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Phillip Creek

Thanks, Bob. Our new contracts were down 10% when compared to last year. They were down 20% in January, down 10% in February, and down 2% in March. And our cancellation rate for the first quarter was 10%. 50% of our first-quarter sales were to first time buyers, and 65% were inventory homes.
Our community count was 226 at the end of the first quarter compared to 219 a year ago. The breakdown by region is 98 in the northern region and 128 in the southern region. During the quarter, we opened 27 new communities while closing 21. We currently estimate that our average 2025 community count will be about 5% higher than last year. We delivered 1,976 homes in the first quarter, delivering 78% of our backlog, and about 35% of our first-quarter deliveries came from inventory homes that were sold and delivered in the quarter.
And in March 31, we had 4,800 homes in the field versus 4,500 homes in the field a year ago. Our revenue decreased 7% in the first quarter, and our average closing price in the first quarter was $476,000, a 1% increase when compared to last year. Our first-quarter gross margin was 25.9%, down 120 basis points year over year and up 130 basis points over last year's fourth quarter. Our first-quarter SG&A expenses were 11.5% of revenue compared to 10.5% a year ago. Our first-quarter expenses increased 2% versus a year ago.
Our increased costs were primarily due to increased community count and additional headcount. Interest income, net of interest expense for the quarter was $5.2 million, and our interest incurred was $8.8 million. Our pre-tax income was 15%, and our return on equity was 19%.
During the quarter, we generated $154 million of EBITDA compared to $187 million in last year's first quarter, and our effective tax rate was 24% in the first quarter compared to 23% in last year's first quarter. Our earnings per diluted share for the quarter decreased to $3.98 per share from $4.78 per share last year. And our book value per share is now $112, a $17 per share increase from a year ago.
Now Derek Klutch will address our mortgage company results.

Derek Klutch

Thanks, Phil. Our mortgage and title operations achieved pre-tax income of $16.1 million, an increase of 31% from $12.3 million in 2024's first quarter. Revenue increased 17% from last year to a first-quarter record $31.5 million due to higher margins on loans sold and a higher average loan amount, partially offset by a slight decrease in loans originated. The average loan to value on our first mortgages for the quarter was 83% compared to 82% in 2024's first quarter.
We continue to see an increase in the use of government financing, as 57% of the loans closed in the quarter were conventional and 43% FHA or VA compared to 68% and 32%, respectively for 2024's first quarter. Our average mortgage amount increased to $406,000 in 2025's first quarter compared to $386,000 last year. Loans originated decreased to 1,530, which was down 2% from last year, while the volume of loans sold increased by 26%.
Our borrower profile remains solid with an average down payment of 17% and average credit score of 746 compared to 747 in 2024's first quarter. Finally, our mortgage operation captured 92% of our business in the first quarter, up from 88% last year.
Now I'll turn the call back over to Phil.

Phillip Creek

Thanks, Derek. So the balance sheet, we ended the first quarter with a cash balance of $776 million and no borrowings under our unsecured revolving credit facility. We continue to have one of the lowest debt levels of the public homebuilders and are well positioned with our maturities. Our bank line matures in late 2026, and our public debt matures in 2028 and 2030.
Our unsold land investment at March 31 is $1.7 billion compared to $1.4 billion a year ago. And in March 31, we had $866 million of raw land and land under development and $803 million of finished unsold lots. During the first quarter, we spent $146 million on land purchases and $102 million on land development for a total of $248 million.
At March 31, we own 25,000 lots and controlled 51,000 lots. At the end of the quarter, we had 700 completed inventory homes and 2,400 total inventory homes. And of the total inventory, 900 are in the Northern region, and 1,500 are in the Southern region. At March 31, 2024, we had 400 completed inventory homes and 1,900 total inventory homes. We spent $50 million in the first quarter repurchasing our stock and have $200 million remaining under our current board authorization. Since 2022, we have repurchased 13% of our outstanding shares. This completes our presentation.
We'll now open the call for any questions or comments.

Question and Answer Session

Operator

(Operator Instructions) Alan Ratner, Zelman & Associates.

Alan Ratner

Nice job in a tricky environment out there. It seems like it's changing by the day. So I'm sure it's not easy. First question, Bob, I'd love to drill in a little bit in terms of what you're seeing, both from a geography standpoint and a price point perspective. Just curious like with all of the moving pieces going on, have you seen any notable shifts in buyer demand either within price points, Smart Series versus, say, move up or geography, any kind of relative winners and losers, given all of the noise today?

