Good morning, and welcome to the D.R. Horton America's Builder, the largest builder in the United States, First Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Donald Tomnitz, President and CEO for D.R. Horton. Thank you, sir. You may begin.

Thank you, and good morning. Joining me this morning are Bill Wheat, Executive Vice President and CFO; Stacey Dwyer, Executive Vice President and Treasurer; and Mike Murray, Senior Vice President. As usual, before we get started, Stacey?

Some comments made on this call may constitute forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Although D.R. Horton believes any such statements are based on reasonable assumptions, there's no assurance that actual outcomes will not be materially different. All forward-looking statements are based upon information available to D.R. Horton on the day of this conference call, and D.R. Horton does not undertake any obligation to publicly update or revise any forward-looking statements. Additional information about issues that could lead to material changes in performance is contained in D.R. Horton's annual report on Form 10-K, which is filed with the Securities and Exchange Commission. Don?

D.R. Horton is off to a great start in fiscal 2013. This quarter, we saw a broad improvement in demand in most of our markets, which has given us the ability to raise prices in more of our communities. Both the entry-level and move-up segments of our business are strong. We're anticipating a good spring selling season and have added homes and communities to capture this increasing demand. We continue to find opportunities to expand our business in our existing markets, as well as new submarkets. We put a significant amount of capital work this quarter by increasing our investments in homes under construction, finished lots, land and land development. D.R. Horton is in the best position it has ever been in its 35-year history. Bill?

In the first quarter, our consolidated pretax income increased 270% to $107.9 million from $29.2 million in the year-ago quarter. As a percentage of consolidated revenue, our pretax income margin was 8.5%, an increase of 530 basis points from 3.2% in the prior year quarter, reflecting significant improvement in both our homebuilding and financial services operations. Compared to the year-ago quarter, homebuilding pretax income increased to $90.2 million from $25 million and financial services pretax income increased to $17.7 million from $4.2 million. Our effective tax rate for the quarter was 38.5%, which resulted in income tax expense of $41.6 million in the current quarter, compared to $1.5 million in the prior year quarter. Net income for the first quarter increased to $66.3 million or $0.20 per diluted share compared to $27.7 million or $0.09 per diluted share in the year-ago quarter. Our diluted share count this quarter included 38.6 million shares related to our convertible senior notes. We expect these shares to be included in our diluted share count in most future quarters. Stacey?

Our first quarter home sales revenue increased 38% to $1.2 billion on 5,182 homes closed, up from $884.3 million on 4,118 homes closed in the year-ago quarter. Home sales revenues increased by double-digit percentages in all of our operating region. Our average closing price for the quarter was $236,100, up 10% compared to the prior year, driven primarily by pricing power and a larger average home size. Don?

The value of our net sales orders increased 60% from last year to the increased volume in home prices. Our net sales orders increased 39% to 5,259 homes on a 9% increase in active selling communities. Our average sales price on the net sales orders of $249,900 increased 15% compared to the year-ago quarter. The average sales price on our net sales orders for the quarter increased by double-digit percentages in all of our operating regions. The cancellation rate for the first quarter was 22% compared to 26% in the year-ago quarter. The value of our backlog increased 80% from a year ago to $1.8 billion with an average sales price per home of $240,400. Homes and backlog increased 62% from the prior year to 7,317 homes. Our increased backlog is providing greater visibility to our future revenues. We expect that our backlog conversion rate will continue to revert closer to historical seasonal norms. For the second quarter, we expect our conversion rate to be around 70%. We've continued to see strong sales through January. Mike?

Our gross profit margin on home sales revenue in the first quarter was 18.8%, up 200 basis points from the year-ago period. 170 basis points of the margin increase was due to improving market conditions resulting in reduced incentives and higher average selling prices in excess of cost increases. 40 basis points of the margin increase was due to lower amortized interest and property taxes. These increases were partially offset by a 10 basis point decrease from higher estimated costs for warranty and construction defect claims as a percentage of home sales revenue. Our expectation for our second quarter home sales gross margin is in the high-18% range, consistent with the first quarter. Stacey?

Homebuilding SG&A expense for the quarter was $140.8 million compared to $119 million in the prior year quarter. As a percentage of homebuilding revenues, SG&A improved 200 basis points to 11.4% from 13.4%. We are leveraging our fixed cost structure, while at the same time, building our sales and production capabilities where necessary to meet increasing demands. In the second quarter of 2013, we expect our SG&A as a percentage of homebuilding revenues to continue to improve on a year-over-year basis. However, sequentially, the absolute dollars and percentage will likely be higher in the second quarter than the first quarter due to seasonal cost increases. We expect our SG&A as a percentage of homebuilding revenues to be lower throughout fiscal 2013 as compared to fiscal 2012. The improvements in our gross profit and SG&A percentages, and a decrease in our direct interest expense, expanded our homebuilding pretax margins to 7.3% in the current quarter, an increase of 450 basis points from 2.8% in the year-ago quarter. Bill?

Financial services pretax income for the quarter was $17.7 million compared to $4.2 million in the year-ago quarter. 83% of our mortgage company's loan originations during the quarter related to homes closed by our homebuilding operations. Our mortgage company handled the financing for 59% of our homebuyers this quarter with virtually all loans meeting eligibility requirements for sale to Fannie Mae, Freddie Mac or Ginnie Mae. FHA and VA loans accounted for 49% of our mortgage company's volume this quarter, down from 57% in the year-ago quarter. Our mortgage company's new borrowers during the quarter had an average FICO score of 717 and an average loan-to-value ratio of 90%. First-time homebuyers represented 47% of the closings handled by our mortgage company this quarter, compared to 50% in the year-ago quarter. Mike?

In September, our construction in progress and finished homes inventory increased by approximately $227 million. Our homes in inventory at the end of December totaled 14,200 homes, up 1,200 homes from last quarter and up 4,000 homes from a year ago. As of December 31, 1,200 of our homes were models, 7,400 were speculative homes and 2,400 of the specs were completed. We have positioned ourselves to capture demand during the spring selling season with robust housing inventory and increased community count. We expect our average community count for the fiscal year to increase at least 10% year-over-year. Don?

