D.R. Horton, Inc. (DHI) Earnings Call Transcript & Summary

[Audio Gap] This particular hour, I'm really thrilled to be able to introduce you D.R. Horton at this session back with us for the -- it's been maybe a year-on-year off kind of thing, but we're thrilled to be able to reintroduce D.R. Horton to our investment audience today. Thank you for joining, everybody. My name is Buck Horne. I'm the housing analyst covering homebuilding. Residential real estate as well as timber REITs and single-family rentals as well as all things housing related, covering Dr. Working for a long time. We've got Bill wheat, the CFO of D.R. Horton, on our -- I guess, on my left of this box and Jessica Hansen, who has many roles at the company, VP of IR, just among them. And so with this discussion, we're going to try to cover all your -- all the salient topics around this housing boom that we are seeing at the moment. And of course, we've been out with our call very -- continue to be very bullish on what we think is a single-family super cycle that is developing with a multiyear runway for potential significant increases in new home production, new home sales. D.R. Horton, of course, the largest homebuilder in the United States by volume and by revenue as well. And so they are leading the charge and among the most efficient companies producing new housing in the United States, and we think is one of the prime beneficiaries of this, again, the super cycle that we believe is unfolding here. So what we're going to do is have just mainly a fireside chat type discussion. The prepared comments are going to be fairly brief. I'm going to hand it over to Bill and Jessica and then, kind of, just maybe a couple of high-level thoughts to start us off. If you want to participate, please note that there is a -- I think there is a question box. If you can click on that or feel free to use the chat function. Whatever works, you can type in questions. We have a moderator that we'll be monitoring that and sending questions to me so that I can weave in any of your thoughts or comments into our discussion as we go. We've got about a 40-minute time windows so plenty of time to address any comments or questions you may have. So fire those up as soon as you're ready. And with that, I'm going to hand it over to Bill and Jessica. And maybe just some high-level thoughts on where we stand, how the spring is shaping up. Just a quick recap of 2020 in this record-setting first quarter, you just reported a few weeks ago.

Well, thank you, buck. Thanks for having us today. Thanks to Raymond James for hosting the conference. We were commenting earlier that Raymond James always has a tremendous conference in person that's we're certainly missing, seeing all of you in person. But thanks for joining us here today and look forward to hopefully seeing you in person in the future. At D.R. Horton, we are the largest homebuilder in America, and it's something that we're definitely proud of for 19 consecutive years. And we're operating in 90 markets across the United States. So we are in truly a national position. We are focused, a large part of our business, 2/3 of our sales are to -- or at home prices at $300,000 or less. So we're very focused on the entry-level buyer at first-time home buyer, first time move-up buyer across our brands in all our communities across the U.S. We're seeing a market that is extremely healthy. We've seen a growing market for the last several years. We've first time homebuyer, that portion of the market grow very nicely over the last several years. But starting mid-calendar '20, really once markets began for reopening after COVID. We've seen a level of demand accelerate that has been as strong as we've ever seen. And it's against a backdrop in housing where there's limited supply on both the existing home market and the new home market. And so it's created a very healthy situation for homebuilders, including D.R. Horton. We are positioned with affordable housing for that entry level buyer, we believe, is positioning ourselves for a very strong '21 and '22. Big picture, we expect to close between 80,082 thousand homes this year, which will be a record for us, about 25% growth over the prior year. But we feel like the backdrop of the market today with very strong demand, very limited supply is one that certainly is sustainable through '21 and into '22. There's always risks on the horizon. There's always things we're watching. Recent movement rates is certainly one, but our focus on affordability, providing homes that are affordable for first-time homebuyers puts us, I think, in a very good position. From a position of the company today, our balance sheet, our liquidity is as strong as it's ever been. I think we're in a great position to capture demand and continue to gain market share in this very healthy market. So with that, I'll just kind of let buck take it from there. I know he's got a long list of questions for us.

Yes, yes. So we'll dive into some of that. Yes, it's a fairly ambitious growth path. I mean, in terms of delivering the 25% year-on-year growth. That's certainly a very healthy level of production growth. How are you balancing your -- the price versus pace in terms of managing for maximizing your total returns with that level of production increases. How does the pricing environment feel in terms of -- do you maximize price? Or do you kind of meter out the pace of the lots a little bit more judiciously going forward?

