D.r. Horton (DHI) Q1 2024 Earnings Call Transcript

D.r. Horton (DHI -9.24%)
Q1 2024 Earnings Call
Jan 23, 2024, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the first quarter 2024 earnings conference call for D.R. Horton, America’s Builder, the largest builder in the United States. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation.

[Operator instructions] Please note, this conference is being recorded. I will now turn the call over to Jessica Hansen, senior vice president of communications for D.R. Horton.

Jessica Hansen — Vice President, Investor Relations

Thank you, Holly, and good morning. Welcome to our call to discuss our financial results for the first quarter of fiscal 2024. Before we get started, today’s call includes forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Although D.R.

Horton believes any such statements are based on reasonable assumptions, there is no assurance that actual outcomes will not be materially different. All forward-looking statements are based upon information available to D.R. Horton on the date of this conference call, and D.R. Horton does not undertake any obligation to publicly update or revise any forward-looking statements.

Additional information about factors 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. This morning’s earnings release can be found on our website at investor.drhorton.com, and we plan to file our 10-Q later this week. After this call, we will post updated investor and supplementary data presentations to our investor relations site on the presentations section under news and events for your reference.

Now, I will turn the call over to Paul Romanowski, our president and CEO.

Paul Romanowski — President and Chief Executive Officer

Thank you, Jessica, and good morning. I am pleased to also be joined on this call by Mike Murray, our executive vice president and chief operating officer; and Bill Wheat, our executive vice president and chief financial officer. For the first quarter, the D.R. Horton team delivered solid results, highlighted by earnings of $2.82 per diluted share.

Our consolidated pre-tax income was $1.2 billion on a 6% increase in revenues to $7.7 billion, with a pre-tax profit margin of 16.1%. Our homebuilding return on inventory for the trailing 12 months ended December 31st was 29%, and our return on equity for the same period was 21.8%. Although inflation and mortgage interest rates remained elevated, our net sales orders increased 35% from the prior-year quarter as the supply of both new and existing homes at affordable price points is still limited and demographics supporting housing demand remained favorable. Early signs for the spring selling season have been encouraging.

We will continue to focus on consolidating market share and are well-positioned for the spring with 42,600 homes in inventory and our average construction cycle times returning to more normal levels. We expect our housing inventory turns to improve in fiscal 2024 compared to fiscal 2023 and our ongoing focus on capital efficiency to produce strong homebuilding operating cash flows and consistent returns. Mike.

Mike Murray — Executive Vice President, Chief Operating Officer

Earnings for the first quarter of fiscal 2024 increased 2% to $2.82 per diluted share, compared to $2.76 per share in the prior-year quarter. Net income for the quarter was $947 million on consolidated revenues of $7.7 billion. Our first quarter home sales revenues were $7.3 billion on 19,340 homes closed, compared to $6.7 billion on 17,340 homes closed in the prior year. Our average closing price for the quarter was $376,200, down 2% sequentially and down 3% from the prior-year quarter.

Bill.

Bill Wheat — Executive Vice President, Chief Financial Officer

Our net sales orders in the first quarter increased 35% to 18,069 homes, and order value increased 38% from the prior year to $6.8 billion. Our cancellation rate for the quarter was 19%, down from 21% sequentially and down from 27% in the prior-year quarter. Our average number of active selling communities was up 2% sequentially and up 14% year over year. The average price of net sales orders in the first quarter was $375,800, down 2% sequentially and up 2% from the prior-year quarter.

To adjust to changing market conditions during fiscal 2023 and into fiscal 2024, we have increased our use of incentives and reduced home prices and sizes of our home offerings, where necessary, to provide better affordability to homebuyers. Based on current market conditions, mortgage rates, and continued affordability challenges, we expect our incentive levels to remain elevated in the near term. Our sales volumes can be significantly affected by changes in mortgage rates and other economic factors. However, we will continue to start homes and maintain sufficient inventory to meet sales demand and aggregate market share.

Jessica.

Jessica Hansen — Vice President, Investor Relations

Our gross profit margin on home sales revenues in the first quarter was 22.9%, down 220 basis points sequentially from the September quarter. One hundred basis points of the sequential margin decline related to the decrease in the value of hedging instruments we used to offer below-market interest rate financing to our homebuyers, while the remainder was primarily due to an increase in incentive levels on homes closed during the quarter. On a per-square-foot basis, home sales revenues were down 1.5% in the quarter and lot costs increased 1.5%, while stick-and-brick costs decreased 1%. As Bill mentioned, we expect our incentive levels to remain elevated in the near term, but with mortgage rates generally declining from their recent highs, we expect our home sales gross margin in the second quarter to be similar to the first quarter.

Our home sales gross margin for the full year of fiscal 2024 will be dependent on the strength of demand and other market conditions during the spring, in addition to changes in mortgage interest rates. Bill.

Bill Wheat — Executive Vice President, Chief Financial Officer

In the first quarter, our homebuilding SG&A expenses increased by 14% from last year and homebuilding SG&A expense as a percentage of revenues was 8.3%, up 50 basis points from the same quarter in the prior year, due primarily to expansion of our operations to support future growth and an increase in equity and stock market-based compensation expense. We will continue to control our SG&A while ensuring that our platform adequately supports our business. Paul.

Paul Romanowski — President and Chief Executive Officer

We started 19,900 homes in the December quarter and ended the quarter with 42,600 homes in inventory, down 1% from a year ago and up 1% sequentially. Twenty-eight thousand eight hundred of our homes at December 31st were unsold. Nine thousand of our total unsold homes were completed, of which 730 had been completed for greater than six months. Our current level of homes in inventory puts us in a strong position for the upcoming spring selling season.

For homes we closed in the first quarter, our construction cycle times continued to improve, and we are essentially back to our historical average of roughly four months from start to complete. We will continue to adjust our homes and inventory and starts pace based on market conditions and expect our housing inventory turns to improve in fiscal 2024 as compared to fiscal 2023. Mike.

Mike Murray — Executive Vice President, Chief Operating Officer

Our homebuilding lot position at December 31st consisted of approximately 607,000 lots, of which, 24% were owned and 76% were controlled through purchase contracts. Thirty-nine percent of our total owned lots are finished, and 52% of our controlled lots are or will be finished when we purchase them. Our capital-efficient and flexible lot portfolio is the key to our strong competitive position. Our first quarter homebuilding investments in lots, land, and development totaled $2.4 billion, up 3% sequentially.

