half of the year.

C

Calvin1:18:35

Your next question comes from the line of Deepa Raghavan of Wells Fargo. Please go ahead.

D

Deepa Raghavan1:18:40

Good morning. I wanted to ask about the land option strategy. You mentioned you've increased your option lot count by almost 30%. Could you talk about the expected option lot count at the end of the year? And then, secondly, on the land spend, could you talk about the expected return on investment for the land you're developing?

J

Jim Ossowski1:19:05

Sure, Deepa. On the option lot count, we expect it to continue to grow as we focus on optioning land rather than owning it outright. This gives us more flexibility and reduces our risk. We expect the option lot count to be up significantly at the end of the year compared to the end of 2024. On the land spend, we're targeting returns that are in line with our historical averages. We're being more selective in this environment, focusing on deals that meet our strict return hurdles. We're confident that our disciplined underwriting process will serve us well.

D

Deepa Raghavan1:19:50

That's helpful. And then just a quick follow-up on the financial services segment. Could you talk about the expected capture rate in the second quarter?

J

Jim Ossowski1:20:05

Yes, Deepa. We expect the capture rate to remain in the mid-80s range in the second quarter. We're focused on providing a seamless experience for our homebuyers, and we expect to continue to see strong capture rates as we deliver more homes. The outlook for the segment is positive, but it is dependent on closing volumes and the overall mortgage rate environment.

C

Calvin1:20:40

Your next question comes from the line of Alex Rygiel of Citigroup. Please go ahead.

A

Alex Rygiel1:20:45

Good morning. I wanted to ask about the competitive dynamics in the move-up segment. Are you seeing any change in the competitive behavior from other builders in that segment? And then, secondly, on the product mix, could you talk about the expected mix of spec versus built-to-order homes in the third and fourth quarters?

R

Ryan Marshall1:21:10

Sure, Alex. On the competitive dynamics, the move-up segment is less competitive than the entry-level segment because it's more focused on value and lifestyle. We're not seeing significant changes in competitive behavior. On the product mix, we expect the mix of spec versus built-to-order homes to be similar to what we saw in the first and second quarters. We're focused on reducing our spec inventory, but we'll continue to build spec homes where we have demand. The goal is to balance the need to have homes available for immediate delivery with the need to manage our inventory levels.

A

Alex Rygiel1:21:55

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the incentive levels are expected to remain elevated. Could you talk about the expected trend in incentive levels over the next few quarters?

J

Jim Ossowski1:22:10

Yes, Alex. We expect incentive levels to remain elevated for the foreseeable future as we continue to compete for buyers in this environment. The exact level will depend on demand and competitive dynamics, but we've guided to 8% of revenue for the full year, and we expect that to be a reasonable assumption. We'll continue to monitor the market and adjust our incentive strategy as needed to balance volume and margin.

C

Calvin1:22:45

Your next question comes from the line of Susan Maklari of Goldman Sachs. Please go ahead.

S

Susan Maklari1:22:50

Thank you. I wanted to ask about the long-term demand outlook. You mentioned the housing shortage and growing population. Could you talk about how you're positioning the business to capture that long-term demand? And then, secondly, on the balance sheet, you mentioned you have $1.3 billion of cash. Could you talk about how you're thinking about the use of that cash?

R

Ryan Marshall1:23:20

Sure, Susan. On the long-term demand outlook, we're very positive. The housing shortage is a structural issue that will take years to address, and the growing population supports continued demand for housing. We're positioning the business to capture that demand by investing in our land pipeline, expanding our community count, and continuing to innovate on product design and customer experience. Our diversified portfolio across major markets and buyer groups gives us a strong platform for growth. On the balance sheet, we're in an exceptionally strong position with $1.3 billion of cash and a low debt-to-capital ratio. We'll continue to allocate capital to invest in the business, return capital to shareholders through dividends and share repurchases, and maintain financial flexibility to take advantage of opportunities as they arise.

S

Susan Maklari1:24:10

That's helpful. And then just a quick follow-up on the community count. You mentioned it would be up 3 to 5% in 2025. Could you talk about the expected community count at the end of the year?

J

Jim Ossowski1:24:25

Yes, Susan. We expect the community count to be up 3 to 5% at the end of the year compared to the end of 2024. The growth is fairly broad-based across our footprint, with a focus on markets where we see strong long-term demand. We're opening new communities that are well-positioned to serve the demand in those specific markets, and we expect that to support our delivery targets for 2025 and beyond.

C

Calvin1:25:00

Your next question comes from the line of Matthew Bouley of TD Cowen. Please go ahead.

M

Matthew Bouley1:25:05

Good morning. I wanted to ask about the build cost outlook. You mentioned build costs were flat year-over-year. Could you talk about the expected trend in build costs for the rest of the year? And then, secondly, on the tariff impact, could you talk about the specific products or materials that are most affected?

J

Jim Ossowski1:25:30

Sure, Matthew. On the build cost outlook, we expect build costs to remain relatively stable for the rest of the year, with the exception of the tariff impact. We've guided to a 1% increase in house cost from tariffs in the back half of the year. The specific products and materials most affected include appliances, fixtures, and some building materials that are sourced internationally. We're working with our suppliers to mitigate the impact, but we do expect some cost increase. Our procurement team is cycle-tested and has developed response strategies to minimize the impact on our margins.

M

Matthew Bouley1:26:15

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected buyer group mix in the second quarter?

J

Jim Ossowski1:26:30

Yes, Matthew. In the second quarter, we expect a slightly less favorable buyer group mix compared to the first quarter. We'll have a higher proportion of closings from first-time buyers, which typically have lower margins compared to move-up and active adult buyers. This mix shift is one of the factors contributing to the sequential decline in gross margin from Q1 to Q2.

C

Calvin1:27:05

Your next question comes from the line of Truman Patterson of Jefferies. Please go ahead.

T

Truman Patterson1:27:10

Good morning. I wanted to ask about the order trends by price point. Could you talk about which price points are performing better or worse? And then, secondly, on the incentives, could you talk about the expected trend in incentive levels by price point?

R

Ryan Marshall1:27:35

Sure, Truman. On the order trends by price point, we're seeing the most strength in the mid-to-upper price points, which are typically served by our move-up and active adult buyers. The lower price points, which are typically served by first-time buyers, are more challenged due to affordability constraints. On the incentive levels, we're seeing higher incentives at the lower price points to help first-time buyers overcome affordability hurdles. At the higher price points, incentives are lower because these buyers are less price-sensitive. The overall incentive level is what we've guided to at 8% of revenue, but the mix varies by price point.

T

Truman Patterson1:28:20

That's helpful. And then just a quick follow-up on the community count. Could you talk about the expected community count by region in the second half of the year?

J

Jim Ossowski1:28:35

Yes, Truman. We expect community count growth to be fairly broad-based across our footprint in the second half of the year. We're seeing the most growth in our Sunbelt markets, where we have strong positions and see continued demand. We're also seeing growth in some of our Midwest markets. The Northeast and West Coast markets are expected to be relatively flat. Overall, we expect the community count to be up 3 to 5% at the end of the year compared to the end of 2024.

C

Calvin1:29:10

Your next question comes from the line of Jade Ramani of KBW. Please go ahead.

J

Jade Ramani1:29:15

Hi, thanks for taking my question. I wanted to ask about the share repurchase. You mentioned you repurchased $300 million in the first quarter. Could you talk about the expected pace of repurchases for the rest of the year? And then, secondly, on the dividend, could you talk about the expected payout ratio?

R

Ryan Marshall1:29:40

Sure, Jade. On the share repurchase, we've been systematic and will continue to be. We repurchased $300 million in the first quarter, which is a good level. We'll continue to buy back shares when it makes sense, and we'll report the results as we go. We're not going to give specific guidance on the pace of repurchases. On the dividend, we're committed to growing the dividend over time. The payout ratio is something we evaluate as part of our overall capital allocation process, and we'll continue to balance returning capital to shareholders with investing in the business.

J

Jade Ramani1:30:25

That's helpful. And then just a quick follow-up on the financial services segment. Could you talk about the expected pre-tax income for the rest of the year?

J

Jim Ossowski1:30:40

Yes, Jade. We expect the financial services segment to perform in line with our homebuilding operations. As we deliver more homes, we expect to see higher pre-tax income from the segment. The capture rate is expected to remain in the mid-80s range, and we'll continue to focus on providing a seamless experience for our homebuyers. The outlook for the segment is positive, but it is dependent on closing volumes and the overall mortgage rate environment.

C

Calvin1:31:15

Your next question comes from the line of Carl Reichardt of BTIG. Please go ahead.

C

Carl Reichardt1:31:20

Good morning. I wanted to ask about the competitive landscape in the active adult segment. Are you seeing any change in the competitive behavior from other builders in that segment? And then, secondly, on the Del Webb communities, could you talk about the expected openings in the second half of the year?

R

Ryan Marshall1:31:45

Sure, Carl. On the competitive landscape, the active adult segment is less competitive than the entry-level segment because it's more niche. We are the leader in that segment with our Del Webb brand, and we continue to see strong demand. We're not seeing significant changes in competitive behavior. On the Del Webb openings, we have several new communities opening in the second half of the year, which will support our delivery targets for 2025 and beyond. The closings from these new communities will be more heavily weighted towards 2026 and beyond, but getting them open for sales is a critical first step.

C

Carl Reichardt1:32:30

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected geographic mix in the third and fourth quarters?

J

Jim Ossowski1:32:45

Yes, Carl. In the third and fourth quarters, we expect a similar geographic mix to what we saw in the second quarter. We'll have a higher proportion of closings in markets with lower margins, which will weigh on the overall gross margin. The buyer group mix is also expected to be similar. These mix shifts, along with the elevated incentive levels and the tariff impact, are the primary drivers of the gross margin guidance for the back half of the year.

C

Calvin1:33:20

Your next question comes from the line of Ken Zener of Seaport Research. Please go ahead.

K

Ken Zener1:33:25

Good morning. I wanted to ask about the spec inventory. You mentioned you reduced it by over 900 homes in the first quarter. Could you talk about the expected reduction in the second quarter? And then, secondly, on the starts pace, could you talk about the expected starts pace in the second quarter?

J

Jim Ossowski1:33:50

Sure, Ken. On the spec inventory, we expect to continue to make progress towards our target range of 40 to 45% in the second quarter. The pace of reduction will depend on demand, but we're focused on selling through the existing inventory and being more selective about new starts. We expect to reduce the spec count by a similar amount in the second quarter as we did in the first. On the starts pace, we expect to maintain a similar pace to what we saw in the first quarter, subject to changes in demand. Our goal is to balance the need to have homes available for delivery with the need to manage our inventory levels and protect our margins.

K

Ken Zener1:34:35

That's helpful. And then just a quick follow-up on the land spend. Could you talk about the expected land spend in the second quarter?

J

Jim Ossowski1:34:50

Yes, Ken. We expect the land spend in the second quarter to be in line with our overall expectation of $5 billion for the year. The mix between development and acquisition will be similar to what we saw in the first quarter, with a focus on development of our existing pipeline. We're being more selective on the acquisition front, focusing on deals that meet our return hurdles.

C

Calvin1:35:25

Your next question comes from the line of Mike Dahl of RBC Capital Markets. Please go ahead.

M

Mike Dahl1:35:30

Good morning. I wanted to ask about the order trends by buyer group. You mentioned first-time buyers were down 11%. Could you talk about the expected trend in first-time buyer orders for the rest of the year? And then, secondly, on the move-up and active adult segments, could you talk about the expected trend in orders for those segments?

R

Ryan Marshall1:36:00

Sure, Mike. On the first-time buyer segment, we expect orders to remain challenged due to affordability constraints. We're working to provide solutions that help first-time buyers overcome these hurdles, such as rate buydowns and more efficient floor plans. On the move-up and active adult segments, we expect orders to remain relatively strong because these buyers have more financial flexibility. We're seeing good demand in these segments, and we expect that to continue for the rest of the year.

M

Mike Dahl1:36:45

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the incentive levels are expected to remain elevated. Could you talk about the expected trend in incentive levels by buyer group?

J

Jim Ossowski1:37:00

Yes, Mike. We expect incentive levels to remain elevated across all buyer groups, but the mix will vary. First-time buyers will see higher incentives to help with affordability, while move-up and active adult buyers will see lower incentives because they are less price-sensitive. The overall incentive level is what we've guided to at 8% of revenue, but the mix by buyer group will continue to vary.

C

Calvin1:37:35

Your next question comes from the line of Jay McCanless of Wedbush Securities. Please go ahead.

J

Jay McCanless1:37:40

Good morning. I wanted to ask about the backlog. You mentioned it's down 16% in units. Could you talk about the expected backlog at the end of the second quarter? And then, secondly, on the conversion rate, could you talk about the expected conversion rate in the second quarter?

J

Jim Ossowski1:38:05

Sure, Jay. On the backlog, we expect it to be down slightly at the end of the second quarter compared to the end of the first quarter. The decline is driven by our expectation of higher closings in the second quarter. On the conversion rate, we expect to convert a significant portion of our backlog in the second quarter, given our delivery targets. The conversion rate will depend on demand and our ability to deliver homes on time, but we feel confident in our ability to meet our guidance.

J

Jay McCanless1:38:50

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected buyer group mix in the third and fourth quarters?

J

Jim Ossowski1:39:05

Yes, Jay. In the third and fourth quarters, we expect a similar buyer group mix to what we saw in the second quarter. We'll have a higher proportion of closings from first-time buyers, which typically have lower margins compared to move-up and active adult buyers. This mix shift, along with the elevated incentive levels and the tariff impact, are the primary drivers of the gross margin guidance for the back half of the year.

C

Calvin1:39:40

Your next question comes from the line of Deepa Raghavan of Wells Fargo. Please go ahead.

D

Deepa Raghavan1:39:45

Good morning. I wanted to ask about the land option strategy. You mentioned you've increased your option lot count by almost 30%. Could you talk about the expected option lot count at the end of the year? And then, secondly, on the land spend, could you talk about the expected return on investment for the land you're developing?

J

Jim Ossowski1:40:10

Sure, Deepa. On the option lot count, we expect it to continue to grow as we focus on optioning land rather than owning it outright. This gives us more flexibility and reduces our risk. We expect the option lot count to be up significantly at the end of the year compared to the end of 2024. On the land spend, we're targeting returns that are in line with our historical averages. We're being more selective in this environment, focusing on deals that meet our strict return hurdles. We're confident that our disciplined underwriting process will serve us well.

D

Deepa Raghavan1:40:55

That's helpful. And then just a quick follow-up on the financial services segment. Could you talk about the expected capture rate in the second quarter?

J

Jim Ossowski1:41:10

Yes, Deepa. We expect the capture rate to remain in the mid-80s range in the second quarter. We're focused on providing a seamless experience for our homebuyers, and we expect to continue to see strong capture rates as we deliver more homes. The outlook for the segment is positive, but it is dependent on closing volumes and the overall mortgage rate environment.

C

Calvin1:41:45

Your next question comes from the line of Alex Rygiel of Citigroup. Please go ahead.

A

Alex Rygiel1:41:50

Good morning. I wanted to ask about the competitive dynamics in the move-up segment. Are you seeing any change in the competitive behavior from other builders in that segment? And then, secondly, on the product mix, could you talk about the expected mix of spec versus built-to-order homes in the third and fourth quarters?

R

Ryan Marshall1:42:15

Sure, Alex. On the competitive dynamics, the move-up segment is less competitive than the entry-level segment because it's more focused on value and lifestyle. We're not seeing significant changes in competitive behavior. On the product mix, we expect the mix of spec versus built-to-order homes to be similar to what we saw in the first and second quarters. We're focused on reducing our spec inventory, but we'll continue to build spec homes where we have demand. The goal is to balance the need to have homes available for immediate delivery with the need to manage our inventory levels.

A

Alex Rygiel1:43:00

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the incentive levels are expected to remain elevated. Could you talk about the expected trend in incentive levels over the next few quarters?

J

Jim Ossowski1:43:15

Yes, Alex. We expect incentive levels to remain elevated for the foreseeable future as we continue to compete for buyers in this environment. The exact level will depend on demand and competitive dynamics, but we've guided to 8% of revenue for the full year, and we expect that to be a reasonable assumption. We'll continue to monitor the market and adjust our incentive strategy as needed to balance volume and margin.

C

Calvin1:43:50

Your next question comes from the line of Susan Maklari of Goldman Sachs. Please go ahead.

S

Susan Maklari1:43:55

Thank you. I wanted to ask about the long-term demand outlook. You mentioned the housing shortage and growing population. Could you talk about how you're positioning the business to capture that long-term demand? And then, secondly, on the balance sheet, you mentioned you have $1.3 billion of cash. Could you talk about how you're thinking about the use of that cash?

R

Ryan Marshall1:44:25

Sure, Susan. On the long-term demand outlook, we're very positive. The housing shortage is a structural issue that will take years to address, and the growing population supports continued demand for housing. We're positioning the business to capture that demand by investing in our land pipeline, expanding our community count, and continuing to innovate on product design and customer experience. Our diversified portfolio across major markets and buyer groups gives us a strong platform for growth. On the balance sheet, we're in an exceptionally strong position with $1.3 billion of cash and a low debt-to-capital ratio. We'll continue to allocate capital to invest in the business, return capital to shareholders through dividends and share repurchases, and maintain financial flexibility to take advantage of opportunities as they arise.

S

Susan Maklari1:45:15

That's helpful. And then just a quick follow-up on the community count. You mentioned it would be up 3 to 5% in 2025. Could you talk about the expected community count at the end of the year?

J

Jim Ossowski1:45:30

Yes, Susan. We expect the community count to be up 3 to 5% at the end of the year compared to the end of 2024. The growth is fairly broad-based across our footprint, with a focus on markets where we see strong long-term demand. We're opening new communities that are well-positioned to serve the demand in those specific markets, and we expect that to support our delivery targets for 2025 and beyond.

C

Calvin1:46:05

Your next question comes from the line of Matthew Bouley of TD Cowen. Please go ahead.

M

Matthew Bouley1:46:10

Good morning. I wanted to ask about the build cost outlook. You mentioned build costs were flat year-over-year. Could you talk about the expected trend in build costs for the rest of the year? And then, secondly, on the tariff impact, could you talk about the specific products or materials that are most affected?

J

Jim Ossowski1:46:35

Sure, Matthew. On the build cost outlook, we expect build costs to remain relatively stable for the rest of the year, with the exception of the tariff impact. We've guided to a 1% increase in house cost from tariffs in the back half of the year. The specific products and materials most affected include appliances, fixtures, and some building materials that are sourced internationally. We're working with our suppliers to mitigate the impact, but we do expect some cost increase. Our procurement team is cycle-tested and has developed response strategies to minimize the impact on our margins.

M

Matthew Bouley1:47:20

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected buyer group mix in the second quarter?

J

Jim Ossowski1:47:35

Yes, Matthew. In the second quarter, we expect a slightly less favorable buyer group mix compared to the first quarter. We'll have a higher proportion of closings from first-time buyers, which typically have lower margins compared to move-up and active adult buyers. This mix shift is one of the factors contributing to the sequential decline in gross margin from Q1 to Q2.

C

Calvin1:48:10

Your next question comes from the line of Truman Patterson of Jefferies. Please go ahead.

T

Truman Patterson1:48:15

Good morning. I wanted to ask about the order trends by price point. Could you talk about which price points are performing better or worse? And then, secondly, on the incentives, could you talk about the expected trend in incentive levels by price point?

R

Ryan Marshall1:48:40

Sure, Truman. On the order trends by price point, we're seeing the most strength in the mid-to-upper price points, which are typically served by our move-up and active adult buyers. The lower price points, which are typically served by first-time buyers, are more challenged due to affordability constraints. On the incentive levels, we're seeing higher incentives at the lower price points to help first-time buyers overcome affordability hurdles. At the higher price points, incentives are lower because these buyers are less price-sensitive. The overall incentive level is what we've guided to at 8% of revenue, but the mix varies by price point.

T

Truman Patterson1:49:25

That's helpful. And then just a quick follow-up on the community count. Could you talk about the expected community count by region in the second half of the year?

J

Jim Ossowski1:49:40

Yes, Truman. We expect community count growth to be fairly broad-based across our footprint in the second half of the year. We're seeing the most growth in our Sunbelt markets, where we have strong positions and see continued demand. We're also seeing growth in some of our Midwest markets. The Northeast and West Coast markets are expected to be relatively flat. Overall, we expect the community count to be up 3 to 5% at the end of the year compared to the end of 2024.

C

Calvin1:50:15

Your next question comes from the line of Jade Ramani of KBW. Please go ahead.

J

Jade Ramani1:50:20

Hi, thanks for taking my question. I wanted to ask about the share repurchase. You mentioned you repurchased $300 million in the first quarter. Could you talk about the expected pace of repurchases for the rest of the year? And then, secondly, on the dividend, could you talk about the expected payout ratio?

R

Ryan Marshall1:50:45

Sure, Jade. On the share repurchase, we've been systematic and will continue to be. We repurchased $300 million in the first quarter, which is a good level. We'll continue to buy back shares when it makes sense, and we'll report the results as we go. We're not going to give specific guidance on the pace of repurchases. On the dividend, we're committed to growing the dividend over time. The payout ratio is something we evaluate as part of our overall capital allocation process, and we'll continue to balance returning capital to shareholders with investing in the business.

J

Jade Ramani1:51:30

That's helpful. And then just a quick follow-up on the financial services segment. Could you talk about the expected pre-tax income for the rest of the year?

J

Jim Ossowski1:51:45

Yes, Jade. We expect the financial services segment to perform in line with our homebuilding operations. As we deliver more homes, we expect to see higher pre-tax income from the segment. The capture rate is expected to remain in the mid-80s range, and we'll continue to focus on providing a seamless experience for our homebuyers. The outlook for the segment is positive, but it is dependent on closing volumes and the overall mortgage rate environment.

C

Calvin1:52:20

Your next question comes from the line of Carl Reichardt of BTIG. Please go ahead.

C

Carl Reichardt1:52:25

Good morning. I wanted to ask about the competitive landscape in the active adult segment. Are you seeing any change in the competitive behavior from other builders in that segment? And then, secondly, on the Del Webb communities, could you talk about the expected openings in the second half of the year?

R

Ryan Marshall1:52:50

Sure, Carl. On the competitive landscape, the active adult segment is less competitive than the entry-level segment because it's more niche. We are the leader in that segment with our Del Webb brand, and we continue to see strong demand. We're not seeing significant changes in competitive behavior. On the Del Webb openings, we have several new communities opening in the second half of the year, which will support our delivery targets for 2025 and beyond. The closings from these new communities will be more heavily weighted towards 2026 and beyond, but getting them open for sales is a critical first step.

C

Carl Reichardt1:53:35

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected geographic mix in the third and fourth quarters?

J

Jim Ossowski1:53:50

Yes, Carl. In the third and fourth quarters, we expect a similar geographic mix to what we saw in the second quarter. We'll have a higher proportion of closings in markets with lower margins, which will weigh on the overall gross margin. The buyer group mix is also expected to be similar. These mix shifts, along with the elevated incentive levels and the tariff impact, are the primary drivers of the gross margin guidance for the back half of the year.

C

Calvin1:54:25

Your next question comes from the line of Ken Zener of Seaport Research. Please go ahead.

K

Ken Zener1:54:30

Good morning. I wanted to ask about the spec inventory. You mentioned you reduced it by over 900 homes in the first quarter. Could you talk about the expected reduction in the second quarter? And then, secondly, on the starts pace, could you talk about the expected starts pace in the second quarter?

J

Jim Ossowski1:54:55

Sure, Ken. On the spec inventory, we expect to continue to make progress towards our target range of 40 to 45% in the second quarter. The pace of reduction will depend on demand, but we're focused on selling through the existing inventory and being more selective about new starts. We expect to reduce the spec count by a similar amount in the second quarter as we did in the first. On the starts pace, we expect to maintain a similar pace to what we saw in the first quarter, subject to changes in demand. Our goal is to balance the need to have homes available for delivery with the need to manage our inventory levels and protect our margins.

K

Ken Zener1:55:40

That's helpful. And then just a quick follow-up on the land spend. Could you talk about the expected land spend in the second quarter?

J

Jim Ossowski1:55:55

Yes, Ken. We expect the land spend in the second quarter to be in line with our overall expectation of $5 billion for the year. The mix between development and acquisition will be similar to what we saw in the first quarter, with a focus on development of our existing pipeline. We're being more selective on the acquisition front, focusing on deals that meet our return hurdles.

C

Calvin1:56:30

Your next question comes from the line of Mike Dahl of RBC Capital Markets. Please go ahead.

M

Mike Dahl1:56:35

Good morning. I wanted to ask about the order trends by buyer group. You mentioned first-time buyers were down 11%. Could you talk about the expected trend in first-time buyer orders for the rest of the year? And then, secondly, on the move-up and active adult segments, could you talk about the expected trend in orders for those segments?

R

Ryan Marshall1:57:05

Sure, Mike. On the first-time buyer segment, we expect orders to remain challenged due to affordability constraints. We're working to provide solutions that help first-time buyers overcome these hurdles, such as rate buydowns and more efficient floor plans. On the move-up and active adult segments, we expect orders to remain relatively strong because these buyers have more financial flexibility. We're seeing good demand in these segments, and we expect that to continue for the rest of the year.

M

Mike Dahl1:57:50

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the incentive levels are expected to remain elevated. Could you talk about the expected trend in incentive levels by buyer group?

J

Jim Ossowski1:58:05

Yes, Mike. We expect incentive levels to remain elevated across all buyer groups, but the mix will vary. First-time buyers will see higher incentives to help with affordability, while move-up and active adult buyers will see lower incentives because they are less price-sensitive. The overall incentive level is what we've guided to at 8% of revenue, but the mix by buyer group will continue to vary.

C

Calvin1:58:40

Your next question comes from the line of Jay McCanless of Wedbush Securities. Please go ahead.

J

Jay McCanless1:58:45

Good morning. I wanted to ask about the backlog. You mentioned it's down 16% in units. Could you talk about the expected backlog at the end of the second quarter? And then, secondly, on the conversion rate, could you talk about the expected conversion rate in the second quarter?

J

Jim Ossowski1:59:10

Sure, Jay. On the backlog, we expect it to be down slightly at the end of the second quarter compared to the end of the first quarter. The decline is driven by our expectation of higher closings in the second quarter. On the conversion rate, we expect to convert a significant portion of our backlog in the second quarter, given our delivery targets. The conversion rate will depend on demand and our ability to deliver homes on time, but we feel confident in our ability to meet our guidance.

J

Jay McCanless1:59:55

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected buyer group mix in the third and fourth quarters?

J

Jim Ossowski2:00:10

Yes, Jay. In the third and fourth quarters, we expect a similar buyer group mix to what we saw in the second quarter. We'll have a higher proportion of closings from first-time buyers, which typically have lower margins compared to move-up and active adult buyers. This mix shift, along with the elevated incentive levels and the tariff impact, are the primary drivers of the gross margin guidance for the back half of the year.

C

Calvin2:00:45

Your next question comes from the line of Deepa Raghavan of Wells Fargo. Please go ahead.

D

Deepa Raghavan2:00:50

Good morning. I wanted to ask about the land option strategy. You mentioned you've increased your option lot count by almost 30%. Could you talk about the expected option lot count at the end of the year? And then, secondly, on the land spend, could you talk about the expected return on investment for the land you're developing?

J

Jim Ossowski2:01:15

Sure, Deepa. On the option lot count, we expect it to continue to grow as we focus on optioning land rather than owning it outright. This gives us more flexibility and reduces our risk. We expect the option lot count to be up significantly at the end of the year compared to the end of 2024. On the land spend, we're targeting returns that are in line with our historical averages. We're being more selective in this environment, focusing on deals that meet our strict return hurdles. We're confident that our disciplined underwriting process will serve us well.

D

Deepa Raghavan2:02:00

That's helpful. And then just a quick follow-up on the financial services segment. Could you talk about the expected capture rate in the second quarter?

J

Jim Ossowski2:02:15

Yes, Deepa. We expect the capture rate to remain in the mid-80s range in the second quarter. We're focused on providing a seamless experience for our homebuyers, and we expect to continue to see strong capture rates as we deliver more homes. The outlook for the segment is positive, but it is dependent on closing volumes and the overall mortgage rate environment.

C

Calvin2:02:50

Your next question comes from the line of Alex Rygiel of Citigroup. Please go ahead.

A

Alex Rygiel2:02:55

Good morning. I wanted to ask about the competitive dynamics in the move-up segment. Are you seeing any change in the competitive behavior from other builders in that segment? And then, secondly, on the product mix, could you talk about the expected mix of spec versus built-to-order homes in the third and fourth quarters?