It's always a balance for us in each of our communities. To the extent that we have a lot supply in front of us, and we're able to capture all the demand that comes at us. We will typically lean towards capturing that demand and increasing our production. In an environment where there's such strong demand and limited supply, there is the ability to move price. And so we are increasing our prices in general, but we balance our moves and prices relative to affordability and what we think our buyers can actually afford in terms of their monthly payments. And so I think we've probably been a bit more cautious on price increases versus the rest of the industry. But that being said, we're definitely still seeing the ability to move price as well. So it really comes down to level of demand versus our supply -- our ability to supply homes to meet that demand will determine how we manage our sales base community by community.

Yes. Yes. No, makes sense. You guys are clearly taking market share in this environment. So congratulations on that front. The key question, I think, that investors have at this point -- among several questions, but I think the #1 question I continuously get, first and foremost, is about future interest rate increases. It feels like we're certainly coming off the bottom. The 10-year yield has bounced quite a bit. That being said, I think mortgage rates have not moved nearly as much. It really -- much at all. But there's a concern that, that spreads are kind of normalized now. And so rates go higher from here, mortgage rates go up significantly. Prices have been going up rapidly. So what are your thoughts in terms of is there a threshold that you feel like demand could get throttled back or an affordability wall if rates rise to a certain level? Is there any thought around that? Or how do you manage the business according to that?

I don't think we would say there's one specific threshold rate. What we focus on and what we've observed historically is the pace at which rates increase in a short amount of time. So if we were to see a significant increase in rates in a 30 to 60-day period, is a 100 to 150 basis point move in a 30 to 60-day period. What we've seen historically is that can cause some short-term and a disruption or dislocation in demand. You have buyers that were looking at the market, determining what they can afford, what payment they can afford and therefore, what house they can afford. And if the rates change significantly before they are able to lock in their own rate, that can change what they can afford to buy. And so we will see buyers adjust their expectations in an environment like that. And we've seen that historically. To the extent that rates move up more moderately over a longer period of time, the market typically absorbs that much more smoothly. We don't necessarily see quite as disruption. So that's something we're watching closely. Affordability is very important, and we're just trying to position ourselves with our product assortment, the plans that are available to buyers. And so that if rates move up and their affordability becomes constrained a bit, we've got smaller floor plans available for a buyer to choose at a lower price point than they perhaps they can afford after rates have moved up. So just trying to stay in a flexible position to meet any potential changes from interest rate increases.

I got you. And are we seeing any changes in terms of the buyer profile coming in the front door in terms of credit quality? Are we -- are there any signs that the buyers are stretching in terms of down payments or FICO scores or debt-to-income ratios. Any -- or are we seeing a really well-qualified buyer still coming in? Any detail or data points you might have on that?

Yes, we continue to see a very strong credit profile really across all of our brands. Our average FICO score this most recent quarter was around 720. And even for Express homes, our entry level buyer, it was about 710. Not a whole lot move on the down payment front. We continue to see more entry-level buyers go for an FHA product. So they don't have to put the 3.5% down. But our cumulative loan to income or loan-to-value is about 90% still, which says that if it's not an FHA buyer and the buyer can put down 20% to avoid private mortgage insurance, that's the option they're choosing. So our mortgage company pays close attention to what our buyers can qualify for, and we continue to see that a lot of our buyers could afford a little bit more house than they're choosing to go for today. So we think there's a little bit of room on that front. But to go back to Bill's comments on affordability, certainly something we're still very focused on, as we've seen the average size of homes that buyers come in and go after start to tick down. That can be an early sign that buyers are starting to stretch a little bit from an affordability perspective. But no question, we're still in a very limited supply environment and not meeting the demand out there.

Yes. No question about it. Then one of the key points that we've noticed and highlighted is just post pandemic, this amazing explosion of personal savings rates. Of course, it's very much a kind of a K shaped economic recovery. Clearly, millions of households that are still suffering with the effects on the job loss of the pandemic. And at the same time, the top half, those that maybe have had some household equity or savings or maintain employment throughout the pandemic have seen an explosion of savings. And some -- whether it's cash and money markets or savings accounts. Are you seeing any movement in terms of -- you service the entry level market, primarily, but you do have some product adhered for a little bit of a -- maybe more of a move up type oriented product. Is there any -- are you sensing that buyers are willing to move up a little bit more or pay up for a little bit more house, more square footage or conversely move a little further out for more house for their money?