Our investments this quarter consisted of $1.4 billion for finished lots, $740 million for land development, and $270 million for land acquisition. Paul.

Paul Romanowski — President and Chief Executive Officer

In the first quarter, our rental operations generated $31 million of pre-tax income on $195 million of revenues from the sale of 379 single-family rental homes and 300 multifamily rental units. Our rental property inventory at December 31st was $3 billion, which consisted of $1.4 billion of single-family rental properties and $1.6 billion of multifamily rental properties. We are not providing separate guidance for our rental segment this year due to the uncertainty regarding the timing of closings caused by interest rate volatility and capital market fluctuations. Based on our current pipeline of projects, we expect our rental closings and revenues in the second quarter to exceed the first quarter.

Jessica.

Jessica Hansen — Vice President, Investor Relations

Forestar, our majority-owned residential lot development company, reported revenues of $306 million for the first quarter on 3,150 lots sold, with pre-tax income of $51 million. Forestar’s owned and controlled lot position at December 31st was 82,400 lots. Sixty-one percent of Forestar’s owned lots are under contract with or subject to a right of first offer to D.R. Horton.

Two hundred and seventy million dollars of our finished lots purchased in the first quarter were from Forestar. Forestar had more than $840 million of liquidity at quarter-end with a net debt to capital ratio of 14.9%. Forestar remains uniquely positioned to capitalize on the shortage of finished lots for the homebuilding industry and to aggregate significant market share over the next few years with its strong balance sheet, lot supply, and relationship with D.R. Horton.

Mike.

Mike Murray — Executive Vice President, Chief Operating Officer

Financial services earned $66 million of pre-tax income in the first quarter on $193 million of revenues, resulting in a pre-tax profit margin of 34.3%. During the first quarter, essentially all of our mortgage company’s loan originations related to homes closed by our homebuilding operations and our mortgage company handled the financing for 78% of our buyers. FHA and VA loans accounted for 57% of the mortgage company’s volume. Borrowers originating loans with DHI Mortgage this quarter had an average FICO score of 724 and an average loan to value ratio of 88%.

First-time homebuyers represented 56% of the closings handled by our mortgage company this quarter. Bill.

Bill Wheat — Executive Vice President, Chief Financial Officer

Our balanced capital approach focuses on being disciplined, flexible, and opportunistic to support and to sustain an operating platform that produces consistent returns, growth, and cash flow. We continue to maintain a strong balance sheet with low leverage and significant liquidity, which provides us with flexibility to adjust to changing market conditions. During the first three months of the year, our consolidated cash used in operations was $153 million. At December 31st, we had $6.4 billion of consolidated liquidity, consisting of $3.3 billion of cash and $3.1 billion of available capacity on our credit facilities.

Debt at the end of the quarter totaled $5.3 billion, with no senior note maturities in fiscal 2024. Our consolidated leverage at December 31st was 18.6%, and consolidated leverage net of cash was 7.8%. At December 31st, our stockholders equity was $23.2 billion and book value per share was $69.70, up 19% from a year ago. For the trailing 12 months ended December, our return on equity was 21.8% and our consolidated return on assets was 14.8%.

During the quarter, we paid cash dividends of approximately $100 million and our board has declared a quarterly dividend at the same level to be paid in February. We repurchased 3.3 million shares of common stock for $398 million during the quarter. Jessica.

Jessica Hansen — Vice President, Investor Relations

Although volatility in mortgage rates and changes in economic conditions could significantly impact our business, for the second quarter, we currently expect to generate consolidated revenues of $8.1 billion to $8.3 billion and homes closed by our homebuilding operations to be in the range of 20,000 to 20,500 homes. We expect our home sales gross margin in the second quarter to be approximately 22.6% to 23.1% and homebuilding SG&A as a percentage of revenues to be in the range of 7.5% to 7.7%. We anticipate a financial services pre-tax profit margin of around 30% to 35% in the second quarter, and we expect our quarterly income tax rate to be approximately 23.5% to 24%. We are well-positioned to continue consolidating market share in all of our operations.

Our full year fiscal 2024 revenue, pricing, and margins in our homebuilding, rental, financial services, and Forestar businesses will be determined by market conditions and the strength of the spring selling season, in addition to our efforts to meet demand by balancing pace and price to maximize returns. For the full year of fiscal 2024, we now expect to generate consolidated revenues of approximately $36 billion to $37.3 billion and expect homes closed by our homebuilding operations to be in the range of 87,000 to 90,000 homes. We expect to generate approximately $3 billion of cash flow from our homebuilding operations. We also plan to repurchase approximately $1.5 billion of our common stock to continue reducing our outstanding share count, in addition to annual dividend payments of around $400 million.

Finally, we now expect an income tax rate for fiscal 2024 of approximately 24%. We remain focused on balancing our cash flow utilization priorities to grow our operations, pay an increased dividend, and consistently repurchase shares while maintaining strong liquidity and conservative leverage. Paul.

Paul Romanowski — President and Chief Executive Officer

In closing, our results and position reflect our experienced team’s industry-leading market share, broad geographic footprint, and diverse product offerings. All of these are key components of our operating platform that sustain our ability to produce consistent returns, growth, and cash flow while continuing to aggregate market share. We will maintain our disciplined approach to investing capital to enhance the long-term value of the company, which includes returning capital to our shareholders through both dividends and share repurchases on a consistent basis. Thank you to the entire D.R.

Horton family of employees, land developers, trade partners, vendors, and real estate agents for your continued focus and hard work. This concludes our prepared remarks. We will now host questions.

Questions & Answers:

Operator

Certainly. At this time, we will be conducting a question-and-answer session. [Operator instructions] Your first question for today is coming from Stephen Kim with Evercore ISI.

Stephen Kim — Evercore ISI — Analyst

Yeah. Thanks very much, guys. Appreciate it and thanks for all your commentary. I guess just to start off with, could you clarify, I think you mentioned at the beginning of the call about 100 basis points of the gross margin was affected by hedging related to I think you said rate buydowns? And in your guide for 2Q, can you also just clarify like what — I thought I heard you said 20,000 to 20,500 closings and 8.1 billion to 8.3 billion in consolidated revenues.

I just want to make sure I heard those right.

