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Meritage Homes (MTH)

Participants
Brent A. Anderson Meritage Homes Corp.
Steven J. Hilton Meritage Homes Corp.
Phillippe Lord Meritage Homes Corp.
Hilla Sferruzza Meritage Homes Corp.
Alan Ratner Zelman & Associates
Paul Przybylski Wells Fargo Securities LLC
Peter T. Galbo Bank of America Merrill Lynch
Ryan Tomasello Keefe, Bruyette & Woods, Inc.
Jay McCanless Wedbush Securities, Inc.
Carl E. Reichardt BTIG LLC
Alex Barron Housing Research Center LLC
Call transcript
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Operator

Good morning and welcome to the Meritage Homes Second Quarter 2018 Analyst Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Brent Anderson, VP, Investor Relations. ahead go Please

Brent A. Anderson

slides along yesterday Investor Good on call Chad. XXXX the and our to market this welcome We Thank it discuss discuss morning, With of refer Sferruzza, X Phillippe at to link the Meritage. to Executive our investors.meritagehomes.com analyst and our find and and at represent closest that Operating discussion our close after current as release to projections and and assume We've which our risks for Vice expectations. different as recent detailed XXXX other the of listed by you on Lord, compared with homepage. slide Commission, as you contain the statements, at as slides, release I'll also or CFO; quarter slide, call we year-to-date you our second today first certain remind most subsequent the and may materially with such our selecting press of Relations call, President statements can them. of factors our issued margins, XX-Q and you, our their press our as risk are results financial no release in website the obligation the everyone, more to projections and Those than measures. bottom in be quarter them GAAP contain of this results. to during to may well our earnings. Chairman presentation forward-looking uncertain provided the for and including non-GAAP time Vice specifically and results inherently and well CEO Securities any We've statements update Executive Steve metrics risks. are a actual Annual actual revenue this Exchange XXXX and and measures operating press Officer filings to the that and opinions our release change Any of influence management, reconciliation President closings, for are and subject forward-looking which referred Chief related Report of Meritage; a as identified me Hilla XXXX, Hilton, and and

results. We the a bit will review over I'll within now hour call to remain or an website expect available to to quarter Steve approximately less, two approximately little an active and conclude afterwards on a the call maybe hour Steve? be our replay for and will second turn our weeks.

Steven J. Hilton

everyone we've on We're slide first The East we and the today. success our in we're Thank with for the with on Brent; in had beginning made improvements we track ahead and revenue pleased this our the have the homes driven another slightly or begin and has been call primarily and achieved year. having LiVE.NOW. of the the market we earnings region. communicated expectations at delivered year in to participating I'll our growth by of the entry-level on half of the quarter welcome you, X. results We are good XXXX.

improvements over be aligned in growth We to expect area. XX%. investments We've was operations continue will we our demand that that our to second East Home across the in Similarly, estate opportunities grow further up maximize all for key year-over-year region's to expect We to and closing plan and earnings nearly consolidated entry-level our Home the our closings delivered our count quarters. to next our homes growth strong. several revenue further East results community increased benefit real in on quarter. the XX%. metrics

gross basis and XX%. grew increasing home XX Our profit gross XX%, closing margins also by pre-tax points, by expanded earnings

share diluted from benefiting higher earnings second were rate share a diluted than the XXXX, and quarter per lower count. XX% Our tax

total our homes of have a those has by significant in the While quarter X. LiVE.NOW. focused of the full entry-level produced still communities the Turn the as absorptions in margins compared may about growth Entry-level been our for of actively had faster second orders driver X% quarter, have increasing selling recent quarter homes in on growth same Clearly communities order move-up. to built gross selling many second driven and year we of at ago. a relatively number we maximizing than in higher been profit the a quarters. We've year second XX% pace every XX% our have LiVE.NOW. we sale, X% and our with success from communities order on more our the in been slide XXXX.