Yes. I think we've generally said for a while that millennials are going to buy houses, right? And what we've seen is a lot of those aren't necessarily maybe today a true Express home, a true entry-level buyer because of the dynamic you're talking about buck in terms of they've waited a little bit longer. And they are in, fortunately, a job situation that hasn't been impacted by COVID, their savings rate looks different, and they maybe can come in and afford a little more home. So we've definitely seen very strong growth in our Horton brand as well, which can be the first-time buyer. It can be the first time move-up buyer. And in some cases, it can be an even higher move up buyer than that. Several years ago, you would have heard us talking about our strength in demand was essentially concentrated at affordable price points. Today, we would tell you that there is demand across the board across all price points, and it's very robust. It's still predominant, more predominant at those entry-level first-time buyer affordable price points just because that's still where there's supply. But we do -- in some part of our buyer pool see people go for a little bit more house.

Okay. That's kind of what we're -- consistent with what we've been hearing and seeing, yes, this incredible inventory shortage, it's just everything seems to be working well at the moment. With that, I guess, the next concern that I've come across from a lot of investors is just concerned about the supply chain and/or production limitations about how quickly we can get houses to meet this demand out there. It's just an almost insatiable level of demand and builders are running out of communities faster than they expected and starting to now intentionally slow down the sales paces and phased lot releases and the like. But what do you guys see either maybe as the industry's biggest challenge or maybe and/or your company's challenges in terms of improving and continuing to build upon the construction cadence that you guys are building to it? Is it the lot capacity, the labor capacity, lumber? Any of those topics, but feel free to dive in on that discussion.

I mean there's no doubt there's constraints really across the industry with this level of demand. There's definitely constraints across the industry and meeting it. I think we would rank the walk constraint as being the number one item. There aren't a lot of finished lots that's certainly available for builders today. So they're waiting on lots to be developed. And so I think that's the primary driver behind builders having to meter their sales in order to manage the lots that they do have available in their open communities so that they don't close them out too quickly. Fortunately, we certainly do that on a community-by-community basis. But fortunately, we've been in position with a very long lot supply with very strong relationships with our lot developers to be able to ramp up our lot supply pretty quickly and have not had to meter our sales nearly as much perhaps as a lot of the industry have been. And we've also then been able to -- with our relationships with our labor suppliers, our material suppliers, ramp up our production of home starts relatively quickly as well. We've started -- in our September quarter, started 25,000 homes. In our December quarter, started 23,000 homes. And so we're at an increased level of production home starts that we've never seen before. We feel like we're at a level that is sustainable as well. So we think we're in a great position to meet this increased level of demand. I think the industry will adjust over time and work to meet it, but I think we're in a great position to capture today.

All right. Do you think labor -- if we continue to see these kind of double-digit increases in housing starts, will labor become more of an issue? Or can things like maybe immigration reform help change that dynamic ahead? Or any concerns around labor capacity as we ramp ahead?

No doubt. There are constraints on labor as well. We'd probably just rank it as high as the lot constraints. But there is a general constraint on labor, especially with the higher level of demand today. We have been able to, with our scale, I think, secure very good position with our suppliers, but it is a constraint for the industry for sure things like immigration changes can move the needle over the longer term, but would have very little impact in the short run.

Okay. All right. That's helpful. It sounds like things are very manageable at the moment from that front. Let's get an incoming question from investors. Can you speak to the prices of lumber recently and other housing-related commodities and the impact this will have on housing production and production costs. So just, yes, kind of a materials commodity inflation type question related to your thoughts on margin sustainability.