Jessica Hansen — Vice President, Investor Relations

Yes, Steve. That’s correct. For the second quarter, $8.1 billion to $8.3 billion of consolidated revenues and closings of 20,000 to 20,500 homes. And in terms of home sales gross margin, you’re also correct that 100 basis points of the impact was due to the rate buydowns that we’ve been offering and adjustments we had to make to that position during the quarter on a sequential basis, but what we’ve guided to for Q2 versus Q1 is relatively flat in terms of a 22.6% to 23.1% gross margin in Q2, versus the 22.9% that we posted this quarter.

Stephen Kim — Evercore ISI — Analyst

Gotcha. And that 100 basis points, is that something that, you know, you have done in the past? Is that a number that, you know, compares? I guess, can you give us some sense of what that number has been over the last couple of quarters?

Paul Romanowski — President and Chief Executive Officer

Steve, this quarter is the first time that that amount has been significant at all. It has — it’s essentially adjusting the valuation of our hedging positions that we have in place to offer our programmatic rate buydowns, you know, across the country. And it’s typically a very small move, either up or down. But this quarter, given the significant volatility in rates during the quarter, of course, mortgage rates moved up to 8% in November and then dropped sharply in December, those hedging positions had to be adjusted to reflect that.

So, it was an unusual situation this quarter. Generally, we don’t plan for any significant move one way or the other.

Jessica Hansen — Vice President, Investor Relations

And if you were to exclude that charge, we would have landed in the gross margin that we had guided to for the quarter. That was really the reason that we came in below.

Stephen Kim — Evercore ISI — Analyst

Gotcha. OK. That’s really helpful. I’m sure there’s going to be more questions about the guide, but I wanted to talk about your capital allocation, and in particular, I guess, you know, I know that, you know, the mantra for D.R.

Horton over the last several years now has been about consistency and predictability and reliability and that sort of thing. And you’ve done a great job there. But as I think about your overall, you know, cash position, it looks like you have sufficient cash. Currently, you’ve got another 3 billion coming.

I think maybe, you know, a little less than 2 billion is spoken for with buybacks and dividends. I was curious about that extra million, and I’m curious how land investment factors into that and rental. So, those are the two other big pieces that would seem. So, I guess, when I look at your land, your land supply has been coming down from — had been coming down for a number of years.

But now, for about three years, your land in year supply has been flat. I was wondering, do you think you can bring down that land investment down further, or is this kind of the level that you think that we’re going to be, you know, seeing on — in the future? And then in rental, can you give us a sense for what you think the growth in the rental inventory may be over the course of the next year?

Mike Murray — Executive Vice President, Chief Operating Officer

Steve, when we look at our land position, we feel that, you know, the forward one year is roughly supply of land that we own is important to maintain the production velocity in our neighborhoods. Bringing that down significantly is going to be incremental because it’s going to be with more developers providing finished lots for us versus self-development. And I think we’re back up to 76% controlled, which is up from where it’s been the past few quarters. So, we’re going to continue to incrementally look to control more land and acquire lots that are being finished by others, but we will still need to maintain a supply of land on our balance sheet lots, primarily on our balance sheet to feed the production.

Stephen Kim — Evercore ISI — Analyst

And the rental inventory?

Mike Murray — Executive Vice President, Chief Operating Officer

And the rental inventory, you know, we’ll probably invest in some during fiscal ’24 to grow that platform. It’s getting closer to a good sustainable volume that’ll produce a consistent revenues and profits quarter to quarter, but it’s still in the growth mode.

Jessica Hansen — Vice President, Investor Relations

And in terms of just overall capital allocation is, as you already alluded to, we did guide to the $1.5 billion of common stock. We’ve got the annual dividend payments of 400 million. We also have a sizable debt maturity that’s very early in fiscal ’25 of $500 million in October. So, you know, too early to say what we’re going to do with that.

And we’re very focused on maintaining conservative leverage, and we’ll see as we get closer. But that is something we’re going to be prepared to potentially pay out of cash if we don’t feel like the market’s right to go refi that.

Stephen Kim — Evercore ISI — Analyst

Great. Thanks very much, guys.

Operator

Your next question is coming from Carl Reichardt with BTIG.

Carl Reichardt — BTIG — Analyst

Hey. Good morning, everybody. I want to talk about SG&A for a second. Bill, can you talk about the basis points associated with the incentive comp this quarter? And then you talked about it being also ahead of some growth you’re planning.

Can you talk a little bit about community count expansion and whether or not this also might be related to some of the new markets you’ve entered more recently? Thanks.

Bill Wheat — Executive Vice President, Chief Financial Officer

Sure. Yeah. The first factor this quarter, we could point to our 14% increase in our average selling community. So, that’s — it’s obviously a significant increase.

Our — and our SG&A is up 14% this quarter year over year as well. So, that’s a bigger move than we have had in a while that’s positioning us to be able to provide the increased guidance. And you have seen our market count increase over the last several years. Obviously, we expect in time to achieve some leverage on that.

And as we grow our revenues, we would expect our SG&A to come back down to historic levels. But I think we’ve got a couple of quarters here where we’re going to see our SG&A a little bit higher as a percentage of revenues, primarily driven by that. This quarter, we have one additional factor. And really, it’s just a timing factor in terms of the impact of equity and stock-based comp.

We typically have an amount that we incurred typically in our second quarter or third quarter, but the timing of some grants this year were a little bit earlier into our first quarter. And so, there’s an amount of roughly $13 million that — it was incurred in Q1 this quarter that typically would be a Q2 or Q3 event.

Carl Reichardt — BTIG — Analyst

OK. That’s small. So, it’s different this year. OK.

Thank you for that. And then I have a bigger-picture question for Paul. So, obviously, the biggest news that we’ve seen in the business for a while is this large acquisition by an offshore player of a domestic homebuilder. And historically, long ago, Horton was a fairly significant acquirer of public companies and other private companies, and still here and there.

I’ve — we’ve seen you look at some deals. Paul, can you talk a little bit about your — from your perspective what you think — whether or not acquisitions are something that Horton would consider? Historically, I know you’ve done them. More recently, you’ve talked about doing most of your growth greenfield. I’d just like to know given current conditions where you sit on this sort of big picture.

Thanks so much.