R

Ryan Marshall2:03:20

Sure, Alex. On the competitive dynamics, the move-up segment is less competitive than the entry-level segment because it's more focused on value and lifestyle. We're not seeing significant changes in competitive behavior. On the product mix, we expect the mix of spec versus built-to-order homes to be similar to what we saw in the first and second quarters. We're focused on reducing our spec inventory, but we'll continue to build spec homes where we have demand. The goal is to balance the need to have homes available for immediate delivery with the need to manage our inventory levels.

A

Alex Rygiel2:04:05

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the incentive levels are expected to remain elevated. Could you talk about the expected trend in incentive levels over the next few quarters?

J

Jim Ossowski2:04:20

Yes, Alex. We expect incentive levels to remain elevated for the foreseeable future as we continue to compete for buyers in this environment. The exact level will depend on demand and competitive dynamics, but we've guided to 8% of revenue for the full year, and we expect that to be a reasonable assumption. We'll continue to monitor the market and adjust our incentive strategy as needed to balance volume and margin.

C

Calvin2:04:55

Your next question comes from the line of Susan Maklari of Goldman Sachs. Please go ahead.

S

Susan Maklari2:05:00

Thank you. I wanted to ask about the long-term demand outlook. You mentioned the housing shortage and growing population. Could you talk about how you're positioning the business to capture that long-term demand? And then, secondly, on the balance sheet, you mentioned you have $1.3 billion of cash. Could you talk about how you're thinking about the use of that cash?

R

Ryan Marshall2:05:30

Sure, Susan. On the long-term demand outlook, we're very positive. The housing shortage is a structural issue that will take years to address, and the growing population supports continued demand for housing. We're positioning the business to capture that demand by investing in our land pipeline, expanding our community count, and continuing to innovate on product design and customer experience. Our diversified portfolio across major markets and buyer groups gives us a strong platform for growth. On the balance sheet, we're in an exceptionally strong position with $1.3 billion of cash and a low debt-to-capital ratio. We'll continue to allocate capital to invest in the business, return capital to shareholders through dividends and share repurchases, and maintain financial flexibility to take advantage of opportunities as they arise.

S

Susan Maklari2:06:20

That's helpful. And then just a quick follow-up on the community count. You mentioned it would be up 3 to 5% in 2025. Could you talk about the expected community count at the end of the year?

J

Jim Ossowski2:06:35

Yes, Susan. We expect the community count to be up 3 to 5% at the end of the year compared to the end of 2024. The growth is fairly broad-based across our footprint, with a focus on markets where we see strong long-term demand. We're opening new communities that are well-positioned to serve the demand in those specific markets, and we expect that to support our delivery targets for 2025 and beyond.

C

Calvin2:07:10

Your next question comes from the line of Matthew Bouley of TD Cowen. Please go ahead.

M

Matthew Bouley2:07:15

Good morning. I wanted to ask about the build cost outlook. You mentioned build costs were flat year-over-year. Could you talk about the expected trend in build costs for the rest of the year? And then, secondly, on the tariff impact, could you talk about the specific products or materials that are most affected?

J

Jim Ossowski2:07:40

Sure, Matthew. On the build cost outlook, we expect build costs to remain relatively stable for the rest of the year, with the exception of the tariff impact. We've guided to a 1% increase in house cost from tariffs in the back half of the year. The specific products and materials most affected include appliances, fixtures, and some building materials that are sourced internationally. We're working with our suppliers to mitigate the impact, but we do expect some cost increase. Our procurement team is cycle-tested and has developed response strategies to minimize the impact on our margins.

M

Matthew Bouley2:08:25

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected buyer group mix in the second quarter?

J

Jim Ossowski2:08:40

Yes, Matthew. In the second quarter, we expect a slightly less favorable buyer group mix compared to the first quarter. We'll have a higher proportion of closings from first-time buyers, which typically have lower margins compared to move-up and active adult buyers. This mix shift is one of the factors contributing to the sequential decline in gross margin from Q1 to Q2.

C

Calvin2:09:15

Your next question comes from the line of Truman Patterson of Jefferies. Please go ahead.

T

Truman Patterson2:09:20

Good morning. I wanted to ask about the order trends by price point. Could you talk about which price points are performing better or worse? And then, secondly, on the incentives, could you talk about the expected trend in incentive levels by price point?

R

Ryan Marshall2:09:45

Sure, Truman. On the order trends by price point, we're seeing the most strength in the mid-to-upper price points, which are typically served by our move-up and active adult buyers. The lower price points, which are typically served by first-time buyers, are more challenged due to affordability constraints. On the incentive levels, we're seeing higher incentives at the lower price points to help first-time buyers overcome affordability hurdles. At the higher price points, incentives are lower because these buyers are less price-sensitive. The overall incentive level is what we've guided to at 8% of revenue, but the mix varies by price point.

T

Truman Patterson2:10:30

That's helpful. And then just a quick follow-up on the community count. Could you talk about the expected community count by region in the second half of the year?

J

Jim Ossowski2:10:45

Yes, Truman. We expect community count growth to be fairly broad-based across our footprint in the second half of the year. We're seeing the most growth in our Sunbelt markets, where we have strong positions and see continued demand. We're also seeing growth in some of our Midwest markets. The Northeast and West Coast markets are expected to be relatively flat. Overall, we expect the community count to be up 3 to 5% at the end of the year compared to the end of 2024.

C

Calvin2:11:20

Your next question comes from the line of Jade Ramani of KBW. Please go ahead.

J

Jade Ramani2:11:25

Hi, thanks for taking my question. I wanted to ask about the share repurchase. You mentioned you repurchased $300 million in the first quarter. Could you talk about the expected pace of repurchases for the rest of the year? And then, secondly, on the dividend, could you talk about the expected payout ratio?

R

Ryan Marshall2:11:50

Sure, Jade. On the share repurchase, we've been systematic and will continue to be. We repurchased $300 million in the first quarter, which is a good level. We'll continue to buy back shares when it makes sense, and we'll report the results as we go. We're not going to give specific guidance on the pace of repurchases. On the dividend, we're committed to growing the dividend over time. The payout ratio is something we evaluate as part of our overall capital allocation process, and we'll continue to balance returning capital to shareholders with investing in the business.

J

Jade Ramani2:12:35

That's helpful. And then just a quick follow-up on the financial services segment. Could you talk about the expected pre-tax income for the rest of the year?

J

Jim Ossowski2:12:50

Yes, Jade. We expect the financial services segment to perform in line with our homebuilding operations. As we deliver more homes, we expect to see higher pre-tax income from the segment. The capture rate is expected to remain in the mid-80s range, and we'll continue to focus on providing a seamless experience for our homebuyers. The outlook for the segment is positive, but it is dependent on closing volumes and the overall mortgage rate environment.

C

Calvin2:13:25

Your next question comes from the line of Carl Reichardt of BTIG. Please go ahead.

C

Carl Reichardt2:13:30

Good morning. I wanted to ask about the competitive landscape in the active adult segment. Are you seeing any change in the competitive behavior from other builders in that segment? And then, secondly, on the Del Webb communities, could you talk about the expected openings in the second half of the year?

R

Ryan Marshall2:13:55

Sure, Carl. On the competitive landscape, the active adult segment is less competitive than the entry-level segment because it's more niche. We are the leader in that segment with our Del Webb brand, and we continue to see strong demand. We're not seeing significant changes in competitive behavior. On the Del Webb openings, we have several new communities opening in the second half of the year, which will support our delivery targets for 2025 and beyond. The closings from these new communities will be more heavily weighted towards 2026 and beyond, but getting them open for sales is a critical first step.

C

Carl Reichardt2:14:40

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected geographic mix in the third and fourth quarters?

J

Jim Ossowski2:14:55

Yes, Carl. In the third and fourth quarters, we expect a similar geographic mix to what we saw in the second quarter. We'll have a higher proportion of closings in markets with lower margins, which will weigh on the overall gross margin. The buyer group mix is also expected to be similar. These mix shifts, along with the elevated incentive levels and the tariff impact, are the primary drivers of the gross margin guidance for the back half of the year.

C

Calvin2:15:30

Your next question comes from the line of Ken Zener of Seaport Research. Please go ahead.

K

Ken Zener2:15:35

Good morning. I wanted to ask about the spec inventory. You mentioned you reduced it by over 900 homes in the first quarter. Could you talk about the expected reduction in the second quarter? And then, secondly, on the starts pace, could you talk about the expected starts pace in the second quarter?

J

Jim Ossowski2:16:00

Sure, Ken. On the spec inventory, we expect to continue to make progress towards our target range of 40 to 45% in the second quarter. The pace of reduction will depend on demand, but we're focused on selling through the existing inventory and being more selective about new starts. We expect to reduce the spec count by a similar amount in the second quarter as we did in the first. On the starts pace, we expect to maintain a similar pace to what we saw in the first quarter, subject to changes in demand. Our goal is to balance the need to have homes available for delivery with the need to manage our inventory levels and protect our margins.

K

Ken Zener2:16:45

That's helpful. And then just a quick follow-up on the land spend. Could you talk about the expected land spend in the second quarter?

J

Jim Ossowski2:17:00

Yes, Ken. We expect the land spend in the second quarter to be in line with our overall expectation of $5 billion for the year. The mix between development and acquisition will be similar to what we saw in the first quarter, with a focus on development of our existing pipeline. We're being more selective on the acquisition front, focusing on deals that meet our return hurdles.

C

Calvin2:17:35

Your next question comes from the line of Mike Dahl of RBC Capital Markets. Please go ahead.

M

Mike Dahl2:17:40

Good morning. I wanted to ask about the order trends by buyer group. You mentioned first-time buyers were down 11%. Could you talk about the expected trend in first-time buyer orders for the rest of the year? And then, secondly, on the move-up and active adult segments, could you talk about the expected trend in orders for those segments?

R

Ryan Marshall2:18:10

Sure, Mike. On the first-time buyer segment, we expect orders to remain challenged due to affordability constraints. We're working to provide solutions that help first-time buyers overcome these hurdles, such as rate buydowns and more efficient floor plans. On the move-up and active adult segments, we expect orders to remain relatively strong because these buyers have more financial flexibility. We're seeing good demand in these segments, and we expect that to continue for the rest of the year.

M

Mike Dahl2:18:55

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the incentive levels are expected to remain elevated. Could you talk about the expected trend in incentive levels by buyer group?

J

Jim Ossowski2:19:10

Yes, Mike. We expect incentive levels to remain elevated across all buyer groups, but the mix will vary. First-time buyers will see higher incentives to help with affordability, while move-up and active adult buyers will see lower incentives because they are less price-sensitive. The overall incentive level is what we've guided to at 8% of revenue, but the mix by buyer group will continue to vary.

C

Calvin2:19:45

Your next question comes from the line of Jay McCanless of Wedbush Securities. Please go ahead.

J

Jay McCanless2:19:50

Good morning. I wanted to ask about the backlog. You mentioned it's down 16% in units. Could you talk about the expected backlog at the end of the second quarter? And then, secondly, on the conversion rate, could you talk about the expected conversion rate in the second quarter?

J

Jim Ossowski2:20:15

Sure, Jay. On the backlog, we expect it to be down slightly at the end of the second quarter compared to the end of the first quarter. The decline is driven by our expectation of higher closings in the second quarter. On the conversion rate, we expect to convert a significant portion of our backlog in the second quarter, given our delivery targets. The conversion rate will depend on demand and our ability to deliver homes on time, but we feel confident in our ability to meet our guidance.

J

Jay McCanless2:21:00

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected buyer group mix in the third and fourth quarters?

J

Jim Ossowski2:21:15

Yes, Jay. In the third and fourth quarters, we expect a similar buyer group mix to what we saw in the second quarter. We'll have a higher proportion of closings from first-time buyers, which typically have lower margins compared to move-up and active adult buyers. This mix shift, along with the elevated incentive levels and the tariff impact, are the primary drivers of the gross margin guidance for the back half of the year.

C

Calvin2:21:50

Your next question comes from the line of Deepa Raghavan of Wells Fargo. Please go ahead.

D

Deepa Raghavan2:21:55

Good morning. I wanted to ask about the land option strategy. You mentioned you've increased your option lot count by almost 30%. Could you talk about the expected option lot count at the end of the year? And then, secondly, on the land spend, could you talk about the expected return on investment for the land you're developing?

J

Jim Ossowski2:22:20

Sure, Deepa. On the option lot count, we expect it to continue to grow as we focus on optioning land rather than owning it outright. This gives us more flexibility and reduces our risk. We expect the option lot count to be up significantly at the end of the year compared to the end of 2024. On the land spend, we're targeting returns that are in line with our historical averages. We're being more selective in this environment, focusing on deals that meet our strict return hurdles. We're confident that our disciplined underwriting process will serve us well.

D

Deepa Raghavan2:23:05

That's helpful. And then just a quick follow-up on the financial services segment. Could you talk about the expected capture rate in the second quarter?

J

Jim Ossowski2:23:20

Yes, Deepa. We expect the capture rate to remain in the mid-80s range in the second quarter. We're focused on providing a seamless experience for our homebuyers, and we expect to continue to see strong capture rates as we deliver more homes. The outlook for the segment is positive, but it is dependent on closing volumes and the overall mortgage rate environment.

C

Calvin2:23:55

Your next question comes from the line of Alex Rygiel of Citigroup. Please go ahead.

A

Alex Rygiel2:24:00

Good morning. I wanted to ask about the competitive dynamics in the move-up segment. Are you seeing any change in the competitive behavior from other builders in that segment? And then, secondly, on the product mix, could you talk about the expected mix of spec versus built-to-order homes in the third and fourth quarters?

R

Ryan Marshall2:24:25

Sure, Alex. On the competitive dynamics, the move-up segment is less competitive than the entry-level segment because it's more focused on value and lifestyle. We're not seeing significant changes in competitive behavior. On the product mix, we expect the mix of spec versus built-to-order homes to be similar to what we saw in the first and second quarters. We're focused on reducing our spec inventory, but we'll continue to build spec homes where we have demand. The goal is to balance the need to have homes available for immediate delivery with the need to manage our inventory levels.

A

Alex Rygiel2:25:10

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the incentive levels are expected to remain elevated. Could you talk about the expected trend in incentive levels over the next few quarters?

J

Jim Ossowski2:25:25

Yes, Alex. We expect incentive levels to remain elevated for the foreseeable future as we continue to compete for buyers in this environment. The exact level will depend on demand and competitive dynamics, but we've guided to 8% of revenue for the full year, and we expect that to be a reasonable assumption. We'll continue to monitor the market and adjust our incentive strategy as needed to balance volume and margin.

C

Calvin2:26:00

Your next question comes from the line of Susan Maklari of Goldman Sachs. Please go ahead.

S

Susan Maklari2:26:05

Thank you. I wanted to ask about the long-term demand outlook. You mentioned the housing shortage and growing population. Could you talk about how you're positioning the business to capture that long-term demand? And then, secondly, on the balance sheet, you mentioned you have $1.3 billion of cash. Could you talk about how you're thinking about the use of that cash?

R

Ryan Marshall2:26:35

Sure, Susan. On the long-term demand outlook, we're very positive. The housing shortage is a structural issue that will take years to address, and the growing population supports continued demand for housing. We're positioning the business to capture that demand by investing in our land pipeline, expanding our community count, and continuing to innovate on product design and customer experience. Our diversified portfolio across major markets and buyer groups gives us a strong platform for growth. On the balance sheet, we're in an exceptionally strong position with $1.3 billion of cash and a low debt-to-capital ratio. We'll continue to allocate capital to invest in the business, return capital to shareholders through dividends and share repurchases, and maintain financial flexibility to take advantage of opportunities as they arise.

S

Susan Maklari2:27:25

That's helpful. And then just a quick follow-up on the community count. You mentioned it would be up 3 to 5% in 2025. Could you talk about the expected community count at the end of the year?

J

Jim Ossowski2:27:40

Yes, Susan. We expect the community count to be up 3 to 5% at the end of the year compared to the end of 2024. The growth is fairly broad-based across our footprint, with a focus on markets where we see strong long-term demand. We're opening new communities that are well-positioned to serve the demand in those specific markets, and we expect that to support our delivery targets for 2025 and beyond.

C

Calvin2:28:15

Your next question comes from the line of Matthew Bouley of TD Cowen. Please go ahead.

M

Matthew Bouley2:28:20

Good morning. I wanted to ask about the build cost outlook. You mentioned build costs were flat year-over-year. Could you talk about the expected trend in build costs for the rest of the year? And then, secondly, on the tariff impact, could you talk about the specific products or materials that are most affected?

J

Jim Ossowski2:28:45

Sure, Matthew. On the build cost outlook, we expect build costs to remain relatively stable for the rest of the year, with the exception of the tariff impact. We've guided to a 1% increase in house cost from tariffs in the back half of the year. The specific products and materials most affected include appliances, fixtures, and some building materials that are sourced internationally. We're working with our suppliers to mitigate the impact, but we do expect some cost increase. Our procurement team is cycle-tested and has developed response strategies to minimize the impact on our margins.

M

Matthew Bouley2:29:30

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected buyer group mix in the second quarter?

J

Jim Ossowski2:29:45

Yes, Matthew. In the second quarter, we expect a slightly less favorable buyer group mix compared to the first quarter. We'll have a higher proportion of closings from first-time buyers, which typically have lower margins compared to move-up and active adult buyers. This mix shift is one of the factors contributing to the sequential decline in gross margin from Q1 to Q2.

C

Calvin2:30:20

Your next question comes from the line of Truman Patterson of Jefferies. Please go ahead.

T

Truman Patterson2:30:25

Good morning. I wanted to ask about the order trends by price point. Could you talk about which price points are performing better or worse? And then, secondly, on the incentives, could you talk about the expected trend in incentive levels by price point?

R

Ryan Marshall2:30:50

Sure, Truman. On the order trends by price point, we're seeing the most strength in the mid-to-upper price points, which are typically served by our move-up and active adult buyers. The lower price points, which are typically served by first-time buyers, are more challenged due to affordability constraints. On the incentive levels, we're seeing higher incentives at the lower price points to help first-time buyers overcome affordability hurdles. At the higher price points, incentives are lower because these buyers are less price-sensitive. The overall incentive level is what we've guided to at 8% of revenue, but the mix varies by price point.

T

Truman Patterson2:31:35

That's helpful. And then just a quick follow-up on the community count. Could you talk about the expected community count by region in the second half of the year?

J

Jim Ossowski2:31:50

Yes, Truman. We expect community count growth to be fairly broad-based across our footprint in the second half of the year. We're seeing the most growth in our Sunbelt markets, where we have strong positions and see continued demand. We're also seeing growth in some of our Midwest markets. The Northeast and West Coast markets are expected to be relatively flat. Overall, we expect the community count to be up 3 to 5% at the end of the year compared to the end of 2024.

C

Calvin2:32:25

Your next question comes from the line of Jade Ramani of KBW. Please go ahead.

J

Jade Ramani2:32:30

Hi, thanks for taking my question. I wanted to ask about the share repurchase. You mentioned you repurchased $300 million in the first quarter. Could you talk about the expected pace of repurchases for the rest of the year? And then, secondly, on the dividend, could you talk about the expected payout ratio?

R

Ryan Marshall2:32:55

Sure, Jade. On the share repurchase, we've been systematic and will continue to be. We repurchased $300 million in the first quarter, which is a good level. We'll continue to buy back shares when it makes sense, and we'll report the results as we go. We're not going to give specific guidance on the pace of repurchases. On the dividend, we're committed to growing the dividend over time. The payout ratio is something we evaluate as part of our overall capital allocation process, and we'll continue to balance returning capital to shareholders with investing in the business.

J

Jade Ramani2:33:40

That's helpful. And then just a quick follow-up on the financial services segment. Could you talk about the expected pre-tax income for the rest of the year?

J

Jim Ossowski2:33:55

Yes, Jade. We expect the financial services segment to perform in line with our homebuilding operations. As we deliver more homes, we expect to see higher pre-tax income from the segment. The capture rate is expected to remain in the mid-80s range, and we'll continue to focus on providing a seamless experience for our homebuyers. The outlook for the segment is positive, but it is dependent on closing volumes and the overall mortgage rate environment.

C

Calvin2:34:30

Your next question comes from the line of Carl Reichardt of BTIG. Please go ahead.

C

Carl Reichardt2:34:35

Good morning. I wanted to ask about the competitive landscape in the active adult segment. Are you seeing any change in the competitive behavior from other builders in that segment? And then, secondly, on the Del Webb communities, could you talk about the expected openings in the second half of the year?

R

Ryan Marshall2:35:00

Sure, Carl. On the competitive landscape, the active adult segment is less competitive than the entry-level segment because it's more niche. We are the leader in that segment with our Del Webb brand, and we continue to see strong demand. We're not seeing significant changes in competitive behavior. On the Del Webb openings, we have several new communities opening in the second half of the year, which will support our delivery targets for 2025 and beyond. The closings from these new communities will be more heavily weighted towards 2026 and beyond, but getting them open for sales is a critical first step.

C

Carl Reichardt2:35:45

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected geographic mix in the third and fourth quarters?

J

Jim Ossowski2:36:00

Yes, Carl. In the third and fourth quarters, we expect a similar geographic mix to what we saw in the second quarter. We'll have a higher proportion of closings in markets with lower margins, which will weigh on the overall gross margin. The buyer group mix is also expected to be similar. These mix shifts, along with the elevated incentive levels and the tariff impact, are the primary drivers of the gross margin guidance for the back half of the year.

C

Calvin2:36:35

Your next question comes from the line of Ken Zener of Seaport Research. Please go ahead.

K

Ken Zener2:36:40

Good morning. I wanted to ask about the spec inventory. You mentioned you reduced it by over 900 homes in the first quarter. Could you talk about the expected reduction in the second quarter? And then, secondly, on the starts pace, could you talk about the expected starts pace in the second quarter?

J

Jim Ossowski2:37:05

Sure, Ken. On the spec inventory, we expect to continue to make progress towards our target range of 40 to 45% in the second quarter. The pace of reduction will depend on demand, but we're focused on selling through the existing inventory and being more selective about new starts. We expect to reduce the spec count by a similar amount in the second quarter as we did in the first. On the starts pace, we expect to maintain a similar pace to what we saw in the first quarter, subject to changes in demand. Our goal is to balance the need to have homes available for delivery with the need to manage our inventory levels and protect our margins.

K

Ken Zener2:37:50

That's helpful. And then just a quick follow-up on the land spend. Could you talk about the expected land spend in the second quarter?

J

Jim Ossowski2:38:05

Yes, Ken. We expect the land spend in the second quarter to be in line with our overall expectation of $5 billion for the year. The mix between development and acquisition will be similar to what we saw in the first quarter, with a focus on development of our existing pipeline. We're being more selective on the acquisition front, focusing on deals that meet our return hurdles.

C

Calvin2:38:40

Your next question comes from the line of Mike Dahl of RBC Capital Markets. Please go ahead.

M

Mike Dahl2:38:45

Good morning. I wanted to ask about the order trends by buyer group. You mentioned first-time buyers were down 11%. Could you talk about the expected trend in first-time buyer orders for the rest of the year? And then, secondly, on the move-up and active adult segments, could you talk about the expected trend in orders for those segments?

R

Ryan Marshall2:39:15

Sure, Mike. On the first-time buyer segment, we expect orders to remain challenged due to affordability constraints. We're working to provide solutions that help first-time buyers overcome these hurdles, such as rate buydowns and more efficient floor plans. On the move-up and active adult segments, we expect orders to remain relatively strong because these buyers have more financial flexibility. We're seeing good demand in these segments, and we expect that to continue for the rest of the year.

M

Mike Dahl2:40:00

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the incentive levels are expected to remain elevated. Could you talk about the expected trend in incentive levels by buyer group?

J

Jim Ossowski2:40:15

Yes, Mike. We expect incentive levels to remain elevated across all buyer groups, but the mix will vary. First-time buyers will see higher incentives to help with affordability, while move-up and active adult buyers will see lower incentives because they are less price-sensitive. The overall incentive level is what we've guided to at 8% of revenue, but the mix by buyer group will continue to vary.

C

Calvin2:40:50

Your next question comes from the line of Jay McCanless of Wedbush Securities. Please go ahead.

J

Jay McCanless2:40:55

Good morning. I wanted to ask about the backlog. You mentioned it's down 16% in units. Could you talk about the expected backlog at the end of the second quarter? And then, secondly, on the conversion rate, could you talk about the expected conversion rate in the second quarter?

J

Jim Ossowski2:41:20

Sure, Jay. On the backlog, we expect it to be down slightly at the end of the second quarter compared to the end of the first quarter. The decline is driven by our expectation of higher closings in the second quarter. On the conversion rate, we expect to convert a significant portion of our backlog in the second quarter, given our delivery targets. The conversion rate will depend on demand and our ability to deliver homes on time, but we feel confident in our ability to meet our guidance.

J

Jay McCanless2:42:05

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected buyer group mix in the third and fourth quarters?

J

Jim Ossowski2:42:20

Yes, Jay. In the third and fourth quarters, we expect a similar buyer group mix to what we saw in the second quarter. We'll have a higher proportion of closings from first-time buyers, which typically have lower margins compared to move-up and active adult buyers. This mix shift, along with the elevated incentive levels and the tariff impact, are the primary drivers of the gross margin guidance for the back half of the year.

C

Calvin2:42:55

Your next question comes from the line of Deepa Raghavan of Wells Fargo. Please go ahead.

D

Deepa Raghavan2:43:00

Good morning. I wanted to ask about the land option strategy. You mentioned you've increased your option lot count by almost 30%. Could you talk about the expected option lot count at the end of the year? And then, secondly, on the land spend, could you talk about the expected return on investment for the land you're developing?

J

Jim Ossowski2:43:25

Sure, Deepa. On the option lot count, we expect it to continue to grow as we focus on optioning land rather than owning it outright. This gives us more flexibility and reduces our risk. We expect the option lot count to be up significantly at the end of the year compared to the end of 2024. On the land spend, we're targeting returns that are in line with our historical averages. We're being more selective in this environment, focusing on deals that meet our strict return hurdles. We're confident that our disciplined underwriting process will serve us well.

D

Deepa Raghavan2:44:10

That's helpful. And then just a quick follow-up on the financial services segment. Could you talk about the expected capture rate in the second quarter?

J

Jim Ossowski2:44:25

Yes, Deepa. We expect the capture rate to remain in the mid-80s range in the second quarter. We're focused on providing a seamless experience for our homebuyers, and we expect to continue to see strong capture rates as we deliver more homes. The outlook for the segment is positive, but it is dependent on closing volumes and the overall mortgage rate environment.

C

Calvin2:45:00

Your next question comes from the line of Alex Rygiel of Citigroup. Please go ahead.

A

Alex Rygiel2:45:05

Good morning. I wanted to ask about the competitive dynamics in the move-up segment. Are you seeing any change in the competitive behavior from other builders in that segment? And then, secondly, on the product mix, could you talk about the expected mix of spec versus built-to-order homes in the third and fourth quarters?

R

Ryan Marshall2:45:30

Sure, Alex. On the competitive dynamics, the move-up segment is less competitive than the entry-level segment because it's more focused on value and lifestyle. We're not seeing significant changes in competitive behavior. On the product mix, we expect the mix of spec versus built-to-order homes to be similar to what we saw in the first and second quarters. We're focused on reducing our spec inventory, but we'll continue to build spec homes where we have demand. The goal is to balance the need to have homes available for immediate delivery with the need to manage our inventory levels.

A

Alex Rygiel2:46:15

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the incentive levels are expected to remain elevated. Could you talk about the expected trend in incentive levels over the next few quarters?

J

Jim Ossowski2:46:30

Yes, Alex. We expect incentive levels to remain elevated for the foreseeable future as we continue to compete for buyers in this environment. The exact level will depend on demand and competitive dynamics, but we've guided to 8% of revenue for the full year, and we expect that to be a reasonable assumption. We'll continue to monitor the market and adjust our incentive strategy as needed to balance volume and margin.

C

Calvin2:47:05

Your next question comes from the line of Susan Maklari of Goldman Sachs. Please go ahead.

S

Susan Maklari2:47:10

Thank you. I wanted to ask about the long-term demand outlook. You mentioned the housing shortage and growing population. Could you talk about how you're positioning the business to capture that long-term demand? And then, secondly, on the balance sheet, you mentioned you have $1.3 billion of cash. Could you talk about how you're thinking about the use of that cash?