Sure. Our guys in the field and our national purchasing teams have done a great job controlling costs, really, this entire cycle. Lumber started to be a headwind last year. It went up much more sharply than it seasonally typically does and stayed up higher much longer. We've cycled through that. And now as is seasonally normal, lumber is going up again right now, but it's probably a little bit sharper than history would hold outside of last year. And so that is a headwind probably to us in the back half of the year as we start closing homes with those lumber costs. It goes into why we've guided to an essentially flat gross margin. Our Q1, our December quarter was right around 24%. We've said that we think we can maintain it around that 24% in Q2. And then we don't have great forward visibility just because the strength of the spring selling season is really going to determine our outcome for gross margin for the full year. But if demand remains this robust, we think we can get enough price to offset our cost pressures, whether it be lumber or some of the other cost headwinds that have come our way. There are some supply chain shortages out there today. So there are definitely building products and cost increases that we are taking. We still believe we're taking a lower cost increase than most of the industry because of our size and our scale and believe that all in our labor and materials costs, we can manage to still a low single-digit cost inflation, which would mean we just need to get more of the same on a pricing front. As really what we've seen each of the last few quarters in terms of also a low single digit, maybe low to mid-single-digit on a per square foot basis increase in our home prices. We'll see as we move throughout the remainder of the year, how it ultimately plays out. But if the strength in the market holds today, which the market is still very robust. Supply is definitely not meeting demand. We should have a good runway to generate some outsized margins from here, whether it's at 24% or something a little bit higher or a little bit lower, we're generating very strong returns on equity at today's gross margin levels and don't see a big change at least on the return front, which is really more what we're managing too than gross margins.

Yes. No, understood. Could just dive in a little bit more on -- I think people have questions about how builders and how the industry buys lumber? I mean, just given that it's such a headline topic at the moment. How are these contracts structured in terms of look-back provisions, how do you smooth out those costs over time, kind of how they ultimately flow through as a percentage of the sales price of the house. How does lumber really flow through the income statement for you guys?

Sure. I'll start to it as a percentage of the total cost of the home. It's generally about 8% to 13%, so call it, roughly 10%. It really varies quite a bit by geography, though, as you would recognize, living in Florida buck, concrete block construction versus Texas, which is pretty much all stick built due to hurricane codes and whatnot in Florida. But call it roughly 10% of the total cost of the house. It's not something we try to nationally source. I mean, it's a commodity. So our local teams handle that. They give guidance from our national purchasing team in terms of directionally what we're expecting and maybe when they should go a little bit further out on a lock versus a little bit shorter. But we don't try to hedge lumber corporately. The 84 lumbers and our lumber partners of the world are the ones that are out hedging, and that's really their business. And so what we generally see is that we lock in on a trailing 13-week average at all different points in across the country. So we don't necessarily ever see a big spike in our P&L from lumber, we can see a modest impact. But generally, it smooths out a little bit over time just because we are locking in at all different points in time across the country. Probably the last point I'd make to that too is, although it is a commodity, and we can't drive as much cost as we can on non-commodity type products just with our scale, it still is something that's looked as more of a cash flow item for a lot of those partners of ours. And so they're looking to make their margin off of other products and lumber is really just a cash flow generator, which is generally the reason you don't see us talking about a 40% increase in lumber prices or whatever the spot increases out in the market.

Got you. Very helpful. And so you talked about managing the cost increases to that low single-digit type kind of environment. I mean, is the pricing per square foot in line or a little bit better than that in terms of -- if you -- I know there's a lot of geographic mix, a lot of product mix that's kind of embedded in there. So it's kind of noisy. But any -- is the price per square foot as good or better than that?

Yes, it is currently. And in fact, in our most recent quarter, our pricing per square foot increased by more than our cost did. And our expectation going forward is that would at least match our increases in our costs. And with the sales environment we're seeing here in the spring. And I don't believe I said this specifically earlier. We are still seeing very strong demand in all the way through the end of February. So our expectation is, to the extent demand continues as strong as it is currently that we would have the ability to price to offset the cost increases that are coming through.

Yes. And probably the follow-up is to current market conditions that I would add on to February to Bill's comment about we continue to be very pleased. We've really, even in spite of the slight tick up in interest rates, we haven't seen sort of any sort of increase in our cancellation rate, which just holds in line with normal seasonal volume improvements in the strength in the market.

That's really helpful color. I appreciate that feedback as well. So let me ask about weather then more recently. I know Texas was -- had a couple of weeks of some deep freeze really weather across the southeast. I mean, does that affect either the demand or the construction cadence in terms of delivery schedules or anything that we should be aware of in terms of just how this recent spat of unusually cold weather ripple through the Southeast?