Paul Romanowski — President and Chief Executive Officer

Yes, Carl. You know, we still today look at — continually look at acquisitions. And for us, you know, we’re more interested in the smaller tuck-in builders that may add to our market share in an existing market or give us, you know, some entry, but we do always have an opportunity to greenfield those. You know, I don’t see on the horizon a significant large acquisition.

Certainly, you know, the acquisition that you’re referring to makes some sense. We speak to scale a lot in market share, and that makes some sense to us. But, you know, today, we’re going to continue to look at those as they come available, but no significant shift in what you’ve seen us do over the last couple of years.

Carl Reichardt — BTIG — Analyst

OK. Appreciate it. Thanks, Paul.

Operator

Your next question for today is coming from John Lovallo with UBS.

John Lovallo — UBS — Analyst

Good morning, guys. Thank you for taking my questions as well. The first one here is, you know, it seems like the first quarter gross margin, at least relative to your expectations, was impacted by that 100 basis points of hedging that seemingly was not contemplated in the initial guide. So, I guess the question is why would the 2Q gross margin be flattish sequentially if that hit is not expected to repeat and rates have come in a bit?

Bill Wheat — Executive Vice President, Chief Financial Officer

Well, you know, it starts with we sold homes with an increased level of incentives while rates were higher during Q1, and some of those closed in December, but there are still a number of them that will be closing in Q2. And so far, on a core basis, we still are entering the quarter a little bit lower margin than what the average presents. And so, that’s — but obviously, rates have dropped, and so those incentive costs are a bit lower in the later sales. And so, on balance, we expect we should be able to hold margins around the current levels, you know, excluding the hedging going forward.

John Lovallo — UBS — Analyst

OK. Got it. And then I think, last quarter, lot costs were up, you know, 10% or 11% year over year, but I think there’s some geographic mix that was in there, and maybe it normalized to up sort of mid-single digits if you kind of accounted for that mix. I mean, how did lot costs trend in the quarter and how are you thinking about that in 2Q?

Jessica Hansen — Vice President, Investor Relations

Really, it’s pretty similar to what we said last quarter, that was a year-over-year comp. And so, we still were up low double digits on a year-over-year basis, and it did continue to have a little bit of geographic mix. But I would say, you know, stripping out geography, our lot costs on a year-over-year basis probably are up high single digit. And until we cycle an entire year, it probably stays that way, and then it would moderate in terms of year over year because it’s certainly less than that on a sequential basis.

Bill Wheat — Executive Vice President, Chief Financial Officer

Yeah, 1.5% on a sequential basis.

Jessica Hansen — Vice President, Investor Relations

Yeah.

John Lovallo — UBS — Analyst

Got it. Thank you, guys.

Operator

Your next question is coming from Joe Ahlersmeyer with Deutsche Bank.

Joe Ahlersmeyer — Deutsche Bank — Analyst

Hey. Good morning, everybody. If you’ll just humor me for maybe a couple more on the gross margin, could you just talk about the actual P&L impact of that charge, whether it was something that hit deductions from revenue or if it was just a hit to COGS? And then similarly, on the — what you’re expecting going forward, I guess it makes sense you’re not expecting it given rates just kind of stabilized. But is there a way to think about the sensitivity based on what you’ve still got out there notionally? Like if we had another 50-basis-point to 100-basis-point drop, would you have another 100-basis-point impact from here?

Bill Wheat — Executive Vice President, Chief Financial Officer

Joe, the charge — the amount of the charge is $65 million approximately, and that’s basically what hit during the quarter. In terms of our position outstanding, we believe that our position is — reflects the current market, and the valuation adjustment in the December quarter takes care of all of it. There is always some sensitivity. We always have some hedging position outstanding.

And so, anytime there is a significant sudden change in rates, that can leave some exposure there. Obviously, the opposite side of that is the benefits to the business. When rates drop, obviously, that improves affordability and improves our ability to sell at a price point in the core business. And so, what this hedging position allows us to do is offer below-market rates on a consistent basis, on a broad basis across our business.

And like we said, we try to manage that as best as we can. But in a period of significant sudden volatility, there can be some exposure to the position.

Mike Murray — Executive Vice President, Chief Operating Officer

There were two very significant moves in interest rates in the quarter. They went up significantly in the middle of the quarter and they came down significantly to the end of the quarter. Kind of a very unique dynamic that we have not experienced. That’s what led to the mark-to-market adjustment being more severe than it’s been in prior quarters.

Jessica Hansen — Vice President, Investor Relations

And that 65 million mark-to-market is in cost of goods sold, whereas the just standard routine interest rate offering does net against revenue and flows through our ASP. But the $65 million specifically is in cost of goods.

Mike Murray — Executive Vice President, Chief Operating Officer

Yeah.

Joe Ahlersmeyer — Deutsche Bank — Analyst

That’s all very helpful. Thanks for the transparency there. As a follow-up, thinking about the outlook for materials, either inflation or deflation, can you just speak to what’s in your 2Q guide? And then maybe just generally, if we’re looking at starts rising and your volumes obviously growing, how should we think about the competition for materials perhaps driving inflation again in those?

Paul Romanowski — President and Chief Executive Officer

Yeah. We’re seeing some relative flatness in our cost side of the business and would expect to see similar, all things stay consistent through the next quarter. Certainly, you know, with the encouraging signs early into January, it’s possible that we see some increase in starts from all of our peers that could put pressure on labor and on materials, you know, which could cause some headwinds or some increase in the cost side.

Joe Ahlersmeyer — Deutsche Bank — Analyst

All right. Thanks, everybody. Good luck.

Jessica Hansen — Vice President, Investor Relations

Thanks, Joe.

Operator

Your next question for today is coming from Michael Rehaut with J.P. Morgan.

Mike Rehaut — JPMorgan Chase and Company — Analyst

Hi. Thanks for taking my question. Good morning, everyone. I wanted just to circle back for a moment on SG&A.

And, you know, I think, Bill, you talked about the main drivers of the higher or negative leverage, I guess you could say, being community count and the stock comp. You’re going to see a similar type of negative leverage impact on the second quarter. Would you expect that to kind of flatten out? Everything else equal, it seems to imply — you said that maybe in the first couple of quarters, you’re going to see this impact and, you know that that should kind of run through by the time you get to the back half or is this more of a ’25 event? And, you know, as part of this question, I’m also curious if, you know, higher sales incentives outside broker commissions has impacted this at all or if you could remind us if that’s the portion that’s in the COGS?