R

Ryan Marshall2:47:40

Sure, Susan. On the long-term demand outlook, we're very positive. The housing shortage is a structural issue that will take years to address, and the growing population supports continued demand for housing. We're positioning the business to capture that demand by investing in our land pipeline, expanding our community count, and continuing to innovate on product design and customer experience. Our diversified portfolio across major markets and buyer groups gives us a strong platform for growth. On the balance sheet, we're in an exceptionally strong position with $1.3 billion of cash and a low debt-to-capital ratio. We'll continue to allocate capital to invest in the business, return capital to shareholders through dividends and share repurchases, and maintain financial flexibility to take advantage of opportunities as they arise.

S

Susan Maklari2:48:30

That's helpful. And then just a quick follow-up on the community count. You mentioned it would be up 3 to 5% in 2025. Could you talk about the expected community count at the end of the year?

J

Jim Ossowski2:48:45

Yes, Susan. We expect the community count to be up 3 to 5% at the end of the year compared to the end of 2024. The growth is fairly broad-based across our footprint, with a focus on markets where we see strong long-term demand. We're opening new communities that are well-positioned to serve the demand in those specific markets, and we expect that to support our delivery targets for 2025 and beyond.

C

Calvin2:49:20

Your next question comes from the line of Matthew Bouley of TD Cowen. Please go ahead.

M

Matthew Bouley2:49:25

Good morning. I wanted to ask about the build cost outlook. You mentioned build costs were flat year-over-year. Could you talk about the expected trend in build costs for the rest of the year? And then, secondly, on the tariff impact, could you talk about the specific products or materials that are most affected?

J

Jim Ossowski2:49:50

Sure, Matthew. On the build cost outlook, we expect build costs to remain relatively stable for the rest of the year, with the exception of the tariff impact. We've guided to a 1% increase in house cost from tariffs in the back half of the year. The specific products and materials most affected include appliances, fixtures, and some building materials that are sourced internationally. We're working with our suppliers to mitigate the impact, but we do expect some cost increase. Our procurement team is cycle-tested and has developed response strategies to minimize the impact on our margins.

M

Matthew Bouley2:50:35

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected buyer group mix in the second quarter?

J

Jim Ossowski2:50:50

Yes, Matthew. In the second quarter, we expect a slightly less favorable buyer group mix compared to the first quarter. We'll have a higher proportion of closings from first-time buyers, which typically have lower margins compared to move-up and active adult buyers. This mix shift is one of the factors contributing to the sequential decline in gross margin from Q1 to Q2.

C

Calvin2:51:25

Your next question comes from the line of Truman Patterson of Jefferies. Please go ahead.

T

Truman Patterson2:51:30

Good morning. I wanted to ask about the order trends by price point. Could you talk about which price points are performing better or worse? And then, secondly, on the incentives, could you talk about the expected trend in incentive levels by price point?

R

Ryan Marshall2:51:55

Sure, Truman. On the order trends by price point, we're seeing the most strength in the mid-to-upper price points, which are typically served by our move-up and active adult buyers. The lower price points, which are typically served by first-time buyers, are more challenged due to affordability constraints. On the incentive levels, we're seeing higher incentives at the lower price points to help first-time buyers overcome affordability hurdles. At the higher price points, incentives are lower because these buyers are less price-sensitive. The overall incentive level is what we've guided to at 8% of revenue, but the mix varies by price point.

T

Truman Patterson2:52:40

That's helpful. And then just a quick follow-up on the community count. Could you talk about the expected community count by region in the second half of the year?

J

Jim Ossowski2:52:55

Yes, Truman. We expect community count growth to be fairly broad-based across our footprint in the second half of the year. We're seeing the most growth in our Sunbelt markets, where we have strong positions and see continued demand. We're also seeing growth in some of our Midwest markets. The Northeast and West Coast markets are expected to be relatively flat. Overall, we expect the community count to be up 3 to 5% at the end of the year compared to the end of 2024.

C

Calvin2:53:30

Your next question comes from the line of Jade Ramani of KBW. Please go ahead.

J

Jade Ramani2:53:35

Hi, thanks for taking my question. I wanted to ask about the share repurchase. You mentioned you repurchased $300 million in the first quarter. Could you talk about the expected pace of repurchases for the rest of the year? And then, secondly, on the dividend, could you talk about the expected payout ratio?

R

Ryan Marshall2:54:00

Sure, Jade. On the share repurchase, we've been systematic and will continue to be. We repurchased $300 million in the first quarter, which is a good level. We'll continue to buy back shares when it makes sense, and we'll report the results as we go. We're not going to give specific guidance on the pace of repurchases. On the dividend, we're committed to growing the dividend over time. The payout ratio is something we evaluate as part of our overall capital allocation process, and we'll continue to balance returning capital to shareholders with investing in the business.

J

Jade Ramani2:54:45

That's helpful. And then just a quick follow-up on the financial services segment. Could you talk about the expected pre-tax income for the rest of the year?

J

Jim Ossowski2:55:00

Yes, Jade. We expect the financial services segment to perform in line with our homebuilding operations. As we deliver more homes, we expect to see higher pre-tax income from the segment. The capture rate is expected to remain in the mid-80s range, and we'll continue to focus on providing a seamless experience for our homebuyers. The outlook for the segment is positive, but it is dependent on closing volumes and the overall mortgage rate environment.

C

Calvin2:55:35

Your next question comes from the line of Carl Reichardt of BTIG. Please go ahead.

C

Carl Reichardt2:55:40

Good morning. I wanted to ask about the competitive landscape in the active adult segment. Are you seeing any change in the competitive behavior from other builders in that segment? And then, secondly, on the Del Webb communities, could you talk about the expected openings in the second half of the year?

R

Ryan Marshall2:56:05

Sure, Carl. On the competitive landscape, the active adult segment is less competitive than the entry-level segment because it's more niche. We are the leader in that segment with our Del Webb brand, and we continue to see strong demand. We're not seeing significant changes in competitive behavior. On the Del Webb openings, we have several new communities opening in the second half of the year, which will support our delivery targets for 2025 and beyond. The closings from these new communities will be more heavily weighted towards 2026 and beyond, but getting them open for sales is a critical first step.

C

Carl Reichardt2:56:50

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected geographic mix in the third and fourth quarters?

J

Jim Ossowski2:57:05

Yes, Carl. In the third and fourth quarters, we expect a similar geographic mix to what we saw in the second quarter. We'll have a higher proportion of closings in markets with lower margins, which will weigh on the overall gross margin. The buyer group mix is also expected to be similar. These mix shifts, along with the elevated incentive levels and the tariff impact, are the primary drivers of the gross margin guidance for the back half of the year.

C

Calvin2:57:40

Your next question comes from the line of Ken Zener of Seaport Research. Please go ahead.

K

Ken Zener2:57:45

Good morning. I wanted to ask about the spec inventory. You mentioned you reduced it by over 900 homes in the first quarter. Could you talk about the expected reduction in the second quarter? And then, secondly, on the starts pace, could you talk about the expected starts pace in the second quarter?

J

Jim Ossowski2:58:10

Sure, Ken. On the spec inventory, we expect to continue to make progress towards our target range of 40 to 45% in the second quarter. The pace of reduction will depend on demand, but we're focused on selling through the existing inventory and being more selective about new starts. We expect to reduce the spec count by a similar amount in the second quarter as we did in the first. On the starts pace, we expect to maintain a similar pace to what we saw in the first quarter, subject to changes in demand. Our goal is to balance the need to have homes available for delivery with the need to manage our inventory levels and protect our margins.

K

Ken Zener2:58:55

That's helpful. And then just a quick follow-up on the land spend. Could you talk about the expected land spend in the second quarter?

J

Jim Ossowski2:59:10

Yes, Ken. We expect the land spend in the second quarter to be in line with our overall expectation of $5 billion for the year. The mix between development and acquisition will be similar to what we saw in the first quarter, with a focus on development of our existing pipeline. We're being more selective on the acquisition front, focusing on deals that meet our return hurdles.

C

Calvin2:59:45

Your next question comes from the line of Mike Dahl of RBC Capital Markets. Please go ahead.

M

Mike Dahl2:59:50

Good morning. I wanted to ask about the order trends by buyer group. You mentioned first-time buyers were down 11%. Could you talk about the expected trend in first-time buyer orders for the rest of the year? And then, secondly, on the move-up and active adult segments, could you talk about the expected trend in orders for those segments?

R

Ryan Marshall3:00:20

Sure, Mike. On the first-time buyer segment, we expect orders to remain challenged due to affordability constraints. We're working to provide solutions that help first-time buyers overcome these hurdles, such as rate buydowns and more efficient floor plans. On the move-up and active adult segments, we expect orders to remain relatively strong because these buyers have more financial flexibility. We're seeing good demand in these segments, and we expect that to continue for the rest of the year.

M

Mike Dahl3:01:05

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the incentive levels are expected to remain elevated. Could you talk about the expected trend in incentive levels by buyer group?

J

Jim Ossowski3:01:20

Yes, Mike. We expect incentive levels to remain elevated across all buyer groups, but the mix will vary. First-time buyers will see higher incentives to help with affordability, while move-up and active adult buyers will see lower incentives because they are less price-sensitive. The overall incentive level is what we've guided to at 8% of revenue, but the mix by buyer group will continue to vary.

C

Calvin3:01:55

Your next question comes from the line of Jay McCanless of Wedbush Securities. Please go ahead.

J

Jay McCanless3:02:00

Good morning. I wanted to ask about the backlog. You mentioned it's down 16% in units. Could you talk about the expected backlog at the end of the second quarter? And then, secondly, on the conversion rate, could you talk about the expected conversion rate in the second quarter?

J

Jim Ossowski3:02:25

Sure, Jay. On the backlog, we expect it to be down slightly at the end of the second quarter compared to the end of the first quarter. The decline is driven by our expectation of higher closings in the second quarter. On the conversion rate, we expect to convert a significant portion of our backlog in the second quarter, given our delivery targets. The conversion rate will depend on demand and our ability to deliver homes on time, but we feel confident in our ability to meet our guidance.

J

Jay McCanless3:03:10

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected buyer group mix in the third and fourth quarters?

J

Jim Ossowski3:03:25

Yes, Jay. In the third and fourth quarters, we expect a similar buyer group mix to what we saw in the second quarter. We'll have a higher proportion of closings from first-time buyers, which typically have lower margins compared to move-up and active adult buyers. This mix shift, along with the elevated incentive levels and the tariff impact, are the primary drivers of the gross margin guidance for the back half of the year.

C

Calvin3:04:00

Your next question comes from the line of Deepa Raghavan of Wells Fargo. Please go ahead.

D

Deepa Raghavan3:04:05

Good morning. I wanted to ask about the land option strategy. You mentioned you've increased your option lot count by almost 30%. Could you talk about the expected option lot count at the end of the year? And then, secondly, on the land spend, could you talk about the expected return on investment for the land you're developing?

J

Jim Ossowski3:04:30

Sure, Deepa. On the option lot count, we expect it to continue to grow as we focus on optioning land rather than owning it outright. This gives us more flexibility and reduces our risk. We expect the option lot count to be up significantly at the end of the year compared to the end of 2024. On the land spend, we're targeting returns that are in line with our historical averages. We're being more selective in this environment, focusing on deals that meet our strict return hurdles. We're confident that our disciplined underwriting process will serve us well.

D

Deepa Raghavan3:05:15

That's helpful. And then just a quick follow-up on the financial services segment. Could you talk about the expected capture rate in the second quarter?

J

Jim Ossowski3:05:30

Yes, Deepa. We expect the capture rate to remain in the mid-80s range in the second quarter. We're focused on providing a seamless experience for our homebuyers, and we expect to continue to see strong capture rates as we deliver more homes. The outlook for the segment is positive, but it is dependent on closing volumes and the overall mortgage rate environment.

C

Calvin3:06:05

Your next question comes from the line of Alex Rygiel of Citigroup. Please go ahead.

A

Alex Rygiel3:06:10

Good morning. I wanted to ask about the competitive dynamics in the move-up segment. Are you seeing any change in the competitive behavior from other builders in that segment? And then, secondly, on the product mix, could you talk about the expected mix of spec versus built-to-order homes in the third and fourth quarters?

R

Ryan Marshall3:06:35

Sure, Alex. On the competitive dynamics, the move-up segment is less competitive than the entry-level segment because it's more focused on value and lifestyle. We're not seeing significant changes in competitive behavior. On the product mix, we expect the mix of spec versus built-to-order homes to be similar to what we saw in the first and second quarters. We're focused on reducing our spec inventory, but we'll continue to build spec homes where we have demand. The goal is to balance the need to have homes available for immediate delivery with the need to manage our inventory levels.

A

Alex Rygiel3:07:20

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the incentive levels are expected to remain elevated. Could you talk about the expected trend in incentive levels over the next few quarters?

J

Jim Ossowski3:07:35

Yes, Alex. We expect incentive levels to remain elevated for the foreseeable future as we continue to compete for buyers in this environment. The exact level will depend on demand and competitive dynamics, but we've guided to 8% of revenue for the full year, and we expect that to be a reasonable assumption. We'll continue to monitor the market and adjust our incentive strategy as needed to balance volume and margin.

C

Calvin3:08:10

Your next question comes from the line of Susan Maklari of Goldman Sachs. Please go ahead.

S

Susan Maklari3:08:15

Thank you. I wanted to ask about the long-term demand outlook. You mentioned the housing shortage and growing population. Could you talk about how you're positioning the business to capture that long-term demand? And then, secondly, on the balance sheet, you mentioned you have $1.3 billion of cash. Could you talk about how you're thinking about the use of that cash?

R

Ryan Marshall3:08:45

Sure, Susan. On the long-term demand outlook, we're very positive. The housing shortage is a structural issue that will take years to address, and the growing population supports continued demand for housing. We're positioning the business to capture that demand by investing in our land pipeline, expanding our community count, and continuing to innovate on product design and customer experience. Our diversified portfolio across major markets and buyer groups gives us a strong platform for growth. On the balance sheet, we're in an exceptionally strong position with $1.3 billion of cash and a low debt-to-capital ratio. We'll continue to allocate capital to invest in the business, return capital to shareholders through dividends and share repurchases, and maintain financial flexibility to take advantage of opportunities as they arise.

S

Susan Maklari3:09:35

That's helpful. And then just a quick follow-up on the community count. You mentioned it would be up 3 to 5% in 2025. Could you talk about the expected community count at the end of the year?

J

Jim Ossowski3:09:50

Yes, Susan. We expect the community count to be up 3 to 5% at the end of the year compared to the end of 2024. The growth is fairly broad-based across our footprint, with a focus on markets where we see strong long-term demand. We're opening new communities that are well-positioned to serve the demand in those specific markets, and we expect that to support our delivery targets for 2025 and beyond.

C

Calvin3:10:25

Your next question comes from the line of Matthew Bouley of TD Cowen. Please go ahead.

M

Matthew Bouley3:10:30

Good morning. I wanted to ask about the build cost outlook. You mentioned build costs were flat year-over-year. Could you talk about the expected trend in build costs for the rest of the year? And then, secondly, on the tariff impact, could you talk about the specific products or materials that are most affected?

J

Jim Ossowski3:10:55

Sure, Matthew. On the build cost outlook, we expect build costs to remain relatively stable for the rest of the year, with the exception of the tariff impact. We've guided to a 1% increase in house cost from tariffs in the back half of the year. The specific products and materials most affected include appliances, fixtures, and some building materials that are sourced internationally. We're working with our suppliers to mitigate the impact, but we do expect some cost increase. Our procurement team is cycle-tested and has developed response strategies to minimize the impact on our margins.

M

Matthew Bouley3:11:40

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected buyer group mix in the second quarter?

J

Jim Ossowski3:11:55

Yes, Matthew. In the second quarter, we expect a slightly less favorable buyer group mix compared to the first quarter. We'll have a higher proportion of closings from first-time buyers, which typically have lower margins compared to move-up and active adult buyers. This mix shift is one of the factors contributing to the sequential decline in gross margin from Q1 to Q2.

C

Calvin3:12:30

Your next question comes from the line of Truman Patterson of Jefferies. Please go ahead.

T

Truman Patterson3:12:35

Good morning. I wanted to ask about the order trends by price point. Could you talk about which price points are performing better or worse? And then, secondly, on the incentives, could you talk about the expected trend in incentive levels by price point?

R

Ryan Marshall3:13:00

Sure, Truman. On the order trends by price point, we're seeing the most strength in the mid-to-upper price points, which are typically served by our move-up and active adult buyers. The lower price points, which are typically served by first-time buyers, are more challenged due to affordability constraints. On the incentive levels, we're seeing higher incentives at the lower price points to help first-time buyers overcome affordability hurdles. At the higher price points, incentives are lower because these buyers are less price-sensitive. The overall incentive level is what we've guided to at 8% of revenue, but the mix varies by price point.

T

Truman Patterson3:13:45

That's helpful. And then just a quick follow-up on the community count. Could you talk about the expected community count by region in the second half of the year?

J

Jim Ossowski3:14:00

Yes, Truman. We expect community count growth to be fairly broad-based across our footprint in the second half of the year. We're seeing the most growth in our Sunbelt markets, where we have strong positions and see continued demand. We're also seeing growth in some of our Midwest markets. The Northeast and West Coast markets are expected to be relatively flat. Overall, we expect the community count to be up 3 to 5% at the end of the year compared to the end of 2024.

C

Calvin3:14:35

Your next question comes from the line of Jade Ramani of KBW. Please go ahead.

J

Jade Ramani3:14:40

Hi, thanks for taking my question. I wanted to ask about the share repurchase. You mentioned you repurchased $300 million in the first quarter. Could you talk about the expected pace of repurchases for the rest of the year? And then, secondly, on the dividend, could you talk about the expected payout ratio?

R

Ryan Marshall3:15:05

Sure, Jade. On the share repurchase, we've been systematic and will continue to be. We repurchased $300 million in the first quarter, which is a good level. We'll continue to buy back shares when it makes sense, and we'll report the results as we go. We're not going to give specific guidance on the pace of repurchases. On the dividend, we're committed to growing the dividend over time. The payout ratio is something we evaluate as part of our overall capital allocation process, and we'll continue to balance returning capital to shareholders with investing in the business.

J

Jade Ramani3:15:50

That's helpful. And then just a quick follow-up on the financial services segment. Could you talk about the expected pre-tax income for the rest of the year?

J

Jim Ossowski3:16:05

Yes, Jade. We expect the financial services segment to perform in line with our homebuilding operations. As we deliver more homes, we expect to see higher pre-tax income from the segment. The capture rate is expected to remain in the mid-80s range, and we'll continue to focus on providing a seamless experience for our homebuyers. The outlook for the segment is positive, but it is dependent on closing volumes and the overall mortgage rate environment.

C

Calvin3:16:40

Your next question comes from the line of Carl Reichardt of BTIG. Please go ahead.

C

Carl Reichardt3:16:45

Good morning. I wanted to ask about the competitive landscape in the active adult segment. Are you seeing any change in the competitive behavior from other builders in that segment? And then, secondly, on the Del Webb communities, could you talk about the expected openings in the second half of the year?

R

Ryan Marshall3:17:10

Sure, Carl. On the competitive landscape, the active adult segment is less competitive than the entry-level segment because it's more niche. We are the leader in that segment with our Del Webb brand, and we continue to see strong demand. We're not seeing significant changes in competitive behavior. On the Del Webb openings, we have several new communities opening in the second half of the year, which will support our delivery targets for 2025 and beyond. The closings from these new communities will be more heavily weighted towards 2026 and beyond, but getting them open for sales is a critical first step.

C

Carl Reichardt3:17:55

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected geographic mix in the third and fourth quarters?

J

Jim Ossowski3:18:10

Yes, Carl. In the third and fourth quarters, we expect a similar geographic mix to what we saw in the second quarter. We'll have a higher proportion of closings in markets with lower margins, which will weigh on the overall gross margin. The buyer group mix is also expected to be similar. These mix shifts, along with the elevated incentive levels and the tariff impact, are the primary drivers of the gross margin guidance for the back half of the year.

C

Calvin3:18:45

Your next question comes from the line of Ken Zener of Seaport Research. Please go ahead.

K

Ken Zener3:18:50

Good morning. I wanted to ask about the spec inventory. You mentioned you reduced it by over 900 homes in the first quarter. Could you talk about the expected reduction in the second quarter? And then, secondly, on the starts pace, could you talk about the expected starts pace in the second quarter?

J

Jim Ossowski3:19:15

Sure, Ken. On the spec inventory, we expect to continue to make progress towards our target range of 40 to 45% in the second quarter. The pace of reduction will depend on demand, but we're focused on selling through the existing inventory and being more selective about new starts. We expect to reduce the spec count by a similar amount in the second quarter as we did in the first. On the starts pace, we expect to maintain a similar pace to what we saw in the first quarter, subject to changes in demand. Our goal is to balance the need to have homes available for delivery with the need to manage our inventory levels and protect our margins.

K

Ken Zener3:20:00

That's helpful. And then just a quick follow-up on the land spend. Could you talk about the expected land spend in the second quarter?

J

Jim Ossowski3:20:15

Yes, Ken. We expect the land spend in the second quarter to be in line with our overall expectation of $5 billion for the year. The mix between development and acquisition will be similar to what we saw in the first quarter, with a focus on development of our existing pipeline. We're being more selective on the acquisition front, focusing on deals that meet our return hurdles.

C

Calvin3:20:50

Your next question comes from the line of Mike Dahl of RBC Capital Markets. Please go ahead.

M

Mike Dahl3:20:55

Good morning. I wanted to ask about the order trends by buyer group. You mentioned first-time buyers were down 11%. Could you talk about the expected trend in first-time buyer orders for the rest of the year? And then, secondly, on the move-up and active adult segments, could you talk about the expected trend in orders for those segments?

R

Ryan Marshall3:21:25

Sure, Mike. On the first-time buyer segment, we expect orders to remain challenged due to affordability constraints. We're working to provide solutions that help first-time buyers overcome these hurdles, such as rate buydowns and more efficient floor plans. On the move-up and active adult segments, we expect orders to remain relatively strong because these buyers have more financial flexibility. We're seeing good demand in these segments, and we expect that to continue for the rest of the year.

M

Mike Dahl3:22:10

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the incentive levels are expected to remain elevated. Could you talk about the expected trend in incentive levels by buyer group?

J

Jim Ossowski3:22:25

Yes, Mike. We expect incentive levels to remain elevated across all buyer groups, but the mix will vary. First-time buyers will see higher incentives to help with affordability, while move-up and active adult buyers will see lower incentives because they are less price-sensitive. The overall incentive level is what we've guided to at 8% of revenue, but the mix by buyer group will continue to vary.

C

Calvin3:23:00

Your next question comes from the line of Jay McCanless of Wedbush Securities. Please go ahead.

J

Jay McCanless3:23:05

Good morning. I wanted to ask about the backlog. You mentioned it's down 16% in units. Could you talk about the expected backlog at the end of the second quarter? And then, secondly, on the conversion rate, could you talk about the expected conversion rate in the second quarter?

J

Jim Ossowski3:23:30

Sure, Jay. On the backlog, we expect it to be down slightly at the end of the second quarter compared to the end of the first quarter. The decline is driven by our expectation of higher closings in the second quarter. On the conversion rate, we expect to convert a significant portion of our backlog in the second quarter, given our delivery targets. The conversion rate will depend on demand and our ability to deliver homes on time, but we feel confident in our ability to meet our guidance.

J

Jay McCanless3:24:15

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected buyer group mix in the third and fourth quarters?

J

Jim Ossowski3:24:30

Yes, Jay. In the third and fourth quarters, we expect a similar buyer group mix to what we saw in the second quarter. We'll have a higher proportion of closings from first-time buyers, which typically have lower margins compared to move-up and active adult buyers. This mix shift, along with the elevated incentive levels and the tariff impact, are the primary drivers of the gross margin guidance for the back half of the year.

C

Calvin3:25:05

Your next question comes from the line of Deepa Raghavan of Wells Fargo. Please go ahead.

D

Deepa Raghavan3:25:10

Good morning. I wanted to ask about the land option strategy. You mentioned you've increased your option lot count by almost 30%. Could you talk about the expected option lot count at the end of the year? And then, secondly, on the land spend, could you talk about the expected return on investment for the land you're developing?

J

Jim Ossowski3:25:35

Sure, Deepa. On the option lot count, we expect it to continue to grow as we focus on optioning land rather than owning it outright. This gives us more flexibility and reduces our risk. We expect the option lot count to be up significantly at the end of the year compared to the end of 2024. On the land spend, we're targeting returns that are in line with our historical averages. We're being more selective in this environment, focusing on deals that meet our strict return hurdles. We're confident that our disciplined underwriting process will serve us well.

D

Deepa Raghavan3:26:20

That's helpful. And then just a quick follow-up on the financial services segment. Could you talk about the expected capture rate in the second quarter?

J

Jim Ossowski3:26:35

Yes, Deepa. We expect the capture rate to remain in the mid-80s range in the second quarter. We're focused on providing a seamless experience for our homebuyers, and we expect to continue to see strong capture rates as we deliver more homes. The outlook for the segment is positive, but it is dependent on closing volumes and the overall mortgage rate environment.

C

Calvin3:27:10

Your next question comes from the line of Alex Rygiel of Citigroup. Please go ahead.

A

Alex Rygiel3:27:15

Good morning. I wanted to ask about the competitive dynamics in the move-up segment. Are you seeing any change in the competitive behavior from other builders in that segment? And then, secondly, on the product mix, could you talk about the expected mix of spec versus built-to-order homes in the third and fourth quarters?

R

Ryan Marshall3:27:40

Sure, Alex. On the competitive dynamics, the move-up segment is less competitive than the entry-level segment because it's more focused on value and lifestyle. We're not seeing significant changes in competitive behavior. On the product mix, we expect the mix of spec versus built-to-order homes to be similar to what we saw in the first and second quarters. We're focused on reducing our spec inventory, but we'll continue to build spec homes where we have demand. The goal is to balance the need to have homes available for immediate delivery with the need to manage our inventory levels.

A

Alex Rygiel3:28:25

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the incentive levels are expected to remain elevated. Could you talk about the expected trend in incentive levels over the next few quarters?

J

Jim Ossowski3:28:40

Yes, Alex. We expect incentive levels to remain elevated for the foreseeable future as we continue to compete for buyers in this environment. The exact level will depend on demand and competitive dynamics, but we've guided to 8% of revenue for the full year, and we expect that to be a reasonable assumption. We'll continue to monitor the market and adjust our incentive strategy as needed to balance volume and margin.

C

Calvin3:29:15

Your next question comes from the line of Susan Maklari of Goldman Sachs. Please go ahead.

S

Susan Maklari3:29:20

Thank you. I wanted to ask about the long-term demand outlook. You mentioned the housing shortage and growing population. Could you talk about how you're positioning the business to capture that long-term demand? And then, secondly, on the balance sheet, you mentioned you have $1.3 billion of cash. Could you talk about how you're thinking about the use of that cash?

R

Ryan Marshall3:29:50

Sure, Susan. On the long-term demand outlook, we're very positive. The housing shortage is a structural issue that will take years to address, and the growing population supports continued demand for housing. We're positioning the business to capture that demand by investing in our land pipeline, expanding our community count, and continuing to innovate on product design and customer experience. Our diversified portfolio across major markets and buyer groups gives us a strong platform for growth. On the balance sheet, we're in an exceptionally strong position with $1.3 billion of cash and a low debt-to-capital ratio. We'll continue to allocate capital to invest in the business, return capital to shareholders through dividends and share repurchases, and maintain financial flexibility to take advantage of opportunities as they arise.

S

Susan Maklari3:30:40

That's helpful. And then just a quick follow-up on the community count. You mentioned it would be up 3 to 5% in 2025. Could you talk about the expected community count at the end of the year?

J

Jim Ossowski3:30:55

Yes, Susan. We expect the community count to be up 3 to 5% at the end of the year compared to the end of 2024. The growth is fairly broad-based across our footprint, with a focus on markets where we see strong long-term demand. We're opening new communities that are well-positioned to serve the demand in those specific markets, and we expect that to support our delivery targets for 2025 and beyond.

C

Calvin3:31:30

Your next question comes from the line of Matthew Bouley of TD Cowen. Please go ahead.

M

Matthew Bouley3:31:35

Good morning. I wanted to ask about the build cost outlook. You mentioned build costs were flat year-over-year. Could you talk about the expected trend in build costs for the rest of the year? And then, secondly, on the tariff impact, could you talk about the specific products or materials that are most affected?

J

Jim Ossowski3:32:00

Sure, Matthew. On the build cost outlook, we expect build costs to remain relatively stable for the rest of the year, with the exception of the tariff impact. We've guided to a 1% increase in house cost from tariffs in the back half of the year. The specific products and materials most affected include appliances, fixtures, and some building materials that are sourced internationally. We're working with our suppliers to mitigate the impact, but we do expect some cost increase. Our procurement team is cycle-tested and has developed response strategies to minimize the impact on our margins.