Well, there's no doubt that this storm was unusual, kind of generational in terms of Nature & Severity. So it did have probably a greater disruption than we would normally see in the winter in the south. But essentially, it was a week. And so in the state of Texas, it was essentially closed down for a week. So a lot development, home construction was essentially shut down. It certainly impacted mobility of everyone. And so traffic in models and in sales offices was down. And so we'd expect some short-term disruption, but nothing that we'd expect to be long-lasting. One quarter -- 1 week in the middle of a quarter, for us, there's still time to make up some ground and kind of catch-up a bit. And for us, we don't feel like it moves the needle on any of our expectations for the year.

Okay. Perfect. I appreciate that. And just to cover the bases, get the full weather report update. So we gotta ask the question. Let me back it up to a little bit higher level, conceptually thinking just about this post pandemic environment, these new work from home trends, the technology, we're all utilizing, and we've become very accustomed to over the past year. But one concern some investors do have is that this is all a temporary phenomenon that we're all going to get vaccinated too. We're all going to reopen and that this -- the surge into the suburbs or however you want to characterize it, is going to reverse course. Job growth will come back to the cities and that will -- maybe this surge of this boom of demand out in the outlying suburbs kind of reverses course. How do you guys think about that? Or do you have any evidence that leads you to believe to the contrary that this is actually a very lasting phenomenon that is more of a secular shift. But what are your thoughts around work from home and kind of how housing demand plays out from here?

Sure, Buck. We tie it all the demographics. I mentioned millennials briefly earlier today. What I didn't say is that we actually saw a pretty marked step-up in the percentage of our overall buyer pool that are 34 and younger. So in calendar 2019 for reference, about 35% of our buyers were 34 and under very quickly in March and April of last year, we saw that spike up to the low 40s, call it, 42%, and it's remained there today. So that's a pretty big move in a relatively short period of time. And I think that supports what we've said pre covid or not with the burning question that we've been getting asked for years is are millennials ever going to own homes. And I think the answer is clearly yes. We have always said that we expected -- although it may be a little bit later in life, if they're still just getting married later, having the first, and in a lot of cases, that second child, which means the first child is approaching school age, that's those individuals and families are going to make that decision to move a little bit further out because they can get not only more house for their money, but they can also generally get good quality public schools for their children. And so did covid maybe accelerate some of that? I think so. But millennials are such a large swath and there's just so many of them that I think you can make the argument that, that trend can continue kind of regardless of work from home. I think work from home will continue to support it. And if anything, it's probably also accelerated some of the trends in terms of people moving from New York to Florida or moving from California to Texas. We were seeing that pre Covid. This has probably accelerated that for where people truly have flexibility now to work from anywhere. Or if they're now -- even if they have to stay in the same metro area, they used to have to go into office 5 days a week. And even post vaccine, now they only have to go in 1, 2, 3 times a week, that probably changes our tolerance in terms of what that mute looks like. So I think there's multiple reasons that this can continue even if there was a pull forward starting last year.

Yes. No, definitely. I mean, just following up a little bit. I mean, have you seen -- are you being able to quantify in terms of that buyer mobility effect that you're seeing? Are we really truly detecting more out-of-state buyers into the Sunbelt markets or to Texas or the Southwest coming out of the coastal areas? Is that something you see in your communities or among your areas?

Yes. It's probably still more anecdotal for us. We haven't done a whole lot of work corporately to study kind of ZIP code moves and whatnot. Our mortgage company would have some of that data. But anecdotally, I'd tell you, we hear more and more of it, and we were hearing it pre-covid as well, but even more of it today. And early on in covid, you were hearing you know about site unseen purchasers who really were doing a whole purchase virtually and buying the home even without having visited. So I think a lot of those trends will be here to stay, too, from a virtual perspective.

All right. Wonderful. I'm going to backtrack a little bit to another supply chain question incoming from an investor who wants to ask. Are the supply chains for appliances and other building products like windows and roofing, are those back to normal post covid at this point?

I think there's still spot challenges that are occurring. I think Windows is probably still the headline, where there are still some challenges. Some plants got shut down and things like that, that caused some disruptions. And now with the significant increase in demand and the pace of starts that builders are trying to get out today. I think there's probably still a little bit behind. We also have seen some spot issues in appliances. And I would not sure -- we'd say we're back to normal, but it's still -- I think it is improving. And I think that all those suppliers are adjusting to the new level of supply that they need to provide.