Bill Wheat — Executive Vice President, Chief Financial Officer

Yeah. The last part first, yeah, our broker commissions are in our gross margins or in our cost of goods sold. So, that’s not part of the equation. And I think your general commentary there is fair.

You know, we only provide specific SG&A guidance one quarter out. But generally, our expectation, you know, over the longer term is that we would get back to a similar, you know, SG&A level as last year and beyond. So, I think it is a phenomenon here for a couple of quarters where we — where we’re guiding a little bit higher than last year.

Mike Murray — Executive Vice President, Chief Operating Officer

A little headwind on the community count and market growth, but a little tailwind in Q2 on the equity comp position, recognizing that in Q1 versus Q2.

Bill Wheat — Executive Vice President, Chief Financial Officer

And we’re also — also, ASP is down year over year, and so it’s always a little bit more of a headwind on a percentage basis for SG&A when ASPs are down.

Mike Rehaut — JPMorgan Chase and Company — Analyst

Right. No, that’s fair. That makes sense as well. Appreciate that.

Secondly, not to beat a dead horse, but I do — you know, you kind of made a comment on the gross margins, Bill, and I don’t know if you misspoke or it would kind of make sense to us if, indeed, you did not misspeak. But, you know, I think you said at one point, we would expect gross margins to get back to the 1Q levels, excluding the hedging impact. That would kind of make sense to us to the extent that, in the last couple of months, rates have come down and your current orders, you know, would include less expensive rate buydowns than, let’s say, a couple of months ago. And I think you’re kind of saying 2Q is currently being impacted by some of the carryover from 1Q.

I just wanted to make sure I heard that right or how to think about, you know, where gross margins are today on orders taken in, you know, mid-January, let’s say, versus a couple of months ago?

Bill Wheat — Executive Vice President, Chief Financial Officer

Yeah. You know, we provided guidance one quarter out, so we’ve got it to 22.6% to 23.1%. So, essentially straddling the gap margin that we reported in Q1. Coming into Q2, the closings that we will have early in the quarter are at the — probably the low end of that range, maybe even a little below that.

But then later in the quarter, you know, margins are improving because of the cost of buydowns after rates have dropped is lower. And so — but on average, that’s — we believe that that will balance out to a margin in the 22.6% to 23.1% range. What will occur after that, we can’t really comment. It’s really going to be a matter of what’s the strength of the spring selling season, what does demand look like through the spring, and what happens with mortgage rates.

And so — but on average, that’s where we believe things will fall for margins in Q2.

Mike Rehaut — JPMorgan Chase and Company — Analyst

Right. So, basically, what you’re saying is beginning of the quarter at the low end, perhaps a little bit below the low end of that range. That would imply, toward the end of the quarter, at the higher end or perhaps a little bit above the high end of that range. Is that fair?

Bill Wheat — Executive Vice President, Chief Financial Officer

I think, on balance, it’s going to balance out to 22.6 to 23.1.

Paul Romanowski — President and Chief Executive Officer

You know — and we still sell a large portion of our homes into quarters. So, 35% to 40% is our, you know, kind of historical average. And so, you know, those are being sold now and as we look through the quarter and into the spring selling season. So, certainly, as the spring selling season emerges and continues, it’s going to give us, you know, better visibility as we look toward the end of this quarter and into 3Q.

Mike Rehaut — JPMorgan Chase and Company — Analyst

Great. Appreciate it. Thank you.

Operator

Your next question is coming from Truman Patterson with Wolfe Research.

Truman Patterson — Wolfe Research — Analyst

Hey. Good morning, everyone. Not to beat a dead horse here, but just want to understand kind of your all philosophy and some near-term dynamics with, you know, rates coming below — a little bit below 7%. I realize there’s this hedging noise, but have you all been able to kind of pull back on, you know, core incentives, if you will, the past several weeks, or is this much more taking kind of a bit of a wait-and-see approach? I think you mentioned a good rebound early in the year.

You know, are you taking a wait-and-see approach so you’re not disrupting kind of demand or the momentum ahead of the spring selling season?

Paul Romanowski — President and Chief Executive Officer

Truman, you know, I think that as we look at this today, it’s still very early. And for us, consistency of activity has been important. So, we haven’t made any significant changes in our incentives. If the market gives it to us and we continue to see the early encouragement that we are, then we’ll, you know, respond to the market in kind.

If rates continue to stay up, then we’ll need to lift our rate offerings like we’ve done in the past and we’ll fluctuate as those rates move. Still has been our best incentive is the rate buydown and consistency of rate, consistency of payment to our buyers as they shop in the market.

Jessica Hansen — Vice President, Investor Relations

And all of that continues to be managed market by market, community by community based on what our local operators are seeing and believe is the best to drive the strongest returns. I mean, even with a little bit of give back in our gross margin, our improved cycle times and what we’re going to turn this year in terms of inventory is way more important to our bottom line and the returns we’re going to generate than giving up a little bit of gross margin and still being at roughly 23%.

Truman Patterson — Wolfe Research — Analyst

Makes total sense. And with that, you know, you all bumped your closings guidance a little bit to about 89,000, around there. That’s well above, you know, the prior peak of, we’ll call it, 83,000 back in 2022 and there were all of these supply chain issues and constraints. Could you just help us get a little more comfortable with that level of growth kind of based on today’s labor pool, lot availability? I’m really trying to understand, you know, constraints today and maybe what level of closings would really create bottlenecks in the construction process, not, you know, asking about, you know, demand or anything along those lines?

Mike Murray — Executive Vice President, Chief Operating Officer

We’ve been very focused on creating a quarter-to-quarter consistent starts plan where we’re feeding our neighborhoods with lots that are available in front of us and making sure we have those lots supplied and secured to us. At the same time, we’ve made a tremendous amount of progress reducing our cycle times and coming back to sort of our historical norms of around four months from starting a home to completion. And so, that’s giving us much greater flexibility going into this year. With the strong finished lot position we currently have, combined with the reduced cycle times, we’re able to reduce our homes and inventory and still deliver, you know, a closings target that’s going to be, you know, at or in excess of our two times beginning of the year housing turns.

So, we really feel good about what’s happened there. As to what the upside, top side is for where the bottlenecks would come in, hard to speculate on where that would be. We feel really good about our lot position, neighborhood by neighborhood, and the trade partnerships that we have and the supplier relationships that we have. They’ve been very supportive of us.