M

Matthew Bouley3:32:45

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected buyer group mix in the second quarter?

J

Jim Ossowski3:33:00

Yes, Matthew. In the second quarter, we expect a slightly less favorable buyer group mix compared to the first quarter. We'll have a higher proportion of closings from first-time buyers, which typically have lower margins compared to move-up and active adult buyers. This mix shift is one of the factors contributing to the sequential decline in gross margin from Q1 to Q2.

C

Calvin3:33:35

Your next question comes from the line of Truman Patterson of Jefferies. Please go ahead.

T

Truman Patterson3:33:40

Good morning. I wanted to ask about the order trends by price point. Could you talk about which price points are performing better or worse? And then, secondly, on the incentives, could you talk about the expected trend in incentive levels by price point?

R

Ryan Marshall3:34:05

Sure, Truman. On the order trends by price point, we're seeing the most strength in the mid-to-upper price points, which are typically served by our move-up and active adult buyers. The lower price points, which are typically served by first-time buyers, are more challenged due to affordability constraints. On the incentive levels, we're seeing higher incentives at the lower price points to help first-time buyers overcome affordability hurdles. At the higher price points, incentives are lower because these buyers are less price-sensitive. The overall incentive level is what we've guided to at 8% of revenue, but the mix varies by price point.

T

Truman Patterson3:34:50

That's helpful. And then just a quick follow-up on the community count. Could you talk about the expected community count by region in the second half of the year?

J

Jim Ossowski3:35:05

Yes, Truman. We expect community count growth to be fairly broad-based across our footprint in the second half of the year. We're seeing the most growth in our Sunbelt markets, where we have strong positions and see continued demand. We're also seeing growth in some of our Midwest markets. The Northeast and West Coast markets are expected to be relatively flat. Overall, we expect the community count to be up 3 to 5% at the end of the year compared to the end of 2024.

C

Calvin3:35:40

Your next question comes from the line of Jade Ramani of KBW. Please go ahead.

J

Jade Ramani3:35:45

Hi, thanks for taking my question. I wanted to ask about the share repurchase. You mentioned you repurchased $300 million in the first quarter. Could you talk about the expected pace of repurchases for the rest of the year? And then, secondly, on the dividend, could you talk about the expected payout ratio?

R

Ryan Marshall3:36:10

Sure, Jade. On the share repurchase, we've been systematic and will continue to be. We repurchased $300 million in the first quarter, which is a good level. We'll continue to buy back shares when it makes sense, and we'll report the results as we go. We're not going to give specific guidance on the pace of repurchases. On the dividend, we're committed to growing the dividend over time. The payout ratio is something we evaluate as part of our overall capital allocation process, and we'll continue to balance returning capital to shareholders with investing in the business.

J

Jade Ramani3:36:55

That's helpful. And then just a quick follow-up on the financial services segment. Could you talk about the expected pre-tax income for the rest of the year?

J

Jim Ossowski3:37:10

Yes, Jade. We expect the financial services segment to perform in line with our homebuilding operations. As we deliver more homes, we expect to see higher pre-tax income from the segment. The capture rate is expected to remain in the mid-80s range, and we'll continue to focus on providing a seamless experience for our homebuyers. The outlook for the segment is positive, but it is dependent on closing volumes and the overall mortgage rate environment.

C

Calvin3:37:45

Your next question comes from the line of Carl Reichardt of BTIG. Please go ahead.

C

Carl Reichardt3:37:50

Good morning. I wanted to ask about the competitive landscape in the active adult segment. Are you seeing any change in the competitive behavior from other builders in that segment? And then, secondly, on the Del Webb communities, could you talk about the expected openings in the second half of the year?

R

Ryan Marshall3:38:15

Sure, Carl. On the competitive landscape, the active adult segment is less competitive than the entry-level segment because it's more niche. We are the leader in that segment with our Del Webb brand, and we continue to see strong demand. We're not seeing significant changes in competitive behavior. On the Del Webb openings, we have several new communities opening in the second half of the year, which will support our delivery targets for 2025 and beyond. The closings from these new communities will be more heavily weighted towards 2026 and beyond, but getting them open for sales is a critical first step.

C

Carl Reichardt3:39:00

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected geographic mix in the third and fourth quarters?

J

Jim Ossowski3:39:15

Yes, Carl. In the third and fourth quarters, we expect a similar geographic mix to what we saw in the second quarter. We'll have a higher proportion of closings in markets with lower margins, which will weigh on the overall gross margin. The buyer group mix is also expected to be similar. These mix shifts, along with the elevated incentive levels and the tariff impact, are the primary drivers of the gross margin guidance for the back half of the year.

C

Calvin3:39:50

Your next question comes from the line of Ken Zener of Seaport Research. Please go ahead.

K

Ken Zener3:39:55

Good morning. I wanted to ask about the spec inventory. You mentioned you reduced it by over 900 homes in the first quarter. Could you talk about the expected reduction in the second quarter? And then, secondly, on the starts pace, could you talk about the expected starts pace in the second quarter?

J

Jim Ossowski3:40:20

Sure, Ken. On the spec inventory, we expect to continue to make progress towards our target range of 40 to 45% in the second quarter. The pace of reduction will depend on demand, but we're focused on selling through the existing inventory and being more selective about new starts. We expect to reduce the spec count by a similar amount in the second quarter as we did in the first. On the starts pace, we expect to maintain a similar pace to what we saw in the first quarter, subject to changes in demand. Our goal is to balance the need to have homes available for delivery with the need to manage our inventory levels and protect our margins.

K

Ken Zener3:41:05

That's helpful. And then just a quick follow-up on the land spend. Could you talk about the expected land spend in the second quarter?

J

Jim Ossowski3:41:20

Yes, Ken. We expect the land spend in the second quarter to be in line with our overall expectation of $5 billion for the year. The mix between development and acquisition will be similar to what we saw in the first quarter, with a focus on development of our existing pipeline. We're being more selective on the acquisition front, focusing on deals that meet our return hurdles.

C

Calvin3:41:55

Your next question comes from the line of Mike Dahl of RBC Capital Markets. Please go ahead.

M

Mike Dahl3:42:00

Good morning. I wanted to ask about the order trends by buyer group. You mentioned first-time buyers were down 11%. Could you talk about the expected trend in first-time buyer orders for the rest of the year? And then, secondly, on the move-up and active adult segments, could you talk about the expected trend in orders for those segments?

R

Ryan Marshall3:42:30

Sure, Mike. On the first-time buyer segment, we expect orders to remain challenged due to affordability constraints. We're working to provide solutions that help first-time buyers overcome these hurdles, such as rate buydowns and more efficient floor plans. On the move-up and active adult segments, we expect orders to remain relatively strong because these buyers have more financial flexibility. We're seeing good demand in these segments, and we expect that to continue for the rest of the year.

M

Mike Dahl3:43:15

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the incentive levels are expected to remain elevated. Could you talk about the expected trend in incentive levels by buyer group?

J

Jim Ossowski3:43:30

Yes, Mike. We expect incentive levels to remain elevated across all buyer groups, but the mix will vary. First-time buyers will see higher incentives to help with affordability, while move-up and active adult buyers will see lower incentives because they are less price-sensitive. The overall incentive level is what we've guided to at 8% of revenue, but the mix by buyer group will continue to vary.

C

Calvin3:44:05

Your next question comes from the line of Jay McCanless of Wedbush Securities. Please go ahead.

J

Jay McCanless3:44:10

Good morning. I wanted to ask about the backlog. You mentioned it's down 16% in units. Could you talk about the expected backlog at the end of the second quarter? And then, secondly, on the conversion rate, could you talk about the expected conversion rate in the second quarter?

J

Jim Ossowski3:44:35

Sure, Jay. On the backlog, we expect it to be down slightly at the end of the second quarter compared to the end of the first quarter. The decline is driven by our expectation of higher closings in the second quarter. On the conversion rate, we expect to convert a significant portion of our backlog in the second quarter, given our delivery targets. The conversion rate will depend on demand and our ability to deliver homes on time, but we feel confident in our ability to meet our guidance.

J

Jay McCanless3:45:20

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected buyer group mix in the third and fourth quarters?

J

Jim Ossowski3:45:35

Yes, Jay. In the third and fourth quarters, we expect a similar buyer group mix to what we saw in the second quarter. We'll have a higher proportion of closings from first-time buyers, which typically have lower margins compared to move-up and active adult buyers. This mix shift, along with the elevated incentive levels and the tariff impact, are the primary drivers of the gross margin guidance for the back half of the year.

C

Calvin3:46:10

Your next question comes from the line of Deepa Raghavan of Wells Fargo. Please go ahead.

D

Deepa Raghavan3:46:15

Good morning. I wanted to ask about the land option strategy. You mentioned you've increased your option lot count by almost 30%. Could you talk about the expected option lot count at the end of the year? And then, secondly, on the land spend, could you talk about the expected return on investment for the land you're developing?

J

Jim Ossowski3:46:40

Sure, Deepa. On the option lot count, we expect it to continue to grow as we focus on optioning land rather than owning it outright. This gives us more flexibility and reduces our risk. We expect the option lot count to be up significantly at the end of the year compared to the end of 2024. On the land spend, we're targeting returns that are in line with our historical averages. We're being more selective in this environment, focusing on deals that meet our strict return hurdles. We're confident that our disciplined underwriting process will serve us well.

D

Deepa Raghavan3:47:25

That's helpful. And then just a quick follow-up on the financial services segment. Could you talk about the expected capture rate in the second quarter?

J

Jim Ossowski3:47:40

Yes, Deepa. We expect the capture rate to remain in the mid-80s range in the second quarter. We're focused on providing a seamless experience for our homebuyers, and we expect to continue to see strong capture rates as we deliver more homes. The outlook for the segment is positive, but it is dependent on closing volumes and the overall mortgage rate environment.

C

Calvin3:48:15

Your next question comes from the line of Alex Rygiel of Citigroup. Please go ahead.

A

Alex Rygiel3:48:20

Good morning. I wanted to ask about the competitive dynamics in the move-up segment. Are you seeing any change in the competitive behavior from other builders in that segment? And then, secondly, on the product mix, could you talk about the expected mix of spec versus built-to-order homes in the third and fourth quarters?

R

Ryan Marshall3:48:45

Sure, Alex. On the competitive dynamics, the move-up segment is less competitive than the entry-level segment because it's more focused on value and lifestyle. We're not seeing significant changes in competitive behavior. On the product mix, we expect the mix of spec versus built-to-order homes to be similar to what we saw in the first and second quarters. We're focused on reducing our spec inventory, but we'll continue to build spec homes where we have demand. The goal is to balance the need to have homes available for immediate delivery with the need to manage our inventory levels.

A

Alex Rygiel3:49:30

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the incentive levels are expected to remain elevated. Could you talk about the expected trend in incentive levels over the next few quarters?

J

Jim Ossowski3:49:45

Yes, Alex. We expect incentive levels to remain elevated for the foreseeable future as we continue to compete for buyers in this environment. The exact level will depend on demand and competitive dynamics, but we've guided to 8% of revenue for the full year, and we expect that to be a reasonable assumption. We'll continue to monitor the market and adjust our incentive strategy as needed to balance volume and margin.

C

Calvin3:50:20

Your next question comes from the line of Susan Maklari of Goldman Sachs. Please go ahead.

S

Susan Maklari3:50:25

Thank you. I wanted to ask about the long-term demand outlook. You mentioned the housing shortage and growing population. Could you talk about how you're positioning the business to capture that long-term demand? And then, secondly, on the balance sheet, you mentioned you have $1.3 billion of cash. Could you talk about how you're thinking about the use of that cash?

R

Ryan Marshall3:50:55

Sure, Susan. On the long-term demand outlook, we're very positive. The housing shortage is a structural issue that will take years to address, and the growing population supports continued demand for housing. We're positioning the business to capture that demand by investing in our land pipeline, expanding our community count, and continuing to innovate on product design and customer experience. Our diversified portfolio across major markets and buyer groups gives us a strong platform for growth. On the balance sheet, we're in an exceptionally strong position with $1.3 billion of cash and a low debt-to-capital ratio. We'll continue to allocate capital to invest in the business, return capital to shareholders through dividends and share repurchases, and maintain financial flexibility to take advantage of opportunities as they arise.

S

Susan Maklari3:51:45

That's helpful. And then just a quick follow-up on the community count. You mentioned it would be up 3 to 5% in 2025. Could you talk about the expected community count at the end of the year?

J

Jim Ossowski3:52:00

Yes, Susan. We expect the community count to be up 3 to 5% at the end of the year compared to the end of 2024. The growth is fairly broad-based across our footprint, with a focus on markets where we see strong long-term demand. We're opening new communities that are well-positioned to serve the demand in those specific markets, and we expect that to support our delivery targets for 2025 and beyond.

C

Calvin3:52:35

Your next question comes from the line of Matthew Bouley of TD Cowen. Please go ahead.

M

Matthew Bouley3:52:40

Good morning. I wanted to ask about the build cost outlook. You mentioned build costs were flat year-over-year. Could you talk about the expected trend in build costs for the rest of the year? And then, secondly, on the tariff impact, could you talk about the specific products or materials that are most affected?

J

Jim Ossowski3:53:05

Sure, Matthew. On the build cost outlook, we expect build costs to remain relatively stable for the rest of the year, with the exception of the tariff impact. We've guided to a 1% increase in house cost from tariffs in the back half of the year. The specific products and materials most affected include appliances, fixtures, and some building materials that are sourced internationally. We're working with our suppliers to mitigate the impact, but we do expect some cost increase. Our procurement team is cycle-tested and has developed response strategies to minimize the impact on our margins.

M

Matthew Bouley3:53:50

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected buyer group mix in the second quarter?

J

Jim Ossowski3:54:05

Yes, Matthew. In the second quarter, we expect a slightly less favorable buyer group mix compared to the first quarter. We'll have a higher proportion of closings from first-time buyers, which typically have lower margins compared to move-up and active adult buyers. This mix shift is one of the factors contributing to the sequential decline in gross margin from Q1 to Q2.

C

Calvin3:54:40

Your next question comes from the line of Truman Patterson of Jefferies. Please go ahead.

T

Truman Patterson3:54:45

Good morning. I wanted to ask about the order trends by price point. Could you talk about which price points are performing better or worse? And then, secondly, on the incentives, could you talk about the expected trend in incentive levels by price point?

R

Ryan Marshall3:55:10

Sure, Truman. On the order trends by price point, we're seeing the most strength in the mid-to-upper price points, which are typically served by our move-up and active adult buyers. The lower price points, which are typically served by first-time buyers, are more challenged due to affordability constraints. On the incentive levels, we're seeing higher incentives at the lower price points to help first-time buyers overcome affordability hurdles. At the higher price points, incentives are lower because these buyers are less price-sensitive. The overall incentive level is what we've guided to at 8% of revenue, but the mix varies by price point.

T

Truman Patterson3:55:55

That's helpful. And then just a quick follow-up on the community count. Could you talk about the expected community count by region in the second half of the year?

J

Jim Ossowski3:56:10

Yes, Truman. We expect community count growth to be fairly broad-based across our footprint in the second half of the year. We're seeing the most growth in our Sunbelt markets, where we have strong positions and see continued demand. We're also seeing growth in some of our Midwest markets. The Northeast and West Coast markets are expected to be relatively flat. Overall, we expect the community count to be up 3 to 5% at the end of the year compared to the end of 2024.

C

Calvin3:56:45

Your next question comes from the line of Jade Ramani of KBW. Please go ahead.

J

Jade Ramani3:56:50

Hi, thanks for taking my question. I wanted to ask about the share repurchase. You mentioned you repurchased $300 million in the first quarter. Could you talk about the expected pace of repurchases for the rest of the year? And then, secondly, on the dividend, could you talk about the expected payout ratio?

R

Ryan Marshall3:57:15

Sure, Jade. On the share repurchase, we've been systematic and will continue to be. We repurchased $300 million in the first quarter, which is a good level. We'll continue to buy back shares when it makes sense, and we'll report the results as we go. We're not going to give specific guidance on the pace of repurchases. On the dividend, we're committed to growing the dividend over time. The payout ratio is something we evaluate as part of our overall capital allocation process, and we'll continue to balance returning capital to shareholders with investing in the business.

J

Jade Ramani3:58:00

That's helpful. And then just a quick follow-up on the financial services segment. Could you talk about the expected pre-tax income for the rest of the year?

J

Jim Ossowski3:58:15

Yes, Jade. We expect the financial services segment to perform in line with our homebuilding operations. As we deliver more homes, we expect to see higher pre-tax income from the segment. The capture rate is expected to remain in the mid-80s range, and we'll continue to focus on providing a seamless experience for our homebuyers. The outlook for the segment is positive, but it is dependent on closing volumes and the overall mortgage rate environment.

C

Calvin3:58:50

Your next question comes from the line of Carl Reichardt of BTIG. Please go ahead.

C

Carl Reichardt3:58:55

Good morning. I wanted to ask about the competitive landscape in the active adult segment. Are you seeing any change in the competitive behavior from other builders in that segment? And then, secondly, on the Del Webb communities, could you talk about the expected openings in the second half of the year?

R

Ryan Marshall3:59:20

Sure, Carl. On the competitive landscape, the active adult segment is less competitive than the entry-level segment because it's more niche. We are the leader in that segment with our Del Webb brand, and we continue to see strong demand. We're not seeing significant changes in competitive behavior. On the Del Webb openings, we have several new communities opening in the second half of the year, which will support our delivery targets for 2025 and beyond. The closings from these new communities will be more heavily weighted towards 2026 and beyond, but getting them open for sales is a critical first step.

C

Carl Reichardt4:00:05

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected geographic mix in the third and fourth quarters?

J

Jim Ossowski4:00:20

Yes, Carl. In the third and fourth quarters, we expect a similar geographic mix to what we saw in the second quarter. We'll have a higher proportion of closings in markets with lower margins, which will weigh on the overall gross margin. The buyer group mix is also expected to be similar. These mix shifts, along with the elevated incentive levels and the tariff impact, are the primary drivers of the gross margin guidance for the back half of the year.

C

Calvin4:00:55

Your next question comes from the line of Ken Zener of Seaport Research. Please go ahead.

K

Ken Zener4:01:00

Good morning. I wanted to ask about the spec inventory. You mentioned you reduced it by over 900 homes in the first quarter. Could you talk about the expected reduction in the second quarter? And then, secondly, on the starts pace, could you talk about the expected starts pace in the second quarter?

J

Jim Ossowski4:01:25

Sure, Ken. On the spec inventory, we expect to continue to make progress towards our target range of 40 to 45% in the second quarter. The pace of reduction will depend on demand, but we're focused on selling through the existing inventory and being more selective about new starts. We expect to reduce the spec count by a similar amount in the second quarter as we did in the first. On the starts pace, we expect to maintain a similar pace to what we saw in the first quarter, subject to changes in demand. Our goal is to balance the need to have homes available for delivery with the need to manage our inventory levels and protect our margins.

K

Ken Zener4:02:10

That's helpful. And then just a quick follow-up on the land spend. Could you talk about the expected land spend in the second quarter?

J

Jim Ossowski4:02:25

Yes, Ken. We expect the land spend in the second quarter to be in line with our overall expectation of $5 billion for the year. The mix between development and acquisition will be similar to what we saw in the first quarter, with a focus on development of our existing pipeline. We're being more selective on the acquisition front, focusing on deals that meet our return hurdles.

C

Calvin4:03:00

Your next question comes from the line of Mike Dahl of RBC Capital Markets. Please go ahead.

M

Mike Dahl4:03:05

Good morning. I wanted to ask about the order trends by buyer group. You mentioned first-time buyers were down 11%. Could you talk about the expected trend in first-time buyer orders for the rest of the year? And then, secondly, on the move-up and active adult segments, could you talk about the expected trend in orders for those segments?

R

Ryan Marshall4:03:35

Sure, Mike. On the first-time buyer segment, we expect orders to remain challenged due to affordability constraints. We're working to provide solutions that help first-time buyers overcome these hurdles, such as rate buydowns and more efficient floor plans. On the move-up and active adult segments, we expect orders to remain relatively strong because these buyers have more financial flexibility. We're seeing good demand in these segments, and we expect that to continue for the rest of the year.

M

Mike Dahl4:04:20

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the incentive levels are expected to remain elevated. Could you talk about the expected trend in incentive levels by buyer group?

J

Jim Ossowski4:04:35

Yes, Mike. We expect incentive levels to remain elevated across all buyer groups, but the mix will vary. First-time buyers will see higher incentives to help with affordability, while move-up and active adult buyers will see lower incentives because they are less price-sensitive. The overall incentive level is what we've guided to at 8% of revenue, but the mix by buyer group will continue to vary.

C

Calvin4:05:10

Your next question comes from the line of Jay McCanless of Wedbush Securities. Please go ahead.

J

Jay McCanless4:05:15

Good morning. I wanted to ask about the backlog. You mentioned it's down 16% in units. Could you talk about the expected backlog at the end of the second quarter? And then, secondly, on the conversion rate, could you talk about the expected conversion rate in the second quarter?

J

Jim Ossowski4:05:40

Sure, Jay. On the backlog, we expect it to be down slightly at the end of the second quarter compared to the end of the first quarter. The decline is driven by our expectation of higher closings in the second quarter. On the conversion rate, we expect to convert a significant portion of our backlog in the second quarter, given our delivery targets. The conversion rate will depend on demand and our ability to deliver homes on time, but we feel confident in our ability to meet our guidance.

J

Jay McCanless4:06:25

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected buyer group mix in the third and fourth quarters?

J

Jim Ossowski4:06:40

Yes, Jay. In the third and fourth quarters, we expect a similar buyer group mix to what we saw in the second quarter. We'll have a higher proportion of closings from first-time buyers, which typically have lower margins compared to move-up and active adult buyers. This mix shift, along with the elevated incentive levels and the tariff impact, are the primary drivers of the gross margin guidance for the back half of the year.

C

Calvin4:07:15

Your next question comes from the line of Deepa Raghavan of Wells Fargo. Please go ahead.

D

Deepa Raghavan4:07:20

Good morning. I wanted to ask about the land option strategy. You mentioned you've increased your option lot count by almost 30%. Could you talk about the expected option lot count at the end of the year? And then, secondly, on the land spend, could you talk about the expected return on investment for the land you're developing?

J

Jim Ossowski4:07:45

Sure, Deepa. On the option lot count, we expect it to continue to grow as we focus on optioning land rather than owning it outright. This gives us more flexibility and reduces our risk. We expect the option lot count to be up significantly at the end of the year compared to the end of 2024. On the land spend, we're targeting returns that are in line with our historical averages. We're being more selective in this environment, focusing on deals that meet our strict return hurdles. We're confident that our disciplined underwriting process will serve us well.

D

Deepa Raghavan4:08:30

That's helpful. And then just a quick follow-up on the financial services segment. Could you talk about the expected capture rate in the second quarter?

J

Jim Ossowski4:08:45

Yes, Deepa. We expect the capture rate to remain in the mid-80s range in the second quarter. We're focused on providing a seamless experience for our homebuyers, and we expect to continue to see strong capture rates as we deliver more homes. The outlook for the segment is positive, but it is dependent on closing volumes and the overall mortgage rate environment.

C

Calvin4:09:20

Your next question comes from the line of Alex Rygiel of Citigroup. Please go ahead.

A

Alex Rygiel4:09:25

Good morning. I wanted to ask about the competitive dynamics in the move-up segment. Are you seeing any change in the competitive behavior from other builders in that segment? And then, secondly, on the product mix, could you talk about the expected mix of spec versus built-to-order homes in the third and fourth quarters?

R

Ryan Marshall4:09:50

Sure, Alex. On the competitive dynamics, the move-up segment is less competitive than the entry-level segment because it's more focused on value and lifestyle. We're not seeing significant changes in competitive behavior. On the product mix, we expect the mix of spec versus built-to-order homes to be similar to what we saw in the first and second quarters. We're focused on reducing our spec inventory, but we'll continue to build spec homes where we have demand. The goal is to balance the need to have homes available for immediate delivery with the need to manage our inventory levels.

A

Alex Rygiel4:10:35

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the incentive levels are expected to remain elevated. Could you talk about the expected trend in incentive levels over the next few quarters?

J

Jim Ossowski4:10:50

Yes, Alex. We expect incentive levels to remain elevated for the foreseeable future as we continue to compete for buyers in this environment. The exact level will depend on demand and competitive dynamics, but we've guided to 8% of revenue for the full year, and we expect that to be a reasonable assumption. We'll continue to monitor the market and adjust our incentive strategy as needed to balance volume and margin.

C

Calvin4:11:25

Your next question comes from the line of Susan Maklari of Goldman Sachs. Please go ahead.

S

Susan Maklari4:11:30

Thank you. I wanted to ask about the long-term demand outlook. You mentioned the housing shortage and growing population. Could you talk about how you're positioning the business to capture that long-term demand? And then, secondly, on the balance sheet, you mentioned you have $1.3 billion of cash. Could you talk about how you're thinking about the use of that cash?

R

Ryan Marshall4:12:00

Sure, Susan. On the long-term demand outlook, we're very positive. The housing shortage is a structural issue that will take years to address, and the growing population supports continued demand for housing. We're positioning the business to capture that demand by investing in our land pipeline, expanding our community count, and continuing to innovate on product design and customer experience. Our diversified portfolio across major markets and buyer groups gives us a strong platform for growth. On the balance sheet, we're in an exceptionally strong position with $1.3 billion of cash and a low debt-to-capital ratio. We'll continue to allocate capital to invest in the business, return capital to shareholders through dividends and share repurchases, and maintain financial flexibility to take advantage of opportunities as they arise.

S

Susan Maklari4:12:50

That's helpful. And then just a quick follow-up on the community count. You mentioned it would be up 3 to 5% in 2025. Could you talk about the expected community count at the end of the year?

J

Jim Ossowski4:13:05

Yes, Susan. We expect the community count to be up 3 to 5% at the end of the year compared to the end of 2024. The growth is fairly broad-based across our footprint, with a focus on markets where we see strong long-term demand. We're opening new communities that are well-positioned to serve the demand in those specific markets, and we expect that to support our delivery targets for 2025 and beyond.

C

Calvin4:13:40

Your next question comes from the line of Matthew Bouley of TD Cowen. Please go ahead.

M

Matthew Bouley4:13:45

Good morning. I wanted to ask about the build cost outlook. You mentioned build costs were flat year-over-year. Could you talk about the expected trend in build costs for the rest of the year? And then, secondly, on the tariff impact, could you talk about the specific products or materials that are most affected?

J

Jim Ossowski4:14:10

Sure, Matthew. On the build cost outlook, we expect build costs to remain relatively stable for the rest of the year, with the exception of the tariff impact. We've guided to a 1% increase in house cost from tariffs in the back half of the year. The specific products and materials most affected include appliances, fixtures, and some building materials that are sourced internationally. We're working with our suppliers to mitigate the impact, but we do expect some cost increase. Our procurement team is cycle-tested and has developed response strategies to minimize the impact on our margins.

M

Matthew Bouley4:14:55

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected buyer group mix in the second quarter?

J

Jim Ossowski4:15:10

Yes, Matthew. In the second quarter, we expect a slightly less favorable buyer group mix compared to the first quarter. We'll have a higher proportion of closings from first-time buyers, which typically have lower margins compared to move-up and active adult buyers. This mix shift is one of the factors contributing to the sequential decline in gross margin from Q1 to Q2.

C

Calvin4:15:45

Your next question comes from the line of Truman Patterson of Jefferies. Please go ahead.

T

Truman Patterson4:15:50

Good morning. I wanted to ask about the order trends by price point. Could you talk about which price points are performing better or worse? And then, secondly, on the incentives, could you talk about the expected trend in incentive levels by price point?

R

Ryan Marshall4:16:15

Sure, Truman. On the order trends by price point, we're seeing the most strength in the mid-to-upper price points, which are typically served by our move-up and active adult buyers. The lower price points, which are typically served by first-time buyers, are more challenged due to affordability constraints. On the incentive levels, we're seeing higher incentives at the lower price points to help first-time buyers overcome affordability hurdles. At the higher price points, incentives are lower because these buyers are less price-sensitive. The overall incentive level is what we've guided to at 8% of revenue, but the mix varies by price point.

T

Truman Patterson4:17:00

That's helpful. And then just a quick follow-up on the community count. Could you talk about the expected community count by region in the second half of the year?

J

Jim Ossowski4:17:15

Yes, Truman. We expect community count growth to be fairly broad-based across our footprint in the second half of the year. We're seeing the most growth in our Sunbelt markets, where we have strong positions and see continued demand. We're also seeing growth in some of our Midwest markets. The Northeast and West Coast markets are expected to be relatively flat. Overall, we expect the community count to be up 3 to 5% at the end of the year compared to the end of 2024.