Robert Schottenstein

Well, great question. As it relates to price point, let me address that one first. Not really much of a change in demand. We have a number of very high-producing Smart Series communities throughout the company, which is our product line that primarily caters to the first-time buyer. It's roughly 54% of our sales were Smart Series sales and that's been about what it has been.
But we also have a lot of really strong move-up, second time, third-time purchased communities. I don't think there's any real conclusion to be drawn on that. If there was, that would be something that we would be all over. We look at that constantly. It's a great question.
Geographically, I think there have been some noticeable differences, particularly during the latter part of last year, the Florida markets, and I would single out Tampa more so than Orlando or Sarasota. We're sort of just getting started in Fort Myers Naple, so we don't have enough critical mass to really draw a conclusion.
But Tampa was clearly struggling more than the other Florida markets. It has rebounded somewhat in the last number of weeks. Some of that is just more aggressive promotions by us with price. But some of it, I think, is a return of buyers, a little bit better traffic. As we look around, Indianapolis has been quite strong, so is Cincinnati.
Chicago has been a real bright spot for us as well. And Houston and Dallas continue to be good. Dallas is not quite as good as it was maybe three or four months ago, but we remain very bullish about both those Texas markets. I think that Austin has been and somewhat of a transition for all the builders there for about the last 1.5 years or so.
And I think -- but long term, I think the Austin market is a tremendous market to be in. And then Columbus, I think our business has been very, very solid. Charlotte and Raleigh have held up quite well comparatively speaking. So Detroit a little bit softer. That's sort of the way I see it.
I mean, I think that the situation within the overall economy, which, as you said, is changing daily, if not hourly, has certainly presented its share of challenges. Our new communities are off to -- not all, but most are off to a very strong start. And I think we -- I think some of our margin lift, very frankly, in the first quarter, sequential margin left which helped to offset what otherwise would have been a little bit of a margin decline -- more of a margin decline from a year ago. I think the margin lift was buoyed by the positive impact of a number of our new community openings, and we're excited about the new communities we're opening this year.
I don't think the sky is falling. I don't think it's any time to panic, but it's just a little bit of a hold on time. The spring selling season, I think, has been just okay. March was better than January and February. I guess we're still in it.
April is not as good as March. But we'll -- look, it's no time to panic as I said, we're going to keep doing what we're doing. We think we can have a very solid year.

Alan Ratner

Appreciate the very detailed rundown there. And definitely encouraging to hear Tampa showing some signs of life and the new community performance as well. Those are all good.

Robert Schottenstein

And I don't think Tampa is going anywhere anytime soon. By that, I mean it's a city that is still seen on average over the last four years, very respectable population growth it's likely to continue. In fact, if you look at population growth throughout most of our markets, many of them over the last four years have seen 4%, 5%, 6%, 8%, 10% population growth, which bodes well for household formations, which bodes really well for our industry.
We'll get through this period of time, but I wouldn't want to be in any other business.

Alan Ratner

Got you. Appreciate that. Second question on kind of the spec strategy. I mean, you and others obviously have pivoted pretty hard towards spec over the last several years. I think you said it was about 65% of your sales this quarter.
We've heard from some other builders that seem to be dialing back spec starts a bit here over the last few months given the choppiness in activity, and others have kind of signaled trying to maybe bring down that spec share a little bit closer to longer term averages. I'm curious, A, what are you seeing in terms of the spec margin differential? I know you've actually seen some pretty healthy margins on your spec product. But have you also dialed back those starts more recently?

Robert Schottenstein

Well, first, let's put it in perspective. This is an area where I think -- and you know it probably better than me. But this is an area where there's a distinct difference in strategies across the various public builders with some over the last few years, going to a 100% spec approach towards the business. We increased significantly five years, we were probably 20%, 30%, maybe 40% spec.
Now we're somewhere between 50% and 65% spec. We sort of like the balance. In general, specs have sold at lower margins. And during some periods, it has been 100 basis points, During others, it has been 200 basis points.
I think that the average in our company is probably today around 150 to 200 basis points. Some markets may be a little higher than that. But we've been able to keep the gap between the two pretty close, not out of stubbornness, that's just where the buyers seem to be. But there is a slightly lower margin on specs in most of our markets.