And when we talk to cost pressures earlier, that just really goes hand-in-hand, right? When there's supply shortages, there are going to be cost increases in the market. And although we believe we're managing them better than the industry as a whole because of our scale, we are having to take some price increases, particularly in those categories where you've seen shortages. And you mentioned shingles, that's probably been one of the more recent ones and where we have seen some inflation.

Okay. All right. Helpful. Helpful. Appreciate the color there. Just curious, any other details you have in terms of buyer preferences that are evolving post pandemic. Any surprises that you guys can think of that in terms of what buyers are willing to pay for? Or you mentioned course entry-level is still probably the strongest category for the company, but are there any particular options, upgrades, features that people are willing to pay up for that you guys might be able to monetize?

I think this is where our decentralized nature and our myriad of floor plans across the country. It comes into a big benefit for us in terms of -- we already have floor plans that include flex space or home offices and we're constantly adjusting, COVID or not, to what we're seeing buyers' preferences when they come into the sales offices each and every day. And we can adjust our start schedule accordingly. I think most of our floor plans were already accommodative for today's scenario in terms of having those flex spaces or an additional bedroom that can be used for something along those lines. Really, probably the biggest thing over the last year or 2 would just be technology. And we adopted that, I believe, January of 2019, every single one of our homes, Express, Horton, Emerald, includes a base home technology package called Home is Connected, that's very customizable for that buyer to build upon once they move into the house. But outside of technology, I can't think of -- in having Flex space and home office space, it's really still for our buyer as much house as they can get for their money, generally speaking.

Got it. Very helpful. So let me diverge a little bit from all these trends on the core single-family business or the for-sale business, but you guys do have a growing presence in some rental product, whether it's multifamily rental development that you've been doing some apartment construction, few projects, developing those. Those contribute. But also your evolving views on the single-family rental are the built for rent product for single-family rental homes. What's the strategy around each of those different categories, product lines? And how do you see those fitting in with the for-sale business?

We're excited about our opportunities at D.R. Horton to participate in the rental side of housing. We've been a large provider of fore sale housing for years. And in recent years, have been beginning to build a business to provide housing for the rental space. Obviously, the multifamily rental spaces is well-established for many years, a significant asset class with a lot of institutional investors behind it. And we have -- we started our multifamily rental construction business several years ago, have sold several projects that we have built, leased up, stabilized and sold to investors on a merchant build model. And we're currently ramping that platform up to a more significant volume still with the near-term expectation of doing the same thing, merchant building, selling, leasing it up and then selling the project. Longer term, we're evaluating how to capitalize that business and whether there might be other potential earnings streams that we could capture from that but in the short run, it's been a very good business for us to learn at a small scale, how to be a very efficient provider of multifamily housing to the REITs to the multifamily rental space. The single-family rental side is obviously a much newer asset class from an institutional standpoint. There's always been a segment of the market where there's individual investors who own groups of homes and then rent them out to investors. And then in more recent years, the growth of the institutional investor that owns large portfolios of homes and rent them out. But it's clearly a space and a product that is in great demand. There are many families that may never want or be in position to own a home, but they want the single-family lifestyle. And so the fact that there is a growing supply and a growing space of rental communities, rental homes available with the single-family lifestyle for those families. I think that's a positive. And I think it's that's here to stay. And we feel like a Deer Horton, we're in great position to participate in that as a large manufacturer of homes, provider of homes, we feel like there's a great opportunity for us to provide supply to the single-family rental space. So today, we're in the early stages of building out that side of the business. Obviously, across our 90 markets, we've got the ability to construct the homes just as an extension of our current platform. But the steps to lease those homes to get those communities to a stabilized place and then market and sell those communities to investors is a newer part of the business for us. We're pleased that we completed our first sale of a stabilized community in our December quarter, and we have a pipeline of additional deals coming. But I would still say we're in the early stage of developing that business, getting in a position to build communities across more of our markets over the next year or 2 and learn the ins and outs of that business. We think it's a great opportunity for us to generate returns on the building and selling side of it from a merchant build model. And then with even additional potential for us to add to our earnings and return stream longer-term as we determine the best course for us on capitalizing it or perhaps capturing some of the future earnings and cash flow streams from it.