C

Calvin4:17:50

Your next question comes from the line of Jade Ramani of KBW. Please go ahead.

J

Jade Ramani4:17:55

Hi, thanks for taking my question. I wanted to ask about the share repurchase. You mentioned you repurchased $300 million in the first quarter. Could you talk about the expected pace of repurchases for the rest of the year? And then, secondly, on the dividend, could you talk about the expected payout ratio?

R

Ryan Marshall4:18:20

Sure, Jade. On the share repurchase, we've been systematic and will continue to be. We repurchased $300 million in the first quarter, which is a good level. We'll continue to buy back shares when it makes sense, and we'll report the results as we go. We're not going to give specific guidance on the pace of repurchases. On the dividend, we're committed to growing the dividend over time. The payout ratio is something we evaluate as part of our overall capital allocation process, and we'll continue to balance returning capital to shareholders with investing in the business.

J

Jade Ramani4:19:05

That's helpful. And then just a quick follow-up on the financial services segment. Could you talk about the expected pre-tax income for the rest of the year?

J

Jim Ossowski4:19:20

Yes, Jade. We expect the financial services segment to perform in line with our homebuilding operations. As we deliver more homes, we expect to see higher pre-tax income from the segment. The capture rate is expected to remain in the mid-80s range, and we'll continue to focus on providing a seamless experience for our homebuyers. The outlook for the segment is positive, but it is dependent on closing volumes and the overall mortgage rate environment.

C

Calvin4:19:55

Your next question comes from the line of Carl Reichardt of BTIG. Please go ahead.

C

Carl Reichardt4:20:00

Good morning. I wanted to ask about the competitive landscape in the active adult segment. Are you seeing any change in the competitive behavior from other builders in that segment? And then, secondly, on the Del Webb communities, could you talk about the expected openings in the second half of the year?

R

Ryan Marshall4:20:25

Sure, Carl. On the competitive landscape, the active adult segment is less competitive than the entry-level segment because it's more niche. We are the leader in that segment with our Del Webb brand, and we continue to see strong demand. We're not seeing significant changes in competitive behavior. On the Del Webb openings, we have several new communities opening in the second half of the year, which will support our delivery targets for 2025 and beyond. The closings from these new communities will be more heavily weighted towards 2026 and beyond, but getting them open for sales is a critical first step.

C

Carl Reichardt4:21:10

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected geographic mix in the third and fourth quarters?

J

Jim Ossowski4:21:25

Yes, Carl. In the third and fourth quarters, we expect a similar geographic mix to what we saw in the second quarter. We'll have a higher proportion of closings in markets with lower margins, which will weigh on the overall gross margin. The buyer group mix is also expected to be similar. These mix shifts, along with the elevated incentive levels and the tariff impact, are the primary drivers of the gross margin guidance for the back half of the year.

C

Calvin4:22:00

Your next question comes from the line of Ken Zener of Seaport Research. Please go ahead.

K

Ken Zener4:22:05

Good morning. I wanted to ask about the spec inventory. You mentioned you reduced it by over 900 homes in the first quarter. Could you talk about the expected reduction in the second quarter? And then, secondly, on the starts pace, could you talk about the expected starts pace in the second quarter?

J

Jim Ossowski4:22:30

Sure, Ken. On the spec inventory, we expect to continue to make progress towards our target range of 40 to 45% in the second quarter. The pace of reduction will depend on demand, but we're focused on selling through the existing inventory and being more selective about new starts. We expect to reduce the spec count by a similar amount in the second quarter as we did in the first. On the starts pace, we expect to maintain a similar pace to what we saw in the first quarter, subject to changes in demand. Our goal is to balance the need to have homes available for delivery with the need to manage our inventory levels and protect our margins.

K

Ken Zener4:23:15

That's helpful. And then just a quick follow-up on the land spend. Could you talk about the expected land spend in the second quarter?

J

Jim Ossowski4:23:30

Yes, Ken. We expect the land spend in the second quarter to be in line with our overall expectation of $5 billion for the year. The mix between development and acquisition will be similar to what we saw in the first quarter, with a focus on development of our existing pipeline. We're being more selective on the acquisition front, focusing on deals that meet our return hurdles.

C

Calvin4:24:05

Your next question comes from the line of Mike Dahl of RBC Capital Markets. Please go ahead.

M

Mike Dahl4:24:10

Good morning. I wanted to ask about the order trends by buyer group. You mentioned first-time buyers were down 11%. Could you talk about the expected trend in first-time buyer orders for the rest of the year? And then, secondly, on the move-up and active adult segments, could you talk about the expected trend in orders for those segments?

R

Ryan Marshall4:24:40

Sure, Mike. On the first-time buyer segment, we expect orders to remain challenged due to affordability constraints. We're working to provide solutions that help first-time buyers overcome these hurdles, such as rate buydowns and more efficient floor plans. On the move-up and active adult segments, we expect orders to remain relatively strong because these buyers have more financial flexibility. We're seeing good demand in these segments, and we expect that to continue for the rest of the year.

M

Mike Dahl4:25:25

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the incentive levels are expected to remain elevated. Could you talk about the expected trend in incentive levels by buyer group?

J

Jim Ossowski4:25:40

Yes, Mike. We expect incentive levels to remain elevated across all buyer groups, but the mix will vary. First-time buyers will see higher incentives to help with affordability, while move-up and active adult buyers will see lower incentives because they are less price-sensitive. The overall incentive level is what we've guided to at 8% of revenue, but the mix by buyer group will continue to vary.

C

Calvin4:26:15

Your next question comes from the line of Jay McCanless of Wedbush Securities. Please go ahead.

J

Jay McCanless4:26:20

Good morning. I wanted to ask about the backlog. You mentioned it's down 16% in units. Could you talk about the expected backlog at the end of the second quarter? And then, secondly, on the conversion rate, could you talk about the expected conversion rate in the second quarter?

J

Jim Ossowski4:26:45

Sure, Jay. On the backlog, we expect it to be down slightly at the end of the second quarter compared to the end of the first quarter. The decline is driven by our expectation of higher closings in the second quarter. On the conversion rate, we expect to convert a significant portion of our backlog in the second quarter, given our delivery targets. The conversion rate will depend on demand and our ability to deliver homes on time, but we feel confident in our ability to meet our guidance.

J

Jay McCanless4:27:30

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected buyer group mix in the third and fourth quarters?

J

Jim Ossowski4:27:45

Yes, Jay. In the third and fourth quarters, we expect a similar buyer group mix to what we saw in the second quarter. We'll have a higher proportion of closings from first-time buyers, which typically have lower margins compared to move-up and active adult buyers. This mix shift, along with the elevated incentive levels and the tariff impact, are the primary drivers of the gross margin guidance for the back half of the year.

C

Calvin4:28:20

Your next question comes from the line of Deepa Raghavan of Wells Fargo. Please go ahead.

D

Deepa Raghavan4:28:25

Good morning. I wanted to ask about the land option strategy. You mentioned you've increased your option lot count by almost 30%. Could you talk about the expected option lot count at the end of the year? And then, secondly, on the land spend, could you talk about the expected return on investment for the land you're developing?

J

Jim Ossowski4:28:50

Sure, Deepa. On the option lot count, we expect it to continue to grow as we focus on optioning land rather than owning it outright. This gives us more flexibility and reduces our risk. We expect the option lot count to be up significantly at the end of the year compared to the end of 2024. On the land spend, we're targeting returns that are in line with our historical averages. We're being more selective in this environment, focusing on deals that meet our strict return hurdles. We're confident that our disciplined underwriting process will serve us well.

D

Deepa Raghavan4:29:35

That's helpful. And then just a quick follow-up on the financial services segment. Could you talk about the expected capture rate in the second quarter?

J

Jim Ossowski4:29:50

Yes, Deepa. We expect the capture rate to remain in the mid-80s range in the second quarter. We're focused on providing a seamless experience for our homebuyers, and we expect to continue to see strong capture rates as we deliver more homes. The outlook for the segment is positive, but it is dependent on closing volumes and the overall mortgage rate environment.

C

Calvin4:30:25

Your next question comes from the line of Alex Rygiel of Citigroup. Please go ahead.

A

Alex Rygiel4:30:30

Good morning. I wanted to ask about the competitive dynamics in the move-up segment. Are you seeing any change in the competitive behavior from other builders in that segment? And then, secondly, on the product mix, could you talk about the expected mix of spec versus built-to-order homes in the third and fourth quarters?

R

Ryan Marshall4:30:55

Sure, Alex. On the competitive dynamics, the move-up segment is less competitive than the entry-level segment because it's more focused on value and lifestyle. We're not seeing significant changes in competitive behavior. On the product mix, we expect the mix of spec versus built-to-order homes to be similar to what we saw in the first and second quarters. We're focused on reducing our spec inventory, but we'll continue to build spec homes where we have demand. The goal is to balance the need to have homes available for immediate delivery with the need to manage our inventory levels.

A

Alex Rygiel4:31:40

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the incentive levels are expected to remain elevated. Could you talk about the expected trend in incentive levels over the next few quarters?

J

Jim Ossowski4:31:55

Yes, Alex. We expect incentive levels to remain elevated for the foreseeable future as we continue to compete for buyers in this environment. The exact level will depend on demand and competitive dynamics, but we've guided to 8% of revenue for the full year, and we expect that to be a reasonable assumption. We'll continue to monitor the market and adjust our incentive strategy as needed to balance volume and margin.

C

Calvin4:32:30

Your next question comes from the line of Susan Maklari of Goldman Sachs. Please go ahead.

S

Susan Maklari4:32:35

Thank you. I wanted to ask about the long-term demand outlook. You mentioned the housing shortage and growing population. Could you talk about how you're positioning the business to capture that long-term demand? And then, secondly, on the balance sheet, you mentioned you have $1.3 billion of cash. Could you talk about how you're thinking about the use of that cash?

R

Ryan Marshall4:33:05

Sure, Susan. On the long-term demand outlook, we're very positive. The housing shortage is a structural issue that will take years to address, and the growing population supports continued demand for housing. We're positioning the business to capture that demand by investing in our land pipeline, expanding our community count, and continuing to innovate on product design and customer experience. Our diversified portfolio across major markets and buyer groups gives us a strong platform for growth. On the balance sheet, we're in an exceptionally strong position with $1.3 billion of cash and a low debt-to-capital ratio. We'll continue to allocate capital to invest in the business, return capital to shareholders through dividends and share repurchases, and maintain financial flexibility to take advantage of opportunities as they arise.

S

Susan Maklari4:33:55

That's helpful. And then just a quick follow-up on the community count. You mentioned it would be up 3 to 5% in 2025. Could you talk about the expected community count at the end of the year?

J

Jim Ossowski4:34:10

Yes, Susan. We expect the community count to be up 3 to 5% at the end of the year compared to the end of 2024. The growth is fairly broad-based across our footprint, with a focus on markets where we see strong long-term demand. We're opening new communities that are well-positioned to serve the demand in those specific markets, and we expect that to support our delivery targets for 2025 and beyond.

C

Calvin4:34:45

Your next question comes from the line of Matthew Bouley of TD Cowen. Please go ahead.

M

Matthew Bouley4:34:50

Good morning. I wanted to ask about the build cost outlook. You mentioned build costs were flat year-over-year. Could you talk about the expected trend in build costs for the rest of the year? And then, secondly, on the tariff impact, could you talk about the specific products or materials that are most affected?

J

Jim Ossowski4:35:15

Sure, Matthew. On the build cost outlook, we expect build costs to remain relatively stable for the rest of the year, with the exception of the tariff impact. We've guided to a 1% increase in house cost from tariffs in the back half of the year. The specific products and materials most affected include appliances, fixtures, and some building materials that are sourced internationally. We're working with our suppliers to mitigate the impact, but we do expect some cost increase. Our procurement team is cycle-tested and has developed response strategies to minimize the impact on our margins.

M

Matthew Bouley4:36:00

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected buyer group mix in the second quarter?

J

Jim Ossowski4:36:15

Yes, Matthew. In the second quarter, we expect a slightly less favorable buyer group mix compared to the first quarter. We'll have a higher proportion of closings from first-time buyers, which typically have lower margins compared to move-up and active adult buyers. This mix shift is one of the factors contributing to the sequential decline in gross margin from Q1 to Q2.

C

Calvin4:36:50

Your next question comes from the line of Truman Patterson of Jefferies. Please go ahead.

T

Truman Patterson4:36:55

Good morning. I wanted to ask about the order trends by price point. Could you talk about which price points are performing better or worse? And then, secondly, on the incentives, could you talk about the expected trend in incentive levels by price point?

R

Ryan Marshall4:37:20

Sure, Truman. On the order trends by price point, we're seeing the most strength in the mid-to-upper price points, which are typically served by our move-up and active adult buyers. The lower price points, which are typically served by first-time buyers, are more challenged due to affordability constraints. On the incentive levels, we're seeing higher incentives at the lower price points to help first-time buyers overcome affordability hurdles. At the higher price points, incentives are lower because these buyers are less price-sensitive. The overall incentive level is what we've guided to at 8% of revenue, but the mix varies by price point.

T

Truman Patterson4:38:05

That's helpful. And then just a quick follow-up on the community count. Could you talk about the expected community count by region in the second half of the year?

J

Jim Ossowski4:38:20

Yes, Truman. We expect community count growth to be fairly broad-based across our footprint in the second half of the year. We're seeing the most growth in our Sunbelt markets, where we have strong positions and see continued demand. We're also seeing growth in some of our Midwest markets. The Northeast and West Coast markets are expected to be relatively flat. Overall, we expect the community count to be up 3 to 5% at the end of the year compared to the end of 2024.

C

Calvin4:38:55

Your next question comes from the line of Jade Ramani of KBW. Please go ahead.

J

Jade Ramani4:39:00

Hi, thanks for taking my question. I wanted to ask about the share repurchase. You mentioned you repurchased $300 million in the first quarter. Could you talk about the expected pace of repurchases for the rest of the year? And then, secondly, on the dividend, could you talk about the expected payout ratio?

R

Ryan Marshall4:39:25

Sure, Jade. On the share repurchase, we've been systematic and will continue to be. We repurchased $300 million in the first quarter, which is a good level. We'll continue to buy back shares when it makes sense, and we'll report the results as we go. We're not going to give specific guidance on the pace of repurchases. On the dividend, we're committed to growing the dividend over time. The payout ratio is something we evaluate as part of our overall capital allocation process, and we'll continue to balance returning capital to shareholders with investing in the business.

J

Jade Ramani4:40:10

That's helpful. And then just a quick follow-up on the financial services segment. Could you talk about the expected pre-tax income for the rest of the year?

J

Jim Ossowski4:40:25

Yes, Jade. We expect the financial services segment to perform in line with our homebuilding operations. As we deliver more homes, we expect to see higher pre-tax income from the segment. The capture rate is expected to remain in the mid-80s range, and we'll continue to focus on providing a seamless experience for our homebuyers. The outlook for the segment is positive, but it is dependent on closing volumes and the overall mortgage rate environment.

C

Calvin4:41:00

Your next question comes from the line of Carl Reichardt of BTIG. Please go ahead.

C

Carl Reichardt4:41:05

Good morning. I wanted to ask about the competitive landscape in the active adult segment. Are you seeing any change in the competitive behavior from other builders in that segment? And then, secondly, on the Del Webb communities, could you talk about the expected openings in the second half of the year?

R

Ryan Marshall4:41:30

Sure, Carl. On the competitive landscape, the active adult segment is less competitive than the entry-level segment because it's more niche. We are the leader in that segment with our Del Webb brand, and we continue to see strong demand. We're not seeing significant changes in competitive behavior. On the Del Webb openings, we have several new communities opening in the second half of the year, which will support our delivery targets for 2025 and beyond. The closings from these new communities will be more heavily weighted towards 2026 and beyond, but getting them open for sales is a critical first step.

C

Carl Reichardt4:42:15

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected geographic mix in the third and fourth quarters?

J

Jim Ossowski4:42:30

Yes, Carl. In the third and fourth quarters, we expect a similar geographic mix to what we saw in the second quarter. We'll have a higher proportion of closings in markets with lower margins, which will weigh on the overall gross margin. The buyer group mix is also expected to be similar. These mix shifts, along with the elevated incentive levels and the tariff impact, are the primary drivers of the gross margin guidance for the back half of the year.

C

Calvin4:43:05

Your next question comes from the line of Ken Zener of Seaport Research. Please go ahead.

K

Ken Zener4:43:10

Good morning. I wanted to ask about the spec inventory. You mentioned you reduced it by over 900 homes in the first quarter. Could you talk about the expected reduction in the second quarter? And then, secondly, on the starts pace, could you talk about the expected starts pace in the second quarter?

J

Jim Ossowski4:43:35

Sure, Ken. On the spec inventory, we expect to continue to make progress towards our target range of 40 to 45% in the second quarter. The pace of reduction will depend on demand, but we're focused on selling through the existing inventory and being more selective about new starts. We expect to reduce the spec count by a similar amount in the second quarter as we did in the first. On the starts pace, we expect to maintain a similar pace to what we saw in the first quarter, subject to changes in demand. Our goal is to balance the need to have homes available for delivery with the need to manage our inventory levels and protect our margins.

K

Ken Zener4:44:20

That's helpful. And then just a quick follow-up on the land spend. Could you talk about the expected land spend in the second quarter?

J

Jim Ossowski4:44:35

Yes, Ken. We expect the land spend in the second quarter to be in line with our overall expectation of $5 billion for the year. The mix between development and acquisition will be similar to what we saw in the first quarter, with a focus on development of our existing pipeline. We're being more selective on the acquisition front, focusing on deals that meet our return hurdles.

C

Calvin4:45:10

Your next question comes from the line of Mike Dahl of RBC Capital Markets. Please go ahead.

M

Mike Dahl4:45:15

Good morning. I wanted to ask about the order trends by buyer group. You mentioned first-time buyers were down 11%. Could you talk about the expected trend in first-time buyer orders for the rest of the year? And then, secondly, on the move-up and active adult segments, could you talk about the expected trend in orders for those segments?

R

Ryan Marshall4:45:45

Sure, Mike. On the first-time buyer segment, we expect orders to remain challenged due to affordability constraints. We're working to provide solutions that help first-time buyers overcome these hurdles, such as rate buydowns and more efficient floor plans. On the move-up and active adult segments, we expect orders to remain relatively strong because these buyers have more financial flexibility. We're seeing good demand in these segments, and we expect that to continue for the rest of the year.

M

Mike Dahl4:46:30

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the incentive levels are expected to remain elevated. Could you talk about the expected trend in incentive levels by buyer group?

J

Jim Ossowski4:46:45

Yes, Mike. We expect incentive levels to remain elevated across all buyer groups, but the mix will vary. First-time buyers will see higher incentives to help with affordability, while move-up and active adult buyers will see lower incentives because they are less price-sensitive. The overall incentive level is what we've guided to at 8% of revenue, but the mix by buyer group will continue to vary.

C

Calvin4:47:20

Your next question comes from the line of Jay McCanless of Wedbush Securities. Please go ahead.

J

Jay McCanless4:47:25

Good morning. I wanted to ask about the backlog. You mentioned it's down 16% in units. Could you talk about the expected backlog at the end of the second quarter? And then, secondly, on the conversion rate, could you talk about the expected conversion rate in the second quarter?

J

Jim Ossowski4:47:50

Sure, Jay. On the backlog, we expect it to be down slightly at the end of the second quarter compared to the end of the first quarter. The decline is driven by our expectation of higher closings in the second quarter. On the conversion rate, we expect to convert a significant portion of our backlog in the second quarter, given our delivery targets. The conversion rate will depend on demand and our ability to deliver homes on time, but we feel confident in our ability to meet our guidance.

J

Jay McCanless4:48:35

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected buyer group mix in the third and fourth quarters?

J

Jim Ossowski4:48:50

Yes, Jay. In the third and fourth quarters, we expect a similar buyer group mix to what we saw in the second quarter. We'll have a higher proportion of closings from first-time buyers, which typically have lower margins compared to move-up and active adult buyers. This mix shift, along with the elevated incentive levels and the tariff impact, are the primary drivers of the gross margin guidance for the back half of the year.

C

Calvin4:49:25

Your next question comes from the line of Deepa Raghavan of Wells Fargo. Please go ahead.

D

Deepa Raghavan4:49:30

Good morning. I wanted to ask about the land option strategy. You mentioned you've increased your option lot count by almost 30%. Could you talk about the expected option lot count at the end of the year? And then, secondly, on the land spend, could you talk about the expected return on investment for the land you're developing?

J

Jim Ossowski4:49:55

Sure, Deepa. On the option lot count, we expect it to continue to grow as we focus on optioning land rather than owning it outright. This gives us more flexibility and reduces our risk. We expect the option lot count to be up significantly at the end of the year compared to the end of 2024. On the land spend, we're targeting returns that are in line with our historical averages. We're being more selective in this environment, focusing on deals that meet our strict return hurdles. We're confident that our disciplined underwriting process will serve us well.

D

Deepa Raghavan4:50:40

That's helpful. And then just a quick follow-up on the financial services segment. Could you talk about the expected capture rate in the second quarter?

J

Jim Ossowski4:50:55

Yes, Deepa. We expect the capture rate to remain in the mid-80s range in the second quarter. We're focused on providing a seamless experience for our homebuyers, and we expect to continue to see strong capture rates as we deliver more homes. The outlook for the segment is positive, but it is dependent on closing volumes and the overall mortgage rate environment.

C

Calvin4:51:30

Your next question comes from the line of Alex Rygiel of Citigroup. Please go ahead.

A

Alex Rygiel4:51:35

Good morning. I wanted to ask about the competitive dynamics in the move-up segment. Are you seeing any change in the competitive behavior from other builders in that segment? And then, secondly, on the product mix, could you talk about the expected mix of spec versus built-to-order homes in the third and fourth quarters?

R

Ryan Marshall4:52:00

Sure, Alex. On the competitive dynamics, the move-up segment is less competitive than the entry-level segment because it's more focused on value and lifestyle. We're not seeing significant changes in competitive behavior. On the product mix, we expect the mix of spec versus built-to-order homes to be similar to what we saw in the first and second quarters. We're focused on reducing our spec inventory, but we'll continue to build spec homes where we have demand. The goal is to balance the need to have homes available for immediate delivery with the need to manage our inventory levels.

A

Alex Rygiel4:52:45

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the incentive levels are expected to remain elevated. Could you talk about the expected trend in incentive levels over the next few quarters?

J

Jim Ossowski4:53:00

Yes, Alex. We expect incentive levels to remain elevated for the foreseeable future as we continue to compete for buyers in this environment. The exact level will depend on demand and competitive dynamics, but we've guided to 8% of revenue for the full year, and we expect that to be a reasonable assumption. We'll continue to monitor the market and adjust our incentive strategy as needed to balance volume and margin.

C

Calvin4:53:35

Your next question comes from the line of Susan Maklari of Goldman Sachs. Please go ahead.

S

Susan Maklari4:53:40

Thank you. I wanted to ask about the long-term demand outlook. You mentioned the housing shortage and growing population. Could you talk about how you're positioning the business to capture that long-term demand? And then, secondly, on the balance sheet, you mentioned you have $1.3 billion of cash. Could you talk about how you're thinking about the use of that cash?

R

Ryan Marshall4:54:10

Sure, Susan. On the long-term demand outlook, we're very positive. The housing shortage is a structural issue that will take years to address, and the growing population supports continued demand for housing. We're positioning the business to capture that demand by investing in our land pipeline, expanding our community count, and continuing to innovate on product design and customer experience. Our diversified portfolio across major markets and buyer groups gives us a strong platform for growth. On the balance sheet, we're in an exceptionally strong position with $1.3 billion of cash and a low debt-to-capital ratio. We'll continue to allocate capital to invest in the business, return capital to shareholders through dividends and share repurchases, and maintain financial flexibility to take advantage of opportunities as they arise.

S

Susan Maklari4:55:00

That's helpful. And then just a quick follow-up on the community count. You mentioned it would be up 3 to 5% in 2025. Could you talk about the expected community count at the end of the year?

J

Jim Ossowski4:55:15

Yes, Susan. We expect the community count to be up 3 to 5% at the end of the year compared to the end of 2024. The growth is fairly broad-based across our footprint, with a focus on markets where we see strong long-term demand. We're opening new communities that are well-positioned to serve the demand in those specific markets, and we expect that to support our delivery targets for 2025 and beyond.

C

Calvin4:55:50

Your next question comes from the line of Matthew Bouley of TD Cowen. Please go ahead.

M

Matthew Bouley4:55:55

Good morning. I wanted to ask about the build cost outlook. You mentioned build costs were flat year-over-year. Could you talk about the expected trend in build costs for the rest of the year? And then, secondly, on the tariff impact, could you talk about the specific products or materials that are most affected?

J

Jim Ossowski4:56:20

Sure, Matthew. On the build cost outlook, we expect build costs to remain relatively stable for the rest of the year, with the exception of the tariff impact. We've guided to a 1% increase in house cost from tariffs in the back half of the year. The specific products and materials most affected include appliances, fixtures, and some building materials that are sourced internationally. We're working with our suppliers to mitigate the impact, but we do expect some cost increase. Our procurement team is cycle-tested and has developed response strategies to minimize the impact on our margins.

M

Matthew Bouley4:57:05

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected buyer group mix in the second quarter?

J

Jim Ossowski4:57:20

Yes, Matthew. In the second quarter, we expect a slightly less favorable buyer group mix compared to the first quarter. We'll have a higher proportion of closings from first-time buyers, which typically have lower margins compared to move-up and active adult buyers. This mix shift is one of the factors contributing to the sequential decline in gross margin from Q1 to Q2.

C

Calvin4:57:55

Your next question comes from the line of Truman Patterson of Jefferies. Please go ahead.

T

Truman Patterson4:58:00

Good morning. I wanted to ask about the order trends by price point. Could you talk about which price points are performing better or worse? And then, secondly, on the incentives, could you talk about the expected trend in incentive levels by price point?

R

Ryan Marshall4:58:25

Sure, Truman. On the order trends by price point, we're seeing the most strength in the mid-to-upper price points, which are typically served by our move-up and active adult buyers. The lower price points, which are typically served by first-time buyers, are more challenged due to affordability constraints. On the incentive levels, we're seeing higher incentives at the lower price points to help first-time buyers overcome affordability hurdles. At the higher price points, incentives are lower because these buyers are less price-sensitive. The overall incentive level is what we've guided to at 8% of revenue, but the mix varies by price point.

T

Truman Patterson4:59:10

That's helpful. And then just a quick follow-up on the community count. Could you talk about the expected community count by region in the second half of the year?

J

Jim Ossowski4:59:25

Yes, Truman. We expect community count growth to be fairly broad-based across our footprint in the second half of the year. We're seeing the most growth in our Sunbelt markets, where we have strong positions and see continued demand. We're also seeing growth in some of our Midwest markets. The Northeast and West Coast markets are expected to be relatively flat. Overall, we expect the community count to be up 3 to 5% at the end of the year compared to the end of 2024.

C

Calvin5:00:00

Your next question comes from the line of Jade Ramani of KBW. Please go ahead.

J

Jade Ramani5:00:05

Hi, thanks for taking my question. I wanted to ask about the share repurchase. You mentioned you repurchased $300 million in the first quarter. Could you talk about the expected pace of repurchases for the rest of the year? And then, secondly, on the dividend, could you talk about the expected payout ratio?

R

Ryan Marshall5:00:30

Sure, Jade. On the share repurchase, we've been systematic and will continue to be. We repurchased $300 million in the first quarter, which is a good level. We'll continue to buy back shares when it makes sense, and we'll report the results as we go. We're not going to give specific guidance on the pace of repurchases. On the dividend, we're committed to growing the dividend over time. The payout ratio is something we evaluate as part of our overall capital allocation process, and we'll continue to balance returning capital to shareholders with investing in the business.

J

Jade Ramani5:01:15

That's helpful. And then just a quick follow-up on the financial services segment. Could you talk about the expected pre-tax income for the rest of the year?

J

Jim Ossowski5:01:30

Yes, Jade. We expect the financial services segment to perform in line with our homebuilding operations. As we deliver more homes, we expect to see higher pre-tax income from the segment. The capture rate is expected to remain in the mid-80s range, and we'll continue to focus on providing a seamless experience for our homebuyers. The outlook for the segment is positive, but it is dependent on closing volumes and the overall mortgage rate environment.

C

Calvin5:02:05

Your next question comes from the line of Carl Reichardt of BTIG. Please go ahead.