Phillip Creek

Also, Alan, it's just kind of a subdivision by subdivision issue. Product matters quite a bit. Today, we're doing 15%, 20% attached townhouses, and attached townhouses tends to happen when you sell a unit or two in the building, you start another building, et cetera. Also, our Smart Series, our more affordable product line, in general, we have a few more specs.
If you look right now with us having about three finished specs per community, we feel very good with that. Also with the rate buydown, it's pretty costly when you start getting outside of 45- to 60-day window to be buying down those rates. So again, we manage that on a subdivision-by-subdivision basis for sure.

Operator

(Operator Instructions) Kenneth Zener, Seaport.

Kenneth Zener

I am interested on how you're thinking about your order pace, which it's a fall seasonality, it suggest pace kind of maybe down a little bit if you look at the three and longer-term averages. But more importantly, how are you thinking about your units under construction and how starts are going to be related to pace as you kind of map out where expectations might be for your units under construction by the end of the year? I'm just -- if you're building spec, you might want to build more spec, right, even if orders aren't there because it will drive the closings. But could you talk a little bit about how you're thinking about that?

Phillip Creek

Well, if you look at us today, we do have a few more communities than a year ago. And as we talked about, we planned this year on having on average about 5% more. we talked about in my remarks that houses in the field today are like 4,800 versus 4,500. So we are continuing to be careful with what we put in the field However, as Bob said, we're trying to manage very carefully on a subdivision basis.
It takes a long time to get locations under control developed and opened. So we're trying to balance that good margin, good return versus pace. So it's just something that we manage on a subdivision basis constantly. We would like to do a little more volume than we're doing. Last year, we did over 9,000 houses.
Our volume in the first quarter was down a little bit -- but again, we're being mindful not to get too far ahead of things in the market. But again, where we are now with having a few more communities and a few more houses in the field, we feel like we're in pretty good shape.

Kenneth Zener

Right. And I wonder, buy-downs, which had been done in the '60s and '70s by builders, went away. And I've always been kind of curious as to why that happened. You hear some builders talking more about price reduction versus mortgage buydowns. Can you comment on how those buy-downs might directionally break apart or be different within your conventional loan structures, where there's more down payment versus the FHA VHA, which is a lower down payment?
Are you seeing more of that efficacy in the lower down payment loans?

Phillip Creek

I guess, the first thing I would say is that, again, we manage that not only on a community basis but a customer basis. Customers more in the entry-level price point, a number of those customers may need more help in closing costs, being stressed a little bit for out of pocket, those types of things. Again, buyers are different.
I don't know, Derek, Bob, do you want to?

Robert Schottenstein

Well, a couple of things on it. First of all, mortgage rate buydowns today, I can't come up with a better or more effective tool given the rate environment and all the other issues and all the noise that we've been all talking about. I can't think of a better way to drive traffic and hopefully promote sales. Pure price reductions have a massive impact on backlog where people bought at a certain price. If you lower the price today, you're going to be retrading the entire backlog or at least big portions of it. So the great thing that the mortgage rate buydowns do is they protect the integrity of your sales backlog. That's number one.
Number two, in terms of what we're offering, our government rate is -- the buydown rate is lower than the conventional rate. Today, on our FHA and government packages, we're generally on a 30-year fixed rate basis around 4 and 7/8, whereas with conventional, we're right around 5 and 7/8. When and if this goes away is I think when mortgage rates, either the spread over to the tenure which brings down rates or rates themselves come down, notwithstanding the spread somewhere in the 6% or so range, there's -- and then demand starts to come back.
I don't think we have to get back to 3% and 4%, 30-year fixed rate mortgages to get rid of rate buydowns. But that's something that no one knows for sure. As rates do drop, the cost of buydowns drops as well. But right now, it's -- let's call it for what it is, Ken, it's propping up the homebuilding industry, If you took away rate buydowns from every major builder in the country, I'm not sure where we'd be, but we wouldn't be where we are.
And it's also a tremendous competitive advantage for the larger builders like us who have -- who own their own mortgage company and are able to nimbly almost on a daily basis, react to what's happening. And we've tried to do that as best as we can.

Phillip Creek

I mean, primarily, we're in the payment business. And what's most important to the majority of the people is what's that monthly payment. And again, there's a different result based on a price reduction, which also can impact appraisal values of homes and those types of things, which Bob talked about. But again, the rate buydown, it depends what the customer really needs.
We try to be as efficient as possible. Our mortgage company helps us a lot deal with individual customers. Customers need different things, and we try to make that available to them at the most efficient cost we can.

Operator

Buck Horne, Raymond James

Buck Horne

Thinking through the kind of impact potentially as the quarters progress for the remainder of the year and how you're thinking through things like lot cost inflation is it's going to roll through the income statement and also your stick and brick costs factoring in the potential tariff impacts. I'm wondering if you guys have thought through that in terms of the supply chain -- and kind of what kind of cost trend?