deliver our We solely lower on cost are and a those nearly spec of reached having XX% loan We're XX% below that limits. entry-level ended offer quarter XX%. total the to of at homes our second faster to we our in with have that building can year-end priced We communities customers. the homes communities approximately so goal these FHA XXXX basis

price XX% LiVE.NOW. and More to buyers ago. second per carrying us to interest basis a our build-to-order, is to specs allowing rising end also rental efficiencies rates in XX% of to months. the want the also buyers for per nine our move the of about rates. having little Quicker managing available a this buyers community compared a those year to offers our concerns lock on average than spec of needs quickly us over at cost. and critical. while quarter a seven paramount Building coming allow on to meet While are greater year entry-level buyers, is We're community alleviate home, about and closing into dates obviously within homes of three move out

from of total strategic growth. future believe it spec of to us, the in the second over for from for As homes, the were established of our quarter a closes it's we've result, plan continue last clearly Continuing XX% years, and all couple up XX% working can drive XXXX. we

The The newest markets, I'll our Phillippe, a turnaround improvements performance been inflection the second recognize we years product, the and helping to higher that to quarter. orders, quarter margins, and in greater story this East are of in in point year region more over changes region and over this our significant couple efficiencies. operating their to it turn I training reached last an first encompasses drive for continued the it's Before year. made improve in personnel

gross of regions' As performance. over by regions. highlights of turn a consolidated gross margins more for margin Philippe? result, the I'll over XXX to increase our increased points these quarter the discuss XXXX, the home-closing second and operational closer our in driving the two of getting to home-closing basis the other quarter it to margin than our in most Philippe

Phillippe Lord

you, Thank Steve.

see price continuing our are points. to in at generally especially We demand markets, solid the lower

give our We have is limited by it affordability. on wherever been improving helping costs, to focused by us. are offset the increases Those but our continue rising market pushing will to prices ability this margins to

ensure buyers. region price every community to I'll priced with on we progress offer color, successfully discuss X. pace We our value slide and competitively are with region the in some and local by managing strong beginning that a to are win proposition East

Steve positions, to execution. the gains see improved in said, products, community new we pleased we As with and our East due the are

second quarter. Our were year-over-year in orders East region XX% the up

XXXX. fewer and Carolina, absorptions, having and orders strong South second Florida the growth each Tennessee quarter communities in in average compared despite produced of double-digit to XXXX

increased a with ago, year the order to community count is but region for year-over-year. pace X.X, from down in up Texas region. value was X% average XX% order Total East was our our Our which line XX%

drive Texas efficiencies value shifting moving the quarter to last solid the focus communities, execution, left, sales performance XXXX made higher the margins, the in in from its X, orders growth second in continued orders we're of product improvement towards of our region. With compared across we and year. to board operating positioning growth profits and orders and average pace, Slide

Our in average orders average Total year-over-year community Texas up Texas the and increased second value a in quarter. increase quarter slightly, second in absorptions for X%. the count X% resulting order for increased X% in was

will up in down communities Slide decline in X% few orders orders ASP that strong community to West time Arizona. within the a our smaller count due had year-over-year. year-over-year quarter drove second and California's XX% more average the X, While were we entry-level with homes, to down continue ASP region's region a a over higher-priced during in trend decline

California With for our second X% quarter. demand XX.X% the order in region, net the pace California Strong in effect whole, fact the XX% a and up the orders was evident as for is the that the up decline in quarter company. in of in were highest X% a absorption the

it before, development been get communities the approval mentioned has new often As unpredictable and is long opened and complicated. to process difficult is we've as

strength market four do most plan experiencing California our grow new quarters. over Arizona still broad-based is many we to and entry-level. open active segments, in price count community next up communities six to the However, especially across

grand demand of position community new Hilla year-over-year one townhome confident are average our increase demand, the orders. including in We've information. quarter Hilla? count is now in Colorado of dozens in homes, newest communities before in some several communities. very our selling We Colorado second of an our opened the communities result of opening. The quarter, the in XX% last in was first nine with there, additional it the The provide pace the not over still in it hand highest does timing; markets to decline and just XX% of a increase absorption I'll some country. to in reflect lack even