C

Carl Reichardt5:02:10

Good morning. I wanted to ask about the competitive landscape in the active adult segment. Are you seeing any change in the competitive behavior from other builders in that segment? And then, secondly, on the Del Webb communities, could you talk about the expected openings in the second half of the year?

R

Ryan Marshall5:02:35

Sure, Carl. On the competitive landscape, the active adult segment is less competitive than the entry-level segment because it's more niche. We are the leader in that segment with our Del Webb brand, and we continue to see strong demand. We're not seeing significant changes in competitive behavior. On the Del Webb openings, we have several new communities opening in the second half of the year, which will support our delivery targets for 2025 and beyond. The closings from these new communities will be more heavily weighted towards 2026 and beyond, but getting them open for sales is a critical first step.

C

Carl Reichardt5:03:20

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected geographic mix in the third and fourth quarters?

J

Jim Ossowski5:03:35

Yes, Carl. In the third and fourth quarters, we expect a similar geographic mix to what we saw in the second quarter. We'll have a higher proportion of closings in markets with lower margins, which will weigh on the overall gross margin. The buyer group mix is also expected to be similar. These mix shifts, along with the elevated incentive levels and the tariff impact, are the primary drivers of the gross margin guidance for the back half of the year.

C

Calvin5:04:10

Your next question comes from the line of Ken Zener of Seaport Research. Please go ahead.

K

Ken Zener5:04:15

Good morning. I wanted to ask about the spec inventory. You mentioned you reduced it by over 900 homes in the first quarter. Could you talk about the expected reduction in the second quarter? And then, secondly, on the starts pace, could you talk about the expected starts pace in the second quarter?

J

Jim Ossowski5:04:40

Sure, Ken. On the spec inventory, we expect to continue to make progress towards our target range of 40 to 45% in the second quarter. The pace of reduction will depend on demand, but we're focused on selling through the existing inventory and being more selective about new starts. We expect to reduce the spec count by a similar amount in the second quarter as we did in the first. On the starts pace, we expect to maintain a similar pace to what we saw in the first quarter, subject to changes in demand. Our goal is to balance the need to have homes available for delivery with the need to manage our inventory levels and protect our margins.

K

Ken Zener5:05:25

That's helpful. And then just a quick follow-up on the land spend. Could you talk about the expected land spend in the second quarter?

J

Jim Ossowski5:05:40

Yes, Ken. We expect the land spend in the second quarter to be in line with our overall expectation of $5 billion for the year. The mix between development and acquisition will be similar to what we saw in the first quarter, with a focus on development of our existing pipeline. We're being more selective on the acquisition front, focusing on deals that meet our return hurdles.

C

Calvin5:06:15

Your next question comes from the line of Mike Dahl of RBC Capital Markets. Please go ahead.

M

Mike Dahl5:06:20

Good morning. I wanted to ask about the order trends by buyer group. You mentioned first-time buyers were down 11%. Could you talk about the expected trend in first-time buyer orders for the rest of the year? And then, secondly, on the move-up and active adult segments, could you talk about the expected trend in orders for those segments?

R

Ryan Marshall5:06:50

Sure, Mike. On the first-time buyer segment, we expect orders to remain challenged due to affordability constraints. We're working to provide solutions that help first-time buyers overcome these hurdles, such as rate buydowns and more efficient floor plans. On the move-up and active adult segments, we expect orders to remain relatively strong because these buyers have more financial flexibility. We're seeing good demand in these segments, and we expect that to continue for the rest of the year.

M

Mike Dahl5:07:35

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the incentive levels are expected to remain elevated. Could you talk about the expected trend in incentive levels by buyer group?

J

Jim Ossowski5:07:50

Yes, Mike. We expect incentive levels to remain elevated across all buyer groups, but the mix will vary. First-time buyers will see higher incentives to help with affordability, while move-up and active adult buyers will see lower incentives because they are less price-sensitive. The overall incentive level is what we've guided to at 8% of revenue, but the mix by buyer group will continue to vary.

C

Calvin5:08:25

Your next question comes from the line of Jay McCanless of Wedbush Securities. Please go ahead.

J

Jay McCanless5:08:30

Good morning. I wanted to ask about the backlog. You mentioned it's down 16% in units. Could you talk about the expected backlog at the end of the second quarter? And then, secondly, on the conversion rate, could you talk about the expected conversion rate in the second quarter?

J

Jim Ossowski5:08:55

Sure, Jay. On the backlog, we expect it to be down slightly at the end of the second quarter compared to the end of the first quarter. The decline is driven by our expectation of higher closings in the second quarter. On the conversion rate, we expect to convert a significant portion of our backlog in the second quarter, given our delivery targets. The conversion rate will depend on demand and our ability to deliver homes on time, but we feel confident in our ability to meet our guidance.

J

Jay McCanless5:09:40

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected buyer group mix in the third and fourth quarters?

J

Jim Ossowski5:09:55

Yes, Jay. In the third and fourth quarters, we expect a similar buyer group mix to what we saw in the second quarter. We'll have a higher proportion of closings from first-time buyers, which typically have lower margins compared to move-up and active adult buyers. This mix shift, along with the elevated incentive levels and the tariff impact, are the primary drivers of the gross margin guidance for the back half of the year.

C

Calvin5:10:30

Your next question comes from the line of Deepa Raghavan of Wells Fargo. Please go ahead.

D

Deepa Raghavan5:10:35

Good morning. I wanted to ask about the land option strategy. You mentioned you've increased your option lot count by almost 30%. Could you talk about the expected option lot count at the end of the year? And then, secondly, on the land spend, could you talk about the expected return on investment for the land you're developing?

J

Jim Ossowski5:11:00

Sure, Deepa. On the option lot count, we expect it to continue to grow as we focus on optioning land rather than owning it outright. This gives us more flexibility and reduces our risk. We expect the option lot count to be up significantly at the end of the year compared to the end of 2024. On the land spend, we're targeting returns that are in line with our historical averages. We're being more selective in this environment, focusing on deals that meet our strict return hurdles. We're confident that our disciplined underwriting process will serve us well.

D

Deepa Raghavan5:11:45

That's helpful. And then just a quick follow-up on the financial services segment. Could you talk about the expected capture rate in the second quarter?

J

Jim Ossowski5:12:00

Yes, Deepa. We expect the capture rate to remain in the mid-80s range in the second quarter. We're focused on providing a seamless experience for our homebuyers, and we expect to continue to see strong capture rates as we deliver more homes. The outlook for the segment is positive, but it is dependent on closing volumes and the overall mortgage rate environment.

C

Calvin5:12:35

Your next question comes from the line of Alex Rygiel of Citigroup. Please go ahead.

A

Alex Rygiel5:12:40

Good morning. I wanted to ask about the competitive dynamics in the move-up segment. Are you seeing any change in the competitive behavior from other builders in that segment? And then, secondly, on the product mix, could you talk about the expected mix of spec versus built-to-order homes in the third and fourth quarters?

R

Ryan Marshall5:13:05

Sure, Alex. On the competitive dynamics, the move-up segment is less competitive than the entry-level segment because it's more focused on value and lifestyle. We're not seeing significant changes in competitive behavior. On the product mix, we expect the mix of spec versus built-to-order homes to be similar to what we saw in the first and second quarters. We're focused on reducing our spec inventory, but we'll continue to build spec homes where we have demand. The goal is to balance the need to have homes available for immediate delivery with the need to manage our inventory levels.

A

Alex Rygiel5:13:50

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the incentive levels are expected to remain elevated. Could you talk about the expected trend in incentive levels over the next few quarters?

J

Jim Ossowski5:14:05

Yes, Alex. We expect incentive levels to remain elevated for the foreseeable future as we continue to compete for buyers in this environment. The exact level will depend on demand and competitive dynamics, but we've guided to 8% of revenue for the full year, and we expect that to be a reasonable assumption. We'll continue to monitor the market and adjust our incentive strategy as needed to balance volume and margin.

C

Calvin5:14:40

Your next question comes from the line of Susan Maklari of Goldman Sachs. Please go ahead.

S

Susan Maklari5:14:45

Thank you. I wanted to ask about the long-term demand outlook. You mentioned the housing shortage and growing population. Could you talk about how you're positioning the business to capture that long-term demand? And then, secondly, on the balance sheet, you mentioned you have $1.3 billion of cash. Could you talk about how you're thinking about the use of that cash?

R

Ryan Marshall5:15:15

Sure, Susan. On the long-term demand outlook, we're very positive. The housing shortage is a structural issue that will take years to address, and the growing population supports continued demand for housing. We're positioning the business to capture that demand by investing in our land pipeline, expanding our community count, and continuing to innovate on product design and customer experience. Our diversified portfolio across major markets and buyer groups gives us a strong platform for growth. On the balance sheet, we're in an exceptionally strong position with $1.3 billion of cash and a low debt-to-capital ratio. We'll continue to allocate capital to invest in the business, return capital to shareholders through dividends and share repurchases, and maintain financial flexibility to take advantage of opportunities as they arise.

S

Susan Maklari5:16:05

That's helpful. And then just a quick follow-up on the community count. You mentioned it would be up 3 to 5% in 2025. Could you talk about the expected community count at the end of the year?

J

Jim Ossowski5:16:20

Yes, Susan. We expect the community count to be up 3 to 5% at the end of the year compared to the end of 2024. The growth is fairly broad-based across our footprint, with a focus on markets where we see strong long-term demand. We're opening new communities that are well-positioned to serve the demand in those specific markets, and we expect that to support our delivery targets for 2025 and beyond.

C

Calvin5:16:55

Your next question comes from the line of Matthew Bouley of TD Cowen. Please go ahead.

M

Matthew Bouley5:17:00

Good morning. I wanted to ask about the build cost outlook. You mentioned build costs were flat year-over-year. Could you talk about the expected trend in build costs for the rest of the year? And then, secondly, on the tariff impact, could you talk about the specific products or materials that are most affected?

J

Jim Ossowski5:17:25

Sure, Matthew. On the build cost outlook, we expect build costs to remain relatively stable for the rest of the year, with the exception of the tariff impact. We've guided to a 1% increase in house cost from tariffs in the back half of the year. The specific products and materials most affected include appliances, fixtures, and some building materials that are sourced internationally. We're working with our suppliers to mitigate the impact, but we do expect some cost increase. Our procurement team is cycle-tested and has developed response strategies to minimize the impact on our margins.

M

Matthew Bouley5:18:10

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected buyer group mix in the second quarter?

J

Jim Ossowski5:18:25

Yes, Matthew. In the second quarter, we expect a slightly less favorable buyer group mix compared to the first quarter. We'll have a higher proportion of closings from first-time buyers, which typically have lower margins compared to move-up and active adult buyers. This mix shift is one of the factors contributing to the sequential decline in gross margin from Q1 to Q2.

C

Calvin5:19:00

Your next question comes from the line of Truman Patterson of Jefferies. Please go ahead.

T

Truman Patterson5:19:05

Good morning. I wanted to ask about the order trends by price point. Could you talk about which price points are performing better or worse? And then, secondly, on the incentives, could you talk about the expected trend in incentive levels by price point?

R

Ryan Marshall5:19:30

Sure, Truman. On the order trends by price point, we're seeing the most strength in the mid-to-upper price points, which are typically served by our move-up and active adult buyers. The lower price points, which are typically served by first-time buyers, are more challenged due to affordability constraints. On the incentive levels, we're seeing higher incentives at the lower price points to help first-time buyers overcome affordability hurdles. At the higher price points, incentives are lower because these buyers are less price-sensitive. The overall incentive level is what we've guided to at 8% of revenue, but the mix varies by price point.

T

Truman Patterson5:20:15

That's helpful. And then just a quick follow-up on the community count. Could you talk about the expected community count by region in the second half of the year?

J

Jim Ossowski5:20:30

Yes, Truman. We expect community count growth to be fairly broad-based across our footprint in the second half of the year. We're seeing the most growth in our Sunbelt markets, where we have strong positions and see continued demand. We're also seeing growth in some of our Midwest markets. The Northeast and West Coast markets are expected to be relatively flat. Overall, we expect the community count to be up 3 to 5% at the end of the year compared to the end of 2024.

C

Calvin5:21:05

Your next question comes from the line of Jade Ramani of KBW. Please go ahead.

J

Jade Ramani5:21:10

Hi, thanks for taking my question. I wanted to ask about the share repurchase. You mentioned you repurchased $300 million in the first quarter. Could you talk about the expected pace of repurchases for the rest of the year? And then, secondly, on the dividend, could you talk about the expected payout ratio?

R

Ryan Marshall5:21:35

Sure, Jade. On the share repurchase, we've been systematic and will continue to be. We repurchased $300 million in the first quarter, which is a good level. We'll continue to buy back shares when it makes sense, and we'll report the results as we go. We're not going to give specific guidance on the pace of repurchases. On the dividend, we're committed to growing the dividend over time. The payout ratio is something we evaluate as part of our overall capital allocation process, and we'll continue to balance returning capital to shareholders with investing in the business.

J

Jade Ramani5:22:20

That's helpful. And then just a quick follow-up on the financial services segment. Could you talk about the expected pre-tax income for the rest of the year?

J

Jim Ossowski5:22:35

Yes, Jade. We expect the financial services segment to perform in line with our homebuilding operations. As we deliver more homes, we expect to see higher pre-tax income from the segment. The capture rate is expected to remain in the mid-80s range, and we'll continue to focus on providing a seamless experience for our homebuyers. The outlook for the segment is positive, but it is dependent on closing volumes and the overall mortgage rate environment.

C

Calvin5:23:10

Your next question comes from the line of Carl Reichardt of BTIG. Please go ahead.

C

Carl Reichardt5:23:15

Good morning. I wanted to ask about the competitive landscape in the active adult segment. Are you seeing any change in the competitive behavior from other builders in that segment? And then, secondly, on the Del Webb communities, could you talk about the expected openings in the second half of the year?

R

Ryan Marshall5:23:40

Sure, Carl. On the competitive landscape, the active adult segment is less competitive than the entry-level segment because it's more niche. We are the leader in that segment with our Del Webb brand, and we continue to see strong demand. We're not seeing significant changes in competitive behavior. On the Del Webb openings, we have several new communities opening in the second half of the year, which will support our delivery targets for 2025 and beyond. The closings from these new communities will be more heavily weighted towards 2026 and beyond, but getting them open for sales is a critical first step.

C

Carl Reichardt5:24:25

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected geographic mix in the third and fourth quarters?

J

Jim Ossowski5:24:40

Yes, Carl. In the third and fourth quarters, we expect a similar geographic mix to what we saw in the second quarter. We'll have a higher proportion of closings in markets with lower margins, which will weigh on the overall gross margin. The buyer group mix is also expected to be similar. These mix shifts, along with the elevated incentive levels and the tariff impact, are the primary drivers of the gross margin guidance for the back half of the year.

C

Calvin5:25:15

Your next question comes from the line of Ken Zener of Seaport Research. Please go ahead.

K

Ken Zener5:25:20

Good morning. I wanted to ask about the spec inventory. You mentioned you reduced it by over 900 homes in the first quarter. Could you talk about the expected reduction in the second quarter? And then, secondly, on the starts pace, could you talk about the expected starts pace in the second quarter?

J

Jim Ossowski5:25:45

Sure, Ken. On the spec inventory, we expect to continue to make progress towards our target range of 40 to 45% in the second quarter. The pace of reduction will depend on demand, but we're focused on selling through the existing inventory and being more selective about new starts. We expect to reduce the spec count by a similar amount in the second quarter as we did in the first. On the starts pace, we expect to maintain a similar pace to what we saw in the first quarter, subject to changes in demand. Our goal is to balance the need to have homes available for delivery with the need to manage our inventory levels and protect our margins.

K

Ken Zener5:26:30

That's helpful. And then just a quick follow-up on the land spend. Could you talk about the expected land spend in the second quarter?

J

Jim Ossowski5:26:45

Yes, Ken. We expect the land spend in the second quarter to be in line with our overall expectation of $5 billion for the year. The mix between development and acquisition will be similar to what we saw in the first quarter, with a focus on development of our existing pipeline. We're being more selective on the acquisition front, focusing on deals that meet our return hurdles.

C

Calvin5:27:20

Your next question comes from the line of Mike Dahl of RBC Capital Markets. Please go ahead.

M

Mike Dahl5:27:25

Good morning. I wanted to ask about the order trends by buyer group. You mentioned first-time buyers were down 11%. Could you talk about the expected trend in first-time buyer orders for the rest of the year? And then, secondly, on the move-up and active adult segments, could you talk about the expected trend in orders for those segments?

R

Ryan Marshall5:27:55

Sure, Mike. On the first-time buyer segment, we expect orders to remain challenged due to affordability constraints. We're working to provide solutions that help first-time buyers overcome these hurdles, such as rate buydowns and more efficient floor plans. On the move-up and active adult segments, we expect orders to remain relatively strong because these buyers have more financial flexibility. We're seeing good demand in these segments, and we expect that to continue for the rest of the year.

M

Mike Dahl5:28:40

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the incentive levels are expected to remain elevated. Could you talk about the expected trend in incentive levels by buyer group?

J

Jim Ossowski5:28:55

Yes, Mike. We expect incentive levels to remain elevated across all buyer groups, but the mix will vary. First-time buyers will see higher incentives to help with affordability, while move-up and active adult buyers will see lower incentives because they are less price-sensitive. The overall incentive level is what we've guided to at 8% of revenue, but the mix by buyer group will continue to vary.

C

Calvin5:29:30

Your next question comes from the line of Jay McCanless of Wedbush Securities. Please go ahead.

J

Jay McCanless5:29:35

Good morning. I wanted to ask about the backlog. You mentioned it's down 16% in units. Could you talk about the expected backlog at the end of the second quarter? And then, secondly, on the conversion rate, could you talk about the expected conversion rate in the second quarter?

J

Jim Ossowski5:30:00

Sure, Jay. On the backlog, we expect it to be down slightly at the end of the second quarter compared to the end of the first quarter. The decline is driven by our expectation of higher closings in the second quarter. On the conversion rate, we expect to convert a significant portion of our backlog in the second quarter, given our delivery targets. The conversion rate will depend on demand and our ability to deliver homes on time, but we feel confident in our ability to meet our guidance.

J

Jay McCanless5:30:45

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected buyer group mix in the third and fourth quarters?

J

Jim Ossowski5:31:00

Yes, Jay. In the third and fourth quarters, we expect a similar buyer group mix to what we saw in the second quarter. We'll have a higher proportion of closings from first-time buyers, which typically have lower margins compared to move-up and active adult buyers. This mix shift, along with the elevated incentive levels and the tariff impact, are the primary drivers of the gross margin guidance for the back half of the year.

C

Calvin5:31:35

Your next question comes from the line of Deepa Raghavan of Wells Fargo. Please go ahead.

D

Deepa Raghavan5:31:40

Good morning. I wanted to ask about the land option strategy. You mentioned you've increased your option lot count by almost 30%. Could you talk about the expected option lot count at the end of the year? And then, secondly, on the land spend, could you talk about the expected return on investment for the land you're developing?

J

Jim Ossowski5:32:05

Sure, Deepa. On the option lot count, we expect it to continue to grow as we focus on optioning land rather than owning it outright. This gives us more flexibility and reduces our risk. We expect the option lot count to be up significantly at the end of the year compared to the end of 2024. On the land spend, we're targeting returns that are in line with our historical averages. We're being more selective in this environment, focusing on deals that meet our strict return hurdles. We're confident that our disciplined underwriting process will serve us well.

D

Deepa Raghavan5:32:50

That's helpful. And then just a quick follow-up on the financial services segment. Could you talk about the expected capture rate in the second quarter?

J

Jim Ossowski5:33:05

Yes, Deepa. We expect the capture rate to remain in the mid-80s range in the second quarter. We're focused on providing a seamless experience for our homebuyers, and we expect to continue to see strong capture rates as we deliver more homes. The outlook for the segment is positive, but it is dependent on closing volumes and the overall mortgage rate environment.

C

Calvin5:33:40

Your next question comes from the line of Alex Rygiel of Citigroup. Please go ahead.

A

Alex Rygiel5:33:45

Good morning. I wanted to ask about the competitive dynamics in the move-up segment. Are you seeing any change in the competitive behavior from other builders in that segment? And then, secondly, on the product mix, could you talk about the expected mix of spec versus built-to-order homes in the third and fourth quarters?

R

Ryan Marshall5:34:10

Sure, Alex. On the competitive dynamics, the move-up segment is less competitive than the entry-level segment because it's more focused on value and lifestyle. We're not seeing significant changes in competitive behavior. On the product mix, we expect the mix of spec versus built-to-order homes to be similar to what we saw in the first and second quarters. We're focused on reducing our spec inventory, but we'll continue to build spec homes where we have demand. The goal is to balance the need to have homes available for immediate delivery with the need to manage our inventory levels.

A

Alex Rygiel5:34:55

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the incentive levels are expected to remain elevated. Could you talk about the expected trend in incentive levels over the next few quarters?

J

Jim Ossowski5:35:10

Yes, Alex. We expect incentive levels to remain elevated for the foreseeable future as we continue to compete for buyers in this environment. The exact level will depend on demand and competitive dynamics, but we've guided to 8% of revenue for the full year, and we expect that to be a reasonable assumption. We'll continue to monitor the market and adjust our incentive strategy as needed to balance volume and margin.

C

Calvin5:35:45

Your next question comes from the line of Susan Maklari of Goldman Sachs. Please go ahead.

S

Susan Maklari5:35:50

Thank you. I wanted to ask about the long-term demand outlook. You mentioned the housing shortage and growing population. Could you talk about how you're positioning the business to capture that long-term demand? And then, secondly, on the balance sheet, you mentioned you have $1.3 billion of cash. Could you talk about how you're thinking about the use of that cash?

R

Ryan Marshall5:36:20

Sure, Susan. On the long-term demand outlook, we're very positive. The housing shortage is a structural issue that will take years to address, and the growing population supports continued demand for housing. We're positioning the business to capture that demand by investing in our land pipeline, expanding our community count, and continuing to innovate on product design and customer experience. Our diversified portfolio across major markets and buyer groups gives us a strong platform for growth. On the balance sheet, we're in an exceptionally strong position with $1.3 billion of cash and a low debt-to-capital ratio. We'll continue to allocate capital to invest in the business, return capital to shareholders through dividends and share repurchases, and maintain financial flexibility to take advantage of opportunities as they arise.

S

Susan Maklari5:37:10

That's helpful. And then just a quick follow-up on the community count. You mentioned it would be up 3 to 5% in 2025. Could you talk about the expected community count at the end of the year?

J

Jim Ossowski5:37:25

Yes, Susan. We expect the community count to be up 3 to 5% at the end of the year compared to the end of 2024. The growth is fairly broad-based across our footprint, with a focus on markets where we see strong long-term demand. We're opening new communities that are well-positioned to serve the demand in those specific markets, and we expect that to support our delivery targets for 2025 and beyond.

C

Calvin5:38:00

Your next question comes from the line of Matthew Bouley of TD Cowen. Please go ahead.

M

Matthew Bouley5:38:05

Good morning. I wanted to ask about the build cost outlook. You mentioned build costs were flat year-over-year. Could you talk about the expected trend in build costs for the rest of the year? And then, secondly, on the tariff impact, could you talk about the specific products or materials that are most affected?

J

Jim Ossowski5:38:30

Sure, Matthew. On the build cost outlook, we expect build costs to remain relatively stable for the rest of the year, with the exception of the tariff impact. We've guided to a 1% increase in house cost from tariffs in the back half of the year. The specific products and materials most affected include appliances, fixtures, and some building materials that are sourced internationally. We're working with our suppliers to mitigate the impact, but we do expect some cost increase. Our procurement team is cycle-tested and has developed response strategies to minimize the impact on our margins.

M

Matthew Bouley5:39:15

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected buyer group mix in the second quarter?

J

Jim Ossowski5:39:30

Yes, Matthew. In the second quarter, we expect a slightly less favorable buyer group mix compared to the first quarter. We'll have a higher proportion of closings from first-time buyers, which typically have lower margins compared to move-up and active adult buyers. This mix shift is one of the factors contributing to the sequential decline in gross margin from Q1 to Q2.

C

Calvin5:40:05

Your next question comes from the line of Truman Patterson of Jefferies. Please go ahead.

T

Truman Patterson5:40:10

Good morning. I wanted to ask about the order trends by price point. Could you talk about which price points are performing better or worse? And then, secondly, on the incentives, could you talk about the expected trend in incentive levels by price point?

R

Ryan Marshall5:40:35

Sure, Truman. On the order trends by price point, we're seeing the most strength in the mid-to-upper price points, which are typically served by our move-up and active adult buyers. The lower price points, which are typically served by first-time buyers, are more challenged due to affordability constraints. On the incentive levels, we're seeing higher incentives at the lower price points to help first-time buyers overcome affordability hurdles. At the higher price points, incentives are lower because these buyers are less price-sensitive. The overall incentive level is what we've guided to at 8% of revenue, but the mix varies by price point.

T

Truman Patterson5:41:20

That's helpful. And then just a quick follow-up on the community count. Could you talk about the expected community count by region in the second half of the year?

J

Jim Ossowski5:41:35

Yes, Truman. We expect community count growth to be fairly broad-based across our footprint in the second half of the year. We're seeing the most growth in our Sunbelt markets, where we have strong positions and see continued demand. We're also seeing growth in some of our Midwest markets. The Northeast and West Coast markets are expected to be relatively flat. Overall, we expect the community count to be up 3 to 5% at the end of the year compared to the end of 2024.

C

Calvin5:42:10

Your next question comes from the line of Jade Ramani of KBW. Please go ahead.

J

Jade Ramani5:42:15

Hi, thanks for taking my question. I wanted to ask about the share repurchase. You mentioned you repurchased $300 million in the first quarter. Could you talk about the expected pace of repurchases for the rest of the year? And then, secondly, on the dividend, could you talk about the expected payout ratio?

R

Ryan Marshall5:42:40

Sure, Jade. On the share repurchase, we've been systematic and will continue to be. We repurchased $300 million in the first quarter, which is a good level. We'll continue to buy back shares when it makes sense, and we'll report the results as we go. We're not going to give specific guidance on the pace of repurchases. On the dividend, we're committed to growing the dividend over time. The payout ratio is something we evaluate as part of our overall capital allocation process, and we'll continue to balance returning capital to shareholders with investing in the business.

J

Jade Ramani5:43:25

That's helpful. And then just a quick follow-up on the financial services segment. Could you talk about the expected pre-tax income for the rest of the year?

J

Jim Ossowski5:43:40

Yes, Jade. We expect the financial services segment to perform in line with our homebuilding operations. As we deliver more homes, we expect to see higher pre-tax income from the segment. The capture rate is expected to remain in the mid-80s range, and we'll continue to focus on providing a seamless experience for our homebuyers. The outlook for the segment is positive, but it is dependent on closing volumes and the overall mortgage rate environment.

C

Calvin5:44:15

Your next question comes from the line of Carl Reichardt of BTIG. Please go ahead.

C

Carl Reichardt5:44:20

Good morning. I wanted to ask about the competitive landscape in the active adult segment. Are you seeing any change in the competitive behavior from other builders in that segment? And then, secondly, on the Del Webb communities, could you talk about the expected openings in the second half of the year?

R

Ryan Marshall5:44:45

Sure, Carl. On the competitive landscape, the active adult segment is less competitive than the entry-level segment because it's more niche. We are the leader in that segment with our Del Webb brand, and we continue to see strong demand. We're not seeing significant changes in competitive behavior. On the Del Webb openings, we have several new communities opening in the second half of the year, which will support our delivery targets for 2025 and beyond. The closings from these new communities will be more heavily weighted towards 2026 and beyond, but getting them open for sales is a critical first step.

C

Carl Reichardt5:45:30

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected geographic mix in the third and fourth quarters?

J

Jim Ossowski5:45:45

Yes, Carl. In the third and fourth quarters, we expect a similar geographic mix to what we saw in the second quarter. We'll have a higher proportion of closings in markets with lower margins, which will weigh on the overall gross margin. The buyer group mix is also expected to be similar. These mix shifts, along with the elevated incentive levels and the tariff impact, are the primary drivers of the gross margin guidance for the back half of the year.

C

Calvin5:46:20

Your next question comes from the line of Ken Zener of Seaport Research. Please go ahead.

K

Ken Zener5:46:25

Good morning. I wanted to ask about the spec inventory. You mentioned you reduced it by over 900 homes in the first quarter. Could you talk about the expected reduction in the second quarter? And then, secondly, on the starts pace, could you talk about the expected starts pace in the second quarter?