Robert Schottenstein

Yeah. I'll give a little initial answer, and then I think Phil has a lot more detail than perhaps I do on that. Just on sticks and bricks, right now, there has really been no impact. Our costs are essentially what they were a year ago.
In some instances, they're slightly lower, which has probably helped some of the sequential movement on the margins. And despite all the noise, which crescendos and then decrescendos, I can use the music terms, on tariffs, we haven't seen any impact yet. Will there be impact? Probably, but right now, I don't think that our industry has yet felt it other than it's probably having some effect on consumer confidence in some indirect way.
My guess is if we do see an effect, it won't show until somewhere late in the year. When -- if those costs do go up by virtue of tariffs, they're reflected in our fourth-quarter closings.
Beyond that, Phil, if you want to add anything?

Phillip Creek

No, we think our national account people and our purchasing teams have done a really good job. We've been working on a number of programs the last couple of quarters. And as Bob said, our sticks in bricks in the first quarter were actually a little less. So we were pleased with that. We're obviously trying to make sure that we're not single-sourced anywhere. We have seen a little more availability of substance suppliers, but really, that's about it.
We're just trying to stay on top of everything best we can, try to focus on affordability best we can with targeted product to make sure we have the specifications right in our product line because lot costs are continuing to go up. But overall, we feel pretty good about where we are.

Robert Schottenstein

And just to talk about lot cost for a second because that's an area that has a massive impact on affordability and the end price of a home, there's no component, as you know, that impacts the end price more than land and land development. I don't think anyone should count on much movement on land prices in any of the markets in which we do business.
First of all, like many of our competitors, we're relentlessly focused on securing what we call premier locations. We're not the only one. There's a lot of -- even if we're more careful about what we buy because we want to make sure it pencils, we haven't really seen much movement on the price side. Maybe better terms, by that, I mean, maybe able to push off closing or buy more time, buy more time given the fact that in some markets, it's taking longer to get things owned, it's taking longer to get approvals, a seller understands that.
They know we're not going to close on unzoned ground. That's just not what we do. And most of our competitors don't either. So other than the term side, there really hasn't -- we haven't seen much nor do I think we will see much on the price side. I don't think there's the old line, they're not making any more of it.
The land is what it is, and the strong locations, I think, are going to continue to command top dollar prices. And if you want to play the game, you're going to have to do that. And that's -- and we're prepared to. Our balance sheet has never been stronger. We've got a great land position. We own less than a three-year supply. We've always been very disciplined on that.
Our strategy with respect to owned and controlled really hasn't changed. We're not big on using land bankers. We don't feel like we need to, and we don't want to pay -- I use the T word, we don't want to pay a tariff to land bankers when we don't have to. And we feel really good about our land strategy, but that part of the component of the end price, I don't see much change on that anytime in the foreseeable future.

Buck Horne

Very helpful. I appreciate all those detailed thoughts. Just want to shift, you mentioned the balance sheet, of course, never being in a stronger position than it is right now. Your shares are now below book value. It looks -- sounds like you're potentially dialing back the start pace for the remainder of the year.
You have remained very consistent with the cadence of repurchase activity, but just wondering if you would consider leaning in to current marketing conditions and accelerating the pace of repurchases.

Robert Schottenstein

It's something we always look at. We talk about it every quarter with our Board. We've tried to maintain consistency. We're not trying to game the time in which we purchase. We think a consistent approach is the most sound one. In all likelihood, what we have been doing, we'll continue to do.
Phil, I don't know if you have anything to add.

Phillip Creek

Yeah, yeah, Buck. I mean, like Bob said, we've had a consistent strategy the last few quarters buying $50 million. And we think now is a good time to have lower leverage and bank line availability and those type of things. Our interest in curve, one of the lowest in the business, and we like that position. Something we'll continue to look at. But again, we're just trying to be very mindful to make sure we're positioned very good.
We've always run a conservative company, and that has kind of kept us where we are and so forth, but something we'll continue to look at, but we feel really good about where we are.

Operator

Jay McCandless, Wedbush.

Jay McCandless

First question I had, where do you think the gross margin backlog is right now relative to what you saw in the first quarter and maybe directionally how that has been trending so far in the second quarter?