Jessica Hansen — Vice President, Investor Relations

But great point, Truman, in that when we think about overall industry constraints, finished lots are going to continue to be an issue in terms of builders being able to put more houses on the ground today. It’s not getting any easier to put a finished lot on the ground, and so we continue to have a focus on building out our lot position and our relationships with third-party developers to make sure we’re positioned for growth. But when we think about the biggest constraints to the industry overall, it definitely starts with finished lots.

Truman Patterson — Wolfe Research — Analyst

Perfect. Thank you all and good luck in the coming year.

Mike Murray — Executive Vice President, Chief Operating Officer

Thank you, Truman.

Operator

Your next question is coming from Eric Bosshard with Cleveland Research Company.

Eric Bosshard — Cleveland Research Company — Analyst

Good morning. Curious if you can provide a little bit of perspective. You talked about favorable trends into the spring and 56% first time. I’m just — as you look across the business in terms of where you’re seeing relative strength in regards to price points and product, where things are above average and where things are below average?

Mike Murray — Executive Vice President, Chief Operating Officer

I think it’s pretty consistent across the board. We’re feeling really good across all of our offerings. I mean, as you know, 55% to 56% of our deliveries have been to first-time homebuyers. That’s generally where we’ve kind of geared our neighborhoods that we’re positioning and the product that we’re positioning with that.

I think 70% of our deliveries were at $400,000 or less, which, for us, is maintaining a focus on affordability and a payment that works for people in their monthly budget. Hence, we’ve used the interest rate buydowns quite a bit. But feel really good. You know, coming out in January does not make a quarter or a spring selling season, but we’re very encouraged by the early trends in January and are excited for what the spring is going to hold.

Eric Bosshard — Cleveland Research Company — Analyst

From a product perspective or price point perspective with lower rates, do you think differently than you did 90 days ago in terms of focus on affordability or do you think about expanding a bit more what you’re doing?

Paul Romanowski — President and Chief Executive Officer

I think we have made adjustments as the market has shifted over the last 12 to 18 months and feel comfortable with our trajectory and the product offering that we have. Certainly, as you look across our communities, you know, they’re going to trend inside of the product offering that we have based on rate and monthly payment environment, whether that means that they’re buying up in size or down in size. But we feel like we have a good offering across our markets, and we’ll continue to stay as we need to respond to monthly payment and interest rates and provide affordable opportunities across all of our platforms.

Eric Bosshard — Cleveland Research Company — Analyst

Great. Thank you.

Operator

Your next question for today is coming from Alan Ratner with Zelman and Associates.

Alan Ratner — Zelman and Associates — Analyst

Hey, guys. Good morning. Thanks for all the detail so far. Got some questions on kind of a spec versus build-to-order dynamic in the industry right now.

You know, you guys being a spec builder, I think, had a pretty strong advantage during the pandemic. Obviously, resale inventory was incredibly tight. The extended cycle time as well, I’m sure it was hard to manage from your side, kind of gave you an advantage versus the BTO guys in terms of the consumer experience. So, I guess my question is now that cycle times seem to be improving across the industry, resale inventory is ticking a little bit higher, are you thinking about that dynamic any differently? Are you, you know, maybe contemplating selling earlier in the construction process again, whereas before you were maybe waiting for homes to get closer to completion? Are you seeing more competition from build-to-order builders that have kind of shrunk in their construction cycle times? Any commentary on that would be great.

Paul Romanowski — President and Chief Executive Officer

I think, today, you know, we are still seeing people looking for closing with certainty of closed date and in that 30 to 60 day time frame based on their ability to lock an interest rate. And so, I don’t know that we’ve seen much significant shift from the build-to-order builders being able to deliver a pre-sale into those time frames. We are very comfortable with our inventory position, both in a total homes and in a completed home scenario. It’s continued to play into the shortness of resale inventory across our markets and don’t expect a significant change for us.

We’re going to continue to stay focused on inventory sales and consistent production community to community.

Mike Murray — Executive Vice President, Chief Operating Officer

Even with the decline in existing home sales, they’re still three to four times larger of a market in transaction volume than new home sales. So, we’ve always tried to position ourselves to compete against those homes rather than just, you know, other new home delivery providers.

Bill Wheat — Executive Vice President, Chief Financial Officer

You know, the timing of that sale has been able to move up earlier in our stage of construction just because we have gotten back to our historical norms of months of delivery of our houses.

Alan Ratner — Zelman and Associates — Analyst

Got it. But in terms of your sales strategy, I mean, you know, I look at your completed spec count, it’s been ticking a little bit higher here more recently. Is that still kind of the strategy to hold these homes off until, you know, you’re maybe a month or two from completion to allow the buyer to lock in that rate, or are you maybe thinking about kind of pulling that forward a little bit?

Mike Murray — Executive Vice President, Chief Operating Officer

We’re allowing — you know, we’re not restricting the sale of homes. Seasonally, you’ll see the completed spec inventory, the completed home inventory tick up through the fall, and be positioned that we have houses available for quick deliveries, you know, beginning in January for the spring selling season. So —

Alan Ratner — Zelman and Associates — Analyst

Got it.

Mike Murray — Executive Vice President, Chief Operating Officer

We’re able to deliver the homes that people are coming in and needing in 30 or 60 days. At the same time, with the compressed cycle times, as Paul mentioned, we are very comfortable selling and locking a rate in for a buyer earlier in the production process than we were a year ago for sure.

Alan Ratner — Zelman and Associates — Analyst

OK. Gotcha. One last quick one if I could. Just going back to the charge on the hedge, I just want to better understand this.

Like we have heard from other builders in the past situations where they would buy kind of forward commitment pools and when rates pulled back sharply in a short period of time, those pools would kind of go unused because the market, you know, kind of fell below wherever that pool was. Is that kind of what’s going on with you guys or the mechanics of this is much different? I’m just trying to wrap my arms around that better.

Paul Romanowski — President and Chief Executive Officer

No, you’ve described it exactly. We — typically, we’ll buy those forward commitment pools really for the next few weeks of deliveries, essentially, is the plan. We’re not going out very far, but it is a few weeks. And so, that’s when we say a very sudden, sharp change in rates then can present some exposure there.

But it’s — has not occurred in the past, but the circumstances this quarter were pretty unusual in terms of the significance and the suddenness of the rate moves.