In our first fiscal quarter, we increased our investments in land, lots and development inventory by $613 million, as we continue to find new communities and build our lot supply to meet increasing demand. Our gross investments on land, lots and development costs during the quarter totaled $912 million, of which $340 million was to purchase finished lots, $445 million was to purchase land and $127 million was for land development costs. The majority of the land and lots we purchased were in our South Central and Southeast regions. We saw an increased number of land and lot investment opportunities this quarter from landowners who are willing to sell at attractive prices, if we're able to close the transactions by December 31, 2012. However, we expect our pace of land and lot purchases will moderate, while development spending will increase over the next few quarters. At December 31, 2012, we control approximately 177,000 lots, of which 118,000 are owned and 59,000 are options. 30,000 of our owned lots and 30,000 of our option lots are finished. The 60,000 total finished lots we control at quarter end are up 32% from a year ago. Bill?

Our total available liquidity at December 31 was $1.1 billion which included homebuilding, unrestricted cash and marketable securities of $643 million, and available capacity on our revolving credit facility of $495 million. The balance of our public notes outstanding at December 31 was $2.3 billion, and we had $100 million outstanding on our revolver at quarter end. At December 31, our homebuilding leverage ratio, net of cash and marketable securities was 33% and our gross homebuilding leverage was 40.2%. Don?

In closing, this first quarter which is D.R. Horton's most profitable first quarter since 2007, with $107.9 million of pretax income. All of our operating metrics improved on a year-over-year basis this quarter. The value of our sales, closings and backlog increased by 60%, 38% and 80%, respectively. Our pretax income increased 270%. Our pretax income margin increased 530 basis points to 8.5%. Our gross margin on home sales revenue increased 200 basis points. Our SG&A as a percentage of homebuilding revenues improved 200 basis points. Our land and lot position is the strongest in our 35-year history. And most importantly, we're experiencing pricing power in many of our markets for the first time in 6 years. Finally, D.R. and I would like to personally thank all of our D.R. Horton teammates for their hard work and accomplishments. We're excited by the certainty of the start of this new upcycle and by the opportunities we see in fiscal 2013 and most importantly, beyond. Keep up the good work. Always remember, nothing happens until we make a sale, so let's go kick some tail to spring. This concludes our prepared remarks and I will host any questions you may have.

[Operator Instructions] Our first question comes from the line of Dan Oppenheim with Crédit Suisse. Daniel Oppenheim - Crédit Suisse AG, Research Division: You've talked a lot in terms of positive commentary in terms of just the activity as of late. In recent times, your land activity has been somewhat cautious in terms of looking for land that you'd work through in, say, 12 to 18 months. How much more are you shifting the land strategy now so that you're buying land that will last for longer and will involve a lot more development activity here?

Dan, we're continuing, as I said, to add both finished lots, as well as raw land. Our underwriting criteria is still the same. We're requiring our return of cash on our land deals to be 24 months, the way that we're adding our number of lots is we're just doing more deals. But we're focused on trying to get our cash back on our land purchases within 24 months of initial purchase. Daniel Oppenheim - Crédit Suisse AG, Research Division: Great. And then in terms of the margins there's a comment about how margins are likely to be flat, sequentially. You also talked about how demand remained so strong. Can you provide any color in terms of just the pricing strategy or the impact of cost increases in terms of materials and such, and so what's -- how you're looking at that?

We're clearly raising prices on each and every one of our communities on a house by house, on a subdivision by subdivision basis. I think we have a good focus right now because existing homes are in low supply, and I think the quality of existing homes in the marketplace are not as good as what they once where, as well as the fact that our new home inventory is one of the lowest it's been in 5 or 6 years. So I think that's a confluence of events which is adding to our pricing power. We do have costs which are going up in some of our markets and with some of our subcontractors but clearly, our pricing power is exceeding the cost increases that we have today.

And just to add a couple of specifics to that, Dan. In terms of our sales price per square foot on a year-over-year basis, that's up a little over 6%. In terms of our total cost per home per square foot, that's up a little over 3%. So that differential there is what's driving our margin improvement. Clearly, our goal is to continue to drive improved margins to the extent we continue to see positive pricing dynamics, there certainly is potential our margins will continue to move upward. We took a very big step-up this quarter, sequentially, certainly, and we expect we certainly had the ability to maintain that level. And our goal is to improve it, but in terms of guidance and what we can actually see in the next quarter or so, we're comfortable saying we can maintain where we are at the high-18%.

Our next question comes from the line of Ken Zener with KeyBanc Capital Markets.

Given your -- kind of extension of the land question right before, but as I look at your regional land positions, both in terms of your options and owned land position, as well as what are talking about in terms of your finished, it seems like you're not as well represented on the coastal areas. How do you think your thought process might work in terms of shifting a conservative capital allocation to the high-cost markets, which I think are historically cyclical and can drive so much gross profit dollars? I mean, do you think you might be underrepresented in the west, let's say, as opposed to where you were in the last cycle because of your conservative land approach?

Well, clearly, in California we are proceeding more cautiously in that market than we have in others. And primarily, the thing that concerns us most about California is just the state of the California economy. And so as a result, we are looking -- continuing to look in California, but I would say to you that we're approaching on a cautious basis. We want to make sure the demand is there. I know that there are a number of immigrants who are still moving into California, and that's a good thing. And so as a result, I think there's good demand in most of our markets there, but it's not as widespread in California as it is in many of our other coastal markets. If you look at the Carolinas, as well as Florida, we have widespread representation in terms of all of the markets in those markets, continuing to improve. Whereas in California, it's on a more selective basis.

Our largest operations are in our Southeast and South Central regions and a lot of those markets are coastal markets from the coast of Texas, all the way around the Gulf Coast and including Florida.

Okay. Good. I appreciate that. And I guess, Stacey, if you could expand on your SG&A comments, it seems to me, given your backlog conversion, I mean, it seems like it's mostly flat sequential quarter. What costs are there? If you're growing your 10% -- community count about 10%, are there incremental G&A costs related to those new communities or and is it hard to find labor? What are some of the challenges you're seeing as you guys are ramping up the business?