Phillip Creek

Jay, that's a -- it's a pretty flat number. But again, as I said, about 35% of our closings during the quarter came from spec sales that sold and closed in the quarter. So Bob talked about the continued pressure on margins. We're doing all we can to keep those margins as high as we can. But we were pleased with the 25.9% in the first quarter, but we think there will be continued margin pressures as we go through the year.

Jay McCandless

And then the exit velocity from January to March, it looks like orders continue to -- the order comp continue to get better. For all of 2Q, you guys have an easier comp to last year. I guess, what are you seeing right now out in the field, whether it's from resale competition or other headwinds that can make the rest of the quarter maybe trend a little bit lower than what you saw in March?

Robert Schottenstein

Well, if I knew what sales were going to be like next week, I would tell you. There has been so much -- we're all sick of the word uncertainty, but there has been so much uncertainty and so much volatility just within the economy in general, but that has translated itself to demand as well week to week. Some weeks, we see a big uptick in traffic, and the next week, it comes down.
There has been very little consistency. It has been highly unpredictable. I actually thought our margins would be lower than they are. They've held up better than expected. It's not because -- what's the term that I heard use the other day, we're not trying to be margin proud. I like that line.
We think we're balancing our margins with what it takes to get our sales to where they need to be. We know nothing good happens unless you sell something, and we're pushing to sell as much as we can.
But right now, I think the second quarter is -- if I had to guess, I think it's going to be up and down uneven and mostly on the challenging side. But I don't know. I'm hoping that we'll be pleasantly surprised. The sky is not falling, and I said that earlier. And I think if the stocks are trading at ridiculously low values, suggesting almost that this is like trending towards some kind of recession or great recession, which I think is -- I just don't subscribe to that at all.
And bringing 15% to the bottom line and a near 20% return on equity. The first quarter was one of the best first quarters in company history. It wasn't as good as a year ago. I get that. We're poised to have a very strong year and at least a very solid year compared to last year, likely down unless something significant were to change, that's no surprise.
But I think we're very well positioned. I think many of our peers are very well positioned.
I don't think we see anything crazy happening out there with builder behavior, including us. So I just think it's very, very hard to forecast and give that kind of guidance. If you do, you're going to end up we've never led the league and guidance anyway as we're often reminded and we're not -- we're certainly not going to start now. So that's a hard one, Jay. I respect the question completely.
I don't mean to be less than honest about it, but I just don't know.

Phillip Creek

Jay, I mean you're right. I mean if you look at the second quarter of last year, our sales were actually up 3%. But I mean we were surprised, January and February sales were weaker than we thought March was better. And we're not sure exactly why, again, it's just something we watch every week community-by-community we did open 27 stores the first quarter, and we're going to be opening a lot of stores as the year goes on, but it's still just very choppy out there.

Jay McCandless

Okay. And then, Phil, could you give me the total spec numbers at the end of the quarter and where they were last year, I didn't catch those numbers?

Phillip Creek

The spec numbers?

Jay McCandless

Yeah, the spec numbers.

Phillip Creek

Yeah, if you look at the end of the quarter, we had 700 completed specs. A year ago, we had 400. And as far as total specs, now we have 2,400, and a year ago, we had 1,900. We feel really good where we are basically having about three completed specs per community.

Robert Schottenstein

Our community count is up, too.

Phillip Creek

Our community count is up. And then we talked about it being up on average about 5%, and it should move up as the year goes on. So we feel good about where we are managing that very carefully. There is, most of the time, a little bit of margin leap between specs and to be built. But again, we try to be very careful how we price and sell those specs also.

Jay McCandless

Got it. And then the last question for me, just pricing power, what percentage of communities were able to raise price this quarter?

Phillip Creek

It's a good question. That's just a really difficult question. We've been pleased with the ASP and the margin and the pace of the new communities we've opened in the last couple of quarters. In general, they're performing a little better than we thought. I mean, we raised prices where we can, but -- and we feel really good, especially about our new communities.
That's just a really tough question. But when you look at our margins at 25.9%, again, we're pretty pleased with that.

Robert Schottenstein

One of the -- I know some builders report that information where that gets very confusing is when you open up new phases in an existing community and you always intended the new phase to be at a slightly higher price because the lot cost is slightly higher. Is that pricing power? Do you call that pricing power? You're trying to hold the margins the same.
I'd say where there's true pricing power is probably less than 10% of our communities if I had to put a number on it. Right now in this environment, there's very little pricing power.

Operator

We have no further questions. I will turn the call back over to Mr. Phil Creek for closing comments.

Phillip Creek

Thank you for joining us. Look forward to talking to you next quarter.

Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.