Jessica Hansen — Vice President, Investor Relations

And it was really restructuring so it could be used. Not that we weren’t going to fulfill the pool, we just had to restructure it so it was usable.

Paul Romanowski — President and Chief Executive Officer

And then at the end of the quarter, we always have to mark to market the value at the end of the quarter. So, that’s always a factor there as well.

Alan Ratner — Zelman and Associates — Analyst

So, it sounds like this is an industry phenomenon, not necessarily a Horton phenomenon, but obviously, we’ll learn more about that in the next few weeks. But I appreciate that. Thank you.

Operator

Your next question for today is coming from Anthony Pettinari with Citi.

Anthony Pettinari — Citi — Analyst

Hi. Good morning. There was an earlier question on the large builder acquisition we saw last week. I guess we also saw a large acquisition in SFR.

And I’m just wondering if you could talk about how institutional demand for build-to-rent homes has been trending maybe relative to earlier expectations. You know, do you expect that to grow as a portion of your homebuilding operations? And just maybe the impact to that business in this kind of rate environment.

Mike Murray — Executive Vice President, Chief Operating Officer

Certainly, I’ve seen that with the change in the capital markets, that demand environment became much choppier last year, but we still had institutional buyers that were anxious to get the product we were delivering to the market, and they continue to be so. You know, we — we’ve delivered projects in the first quarter. We expect to deliver more in the second quarter and then throughout the year with the pipeline that’s there. I mean, for us, it’s a strategy to help us de-risk land positions and more rapidly monetize our land portfolio.

And so, we’ve still seen good demand for the product, good demand on the rentals and the lease ups when we’re taking the stabilization process on and continue to expect that to become a growing part of our business.

Anthony Pettinari — Citi — Analyst

OK. That’s helpful. And then just, you know, last quarter, I think 60% of your buyers, you know, took some form of a buydown and you were offering 6.25 on a conventional loan. I’m just wondering if you can update, you know, where that stands coming out of fiscal 1Q.

And I guess you talked about this earlier a bit. But, you know, do you think about a kind of a rate level where buydowns maybe stop becoming kind of the chief incentive mechanism or where, you know, incentives start to shift back to more kind of traditional ones?

Jessica Hansen — Vice President, Investor Relations

We’re probably up, you know, call it, roughly 10% sequentially in terms of the take rate on that buydown. So, we were in the 70s. And now, we’d be in the 80% range of the buyers that utilize our mortgage company. So, the 60% you said was on our overall business.

So, say 60% to roughly 70% of buyers took that this quarter.

Paul Romanowski — President and Chief Executive Officer

You know, and the use of those rate buydowns is not just new to us. Over the last 12 months, we’ve been 24-plus months utilizing that incentive. So, I believe on a go-forward basis, staying competitive to not only the new home market, but especially to the resale market for us, and the ability to have a lower monthly payment for same cost of home is advantageous. So, you know, we have no plan in the near term to stop utilizing it, even if we see rates shift down.

Anthony Pettinari — Citi — Analyst

OK. That’s helpful. I’ll turn it over.

Operator

Your next question is coming from Ken Zener with Seaport Research Partners.

Ken Zener — Seaport Research Partners — Analyst

Good morning, everybody.

Paul Romanowski — President and Chief Executive Officer

Good morning, Ken.

Ken Zener — Seaport Research Partners — Analyst

I wonder, you know, with the industry, everybody likes to focus on the income statement, right? So, the gross margin was obviously been a focus today. However, your initial comments were about inventory turns, which, together, get your returns on inventory. So, because you took up volume for the year modestly and all we see is one quarter forward guidance, is it fair to say that your guys’ internal metrics are generating the same or higher ROI than you had started the year at? I know you kept the 3 billion cash flow the same, but I just try to understand, you know, we see one part of the business, but not necessarily the output of the other.

Bill Wheat — Executive Vice President, Chief Financial Officer

Sure. Yeah. I mean, our returns are in line with our plans, and our divisions are out there executing on their plans, their start plans week to week, month to month and delivered the homes that we expected to this quarter, plus a few hundred more. And so, you know, as we enter the spring, we’re continuing with that and very consistent with our expectations from an inventory turn standpoint and a return on our assets, our investments in inventory.

Ken Zener — Seaport Research Partners — Analyst

Right. So, you talked about improving cycle times. Obviously, part of that stuff, do you see — you know, when you started 20,000 — the last three years starts have been, you know, 14,000, 25,000, all over the place. Can you talk to that level — I mean, do you see some degree of let me use the word seasonality? Or what’s kind of affecting that? You know, is it orders, or is it just a plan that you have to reach your closings, A? And then B, what do you expect your inventory units to be at the end of the year given your underlying assumptions right now? Thank you very much.

Paul Romanowski — President and Chief Executive Officer

Yeah. Ken, as you look at our past year-plus starts pace, it has been inconsistent. A lot of that has been response to the market and response to the elongation of cycle times and then further reduction of cycle times. As you look at our inventory today and our guide to basically turn a little more than two times that inventory, we can expect to see consistent and sustainable starts expansion over the next few quarters.

You know, we want to maintain the level of inventory that we have and be in a position, as we respond to the spring selling season, to stay consistent with our starts. But we do need to grow our starts consistently quarter to quarter over the remainder of the year.

Mike Murray — Executive Vice President, Chief Operating Officer

And as we consistently look to position ourselves to grow, we would certainly love — want to position ourselves to grow in fiscal ’25 over fiscal ’24. So, we would expect our inventory at the end of the year to be a little higher than it was at the start of the year with the expectation of turning it a little more than two times in fiscal ’25.

Ken Zener — Seaport Research Partners — Analyst

Thank you.

Operator

Your next question is coming from Susan Maklari with Goldman Sachs.

Susan Maklari — Goldman Sachs — Analyst

Thank you. Good morning, everyone. I wanted to talk a bit more about thinking of the competitive dynamics on the ground. As you think about some of the smaller new home markets that you have recently entered and the potential for more existing home turnover to perhaps come through as we move through the year, any thoughts on what those competitive dynamics could mean for you in various markets and perhaps how you’re positioned relative to that?