There are minimal incremental costs associated with opening a new community. Generally, we're not doing the very, very large master plan communities which we have a lot more upfront cost and infrastructure. But as we open for sales, we're going to need to hire a sales person as we begin construction. We may be able to leverage a nearby superintendent, but quite likely be hiring another superintendent. So there's some level of overhead associated with that, but it is truly variable with the community count, which we always viewed as a positive. Just as a point of reference, from this time last year, we've increased our employee count by 700 employees, which is about a 22% increase. And that's in direct response to the increased demand we've seen for housing and the increasing communities that we've opened. So there will be an increase in SG&A expenses going forward, but we expect the revenue to fully and more than offset those expenses.

In terms of the comment, seasonally, second quarter versus first quarter, there are some seasonal costs that are incurred ahead of the revenue. In the second quarter, we typically will advertise a bit more in the spring season that we may turn into closings in the third quarter. So we will see more advertising expense in the second quarter, as well as payroll taxes and a few things like that, that increase when the calendar turns. We typically will see a higher level of expense in the second quarter versus the first quarter, seasonally.

Our next question comes from the line of Michael Roxland with Bank of America Merrill Lynch.

Can you just go into a little more detail on what you're seeing with respect to labor costs. I know that you've mentioned in the past you have a strong labor pool to work with, but what we've been hearing is increasingly about a lot of labor shortage in various markets across the U.S. If you could go into a little bit of more color there?

Well, we're not actually experiencing a labor shortage that you're talking about. One of the facts are clearly, we're the largest builder and we have a major position in most every one of our markets and we have basically been the lifeline to most of our subs over the last 4 or 5 years as we've gone through the downturn, and kept many of those subcontractors in business during the lean times. So as a result, we have a very loyal subcontractor base. They're expanding their businesses as we expand. As we expand into new submarkets, we're taking most of our existing subs and they're supporting us in those new submarkets, even submarkets that are several hundred miles away from our main market. So we're very, very fortunate with our subcontractor base and it's a very loyal base and we're not experiencing shortage.

Got you. And then just quickly, as you continue to focus on the move-up market, how should we be thinking about your land base and your approach to land acquisitions? Should we expect that you'll be putting a richer mix on a similar land base because obviously, that would benefit margins or will you be sizing the homes to larger lots?

It will be a combination. In many of our markets, with really the exclusion of California, we are zoned for a variety of floor plans. And as we see demand swing to more of a move-up buyer, we simply build more of the larger floor plans and put a higher level of amenities in those floor plans. At the same time, we are also identifying through our land acquisition processes, communities that will specifically be designed for move-up buyers, whether it's the location or the price point that we'll be targeting across the board. So it'll be a mix of increasing the home sizes in our existing communities, as well as looking at different larger sizes of lots in new communities.

And actually, we have a focus on a higher-end business line within D.R. Horton, and we're focusing on that business and growing that under a different name within D.R. Horton. And we're beginning to roll that out in major markets across the U.S.

Our next question comes from the line of Michael Rehaut with JPMorgan. Michael Jason Rehaut - JP Morgan Chase & Co, Research Division: First question I had was on the 4Q orders themselves. I think ahead of what we were looking for, and I think what most we're looking for, when you look at the acceleration from 4Q, which was around 24%, can you give us an idea if that was driven or just the year-over-year trends in general, however you want to characterize it, driven by community counts starting to turn positive year-over-year or was it all an acceleration in absorption pace? Because I believe, over the past few quarters, community count has been, and correct me if I'm wrong here, maybe at best, up just a little bit or I think going past earlier into the past year, it was even down a little bit year-over-year?

I think, clearly, a lot of it had to do with the community count, but almost also, and most importantly, Mike, the fact that we were opening those communities that we had contracted for in the previous quarter or quarters. Our people have done a great job, region-by-region, of acquiring new land positions and lot positions. And a lot of those lot positions, as we told you, were finished lots. We invested $345 million last quarter in finished lots. So as a result, just the fact that we've got more flags flying and they're finished lots, and so they're coming to market a lot more quickly.

Just a couple of specifics. Year-over-year, our community count, average community count, was up 9% and our total sales units were up 39%. So it certainly is -- a piece of it is new communities but clearly, our absorptions are increasing as well. On a sequential basis from Q4 to Q1, our average community count is up 2%. So a slight improvement there. So clearly, any acceleration is largely being driven by improved absorptions across our communities. Michael Jason Rehaut - JP Morgan Chase & Co, Research Division: Without a doubt, but thanks for the detail. The second question, on pricing trends. Don, you mentioned in your opening remarks that you're raising prices in most communities, and I was just trying to get a sense of people kind of ventured over the last quarter or 2 saying, we're raising prices in half our communities, 3/4 [ph]. I was wondering if you could give us a sense of the broadness of that trend? And also, the degree of magnitude on average, what would you say your nominal price is going up and also how much your incentives are coming down?

Well, first of all, I wouldn't characterize it as we're raising our prices in most of our communities out there and -- that's a function, as I said earlier, of the low new home inventory, 4.5 months of new homes available and also, the low inventory of existing homes out there. And like I said before, and we've talked around here, the quality of those existing homes in the marketplace are low compared to what they were in the past. So as a result, I think most people or a lot of people are being driven to new home purchases. Michael Jason Rehaut - JP Morgan Chase & Co, Research Division: Any granularity on the degree of magnitude?

I did -- let's say, most is more than many. Michael Jason Rehaut - JP Morgan Chase & Co, Research Division: The amount of the increase?

Well, our overall ASP was up 10% on our closings, 15% on our sales. So clearly, it's in the double-digit range right now, in terms of the overall increase. If we're increasing in the majority of our communities and most of our communities, then clearly, that's a fairly substantial increase in our sales prices.

Stacey mentioned before, that we had an increase on our revenue per square foot of about 6% for the quarter. And part of that is product mix shifting and geographic mix shifting, but part of that is our price increases as well.

I think the key is we have pricing power out there today. And the pricing power, I will go back to, was being driven by the existing and new home inventories being at 5 or 6 year lows.

Our next question comes from the line of Adam Rudiger with Wells Fargo.

Just sticking with that pricing power commentary and maybe thinking a little bit longer term, and there are some out there that believe the lack of available land, the finished lots could be a bottleneck and could drive margins higher through the cycle than maybe you've seen previously. So I was wondering what your thoughts on what maybe industry margins will look like as we march back to the magical 1.5 million starts number.

Well, first of all, we do not have an issue with finding land and lot deals. We are a major player in most every one of our markets, and we're an early player in most every one of our markets and began buying lots before the other competitors did. So as a result, people keep talking about the difficulty associated with doing new land deals and new lot deals. We are simply not finding that. We have a lot of deals coming through here in each and every division, in each and every market.