Yes. That first sale, I think, caught a lot of people's attention, particularly just the gain on sale was tremendously profitable. Was there something unique to that particular community? Or is it that you've been developing it over some period of time? Or did cap rates compress while you're constructing? Anything that would have led to that really strong gain on sale?

I think several factors, and we certainly wouldn't expect every community -- the single pallet community we sell to sell at a 50% gross margin. But this was on -- this was a pod, a parcel within an existing community that we've been selling homes for several years. And so the basis of the land was certainly a bit seasoned, so there's probably an element there. I think what we bring to the cost side of the equation, I think it's very beneficial relative to a lot of other providers of rental housing. And then clearly, the attractiveness of the single-family space and the amount of capital that is coming into that space has driven cap rates very low. And so with it being in a very attractive market, as was in North Houston, very attractive school districts, there were a lot of positive factors that contributed to that deal. But definitely very encouraged by the performance on the first deal. I don't have to perform at that same level in order for very pleased and generate good returns in that business with [indiscernible] and feel like we can bring a lot of our advantages to play. Our positioning and our cost structure will, I think, serve us well as we grow that business.

Yes. It's very good. Okay. We got a couple of minutes left. So just last one last thought. I mean, the company is in a remarkably fortuitous position, balance sheet-wise, just absolutely fortress type strength right now, positively generating cash flow into an up cycle. A lot of that has to do with the land optioning focus. But what is the goal in terms of -- or the ability to further increase the mix of land optioning? Or how does that play into your thoughts around the cash flow generation of the company? And what your priorities would be for distributing some of that cash flow generation?

Our goal this entire cycle, with the lessons learned from the financial crisis and the housing depression and 12 years ago, has been to transform the company to one that can generate consistent strong cash flow. The first major step in that was transforming our land ownership structure. And so we have moved dramatically towards a land lighter structure with a much greater percentage of our pipeline and options, and we're now up to 72% options in our land pipeline and feel like we can incrementally move that further. We've gotten more efficient in our housing construction process, and that's also augmented our cash flow creation. We've used that cash flow over the last decade to reduce our leverage and put our balance sheet in a much stronger position. We've used it to enhance our liquidity position so that we're in a much more flexible position from a liquidity standpoint. And then we've begun to -- as we've been able to still reinvest in the business enough to grow at a good pace. We've been able to generate enough cash to then do further activities to enhance our shareholder returns. So we've always been a strong dividend payer, consistent dividend payer over the long term. But over the last 3 years, we've instituted share repurchase into our capital allocation. And our goal is for that to remain as a core part of our capital allocation. And our goal over the longer-term is to consistently reduce our share count each and every year. The last 2 years, we reduced our share count modestly between 1% and 2%. Honestly, had we not had the disruption of COVID in midyear 2020. We would have reduced our share count further. But naturally, as a lot of companies then we paused our share repurchases for 2 quarters during the early stages of the pandemic. And then reinstituted our share repurchase again here in our most recent -- our first fiscal quarter ended December. We have thus far just guided to offsetting our dilution from our equity grants in our share count this year to keep our share count flat for the fiscal year. But like I said, as a longer-term goal is to reduce our share count. As we get better visibility and we make our adjustments to meet the stronger demand in our business today, we do hope and our goal would be to have our share repurchase at a level that will allow us to continue to reduce our share counts. One of the things that we had to adjust to during the covid pause was to this surge in demand. And so with this step change in demand, we've had to increase our level of homes and inventory, our lots in inventory to meet that demand. And also, we've augmented our liquidity levels to reflect the higher level of activity in our business. But once we've completed those adjustments, that puts us in a position to resume share repurchase at a level that we feel like we'll achieve our long-term goals of enhancing our returns through reducing our share count.

All right. Thanks, Bill. We're right at our time limit. So I want to say thank you, again, I can keep -- this is going for a while longer. There's so much good news to talk about. But great to see you both. Congratulations on all the progress and the momentum. And we'll keep our fingers crossed. It just -- it seems like we've got a long way yet to go in this housing runway. So with that, thank you, everyone, for joining us. We appreciate it. If you've got questions, please feel free to reach out to me directly, and we can get you in touch with Bill and/or Jessica anytime. Thanks for joining. Everyone, have a great conference and a great rest of your day. Thanks. Thanks.

Thanks, everyone.

Bye.