Mike Murray — Executive Vice President, Chief Operating Officer

I think, Susan, that we’re continually looking to provide affordable homes that hit a payment that’s going to work in the monthly budget for our buyers. And that is what’s oftentimes overlooked, especially by — in the smaller markets. A lot of the builders that are currently existing have capital constraints on what they’re able to build and start. And so, they’re looking generally to maximize revenue per lot or margin per lot and go with a lower volume.

And so, they’re leaving that first-time homebuyer, that family that needs a more affordable home kind of not really their target. So, that’s the target customer we seek out. And we see good results when we go into a new market — greenfield and new market and focus on the affordable price points.

Susan Maklari — Goldman Sachs — Analyst

OK. That’s helpful. And then, you know, thinking about the cash generation and the balance sheet, you know, what — as things have normalized, what level of cash, I guess, are you comfortable holding on the balance sheet today and how do you think about the potential for perhaps increasing the buybacks or allocating capital to some of the other growth initiatives that you have out there as you continue to bolster the balance sheet?

Bill Wheat — Executive Vice President, Chief Financial Officer

You know, Susan, for the size and scale of our business today and the volume that we have in terms of just our constant production of inventory, the cash balance we have on the balance sheet today is in the range of where we’d like to be. So, cash across our business segments and then availability under our credit facilities, we would like to maintain, you know, the current level. And as we scale up over time, we’d incrementally increase that level over time. You know, with our plans this year and our guidance on share repurchase in fiscal ’24, we are increasing our share repurchase by, you know, 25% this year from 1.2 billion to 1.5 billion.

And that’s just part of our plan to be consistent with our distributions to shareholders as well, you know, increased our dividend this year as well, expect to spend $400 million on dividends this year. And so, that is an increase over last year. And our plan would be to, as we continue to scale the business, continue to be able to increase incrementally those repurchases and dividend levels.

Susan Maklari — Goldman Sachs — Analyst

OK. Thank you and good luck.

Operator

Your next question for today is coming from Rafe Jadrosich at Bank of America.

Rafe Jadrosich — Bank of America Merrill Lynch — Analyst

Hi. Good morning. It’s Rafe. Thanks for taking my question.

Just on the outlook that for improvement in build cycles in 2024, can you talk about where your build cycles are now, where they were last quarter, how much you think that can improve, and then like what gets you there from a supply chain perspective?

Jessica Hansen — Vice President, Investor Relations

Yeah. We were just over four months this quarter, Rafe. And when we think about our historical norm, it really is right at that four months in terms of start to complete, and then there’s an additional time from complete to close. That’s down from seven months a year ago, so a very substantial improvement in terms of a year-over-year basis.

Sequentially, it improved by about 10 days. So, when we think about further improvements from here, they’re not large moves. They’re just continued improvements on average. So, we’re — hopefully, you know, we can get below four months, but that’s not something that we expect to, you know, drive from four to two.

Rafe Jadrosich — Bank of America Merrill Lynch — Analyst

Got it. Thank you. That’s helpful. And then I just wanted to follow up on the comment that you’re seeing encouraging signs as we head into the spring season.

Can you just give a little bit more color on what you’re seeing? Is that better homebuyer traffic or conversion, and do you think that’s just driven by sort of the headline rate number that’s coming down? Just want to understand what you’re seeing that’s encouraging in the market.

Mike Murray — Executive Vice President, Chief Operating Officer

I think there’s lots of reasons people are out looking for houses, but ultimately, they need a house, and we’re seeing both good traffic and good conversions early in the spring. And so, we have set up operating plan for the year. And so far, we feel really good about how the market is responding to that.

Operator

Your next question is coming from Matthew Bouley with Barclays.

Unknown speaker

OK. In terms of the land market, are you seeing a pickup in land development into 2024? I know that you said that things could kind of get a little bit more crunch just, you know, the demand increases. You know, how are you thinking about land development costs and lot costs moving higher and kind of, you know, offsetting that?

Paul Romanowski — President and Chief Executive Officer

You know, for us, we are set in terms of our consistent delivery of lots into our starts plan, and so that plan is in place for us. As we look 12 months out, you know, we have not seen much reduction in development costs and wouldn’t expect with the shortness of lots across the industry that we’re going to see, and we’re not anticipating much reduction in either the labor side or the supply side, product side of the components that go into developing lots. But we have a plan that we have stuck to and are consistent with. Feel good about our lot position in the near term and as we look next year or two out.

Unknown speaker

OK. Thank you. And then just kind of switching over to affordability, aside from rate buydowns, is there anything else that buyers have been, you know, kind of responsive to as far as like the levers that you have to kind of make the payment work for them or has there been a type — any sort of change to those strategies?

Mike Murray — Executive Vice President, Chief Operating Officer

Product selection. Generally, they’ll buy a smaller home to make the payment work, and sometimes that’s within an existing neighborhood or moving to a different neighborhood that’s offering a smaller set of plans.

Jessica Hansen — Vice President, Investor Relations

So, our square footage was down again about 3% year over year. It was relatively flat sequentially, but we would expect, you know, just continued gradual moves down from a mix shift perspective in terms of average square footage.

Unknown speaker

Thank you very much.

Operator

We have reached the end of the question-and-answer session, and I will now turn the call over to Paul Romanowski for closing remarks.

Paul Romanowski — President and Chief Executive Officer

Thank you, Holly. We appreciate everyone’s time on the call today and look forward to speaking with you again to share our second quarter results in April. Congratulations to the entire D.R. Horton family on producing a solid first quarter.

We’re proud to represent you on this call and appreciate all that you did.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Jessica Hansen — Vice President, Investor Relations

Paul Romanowski — President and Chief Executive Officer

Mike Murray — Executive Vice President, Chief Operating Officer

Bill Wheat — Executive Vice President, Chief Financial Officer

Stephen Kim — Evercore ISI — Analyst

Carl Reichardt — BTIG — Analyst

John Lovallo — UBS — Analyst

Joe Ahlersmeyer — Deutsche Bank — Analyst

Mike Rehaut — JPMorgan Chase and Company — Analyst

Truman Patterson — Wolfe Research — Analyst

Eric Bosshard — Cleveland Research Company — Analyst

Alan Ratner — Zelman and Associates — Analyst

Anthony Pettinari — Citi — Analyst

Ken Zener — Seaport Research Partners — Analyst

Susan Maklari — Goldman Sachs — Analyst

Rafe Jadrosich — Bank of America Merrill Lynch — Analyst

Unknown speaker

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