And clearly, we see some very good opportunities here in the near term over the next few quarters to able to drive margins, to be able to drive pricing. Where that goes longer term, we don't really have a view on that because I think there's a lot of question marks around where it could go.

And there's a lot of differences by geographies as well. So you could see some strong margin appreciation in certain markets that may be more a lot constrained, whereas other markets wouldn't see that same level of margin appreciation.

We're going to walk before we run. We're focusing on, obviously, our gross margins. We're 18.8% this past quarter, up 200 basis points and we're working toward our goal, company goal, of trying to achieve 20% gross margins across the board.

So what would be your -- philosophically, what would be your approach, let's say, if you had the 20% or even a little higher gross margin in the markets you wanted and you had the cost structure you wanted? So you were getting the margins you wanted, yet it appears that maybe were a little more land constrained, were trying to take pricing. Do you think you would focus on stealing some share from them if you had those margins you liked or would you follow the price increases and slowdown pace maybe?

We're, obviously, have been and continue to be a market aggregator. And we'll continue to be in the future, but focusing on profitable market aggregations. So it's going to be a balance. And we're looking at it on a subdivision-by-subdivision and our division presidents are looking at it on a house-by-house basis. There are some homes, the larger homes we can raise prices on today easier than we can than the smaller homes. There's a better demand right now for the larger homes simply because people have low interest rates and they have attractive housing prices, and most of the people in the marketplace today are trying to buy as much home as they possibly can. So as a result, I believe we're at much more -- we have better pricing power on our larger units than we do on our smaller units. But it's a balance on a subdivision-by-subdivision basis. Some of our subdivisions were eliminating plans because they're too small a plans, they're not an attractive gross margin on the house. And one of the things that we have always focused on in this company, is not having a price leader in any one subdivision when we go out and build, sell and close homes and make money on a house, we're trying to make the same gross margin on each and every house. It may not be the same dollars, obviously, but we're trying to make the same gross margins. So we eliminate the lower gross margin houses as we proceed through a subdivision, where we can. Some states like California, we have to build 4 plans and -- plan 1, 2, 3 and 4, and get to build the number that you plotted. But in most of our communities and most of our divisions, we have the flexibility to change our plans and eliminate them and add them.

We like our competitive position today with our ability to find new communities with our adequate land position, our strong land position and pricing power in the market that gives a lot of flexibilities in terms of being competitive in the marketplace.

Our next question comes from the line of Joel Locker with FBN Securities.

I just wanted to talk to you about -- on material costs. When they'll hit, I mean with lumber, bit of a lag if you're going to see more of a ramp on the material costs that hit your COGS, let's say, in your third quarter versus your second quarter.

Well, typically, what you would expect to see, especially on lumber, is that lumber prices will rise throughout the spring selling season and into early summer as the demand increases, and then you would see prices moderate. So it's entirely possible that you could see slightly higher costs flowing through in the Q3 and Q4 closings than in current closings. However, one of the things we try to do is lock in our prices for a longer period of time and use the volume that we have to negotiate favorable pricing with our supplier, so we try to mitigate that cost at the same time. And then in a rising price environment, we're optimistic that we can continue to raise prices to cover the cost increases. There are other categories, there's talk of price increases. Our goal is still to offset any price increases that we have to take with price decreases and other categories -- getting tougher to do that. And then some of the headliners in terms of price increases, we actually have price protection on the back-end. So there may be a market price increase, but we've locked our pricing through some of our national agreements.

And again, because of our volume nationwide, with our national contracts that we have, we have some preferential pricing in that and that also helps us pushback because of our volume with our different vendors and our suppliers, to push back on price increases. We can't always do that, but we're effective at it more times than you would think.

I was just thinking, with lumber just jumping up in the November, December versus the spring period, it just kind of made an early move, so I was wondering if that might hit your second quarter or your June quarter versus your March quarter but...

We're very in touch with our lumber prices. And as I get e-mails from our national purchasing managers, we have, as Stacey said, been advising our division presidents on a timely basis about locking their prices on their -- or the costs on their lumber and extending those price locks for a longer period of time. I'm not sure that we've mitigated every one of the price increases, but I think we're doing a good job.

And last question on financial service revenue, it was around 3.4% of your home closing revenue versus a year ago, it was 2.4%. Where do you think that will be -- what's a good run rate if you look at it as a percentage of home sale revenue? I know you sold a few mortgages that you have left over from the fourth quarter, but just going forward because it's up significantly year-over-year?

Clearly, it's a very favorable market right now in terms of the gain on sale that's available in the market, a lot of capital looking for mortgages. So that's driving higher margins, higher revenues per loan, and you're seeing that across the whole of the marketplace. One of the other drivers right now is our increase in our average selling price, it goes up, the average dollar per loan is going up as well. So that's helping drive that. But clearly, the margins today are higher than historical averages. Historically, you would probably see closer to the 2% range or the low 2% would be the long-term average, and today it's much higher than that.

We've got a good window right now just based upon the FICO scores, the quality of the loans and the fact that the interest rates are low and the prepayment possibilities are low on these loans. So as a result, the purchases of those -- and investors in those mortgages, really, are buying mortgages at opportune time. Even though they're paying a higher yield, they're going to have a good yield on these mortgages going forward.

And Joel, you make a good point. I mean, Q1 is typically one of our lower homebuilding revenue quarters, but it's typically one of our stronger financial services quarters because we're selling a lot of the loans that we originated in the September quarter. So as we move into next quarter and homebuilding revenues pick up and we're selling loans than we originated this quarter, you may see that moderate a little bit.

Our next question comes from the line of David Goldberg with UBS.

My first question, I want to talk a little bit about growth, and I know you guys have touched on and Stacey mentioned some of the hiring you've done to support the growth as the markets rebounded. But I wanted to take a little bit -- a bigger picture of you on it, and what I want to talk about is controls as the market starts to get going again and things get better and better. And really, the question has to do with how difficult it has been to find people to add on? Presumably, people who got laid off over the 5-year downturn, have gone and found new jobs. Are you finding it difficult to find good quality people to bring on board as the business grows? And what kind of training timeline do you need, if you kind of think about the various jobs, job functions that there are?