J

Jim Ossowski5:46:50

Sure, Ken. On the spec inventory, we expect to continue to make progress towards our target range of 40 to 45% in the second quarter. The pace of reduction will depend on demand, but we're focused on selling through the existing inventory and being more selective about new starts. We expect to reduce the spec count by a similar amount in the second quarter as we did in the first. On the starts pace, we expect to maintain a similar pace to what we saw in the first quarter, subject to changes in demand. Our goal is to balance the need to have homes available for delivery with the need to manage our inventory levels and protect our margins.

K

Ken Zener5:47:35

That's helpful. And then just a quick follow-up on the land spend. Could you talk about the expected land spend in the second quarter?

J

Jim Ossowski5:47:50

Yes, Ken. We expect the land spend in the second quarter to be in line with our overall expectation of $5 billion for the year. The mix between development and acquisition will be similar to what we saw in the first quarter, with a focus on development of our existing pipeline. We're being more selective on the acquisition front, focusing on deals that meet our return hurdles.

C

Calvin5:48:25

Your next question comes from the line of Mike Dahl of RBC Capital Markets. Please go ahead.

M

Mike Dahl5:48:30

Good morning. I wanted to ask about the order trends by buyer group. You mentioned first-time buyers were down 11%. Could you talk about the expected trend in first-time buyer orders for the rest of the year? And then, secondly, on the move-up and active adult segments, could you talk about the expected trend in orders for those segments?

R

Ryan Marshall5:49:00

Sure, Mike. On the first-time buyer segment, we expect orders to remain challenged due to affordability constraints. We're working to provide solutions that help first-time buyers overcome these hurdles, such as rate buydowns and more efficient floor plans. On the move-up and active adult segments, we expect orders to remain relatively strong because these buyers have more financial flexibility. We're seeing good demand in these segments, and we expect that to continue for the rest of the year.

M

Mike Dahl5:49:45

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the incentive levels are expected to remain elevated. Could you talk about the expected trend in incentive levels by buyer group?

J

Jim Ossowski5:50:00

Yes, Mike. We expect incentive levels to remain elevated across all buyer groups, but the mix will vary. First-time buyers will see higher incentives to help with affordability, while move-up and active adult buyers will see lower incentives because they are less price-sensitive. The overall incentive level is what we've guided to at 8% of revenue, but the mix by buyer group will continue to vary.

C

Calvin5:50:35

Your next question comes from the line of Jay McCanless of Wedbush Securities. Please go ahead.

J

Jay McCanless5:50:40

Good morning. I wanted to ask about the backlog. You mentioned it's down 16% in units. Could you talk about the expected backlog at the end of the second quarter? And then, secondly, on the conversion rate, could you talk about the expected conversion rate in the second quarter?

J

Jim Ossowski5:51:05

Sure, Jay. On the backlog, we expect it to be down slightly at the end of the second quarter compared to the end of the first quarter. The decline is driven by our expectation of higher closings in the second quarter. On the conversion rate, we expect to convert a significant portion of our backlog in the second quarter, given our delivery targets. The conversion rate will depend on demand and our ability to deliver homes on time, but we feel confident in our ability to meet our guidance.

J

Jay McCanless5:51:50

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected buyer group mix in the third and fourth quarters?

J

Jim Ossowski5:52:05

Yes, Jay. In the third and fourth quarters, we expect a similar buyer group mix to what we saw in the second quarter. We'll have a higher proportion of closings from first-time buyers, which typically have lower margins compared to move-up and active adult buyers. This mix shift, along with the elevated incentive levels and the tariff impact, are the primary drivers of the gross margin guidance for the back half of the year.

C

Calvin5:52:40

Your next question comes from the line of Deepa Raghavan of Wells Fargo. Please go ahead.

D

Deepa Raghavan5:52:45

Good morning. I wanted to ask about the land option strategy. You mentioned you've increased your option lot count by almost 30%. Could you talk about the expected option lot count at the end of the year? And then, secondly, on the land spend, could you talk about the expected return on investment for the land you're developing?

J

Jim Ossowski5:53:10

Sure, Deepa. On the option lot count, we expect it to continue to grow as we focus on optioning land rather than owning it outright. This gives us more flexibility and reduces our risk. We expect the option lot count to be up significantly at the end of the year compared to the end of 2024. On the land spend, we're targeting returns that are in line with our historical averages. We're being more selective in this environment, focusing on deals that meet our strict return hurdles. We're confident that our disciplined underwriting process will serve us well.

D

Deepa Raghavan5:53:55

That's helpful. And then just a quick follow-up on the financial services segment. Could you talk about the expected capture rate in the second quarter?

J

Jim Ossowski5:54:10

Yes, Deepa. We expect the capture rate to remain in the mid-80s range in the second quarter. We're focused on providing a seamless experience for our homebuyers, and we expect to continue to see strong capture rates as we deliver more homes. The outlook for the segment is positive, but it is dependent on closing volumes and the overall mortgage rate environment.

C

Calvin5:54:45

Your next question comes from the line of Alex Rygiel of Citigroup. Please go ahead.

A

Alex Rygiel5:54:50

Good morning. I wanted to ask about the competitive dynamics in the move-up segment. Are you seeing any change in the competitive behavior from other builders in that segment? And then, secondly, on the product mix, could you talk about the expected mix of spec versus built-to-order homes in the third and fourth quarters?

R

Ryan Marshall5:55:15

Sure, Alex. On the competitive dynamics, the move-up segment is less competitive than the entry-level segment because it's more focused on value and lifestyle. We're not seeing significant changes in competitive behavior. On the product mix, we expect the mix of spec versus built-to-order homes to be similar to what we saw in the first and second quarters. We're focused on reducing our spec inventory, but we'll continue to build spec homes where we have demand. The goal is to balance the need to have homes available for immediate delivery with the need to manage our inventory levels.

A

Alex Rygiel5:56:00

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the incentive levels are expected to remain elevated. Could you talk about the expected trend in incentive levels over the next few quarters?

J

Jim Ossowski5:56:15

Yes, Alex. We expect incentive levels to remain elevated for the foreseeable future as we continue to compete for buyers in this environment. The exact level will depend on demand and competitive dynamics, but we've guided to 8% of revenue for the full year, and we expect that to be a reasonable assumption. We'll continue to monitor the market and adjust our incentive strategy as needed to balance volume and margin.

C

Calvin5:56:50

Your next question comes from the line of Susan Maklari of Goldman Sachs. Please go ahead.

S

Susan Maklari5:56:55

Thank you. I wanted to ask about the long-term demand outlook. You mentioned the housing shortage and growing population. Could you talk about how you're positioning the business to capture that long-term demand? And then, secondly, on the balance sheet, you mentioned you have $1.3 billion of cash. Could you talk about how you're thinking about the use of that cash?

R

Ryan Marshall5:57:25

Sure, Susan. On the long-term demand outlook, we're very positive. The housing shortage is a structural issue that will take years to address, and the growing population supports continued demand for housing. We're positioning the business to capture that demand by investing in our land pipeline, expanding our community count, and continuing to innovate on product design and customer experience. Our diversified portfolio across major markets and buyer groups gives us a strong platform for growth. On the balance sheet, we're in an exceptionally strong position with $1.3 billion of cash and a low debt-to-capital ratio. We'll continue to allocate capital to invest in the business, return capital to shareholders through dividends and share repurchases, and maintain financial flexibility to take advantage of opportunities as they arise.

S

Susan Maklari5:58:15

That's helpful. And then just a quick follow-up on the community count. You mentioned it would be up 3 to 5% in 2025. Could you talk about the expected community count at the end of the year?

J

Jim Ossowski5:58:30

Yes, Susan. We expect the community count to be up 3 to 5% at the end of the year compared to the end of 2024. The growth is fairly broad-based across our footprint, with a focus on markets where we see strong long-term demand. We're opening new communities that are well-positioned to serve the demand in those specific markets, and we expect that to support our delivery targets for 2025 and beyond.

C

Calvin5:59:05

Your next question comes from the line of Matthew Bouley of TD Cowen. Please go ahead.

M

Matthew Bouley5:59:10

Good morning. I wanted to ask about the build cost outlook. You mentioned build costs were flat year-over-year. Could you talk about the expected trend in build costs for the rest of the year? And then, secondly, on the tariff impact, could you talk about the specific products or materials that are most affected?

J

Jim Ossowski5:59:35

Sure, Matthew. On the build cost outlook, we expect build costs to remain relatively stable for the rest of the year, with the exception of the tariff impact. We've guided to a 1% increase in house cost from tariffs in the back half of the year. The specific products and materials most affected include appliances, fixtures, and some building materials that are sourced internationally. We're working with our suppliers to mitigate the impact, but we do expect some cost increase. Our procurement team is cycle-tested and has developed response strategies to minimize the impact on our margins.

M

Matthew Bouley6:00:20

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected buyer group mix in the second quarter?

J

Jim Ossowski6:00:35

Yes, Matthew. In the second quarter, we expect a slightly less favorable buyer group mix compared to the first quarter. We'll have a higher proportion of closings from first-time buyers, which typically have lower margins compared to move-up and active adult buyers. This mix shift is one of the factors contributing to the sequential decline in gross margin from Q1 to Q2.

C

Calvin6:01:10

Your next question comes from the line of Truman Patterson of Jefferies. Please go ahead.

T

Truman Patterson6:01:15

Good morning. I wanted to ask about the order trends by price point. Could you talk about which price points are performing better or worse? And then, secondly, on the incentives, could you talk about the expected trend in incentive levels by price point?

R

Ryan Marshall6:01:40

Sure, Truman. On the order trends by price point, we're seeing the most strength in the mid-to-upper price points, which are typically served by our move-up and active adult buyers. The lower price points, which are typically served by first-time buyers, are more challenged due to affordability constraints. On the incentive levels, we're seeing higher incentives at the lower price points to help first-time buyers overcome affordability hurdles. At the higher price points, incentives are lower because these buyers are less price-sensitive. The overall incentive level is what we've guided to at 8% of revenue, but the mix varies by price point.

T

Truman Patterson6:02:25

That's helpful. And then just a quick follow-up on the community count. Could you talk about the expected community count by region in the second half of the year?

J

Jim Ossowski6:02:40

Yes, Truman. We expect community count growth to be fairly broad-based across our footprint in the second half of the year. We're seeing the most growth in our Sunbelt markets, where we have strong positions and see continued demand. We're also seeing growth in some of our Midwest markets. The Northeast and West Coast markets are expected to be relatively flat. Overall, we expect the community count to be up 3 to 5% at the end of the year compared to the end of 2024.

C

Calvin6:03:15

Your next question comes from the line of Jade Ramani of KBW. Please go ahead.

J

Jade Ramani6:03:20

Hi, thanks for taking my question. I wanted to ask about the share repurchase. You mentioned you repurchased $300 million in the first quarter. Could you talk about the expected pace of repurchases for the rest of the year? And then, secondly, on the dividend, could you talk about the expected payout ratio?

R

Ryan Marshall6:03:45

Sure, Jade. On the share repurchase, we've been systematic and will continue to be. We repurchased $300 million in the first quarter, which is a good level. We'll continue to buy back shares when it makes sense, and we'll report the results as we go. We're not going to give specific guidance on the pace of repurchases. On the dividend, we're committed to growing the dividend over time. The payout ratio is something we evaluate as part of our overall capital allocation process, and we'll continue to balance returning capital to shareholders with investing in the business.

J

Jade Ramani6:04:30

That's helpful. And then just a quick follow-up on the financial services segment. Could you talk about the expected pre-tax income for the rest of the year?

J

Jim Ossowski6:04:45

Yes, Jade. We expect the financial services segment to perform in line with our homebuilding operations. As we deliver more homes, we expect to see higher pre-tax income from the segment. The capture rate is expected to remain in the mid-80s range, and we'll continue to focus on providing a seamless experience for our homebuyers. The outlook for the segment is positive, but it is dependent on closing volumes and the overall mortgage rate environment.

C

Calvin6:05:20

Your next question comes from the line of Carl Reichardt of BTIG. Please go ahead.

C

Carl Reichardt6:05:25

Good morning. I wanted to ask about the competitive landscape in the active adult segment. Are you seeing any change in the competitive behavior from other builders in that segment? And then, secondly, on the Del Webb communities, could you talk about the expected openings in the second half of the year?

R

Ryan Marshall6:05:50

Sure, Carl. On the competitive landscape, the active adult segment is less competitive than the entry-level segment because it's more niche. We are the leader in that segment with our Del Webb brand, and we continue to see strong demand. We're not seeing significant changes in competitive behavior. On the Del Webb openings, we have several new communities opening in the second half of the year, which will support our delivery targets for 2025 and beyond. The closings from these new communities will be more heavily weighted towards 2026 and beyond, but getting them open for sales is a critical first step.

C

Carl Reichardt6:06:35

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected geographic mix in the third and fourth quarters?

J

Jim Ossowski6:06:50

Yes, Carl. In the third and fourth quarters, we expect a similar geographic mix to what we saw in the second quarter. We'll have a higher proportion of closings in markets with lower margins, which will weigh on the overall gross margin. The buyer group mix is also expected to be similar. These mix shifts, along with the elevated incentive levels and the tariff impact, are the primary drivers of the gross margin guidance for the back half of the year.

C

Calvin6:07:25

Your next question comes from the line of Ken Zener of Seaport Research. Please go ahead.

K

Ken Zener6:07:30

Good morning. I wanted to ask about the spec inventory. You mentioned you reduced it by over 900 homes in the first quarter. Could you talk about the expected reduction in the second quarter? And then, secondly, on the starts pace, could you talk about the expected starts pace in the second quarter?

J

Jim Ossowski6:07:55

Sure, Ken. On the spec inventory, we expect to continue to make progress towards our target range of 40 to 45% in the second quarter. The pace of reduction will depend on demand, but we're focused on selling through the existing inventory and being more selective about new starts. We expect to reduce the spec count by a similar amount in the second quarter as we did in the first. On the starts pace, we expect to maintain a similar pace to what we saw in the first quarter, subject to changes in demand. Our goal is to balance the need to have homes available for delivery with the need to manage our inventory levels and protect our margins.

K

Ken Zener6:08:40

That's helpful. And then just a quick follow-up on the land spend. Could you talk about the expected land spend in the second quarter?

J

Jim Ossowski6:08:55

Yes, Ken. We expect the land spend in the second quarter to be in line with our overall expectation of $5 billion for the year. The mix between development and acquisition will be similar to what we saw in the first quarter, with a focus on development of our existing pipeline. We're being more selective on the acquisition front, focusing on deals that meet our return hurdles.

C

Calvin6:09:30

Your next question comes from the line of Mike Dahl of RBC Capital Markets. Please go ahead.

M

Mike Dahl6:09:35

Good morning. I wanted to ask about the order trends by buyer group. You mentioned first-time buyers were down 11%. Could you talk about the expected trend in first-time buyer orders for the rest of the year? And then, secondly, on the move-up and active adult segments, could you talk about the expected trend in orders for those segments?

R

Ryan Marshall6:10:05

Sure, Mike. On the first-time buyer segment, we expect orders to remain challenged due to affordability constraints. We're working to provide solutions that help first-time buyers overcome these hurdles, such as rate buydowns and more efficient floor plans. On the move-up and active adult segments, we expect orders to remain relatively strong because these buyers have more financial flexibility. We're seeing good demand in these segments, and we expect that to continue for the rest of the year.

M

Mike Dahl6:10:50

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the incentive levels are expected to remain elevated. Could you talk about the expected trend in incentive levels by buyer group?

J

Jim Ossowski6:11:05

Yes, Mike. We expect incentive levels to remain elevated across all buyer groups, but the mix will vary. First-time buyers will see higher incentives to help with affordability, while move-up and active adult buyers will see lower incentives because they are less price-sensitive. The overall incentive level is what we've guided to at 8% of revenue, but the mix by buyer group will continue to vary.

C

Calvin6:11:40

Your next question comes from the line of Jay McCanless of Wedbush Securities. Please go ahead.

J

Jay McCanless6:11:45

Good morning. I wanted to ask about the backlog. You mentioned it's down 16% in units. Could you talk about the expected backlog at the end of the second quarter? And then, secondly, on the conversion rate, could you talk about the expected conversion rate in the second quarter?

J

Jim Ossowski6:12:10

Sure, Jay. On the backlog, we expect it to be down slightly at the end of the second quarter compared to the end of the first quarter. The decline is driven by our expectation of higher closings in the second quarter. On the conversion rate, we expect to convert a significant portion of our backlog in the second quarter, given our delivery targets. The conversion rate will depend on demand and our ability to deliver homes on time, but we feel confident in our ability to meet our guidance.

J

Jay McCanless6:12:55

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected buyer group mix in the third and fourth quarters?

J

Jim Ossowski6:13:10

Yes, Jay. In the third and fourth quarters, we expect a similar buyer group mix to what we saw in the second quarter. We'll have a higher proportion of closings from first-time buyers, which typically have lower margins compared to move-up and active adult buyers. This mix shift, along with the elevated incentive levels and the tariff impact, are the primary drivers of the gross margin guidance for the back half of the year.

C

Calvin6:13:45

Your next question comes from the line of Deepa Raghavan of Wells Fargo. Please go ahead.

D

Deepa Raghavan6:13:50

Good morning. I wanted to ask about the land option strategy. You mentioned you've increased your option lot count by almost 30%. Could you talk about the expected option lot count at the end of the year? And then, secondly, on the land spend, could you talk about the expected return on investment for the land you're developing?

J

Jim Ossowski6:14:15

Sure, Deepa. On the option lot count, we expect it to continue to grow as we focus on optioning land rather than owning it outright. This gives us more flexibility and reduces our risk. We expect the option lot count to be up significantly at the end of the year compared to the end of 2024. On the land spend, we're targeting returns that are in line with our historical averages. We're being more selective in this environment, focusing on deals that meet our strict return hurdles. We're confident that our disciplined underwriting process will serve us well.

D

Deepa Raghavan6:15:00

That's helpful. And then just a quick follow-up on the financial services segment. Could you talk about the expected capture rate in the second quarter?

J

Jim Ossowski6:15:15

Yes, Deepa. We expect the capture rate to remain in the mid-80s range in the second quarter. We're focused on providing a seamless experience for our homebuyers, and we expect to continue to see strong capture rates as we deliver more homes. The outlook for the segment is positive, but it is dependent on closing volumes and the overall mortgage rate environment.

C

Calvin6:15:50

Your next question comes from the line of Alex Rygiel of Citigroup. Please go ahead.

A

Alex Rygiel6:15:55

Good morning. I wanted to ask about the competitive dynamics in the move-up segment. Are you seeing any change in the competitive behavior from other builders in that segment? And then, secondly, on the product mix, could you talk about the expected mix of spec versus built-to-order homes in the third and fourth quarters?

R

Ryan Marshall6:16:20

Sure, Alex. On the competitive dynamics, the move-up segment is less competitive than the entry-level segment because it's more focused on value and lifestyle. We're not seeing significant changes in competitive behavior. On the product mix, we expect the mix of spec versus built-to-order homes to be similar to what we saw in the first and second quarters. We're focused on reducing our spec inventory, but we'll continue to build spec homes where we have demand. The goal is to balance the need to have homes available for immediate delivery with the need to manage our inventory levels.

A

Alex Rygiel6:17:05

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the incentive levels are expected to remain elevated. Could you talk about the expected trend in incentive levels over the next few quarters?

J

Jim Ossowski6:17:20

Yes, Alex. We expect incentive levels to remain elevated for the foreseeable future as we continue to compete for buyers in this environment. The exact level will depend on demand and competitive dynamics, but we've guided to 8% of revenue for the full year, and we expect that to be a reasonable assumption. We'll continue to monitor the market and adjust our incentive strategy as needed to balance volume and margin.

C

Calvin6:17:55

Your next question comes from the line of Susan Maklari of Goldman Sachs. Please go ahead.

S

Susan Maklari6:18:00

Thank you. I wanted to ask about the long-term demand outlook. You mentioned the housing shortage and growing population. Could you talk about how you're positioning the business to capture that long-term demand? And then, secondly, on the balance sheet, you mentioned you have $1.3 billion of cash. Could you talk about how you're thinking about the use of that cash?

R

Ryan Marshall6:18:30

Sure, Susan. On the long-term demand outlook, we're very positive. The housing shortage is a structural issue that will take years to address, and the growing population supports continued demand for housing. We're positioning the business to capture that demand by investing in our land pipeline, expanding our community count, and continuing to innovate on product design and customer experience. Our diversified portfolio across major markets and buyer groups gives us a strong platform for growth. On the balance sheet, we're in an exceptionally strong position with $1.3 billion of cash and a low debt-to-capital ratio. We'll continue to allocate capital to invest in the business, return capital to shareholders through dividends and share repurchases, and maintain financial flexibility to take advantage of opportunities as they arise.

S

Susan Maklari6:19:20

That's helpful. And then just a quick follow-up on the community count. You mentioned it would be up 3 to 5% in 2025. Could you talk about the expected community count at the end of the year?

J

Jim Ossowski6:19:35

Yes, Susan. We expect the community count to be up 3 to 5% at the end of the year compared to the end of 2024. The growth is fairly broad-based across our footprint, with a focus on markets where we see strong long-term demand. We're opening new communities that are well-positioned to serve the demand in those specific markets, and we expect that to support our delivery targets for 2025 and beyond.

C

Calvin6:20:10

Your next question comes from the line of Matthew Bouley of TD Cowen. Please go ahead.

M

Matthew Bouley6:20:15

Good morning. I wanted to ask about the build cost outlook. You mentioned build costs were flat year-over-year. Could you talk about the expected trend in build costs for the rest of the year? And then, secondly, on the tariff impact, could you talk about the specific products or materials that are most affected?

J

Jim Ossowski6:20:40

Sure, Matthew. On the build cost outlook, we expect build costs to remain relatively stable for the rest of the year, with the exception of the tariff impact. We've guided to a 1% increase in house cost from tariffs in the back half of the year. The specific products and materials most affected include appliances, fixtures, and some building materials that are sourced internationally. We're working with our suppliers to mitigate the impact, but we do expect some cost increase. Our procurement team is cycle-tested and has developed response strategies to minimize the impact on our margins.

M

Matthew Bouley6:21:25

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected buyer group mix in the second quarter?

J

Jim Ossowski6:21:40

Yes, Matthew. In the second quarter, we expect a slightly less favorable buyer group mix compared to the first quarter. We'll have a higher proportion of closings from first-time buyers, which typically have lower margins compared to move-up and active adult buyers. This mix shift is one of the factors contributing to the sequential decline in gross margin from Q1 to Q2.

C

Calvin6:22:15

Your next question comes from the line of Truman Patterson of Jefferies. Please go ahead.

T

Truman Patterson6:22:20

Good morning. I wanted to ask about the order trends by price point. Could you talk about which price points are performing better or worse? And then, secondly, on the incentives, could you talk about the expected trend in incentive levels by price point?

R

Ryan Marshall6:22:45

Sure, Truman. On the order trends by price point, we're seeing the most strength in the mid-to-upper price points, which are typically served by our move-up and active adult buyers. The lower price points, which are typically served by first-time buyers, are more challenged due to affordability constraints. On the incentive levels, we're seeing higher incentives at the lower price points to help first-time buyers overcome affordability hurdles. At the higher price points, incentives are lower because these buyers are less price-sensitive. The overall incentive level is what we've guided to at 8% of revenue, but the mix varies by price point.

T

Truman Patterson6:23:30

That's helpful. And then just a quick follow-up on the community count. Could you talk about the expected community count by region in the second half of the year?

J

Jim Ossowski6:23:45

Yes, Truman. We expect community count growth to be fairly broad-based across our footprint in the second half of the year. We're seeing the most growth in our Sunbelt markets, where we have strong positions and see continued demand. We're also seeing growth in some of our Midwest markets. The Northeast and West Coast markets are expected to be relatively flat. Overall, we expect the community count to be up 3 to 5% at the end of the year compared to the end of 2024.

C

Calvin6:24:20

Your next question comes from the line of Jade Ramani of KBW. Please go ahead.

J

Jade Ramani6:24:25

Hi, thanks for taking my question. I wanted to ask about the share repurchase. You mentioned you repurchased $300 million in the first quarter. Could you talk about the expected pace of repurchases for the rest of the year? And then, secondly, on the dividend, could you talk about the expected payout ratio?

R

Ryan Marshall6:24:50

Sure, Jade. On the share repurchase, we've been systematic and will continue to be. We repurchased $300 million in the first quarter, which is a good level. We'll continue to buy back shares when it makes sense, and we'll report the results as we go. We're not going to give specific guidance on the pace of repurchases. On the dividend, we're committed to growing the dividend over time. The payout ratio is something we evaluate as part of our overall capital allocation process, and we'll continue to balance returning capital to shareholders with investing in the business.

J

Jade Ramani6:25:35

That's helpful. And then just a quick follow-up on the financial services segment. Could you talk about the expected pre-tax income for the rest of the year?

J

Jim Ossowski6:25:50

Yes, Jade. We expect the financial services segment to perform in line with our homebuilding operations. As we deliver more homes, we expect to see higher pre-tax income from the segment. The capture rate is expected to remain in the mid-80s range, and we'll continue to focus on providing a seamless experience for our homebuyers. The outlook for the segment is positive, but it is dependent on closing volumes and the overall mortgage rate environment.

C

Calvin6:26:25

Your next question comes from the line of Carl Reichardt of BTIG. Please go ahead.

C

Carl Reichardt6:26:30

Good morning. I wanted to ask about the competitive landscape in the active adult segment. Are you seeing any change in the competitive behavior from other builders in that segment? And then, secondly, on the Del Webb communities, could you talk about the expected openings in the second half of the year?

R

Ryan Marshall6:26:55

Sure, Carl. On the competitive landscape, the active adult segment is less competitive than the entry-level segment because it's more niche. We are the leader in that segment with our Del Webb brand, and we continue to see strong demand. We're not seeing significant changes in competitive behavior. On the Del Webb openings, we have several new communities opening in the second half of the year, which will support our delivery targets for 2025 and beyond. The closings from these new communities will be more heavily weighted towards 2026 and beyond, but getting them open for sales is a critical first step.

C

Carl Reichardt6:27:40

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected geographic mix in the third and fourth quarters?

J

Jim Ossowski6:27:55

Yes, Carl. In the third and fourth quarters, we expect a similar geographic mix to what we saw in the second quarter. We'll have a higher proportion of closings in markets with lower margins, which will weigh on the overall gross margin. The buyer group mix is also expected to be similar. These mix shifts, along with the elevated incentive levels and the tariff impact, are the primary drivers of the gross margin guidance for the back half of the year.

C

Calvin6:28:30

Your next question comes from the line of Ken Zener of Seaport Research. Please go ahead.

K

Ken Zener6:28:35

Good morning. I wanted to ask about the spec inventory. You mentioned you reduced it by over 900 homes in the first quarter. Could you talk about the expected reduction in the second quarter? And then, secondly, on the starts pace, could you talk about the expected starts pace in the second quarter?

J

Jim Ossowski6:29:00

Sure, Ken. On the spec inventory, we expect to continue to make progress towards our target range of 40 to 45% in the second quarter. The pace of reduction will depend on demand, but we're focused on selling through the existing inventory and being more selective about new starts. We expect to reduce the spec count by a similar amount in the second quarter as we did in the first. On the starts pace, we expect to maintain a similar pace to what we saw in the first quarter, subject to changes in demand. Our goal is to balance the need to have homes available for delivery with the need to manage our inventory levels and protect our margins.

K

Ken Zener6:29:45

That's helpful. And then just a quick follow-up on the land spend. Could you talk about the expected land spend in the second quarter?

J

Jim Ossowski6:30:00

Yes, Ken. We expect the land spend in the second quarter to be in line with our overall expectation of $5 billion for the year. The mix between development and acquisition will be similar to what we saw in the first quarter, with a focus on development of our existing pipeline. We're being more selective on the acquisition front, focusing on deals that meet our return hurdles.

C

Calvin6:30:35

Your next question comes from the line of Mike Dahl of RBC Capital Markets. Please go ahead.

M

Mike Dahl6:30:40

Good morning. I wanted to ask about the order trends by buyer group. You mentioned first-time buyers were down 11%. Could you talk about the expected trend in first-time buyer orders for the rest of the year? And then, secondly, on the move-up and active adult segments, could you talk about the expected trend in orders for those segments?

R

Ryan Marshall6:31:10

Sure, Mike. On the first-time buyer segment, we expect orders to remain challenged due to affordability constraints. We're working to provide solutions that help first-time buyers overcome these hurdles, such as rate buydowns and more efficient floor plans. On the move-up and active adult segments, we expect orders to remain relatively strong because these buyers have more financial flexibility. We're seeing good demand in these segments, and we expect that to continue for the rest of the year.

M

Mike Dahl6:31:55

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the incentive levels are expected to remain elevated. Could you talk about the expected trend in incentive levels by buyer group?