Well, actually, we're not having a difficult time finding good people. One of the things that we have done a good job of over the last 3 or 4 years, even in the downturn is -- as an example, our Division President and City Manager training program, where we're bringing people up through the ranks and having them mirror the Division President or the City Manager that they're working for and D.R. and I specifically sit down and the talk with those people a couple of times a year, to make sure of their progress and how they're tracking. But the other issue is, is that because of who we are and the size of our company and the financial stability and the strong balance sheet that we have, there are a lot of people who, even outside the industry, look at that type of -- those type of metrics and they want to join the company like D.R. Horton, simply because it's a good place to work and it's a good solid company. So as a result, we really don't have difficulty attracting people and most of our people we're bringing up, we're bringing up through the ranks. We just expanded into several new markets and we've taken players from existing markets that have been proven, land acquisition people, sales manager and people of that sort, and put them in City Manager and Division President position. So we've eyed this for a number of years. We knew -- we kept our footprint, we knew we're going to begin expanding at some point in time when the economy was cooperating with us. And so as a result, we're well positioned internally to continue to grow largely, internally.

That's a very helpful color. My follow-up question was, DT, about your comments on the entry-level segment showing strength, it feels like maybe that's a little bit different than what we've heard, even as we've gone through the upturn and it feels that we've gotten some momentum here. Can you talk about what do you think is driving the entry level outside of -- maybe it's just there's just no existing home inventory so if they want to buy, it's got to be on the new home market. But then also, as you look forward, how does that change your land buying behavior in terms of where you're looking for lots? And as you move forward, is the geographic footprint of your land purchasing going to change?

Well, I think that you're right in terms of where we are. The -- excuse me, I had a good answer for it and I lost it.

David, the entry-level has always been a key part of our business. Traditionally, we ran 35% to 40%. Through the downturn, we moved up to 60%. That's down through our mortgage company, this quarter we ran about 47% first-time homebuyers. It really doesn't change our approach to land. It's just a continued extension. Our approach recently has changed more to where we're buying for the move-up buyer because we've seen that segment come back. The biggest thing that we're hearing from people who are buying today is they're looking at the rent versus own equation. And in so many of our markets, you can get into a home, no tax effect whatsoever, and have your payment for your house be less than your current apartment rent is. And so that's a significant dynamic, and we always come back to jobs too. And while the job market is still not as dynamic as it was in the heyday, it's shown improvement on a year-over-year basis and that's showing up in our results as well.

That was the point I was trying to make, was on the apartment issue out there, the reason that the new homebuyers are so attracted to buy a new homes is, the apartment owners are raising rents dramatically. And so as a result, the cost benefit to own versus rent is very attractive to own today. So as a result, you're finding a lot of those people. If they can get the down payment, as I say beg, borrow or -- beg it, I guess. I don't want use the third adjective, that can be inappropriate. But bottom line is, those people are trying to get into a home. And the other side of the issue is, if they're trying to get that money from parents, I have a number people who are helping their children get into homes because of the fact helping them with the down payment, just simply because it's an attractive time to purchase.

Our next question comes from the line of Megan McGrath with MKM Partners.

Just as a quick follow-up on David's question. Given your increase in spec in anticipation of the spring selling season, are you expecting that your mix to the first-time buyer could increase as we move to the spring selling season or are these different types of specs that you're targeting towards the move-up buyer?

It's spread across the spectrum. It depends upon the subdivision. It depends upon the city. And we're building specs at the entry-level all the way up to the higher end. But again, it's just subdivision by subdivision based upon what the market is in that particular part of that division.

But we do believe with our specs in inventory at the beginning of the selling season, we are in a very strong position to be able to sell and capture the demand versus the competition in the existing market or other homebuilders who may not have as many homes in inventory.

Great. And then just a follow-up on your land acquisitions, I just wanted to specifically ask about Texas. You talked a lot about your land acquisitions being in the South and Southeast, I think you said. We had heard through the grapevine that land prices in Houston and Dallas were reaching levels that they had seen at the peak. I'm not sure if you're seeing that and just wanted to hear some color specifically on what you're seeing in that market since you're so big there?

And we are the largest builder in Texas. And clearly, if you look at our various markets here, we're not seeing those kind of land prices. The underwriting that we're doing, still, is generating us in excess of 20% gross margins and we're achieving our return of capital on those land deals within 24 months. And currently, we find that land market in Texas is still attractive and we find the demand in Texas very strong. So as well, we continue to expand our existing number one position in Texas and we'll continue to do that.

Peak is a strong term to use for pricing of land in Texas. We're much more topographically flat. We just didn't see the run up here.

Our next question comes from the line of Nishu Sood with Deutsche Bank.

Don, I wanted to go back to something really interesting you said earlier. There's a widespread perception that there's a huge massive lot shortage out there and you said you're not seeing that. I think that a lot of that perception that there's a lot shortage came from during the downturn, whatever few buyers there were, basically, only wanted the most A-grade locations. And obviously, by definition there's going to be lot shortage in the most -- best locations. So my question is, are we seeing now with the housing recovery getting going here, an expansion of demand kind of going out again beyond just the A-grade locations. And obviously, you guys being the biggest builder and having the broadest array of communities, are we seeing that spreading of demand to those outlying areas again?

I would say very marginally. We're focused on -- are still doing A deals, and most of the deals we're doing are in A locations. So as a result, we're just not seeing a lack of good deals in any of our markets, and it's not on the periphery [ph]. Where -- It's the first area to slow. And there are attractive price out there on the periphery [ph], but most of our markets were still on A and B locations, clearly.

Got it. So then, clearly -- actually, let me ask something different. During the downturn, you guys had constrained pretty significantly the sort of deals you would pursue to limit risk, right? Like you would pursue a smaller deal, as small a deal as possible. I think you had gotten under [ph] deals where your 15, 20 lots, let's say, and then finished only. Now, clearly, the deal sizes are getting larger and perhaps some more development work. I was just trying to get a sense of -- I was just wondering if you could give us a sense of that transition, how far it's gone and what your current kind of typical deal looks like?

I would say our typical deal today is still probably somewhere around 100 lots and they're in A and B locations, and we are able to continue to find those. The larger deals, even though we're doing larger deals, we still are underwriting those to a 20% plus gross margin and a recapture of our initial land investment within 2 years. And so as a result, we believe that is a very, very conservative land policy. And on a go-forward basis, we think we have very little risk in our land strategy, in our land portfolio by continuing to abide by those 2 key metrics. 20% plus gross margin and a return of our capital in 2 years. That's the characteristic of 99% of the deals coming to through company right now.

Our next question comes from the line of Stephen East with ISI Group.

DT, you've given a ton of great information on this call. And really outlining where you're going. I just want to clarify, if I heard a few things here. One, you're saying that price was much more of a driver than mix on your ASP and your move up is seeing better gross margins than your entry-level, so you're moving further that way. Is that correct?

Let me clearly correct it if I said this, but I know what I said, we build an entry-level house or we build a move-up home. We are shooting for essentially the same margin, 20% as a percentage. Now clearly, the dollars are different based upon the sales price but when we go out to build a home we're looking for that 20% gross margin. So we're still looking at the percentage of our move up, of our homes that we've sold and closed, in this quarter have moved up the scale. And so I think 47% of our closings this past quarter were first time and the rest of them were move-up buyers, and that's increased from -- the move-up buyers have increased by about 3 or 4 percentage points. I think that goes back to what I said and that is our buyers are out there in the marketplace trying to buy as much home as they possibly can in a combination of size and dollars to take advantage of the low interest rates that's available in the marketplace today.

Okay. All right. And then if you're targeting 20% gross and given the pricing power that you've got, I assume that you all are bringing in more mothballed communities into the mix. And if you are, what type of margins are they generating relative to your new land deals?

And yes, we are selectively bringing in mothballed properties. Obviously, as the market begins to recover, we still probably have several years, 3 or 4 years, to work through our mothballed assets. But as the market improves, we're comfortable that we'll work through the vast majority of those. And to answer your questions directly on the mothballed communities, our underwriting guidelines on those are somewhere around 16% gross margins. We'll bring those back in and that's an acceptable margin to get the asset off of our -- land asset off of our books and blend that in with our other margins. So it's somewhere around -- my metric is 15%, 16%.

Okay. All right. That's helpful. And one last question. You all talked a little bit about materials, the inflation. Where are you seeing, what categories are you seeing the biggest inflation, other than lumber?

Yes. We talked about lumber. I think, another of the headliners over the last year has been drywall. And there's talk of another price increase, but it would be smaller than the one that was in place last year. And beyond that, there's just different categories and it's going to be different in the different geographies.

Now back to your point earlier, just -- when we bring something back, from mothball back into production, the key metric for us is not the 15% or 16%, but we want to absolutely be comfortable that we're not going to be looking at a future impairment when we bring that back into production. So we're looking at the marketplace and seeing what the opportunity is to work our way through that on a timely basis.

How much cash will it take to develop it? Naturally, that's a big part of it.

Stephen, one other thing on the cost side. We are using our volume and making some bigger commitments to individual vendors to help control those pricing increases and mitigate them for us as much as we can.

Are you seeing, along those lines too, on the labor side, I know you said you're not seeing it. Are you seeing subs willing to hire effectively, just more generally, across the industry?

Absolutely. And that's what I was describing earlier. Our subs that we're going out into new submarkets with are hiring new people and creating new teams in order to satisfy our business. So a beautiful thing about where we have been in our business, and we've maintained our footprint and even our markets -- position in most of our markets, almost all of our markets, and that is, is that our subs have been with us and they're willing to grow and expand because they're comfortable that they can grow and expand with us profitably.

Our next question comes from the line of Stephen Kim with Barclays.

I guess the first question, most of my questions have been answered, but over the last several years I know that, DT, you and D.R. have essentially split the country up in, roughly, half and have really had a very hands-on approach to managing your business. And that's, I think, been very much to the company's benefit over the last several years, at least. As we look forward to a hopefully expanding market for quite a number of years, and you increasing your volume at least at the industry rate, if not more, can you give us a sense for how you envision over the medium to longer term handling the management on an operational basis? Do you still envision it to be basically as you have it today or do you anticipate bringing in another layer of management?

Well, I'd answer that question, and first of all say, our Regional Presidents have been the main factor behind our success and our growth, notwithstanding the fact that D.R. and I are out there and we really didn't split up the country, but we go to different parts of the country, obviously, at different times. But our role has largely been to review and approve what they have been doing, i.e., the Regional Presidents have been doing with their Division Presidents. So to the extent that we need to bring in another layer, at one point in time we had another layer, and when we're going to 100,000 units and then we had a little hiccup and we didn't need that layer of management. So as we move forward, if we feel necessary to add another layer of management, certainly, we're openminded to that. But right now, I want to make sure that everyone understands our Regional Presidents have really led us to where we are today with a little guidance and a little help from D.R. and me.

So you haven't articulated either internally or externally what level of volume you think you can handle without adding back that layer of management. And then I guess, if that's true, is there -- can you give us some general understanding, has the -- let's say, the systems in place at the company enabled you to operate at a higher volume with a smaller corporate footprint?

Look, Bill Wheat answered that question from a corporate perspective because he's very much closer to that than I am. But as an example, on a division basis, at the peak in our Southwest Florida division, I think we closed 800 homes and we have like 120 or 130 employees down there, and we are currently come close -- somewhere close to that in the next fiscal year and we have substantially fewer employees, and that's probably about half. So I think what's happened is we've become a lot more efficient in the field, but also at the corporate office we've become a lot more efficient.

Really, across-the-board, we do feel like we have gotten a lot more efficient. We learned a lot of things through the downturn in terms of how we operate at our division level, our regional level and our corporate level, such that as we grow again, we probably will not have to have the same level of overhead or infrastructure. Systems are part of that. We are on one operating system from a computer standpoint today. We've deployed more technology into the field as well, which allows people to do more with less. So there are a lot of things that contribute to that, that we do believe that down the line will pay very good dividends for us.

And a lot of our operating systems that we're using today we're developing in-house, and we're not relying on someone else outside of the company to be able to do that for us. So again, we're in touch with our business from a corporate perspective better than we ever have been and developing things that actually fit our business and our company, as opposed to trying to find someone outside of our industry to supply us with those programs. And the bottom line is, our industry is not big enough to attract a lot of software writers and so forth to develop programs that we need.