J

Jim Ossowski6:32:10

Yes, Mike. We expect incentive levels to remain elevated across all buyer groups, but the mix will vary. First-time buyers will see higher incentives to help with affordability, while move-up and active adult buyers will see lower incentives because they are less price-sensitive. The overall incentive level is what we've guided to at 8% of revenue, but the mix by buyer group will continue to vary.

C

Calvin6:32:45

Your next question comes from the line of Jay McCanless of Wedbush Securities. Please go ahead.

J

Jay McCanless6:32:50

Good morning. I wanted to ask about the backlog. You mentioned it's down 16% in units. Could you talk about the expected backlog at the end of the second quarter? And then, secondly, on the conversion rate, could you talk about the expected conversion rate in the second quarter?

J

Jim Ossowski6:33:15

Sure, Jay. On the backlog, we expect it to be down slightly at the end of the second quarter compared to the end of the first quarter. The decline is driven by our expectation of higher closings in the second quarter. On the conversion rate, we expect to convert a significant portion of our backlog in the second quarter, given our delivery targets. The conversion rate will depend on demand and our ability to deliver homes on time, but we feel confident in our ability to meet our guidance.

J

Jay McCanless6:34:00

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected buyer group mix in the third and fourth quarters?

J

Jim Ossowski6:34:15

Yes, Jay. In the third and fourth quarters, we expect a similar buyer group mix to what we saw in the second quarter. We'll have a higher proportion of closings from first-time buyers, which typically have lower margins compared to move-up and active adult buyers. This mix shift, along with the elevated incentive levels and the tariff impact, are the primary drivers of the gross margin guidance for the back half of the year.

C

Calvin6:34:50

Your next question comes from the line of Deepa Raghavan of Wells Fargo. Please go ahead.

D

Deepa Raghavan6:34:55

Good morning. I wanted to ask about the land option strategy. You mentioned you've increased your option lot count by almost 30%. Could you talk about the expected option lot count at the end of the year? And then, secondly, on the land spend, could you talk about the expected return on investment for the land you're developing?

J

Jim Ossowski6:35:20

Sure, Deepa. On the option lot count, we expect it to continue to grow as we focus on optioning land rather than owning it outright. This gives us more flexibility and reduces our risk. We expect the option lot count to be up significantly at the end of the year compared to the end of 2024. On the land spend, we're targeting returns that are in line with our historical averages. We're being more selective in this environment, focusing on deals that meet our strict return hurdles. We're confident that our disciplined underwriting process will serve us well.

D

Deepa Raghavan6:36:05

That's helpful. And then just a quick follow-up on the financial services segment. Could you talk about the expected capture rate in the second quarter?

J

Jim Ossowski6:36:20

Yes, Deepa. We expect the capture rate to remain in the mid-80s range in the second quarter. We're focused on providing a seamless experience for our homebuyers, and we expect to continue to see strong capture rates as we deliver more homes. The outlook for the segment is positive, but it is dependent on closing volumes and the overall mortgage rate environment.

C

Calvin6:36:55

Your next question comes from the line of Alex Rygiel of Citigroup. Please go ahead.

A

Alex Rygiel6:37:00

Good morning. I wanted to ask about the competitive dynamics in the move-up segment. Are you seeing any change in the competitive behavior from other builders in that segment? And then, secondly, on the product mix, could you talk about the expected mix of spec versus built-to-order homes in the third and fourth quarters?

R

Ryan Marshall6:37:25

Sure, Alex. On the competitive dynamics, the move-up segment is less competitive than the entry-level segment because it's more focused on value and lifestyle. We're not seeing significant changes in competitive behavior. On the product mix, we expect the mix of spec versus built-to-order homes to be similar to what we saw in the first and second quarters. We're focused on reducing our spec inventory, but we'll continue to build spec homes where we have demand. The goal is to balance the need to have homes available for immediate delivery with the need to manage our inventory levels.

A

Alex Rygiel6:38:10

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the incentive levels are expected to remain elevated. Could you talk about the expected trend in incentive levels over the next few quarters?

J

Jim Ossowski6:38:25

Yes, Alex. We expect incentive levels to remain elevated for the foreseeable future as we continue to compete for buyers in this environment. The exact level will depend on demand and competitive dynamics, but we've guided to 8% of revenue for the full year, and we expect that to be a reasonable assumption. We'll continue to monitor the market and adjust our incentive strategy as needed to balance volume and margin.

C

Calvin6:39:00

Your next question comes from the line of Susan Maklari of Goldman Sachs. Please go ahead.

S

Susan Maklari6:39:05

Thank you. I wanted to ask about the long-term demand outlook. You mentioned the housing shortage and growing population. Could you talk about how you're positioning the business to capture that long-term demand? And then, secondly, on the balance sheet, you mentioned you have $1.3 billion of cash. Could you talk about how you're thinking about the use of that cash?

R

Ryan Marshall6:39:35

Sure, Susan. On the long-term demand outlook, we're very positive. The housing shortage is a structural issue that will take years to address, and the growing population supports continued demand for housing. We're positioning the business to capture that demand by investing in our land pipeline, expanding our community count, and continuing to innovate on product design and customer experience. Our diversified portfolio across major markets and buyer groups gives us a strong platform for growth. On the balance sheet, we're in an exceptionally strong position with $1.3 billion of cash and a low debt-to-capital ratio. We'll continue to allocate capital to invest in the business, return capital to shareholders through dividends and share repurchases, and maintain financial flexibility to take advantage of opportunities as they arise.

S

Susan Maklari6:40:25

That's helpful. And then just a quick follow-up on the community count. You mentioned it would be up 3 to 5% in 2025. Could you talk about the expected community count at the end of the year?

J

Jim Ossowski6:40:40

Yes, Susan. We expect the community count to be up 3 to 5% at the end of the year compared to the end of 2024. The growth is fairly broad-based across our footprint, with a focus on markets where we see strong long-term demand. We're opening new communities that are well-positioned to serve the demand in those specific markets, and we expect that to support our delivery targets for 2025 and beyond.

C

Calvin6:41:15

Your next question comes from the line of Matthew Bouley of TD Cowen. Please go ahead.

M

Matthew Bouley6:41:20

Good morning. I wanted to ask about the build cost outlook. You mentioned build costs were flat year-over-year. Could you talk about the expected trend in build costs for the rest of the year? And then, secondly, on the tariff impact, could you talk about the specific products or materials that are most affected?

J

Jim Ossowski6:41:45

Sure, Matthew. On the build cost outlook, we expect build costs to remain relatively stable for the rest of the year, with the exception of the tariff impact. We've guided to a 1% increase in house cost from tariffs in the back half of the year. The specific products and materials most affected include appliances, fixtures, and some building materials that are sourced internationally. We're working with our suppliers to mitigate the impact, but we do expect some cost increase. Our procurement team is cycle-tested and has developed response strategies to minimize the impact on our margins.

M

Matthew Bouley6:42:30

That's helpful. And then just a quick follow-up on the gross margin. You mentioned the mix of homes closing is a key driver. Could you talk about the expected buyer group mix in the second quarter?

J

Jim Ossowski6:42:45

Yes, Matthew. In the second quarter, we expect a slightly less favorable buyer group mix compared to the first quarter. We'll have a higher proportion of closings from first-time buyers, which typically have lower margins compared to move-up and active adult buyers. This mix shift is one of the factors contributing to the sequential decline in gross margin from Q1 to Q2.

C

Calvin6:43:20

Your next question comes from the line of Truman Patterson of Jefferies. Please go ahead.

T

Truman Patterson6:43:25

Good morning. I wanted to ask about the order trends by price point. Could you talk about which price points are performing better or worse? And then, secondly, on the incentives, could you talk about the expected trend in incentive levels by price point?

S

Stephen Kim30:05

Conditions, but one of the things that seems to be manifesting here in what we've been hearing from during earnings season is that there is a certain level of demand that is fairly persistent and robust. But if you try to exceed the volume above that amount, if I try to entice additional buyers beyond that sort of strong core, you might say, you wind up having to give away significant price and margin in order to achieve that. And so, I wanted to know if you kind of think that that's a fair way of characterizing the market conditions today, and if that is different in a meaningful way from what you have seen going back 20, 30 years.

R

Ryan Marshall30:53

Yes, Steve. I think you're spot on, and that's part of the reason that we've highlighted the way our model's been built is really built for this exact environment. We always strive to strike the right balance between price and pace, but we've always had probably a slight bias toward gross margins. The reason we continue to deliver industry-leading gross margins. In this environment, I think you're spot on. There is an underlying desire for home ownership and there's a lot of buyers that still want to buy homes, and we're selling them those homes at very good profitability and good value to the consumer as well. The incentives that we're offering are mostly driven toward financing-related incentives. And while all consumers and price points are getting incentives, there's certainly more or a higher percentage that are going into that first-time buyer group where affordability is certainly more challenged. So, look, in this environment, we're still really confident about the long term. We know that we're going to sell a lot of homes, and the operating platform that we have with over 60% of our consumer mix being an active adult and move-up, we think we're really well positioned to continue to exceed despite the challenging macro.

S

Stephen Kim32:22

Great. Thanks very much, guys.

O

Operator32:28

Our next question comes from the line of Sam Reed of Wells Fargo. Please go ahead.

S

Sam Reed32:34

Awesome. Thanks so much. Wanting to actually disaggregate the margin commentary a bit more here, especially on the tariff impact. It sounds like the impact from tariffs specifically will be more weighted to that fourth quarter period if I'm hearing correctly. So maybe could you just talk to if the change in guidance as it relates to the third quarter and just maybe bucket out incentive versus any other cost buckets we should be thinking of in the context of that fresh Q3 margin guide.

J

Jim Zeumer33:07

Great questions, Sam. So, as we look at Q3 and Q4, as Ryan said, we are expecting our incentives to stay at that elevated level for the balance of the year. One of the things we have done very well in the first quarter, we talked about it, is we've been selling some of our speculative inventory that's either in process or finished. So, we will start to see some of that come through in our Q3 and our Q4. And then as Ryan alluded to, really we will see the tariff impact primarily in the fourth quarter. So, we still feel really good about it. As we sit here at 26.0 to 26.5% for the back half of the year, we're really happy and pleased with what our operators are doing.

S

Sam Reed33:53

No, that helps. And then you already touched a little bit on this in the prepared remarks, but really wanted to get a better sense for how traffic trended in your Del Webb communities in early April, especially on the back of equity market volatility. I know this buyer tends to be more conservative, more likely to fund a purchase with investment savings than some of your other buyer cohorts. So, just curious if you have any additional detail on what you might have seen in some of the Del Webb traffic data and perhaps even some of the early traffic to order conversion data. Thanks.

R

Ryan Marshall34:29

Yeah, Sam, it's Ryan. Thanks for the question. The Del Webb buyer continues to be a real shining star in our overall portfolio. We have mentioned in prior periods that it's a buyer that is more sensitive to the macro and market volatility. But it doesn't mean that they go away, and in fact, you look at the sign-ups that we had in the most recent quarter. It was one of our better performing consumer groups along with the move-up. So we feel good about it. As it relates to April, April always takes a little bit of a seasonal shift down in sign-ups, and we certainly saw that this year. The one thing that we would note about April is the day-to-day volatility was somewhat unusual, and I think that's totally understandable given what the consumer is dealing with. There's a lot of noise in the macro, concerns about recession, stock market volatility, interest rates up and down, the fears about tariffs-induced inflation, etc. So, not specific just to the Del Webb, but really all consumers, there's a lot to deal with there. We continue to be really confident about the long term. We know that we're going to sell a lot of homes. We've got an unbelievable operating platform. We're short millions and millions of homes in this country, and given the way that we're balancing more of the focus on price versus pace going back to Steven's comment, I think we're as well positioned as anybody in the space to continue to have success in this environment.

S

Sam Reed36:10

Yeah, that helps a lot. Thanks so much, guys. I'll pass it on.

O

Operator36:17

Your next question comes from the line of Mike Rehaut of JP Morgan. Please go ahead.

M

Michael Rehaut36:24

Thanks. Good morning everyone. Thanks for taking my questions and nice quarter in a tough environment. First question, I wanted to push a little bit and kind of get a little bit better or more granularity on the changes in guidance in terms of the change also in closings and obviously it kind of speaks to the price over pace preference. At the same time Ryan you've also said in the past, you're not going to be margin proud. And so appreciating kind of both of those comments with maybe the tilt towards price more often than not. I'm curious if the reduction in closing guidance for the year is also in some ways reflective of some of the volatility in April. As much as, maybe orders coming in a little less than at least we were expecting for the March quarter. And if that volatility in April kind of continues, maybe doesn't rebound to something a little more stable, could there be further adjustments down the road in incentives or price? Or is the current guidance kind of reflecting April's volatility which I'm sure has impacted perhaps volumes to a decent extent.

R

Ryan Marshall37:55

Good morning Mike. Thanks for the question. It's Ryan. Let me maybe first start with the guide. In terms of the full unit guide, as we moved through Q1, Q1 results were largely in line with our planning expectations. It wasn't the most robust spring selling season, but it wasn't the worst that we've ever seen either. So, largely what we expected. April definitely had more volatility. The tricky part is we're 22 some odd days into April. So, I don't think you want to overreact to 22 days of data, but we did use that to come up with a modified guide for the balance of the year. We think we've incorporated everything that we know. There's a lot that we don't know out there, but what we're trying to convey is confidence to the investment community that we've got an unbelievable platform. Our balance sheet is world-class and rock solid. We got a lot of cash. We've got low debt. We've got the ability to do a lot of things in this environment, and it really puts some distance between us and the rest of the competitive set. We still have the capacity to build 31,000 homes. Our procurement teams, our construction teams, the land is there. So, if we took the other side of the coin and say, 'Hey, what if confidence in the consumer were to improve, then what?' Well, we're still really well positioned to take advantage of that as well. So, I think we want you to hear we're being very balanced, very pragmatic, and we're on this. We're not in panic mode. There's no reason to be in panic mode because we know that we've just got an unbelievable operating platform. In terms of being margin proud, we're also not going to be margin stupid. And we've said that we're going to find the right balance between price and pace. And to Steven's question, in this environment, we know there's this embedded level of underlying demand that's there. We're working to drive high returns. If we saw ability to drive a little more volume without giving excessive discounts, I think you'd see us do that, but that's not the environment that we're in now.

M

Michael Rehaut40:26

Okay. Now, I appreciate the detailed answer there, Ryan. And it kind of sounds like in effect you are baking in, again, the change in guidance being the April volatility and you remain relatively confident on price. If I had to kind of boil that down, that's right.

R

Ryan Marshall40:43

That's fair, Mike.

M

Michael Rehaut40:45

Okay. So, secondly, again, just maybe a little bit more clarity on the tariff as to it does appear, that 1% of ASP is sort of an estimate if I'm hearing that right. Really, maybe you're saying back half or half of the fourth quarter impact. So, number one, I would just love to get a sense, where are the buckets that that 1% comes from? Is it kind of just spread all across the board or is there a couple leading categories that you're focusing on in terms of the input mix? And secondly, it sounds therefore then that the change in back half gross margin guidance is more driven by the spec reduction more than anything else. And just wondering if there's any other main drivers there as well. Thanks.

J

Jim Zeumer41:38

Yeah, so Mike there's a lot there. I'll try and pick through it. In terms of tariffs, it is back half of fourth quarter. We've estimated it to be 1%. In terms of big categories, plumbing specifically tank water heaters, porcelain, HVAC parts, especially things that come out of China. Tile flooring, the global 10% tariff, that affects every country and most of the flooring comes from somewhere else. And then the other category would be electrical components and the related, so circuit breakers, load centers, etc. That's all wrapped up in our 1% estimate. In terms of the margin guide in the back half, it's partly because of the incentive load. It's also partly because of higher land costs, but that was embedded in our guide to begin with. And if you compare our current guide 2.4 to the prior guide, we're down 50 basis points, and that's really reflective of the updated tariff information and the incentive load that we've talked about.

M

Michael Rehaut42:56

Perfect. Thanks so much.

O

Operator43:02

Your next question comes from the line of Matthew Bouley of Barclays. Please go ahead.

M

Matthew Bouley43:07

Morning, everyone. Thanks for taking the question, and welcome Jim to the call. Wanted to ask on that land spend guide, bringing that to 5 billion from 5 and a half billion. I guess I don't know if that also includes higher development costs following the tariffs on a dollar basis, so just curious on that. But then, more broadly, I guess what does that signal around your growth intentions perhaps into 2026? What portion of that land spend would be impacting community growth as soon as next year or just any other color on how that would flow into your growth expectations. Thank you.

R

Ryan Marshall43:45

Yeah, Matt, thanks for the question and to your point, it's a hell of a quarter for Jim to have his first call, but I'm thrilled to have him here with us, and he's been an integral part of our team for a long time. In terms of the land spend guide, I think one of the most important decisions that we make as a management team is capital allocation, and specifically how much money we're going to spend on land. We do have ambitious growth plans. We've talked about our long-term growth guide of being 5 to 10% and we're confident in that based on the land pipeline that we've been investing in for the last several years. We've got 244,000 lots under control and so being a little more prudent in this environment and trimming a land spend, it's really about delaying things a little bit as opposed to canceling. If it were a market where we were really, really concerned, you might see canceling of land contracts. That's just not where we're at. So, in terms of our ability to deliver '26 and '27, a little bit of a delay or a pause in land spend this year is not going to have an impact on that. We'll also see that there's an opportunity to make the land spend go a little further, meaning 5 billion may buy almost as much as what 5 and a half billion did. We haven't seen that emerge yet, but that's certainly something that we're looking for.

M

Matthew Bouley45:23

Okay, got it. Thanks for that Ryan. And then, secondly drilling into the and back into the gross margin side. The assumption around assuming current incentives of 8% hold. Obviously the March quarter incentives came up 80 basis points sequentially during generally a seasonally stronger time for housing demand. So I just wanted to double click on kind of why that's the right assumption. Kind of what you think typically happens to incentives as you would move into the summer months and all of that. Or is the assumption just you're going to be able to reduce spec enough that you just wouldn't need to tweak incentives any further. So, any more color on that? Thank you.

J

Jim Zeumer46:05

Yeah, let me ask you, that's a great question and you hit on it right at the very end there. As we look at it, as we started to trim our speculative inventory, we've been doing a really nice job chewing through that in the first quarter. As we start to see that get down into our target range of 40 to 45%, we see the opportunity to ease off of that a little bit. Now, the environment may require us to do other things in order to keep moving homes, but as we get our spec inventory in balance, we think we have the opportunity to lower our incentives.

M

Matthew Bouley46:35

All right. Thank you, Jim. Good luck, guys.

O

Operator46:41

Your next question comes from the line of Mike Dahl of RBC Capital Markets. Please go ahead.

M

Mike Dahl46:48

Morning, thanks for taking my questions and yeah, Jim, congrats on the new role. I wanted to drill into the order cadence a little bit more. So, your sales per community were down 10% in the quarter. You talked about April volatility. Can you put a finer point on your year-on-year comparison and April sales pace right now and then maybe to take it a step further, I understand the seasonal progression of increases through the quarter, but maybe you could give us some help on how the year-on-year comparisons looked in Jan, Feb, and March.

R

Ryan Marshall47:28

Yeah, Mike, I don't know that we're going to slice it quite that thin. I think we've tried to be really responsive to give kind of detail around spring selling and how things progressed. January started, I think, the way a lot of January's do. I mentioned in our last call that we were seeing some green shoots and February's a good month and March got even better. So, spring selling season, I think, played out the way that we would have expected it. In total, and Jim had it in some of his prepared remarks, the seasonal increase from Q4 to Q1 was less than what we would normally expect. So, you could argue based on that spring selling season was maybe a little below average. As we moved into April, I think I've said it, but I'll reiterate it. We've had more volatility from the consumer than we normally expect and I think the reasons why are very well understood.

M

Mike Dahl48:33

Yeah, I mean, I certainly appreciate that. I just think given the uncertainty out there, you're clearly providing us a lot of helpful detail. If there was any quantification for April in light of a less than normal seasonal increase in one Q, I would think it would be helpful. But Ryan, I guess...

J

Jim Zeumer48:54

Yeah, maybe I'll just jump on that real quick. What we've tried to do is to articulate and quantify that into our full year volume guide. So, you'll have to take our word for it that based on April sales, combined with what we did in Q1, but I think the bigger driver is what's happened in April, we've modified the full year volume guide.

M

Mike Dahl49:21

Right. Hey Ryan, the second question I had, you mentioned in your opening remarks potential for exciting opportunities. You mentioned just in response to Matt's question, hey, maybe 5 billion goes further than you would have thought three or six months ago. I think that's kind of alluding to some reset in the land market, but maybe you can give a little more detail. I don't know if anyone's really thinking that this cycle is going to produce the type of distress that we saw of the GFC. So, are you kind of referencing things that you're currently seeing in the land market? Are you thinking about bigger M&A opportunities? How, maybe just talk a little bit more about what those comments were geared to.

R

Ryan Marshall50:05

Yeah, not really trying to telegraph any kind of hidden messages. Probably the, and we've not seen and probably wouldn't expect to have a major reset in the land market. Other than the great financial crisis, land just doesn't seem to go through a reset. It's in short supply. It's part of the reason that we're so short housing is because land is so hard to come by. So, I think land values are going to be pretty durable. We think that there could be some exciting opportunities or there are builders that are not as well capitalized or as balance sheet strong as what we are. And for a number of reasons, they may elect to walk away from something. And that may create some opportunities where we can step in and grab something at a good value. Maybe something that was tied up at a prior value that we're able to inherit, etc. So, time will tell whether or not that plays out. We haven't seen a ton of it yet, but they say hope's not a strategy, but should some of those opportunities emerge, we're really well positioned and in a great financial position to take advantage.

M

Mike Dahl51:27

Okay, thank you.

O

Operator51:34

Our next question comes from the line of Carl Reichardt of BTIG. Please go ahead.

C

Carl Reichardt51:39

Thanks. Morning, guys. So, Ryan, just to drill down on April one more time, when we're talking about volatility, are you referring to foot traffic, conversion rates, or cancellations in terms of the most significant impact on the order volatility?

R

Ryan Marshall51:57

Yeah, you know, Carl, when we're talking about volatility, we're talking about rate of daily sales. That's the volatility. The other things have been largely stable, including can rate. We have not seen a run for the doors from consumers that previously made a decision to buy and are in our backlog. That's been really stable. And Jim highlighted, we saw a modest, a very small tick up in can rate in the first quarter to 1%, and we haven't seen a change in behavior in April, either.

C

Carl Reichardt52:35

Great. Thank you, Ryan. And then, talking about a couple of the bigger picture stuff for you, as you look at your current environment, you talked last call about getting cycle times down to I think 100 days in the back half of the year. And I'm also interested in the bigger picture of going to 70% option lots. They're 59 now. So, but is the current environment impacting either one of those sort of bigger picture goals for you, either on cycle times or on your move to option lots, do you think? Thanks.

R

Ryan Marshall53:06

So, cycle time, Carl, we talked about it last quarter. We're basically at 100 days on our single-family, which is so mission accomplished there. We don't really expect any more kind of changes. We're at where we want to be. Jim quoted we're at 110 days overall. And what that includes is a lot of our multi-family condo buildings that have much longer cycle time than a single-family. So, we're where we want to be on cycle time. In terms of land optionality, we've made tremendous progress toward that kind of target of 70%. What Jim talked about in his prepared remarks is that we're going to be really prudent in evaluating when and where and how we drive for optionality. When we think about optionality, we're looking to be capital efficient. We're also looking to mitigate risk associated with owning land. And so, that will be our driving force North Star is mitigating risk associated with owning land. A secondary benefit will be the improved efficiency that we get on return. But we're not going to let the tail wag the dog on this one, Carl.

C

Carl Reichardt54:28

I appreciate it, Ryan. Thanks a lot, guys.

O

Operator54:33

Your next question comes from the line of Alan Ratner of Zelman and Associates. Please go ahead.

A

Alan Ratner54:40

Hey guys, good morning. Thanks for all the great detail. I know this is not an easy environment to give guidance and give commentary. So we appreciate it. First, Ryan, we've talked about this in the past. I'm surprised it hasn't come up yet on this call, but curious just to get an update on what you're seeing in Florida. I think given your exposure there, given how strong your margins have been in the state, that's usually one of the main concerns I hear from investors related to Pulte and Florida certainly seems to be getting a fair amount of negative headlines in terms of the conditions across state. So was hoping you could give just kind of more granular commentary on what you saw through the quarter and into April in Florida across your markets and price points.

R

Ryan Marshall55:22

Yeah, Alan. Florida is a really important market for us. The thing that I would highlight about our Florida market is the majority of our business there is in the move-up and the active adult space. And we've talked about that being one of the stronger segments. So I feel from a strategic standpoint, I feel really good about how we're positioning Florida. In the near term, resale inventory in Florida across the state probably higher than what anybody would like it to be. The last number that I saw is I think it's around 7 months of total inventory, which is slightly over the ideal of six or lower. So maybe not perfect, but also not in full-blown panic mode either. Our Florida business is only down 5% on a year-over-year basis. So down a little bit, but certainly not catastrophic. So I'd probably leave it there as it relates to Florida, Alan.

A

Alan Ratner56:26

Okay. I appreciate that. Second, in terms of the cycle time improvements that you've seen and everybody else has seen, I'm hearing a lot of quantification on tariffs in terms of the cost impact, but I haven't really heard many builders talk about, and maybe they don't expect it, any potential disruptions to the supply chain to cycle times that might come about from all this tariff noise. Is it possible suppliers as they're trying to shift production domestically that creates some pressure here on some US suppliers. I'm just trying to figure out what are the potential landmines that maybe we're not talking about in the supply chain that might come about from tariffs and maybe your answer is there are none because you've done the work, but curious your thoughts there.

R

Ryan Marshall57:11

Yeah, Alan. There are some, and exactly where they're going to be I can't predict that. I'm not anticipating COVID-level disruption in the supply chain, but to just assume there's going to be none, I think would be burying your head in the sand. There are things going on in the global supply chain that will inevitably create hotspots and issues. We'll be really transparent with you when we see those and what we're doing to mitigate it. The confidence that I'd give you is I'd go back to our world-class procurement team. They know how to deal with this. They know how to be agile. We're fresh off of 3 years of dealing with COVID-related supply chain. I'm not suggesting this is going to be a laydown, but I think it'll be potentially an easier obstacle course to navigate than the COVID supply chain disruptions, but I do think the industry needs to be prepared and not just the industry. The world needs to be prepared for some disruptions as a result of things that are going on tariff-induced.

A

Alan Ratner58:30

I appreciate the thoughts. Thanks, guys.

O

Operator58:36

Your next question comes from the line of Kenneth Zener of Seaport Research Partners. Please go ahead.

K

Ken Zener58:43

Good morning, everybody. Welcome, Jim. Two quick questions here. What do you think your 4Q year-end inventory units are going to be relative to last year's 4Q and how are your incentives different by segment? Sun Belt Texas versus your Florida Del Webb.

R

Ryan Marshall59:11

Yeah, Ken. So, I'll take the first part. I'll let Jim take the part on margins and incentives. As it relates to inventory, our target range is 40 to 45% and I think what you've seen from us is we've adjusted our inventory levels in reaction to things that have been going on in the broader market. Right now, we're probably in a little bit of a risk-off mode of inventory. And so, you've seen us trimming from where we were to getting back inside of our range. In terms of the year-over-year comparison, I think it'll depend, but I'd expect us to be within our stated range, which I believe would be lower than where we were at the end of Q4 '24. Jim, you want to take the other piece?

J

Jim Zeumer59:59

On the incentives, we don't really slice them that thin. What I would tell you is, incentives can come in different shapes and forms. If it's a speculative inventory unit, maybe there's a discount associated with that. You touched on our active adult buyers, many of those are cash buyers, so maybe the incentive they get is a discount on options at our design centers. It varies across all of them. Particularly on the first-time buyer, they probably need a little bit more help on the financing side. So again, incentives come in different shapes and forms, and we think we just find the right balance for each individual consumer.

K

Ken Zener1:00:38

Thank you.

O

Operator1:00:45

There are no further questions at this time. With that, I will now turn the call back over to Jim Zeumer for final closing remarks. Please go ahead.

J

Jim Zeumer1:00:54

We thank everybody's time on the call this morning. Actually, there were a few people left in the queue, but we've simply run out of time on this call. We're available over the remainder of the day if you've got any questions. Otherwise, we will look forward to speaking with you on the second quarter call.

O

Operator1:01:09

Ladies and gentlemen, this concludes today's conference call. We thank you for participating and ask that you please disconnect your lines.

Pultegroup Inc ($PHM) Q1 2025 Earnings Call

About Ryan Marshall