And to circle back to your comment on senior management at the region level and then at the corporate level, the visibility of information on individual land deals, on performance of projects, to D.R. and DT, to corporate management, to region management is far better, that visibility is far better today than it was 6, 7 years ago. So the ability of our key managers to make decisions and view how our performance is, is far better than it was in the last cycle.

Best information in the history of the company.

Yes. I think that's a very important point. And I think it also suggests that your ability to manage your SG&A control, which is something that you guys have always been leaders on the industry on, will certainly be better this cycle than it was in the past cycle. If I could dovetail on that, the second question that I had for you related to the potential to manage your hard costs and labor costs, also, better through the evolution of technology. It seems pretty clear that you can be able to manage maybe with less corporate staff for a given amount of volume. But one of the things that we've begun to hear from some of your peers has been that the improvements in systems has allowed, during the downturn, has allowed these companies to approach the way that they bid out projects and get quotes for labor and materials, such that the overall costs for development is less than it might have otherwise been prior to the cycle -- prior to this cycle. And I was curious if you could talk about that, whether you think there's any opportunity to use systems and changes in the way you do business to drive hard costs and labor costs down? You kind of touched on it earlier, but it almost sounded like you were saying your subs are going to be reacting on gratitude to you in keeping prices down.

Don't get confused, it has to be a win-win for both of us. And I'm sure they're very grateful for our relationship, as we are for our relationship with them. But as an example, we used to have the subcontractors come in to our offices and sit down with our purchasing managers. We'd have 50 sets of plans and they'd all pick up the plans and they'd go out and they would bid off the plans, on paper plans, or bring the bids back in 2 or 3 weeks later, and maybe they got that the maybe they didn't. Almost all of our plans today are available through our subcontractors online. We disseminate the information to them online. There are specific bid sheets that they can fill the data in, as opposed to pencil and paper process. So we've increased our efficiency, their efficiency, and it's a lot more accurate system. We know for sure, all the items that are in the house, whereas before when we're doing takeoffs, it was more of rounding error. Today, we know every nail, and every 2 by 4 that goes into each and every plan, and it's a lot easier to bid it and control your costs that way.

[Operator Instructions] Our next question comes from the line of Jade Rahmani with KBW. Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division: I wanted to ask on the land you're acquiring, if you could provide a sense for the average size of the deal or the typical deal, for example, the number of lots per community and whether that continues to increase? I think, last quarter, you suggested you're starting to see larger lot sales from banks and developers?

Yes. And as I've mentioned before, the average size of our deal is somewhere around 100 lots, as opposed to before it was probably 40, 50 lots during the peak of the downturn, if there is such a thing. And also in '08 and '09, we hardly buying anything. We started buying things in '09 and '10. And when we started buying they were small deals, just a handful of lots here and there. But as we have bigger demands in most of our markets, it's easier for us to get A subdivision with 100 plus lots in it, we put a model in it and we have a flag and that flag is good for 2 years. So that's what we are focusing on. Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division: As a follow-up, do you have a sense for what percentage of your current land position was acquired post-2009?

Jade, if you look at our balance sheet, if you look at the land that's held for development, that's going to be the biggest portion of anything that we have owned through the downturn. And there's probably some small portion that we're currently working through in the other 2 categories that most of what we are building today are 2009 purchases or later.

Our next question comes from the line of Buck Horne with Raymond James. Buck Horne - Raymond James & Associates, Inc., Research Division: I wanted to get into some of the regional categories of the sales strength. And I was just wondering if there's any noticeable differentiation between market to where D.R. Horton doesn't face quite as much public builder competition? I'm just, I guess, focusing on the Southeast region in particular, where you had some really strong gains. So I'm wondering like your places like Alabama and northern Florida, were places where you got a lot of strength versus some of the other areas and maybe like Atlanta or Orlando or south Florida, just understanding if there is more significant capital barriers between the publics and privates that are playing out here?

The way I'd like to answer that question is that the State of Florida is a good market for us right now and that's clearly in the Southeast, and also in Carolinas. Those are good markets for us, as opposed to markets where we don't have very much competition or very much public competition. Virtually, every one of our markets, we get up every day and we have a ton of competition from the publics and the privates. So I wouldn't say that we're capitalizing on any one market by the lack of competition. Buck Horne - Raymond James & Associates, Inc., Research Division: Okay. And one more for you. The thing about the mortgage industry here and the new rules and regulations that came out from the Consumer Financial Protection Bureau there. Have you guys been able to absorb and process what the new rules will have on your mortgage operation, I guess, particularly thinking about the 3% cap on points and fees. Is that going to have any impact on the operation and will there come a point where you may consider actually selling your mortgage business? What's the net effect of all these new rules on the industry and your customers?

Well, the most important thing is that the standard for our qualifying mortgage turned out to not be much different than what the prevailing practices are in the market today, so that's good news. That provides some stability and some certainty around the mortgages for lenders out there. And hopefully, that will encourage some additional market participation and bring some more capital into the mortgage market. In terms of some of the other provisions of the law, specifically the 3% cap on fees, there's a -- we're still absorbing that, we're still analyzing that. There's a year that we have in front of us before we would have to implement any of those, before they take effect, so we'll be analyzing that over time. And at this point, we don't really have any comment or estimates as far as potential impact. Right now, it's business as usual and we will work through those things over time.

Our next question comes from the line of Alex Barron with the Housing Research Center. Alex Barrón - Housing Research Center, LLC: I wanted to just ask a real quick question on the land. You guys have answered most of my questions, but most of the stuff you bought this quarter, is that stuff that will be put into use this year or is that more like 2014 and beyond?

Primarily 2014. The raw land is, obviously, the finished lots that we bought will be put into play right away.

The raw land is entitled though, and so we will begin working through the process of preparing for the land development part. But as far as delivering homes on land purchases today, that would be 2014. Alex Barrón - Housing Research Center, LLC: So it was obviously a pretty significant purchase, although it sounded like you guys said, to expect some moderation in the future quarters?

Don't forget now, Alex, $345 million of that was finished lots that we purchased of the money that we spent. And the other side of the coin is, is that we are seeing good demand in most of our markets, so it's time to step up and take advantage of the many opportunities that we see in the marketplace today. Alex Barrón - Housing Research Center, LLC: Now the fact that you, I guess, bought a lot of stuff versus your option position didn't increase that much, does that mean that you're not finding a lot of people willing to option on the same terms as before or was it more attractive about actually buying the lots?

Well, Alex, a lot of what we bought this quarter was in the option number last quarter. Typically, the process is we'll contract it, and as soon as we've got something contracted, it goes into our option number. And subsequent to that, 60, 90 days later, it gets purchased. So what you saw there is that we did purchase a lot out of our options, but then we replenished option supply with new contracts. So no, we haven't really seen a slowdown in terms of the number of new contracts we're seeing or option deals. Alex Barrón - Housing Research Center, LLC: Okay. And then in regards to -- you guys mentioned that you're seeing more demand coming from apartment renters because of the buy versus rent equation. I guess my question is, are you also seeing an increase in demand from these boomerang buyers, the people that have been renting the foreclosed houses, basically, the people that got foreclosed?

We've heard anecdotally of some of that activity, but I wouldn't say that it's any large percentage of our business right now.

And back on your question on the land side of it, the deals that rolled [ph] in, that we are buying, as I said before, those are 20% plus gross margin deals. And the deals that we primarily have bought in the last quarter were A-plus locations positioning us for 2014 and 2015. Alex Barrón - Housing Research Center, LLC: And last one for Bill, if I could. Any guidance on the remaining DTA reversal, Bill?

As of right now, we still have $41.9 million of evaluation allowance on our DTA. That solely relates to our state deferred tax assets driven by our NOL carryforwards. And there are a number of the states we operate in that have very short carryforward periods, and so we've estimated that we will not be able to earn enough income in those states to fully capture the full NOL. And so that was an estimate that we made in fiscal 2012. We will continue to monitor that estimate based on the income levels that we generate here in fiscal 2013. If there's a point where we continue to perform strongly or performance improves versus where we are today, then there's a chance that we could bring some portion of that back. We will not bring all of that back though. There is some portion that we will not receive because of the short carryforward periods in some states.

Our next question comes from the line of Jack Micenko with SIG.

I was curious to -- with the outsized land investment in the quarter if you sort of thought of a percentage of that spend that was really tax-driven, given the pending tax law changes?

I couldn't give you a percentage. There were a number of deals that we closed in the last 2 or 3 days based upon the seller -- of the calendar year, based upon the seller's desire to miss the tax increase. I wouldn't call it a significant amount. What really took place was during the quarter, we found a number of good deals and larger deals than what we had done in the past in order to capitalize on those to support the growth in our existing markets.

And there were a number of deals that we were working that perhaps under normal circumstances, might have closed later in 2013 that due to the tax changes that the seller preferred or offered us the opportunity to close before 12/31 with a better price. And so there's probably some acceleration of deals we were working on as well.

Okay. Great. And then just another question. Long shot, would you be willing to give us finished lots by region?

I don't have that in front of us here.

Okay.

I'll assure that each one of our regions based upon the demand we're seeing and the profitability we're seeing on each region are adequately supplied, to this point, with the finished lots.

Okay. Great. And then on the Southwest, I'm guessing that's a store count [ph], community count [ph] issue, it looked like the growth was flatter there. And we've heard, obviously, a strong commentary out of the Arizona market, any comment there?

Well, we're trying to replenish our lot supply. To be quite frank with you, Phoenix turned around faster than we thought it was going to turn around and we probably are scrambling a little bit more than we normally would in the Phoenix market to replenish our lot supply, and the same thing in the Albuquerque market.

Our next question comes from the line of Bob Wetenhall with RBC.

I was hoping you could provide a little commentary on the conversion rate going forward?

Backlog conversion rate?

You got it.

Well, I believe we're pretty clear when we said that we anticipate it to be somewhere around 70%, and that's back to a more normalized seasonal percentage.

If you look out over the last few quarters, Bob, it's consistently been slowing down. And so our traditional pattern is that we would convert somewhere in the mid-50% range in Q1 and Q2. So our actual reserve this [ph] quarter and our guidance for next quarter still have that elevated. In the back half of the year, we would traditionally trend down to the mid-60% range in Q3, and then be somewhere around 70% in Q4. We will try to give you more visibility as we get closer, but right now we're kind of watching how things settle out as well. We don't have as many completed specs as percentage of our inventories, so we're not experiencing the same number of homes that can -- under contract and then close in a really, really short timeframe. We're seeing an increase in our build-to-order jobs, which are great from a margin perspective, but they do stay in backlog longer. We just don't know exactly what the timing is going off when all those convert.

Fair enough. That makes sense. You guys had a big move in your ASP for new orders into kind of like a $250,000 range. Is that a good full year number to use for modeling? Is that kind of big uptick sustainable?

Well, I can tell you what we're seeing, as I've said before on the call, we are seeing buyers coming in trying to buy as large a house and the most house that they can qualify for, given where the interest rates are and where the supply is going forward. So I don't know if it's sustainable. I actually think we might be able to increase it.

On the sale side.

On the sales side, exactly. If you look at what we just closed, it was $236,000 and in our backlog, it's right at $240,000. So in terms of using that for a revenue average price, that would probably be too aggressive.

No, I was just talking on the new orders, but that's good color, that's what I was looking for. And a final question, as you guys ramp for the spring selling season, obviously, there is some variable cost into the mix. Do you think you can get full year SG&A inside of $650 million?

Well, first of all, we are ramped up right now for the spring selling season.

It all depends on volume levels. We don't have an estimate or guidance on the dollar amount that we're going to spend because some of that is variable, it depends on where our sales go and where our volumes go. Clearly, our long-term goal on SG&A is to drive it to 10% of homebuilding revenues. That would be a big jump this year. We're probably not going to get there, but we do expect to still see substantial improvement in our SG&A percentage this year as we did in the first quarter.

Mr. Tomnitz, we have no further questions at this time. I'd now like to turn the floor back over to you for closing comments.

Thank you. And D.R. and I want to make sure that all of our DHI teammates out there are aware of just how proud we are of what you did this last quarter. But most importantly, we want you to be aware that we're very, very proud of the accomplishments that we've made over the last 4 years. This company went from '07 through '10 and '11, and those were tough years. And for us to produce and for you to produce the kind of performance that you did in this first quarter is a magnificent accomplishment, and we thank you very much. Now let's go out there and kick tail.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.