Hilla Sferruzza

for were this that to (XX:XX) details have as on the balance items. change performance-based were awards the we targets are now our a lower the year awards more clean as advantageous provide for are revenue very a in year. metrics, XX% in we primary and increases last for higher in XX% a slide likely this earned as quarter, for Net rather as of net be XXXX. last quarter, awards structure closing Overall, equity would drivers as gross of margin, earnings beginning I'll up probable the the Phillippe. on quarter and of second finance sheet when variable contributing with Certain expense of X. year-over-year certain We the for quarter achieved. equity in or incur first additional to SG&A All executives you, as second rates our to structure due quarter end additional based performance be didn't the expected. P&L a Thank growth tax unusual on the was expense than second benefit growth well covering few is that the few time-based. half year's of And earnings second the of we little to of were explained results timing XXXX. the last second were non-recurring quarter than in year to considered company. of The the compensation tax well considered the home

with quarter this recognized So XXXX. corresponding $X.X no expense at approximately the of we of expense million in end

We also diluted the million benefited convertible rate XXXX share from a tax benefited reduction in X the our a of to year. XX% second share ago. And for of diluted year quarter compared our notes last of from lower effective retirement the XX% after count EPS approximately

debt-to-cap flow net balance at to the at items to to repurchase slide early authorized newly quarter. planning from and depending ratio the sheet beginning Turning XX, next market our begin year. conditions came as up XX, of may $XXX XXXX million our shares on share we're quarters, XX.X% down on Under several the of and and program, other over cash June this the to XX.X% repurchase

year's quarter, under Total billion. about was lots well $X repurchase aligning little, added quarter $XX million than XXXX, control spending land XX%. target with million, for full-year approximately but net $XXX a about increase with remain We of new strategy. the our shares, $XXX our the entry-level we with but debt-to-cap below our development line and within million in of second XX% will less those in of quarter last second of of during around our still X,XXX communities, target As

lots to trailing of total our XXXX of June closings XX, of demand, supply flat based increased XX% roughly X,XXX to the year just total XXXX of That's the June XXXX. for half XXXX. about June XXX in closings which at with X.X-year for full our first was total at year year-over-year compared closings XX. and billion Based on and approximately to continued XX, Slide on total our to expectations XX-month inventory home for about own of projections closing lot lots XXXX. Our results X,XXX billion. XX% as growth though We options XX% our to are revenue year maintaining we home XX% XX, supply of $X.X supply of by terms X.X-year over this lots, translated of lot relatively through the $X.XX that

that to We closing the recently future full slightly tempered compared home for end XX.X% of last our to increases increasing The costs is tariff. are to expectations year's high year XX.X%. material in margin to for due also potential gross XX% by range proposed

we strained may offset price through We're the While on to able already additional earnings affordability have from costs. costs cost increases, is adjusting expectations XXXX. passing our rising markets million those in increases potential earnings prevent been to in Pre-tax are based for for year where first to with year. on $XXX of margins roughly projected half strong second half the the $XXX in be better-than-expected growth of the million us the

tax for the balance XX% effective rate remains XXXX. Our at of

generating in million. revenue of expecting with total quarter, We're closings to third X,XXX projecting $XX third the of quarter, closing be margin higher than to second With XXXX. to of would home roughly quarter income For third it XX% the $XXX Steve. which turn back over pre-tax approximately year's million home closing last for quarter million, and approximately our we're the million X,XXX I'll that, to maintain to to line $XX of XX% XXXX $XXX gross

Steven J. Hilton

In entry-level there relatively is healthy, progress new made we've summary, on homes. pleased nearly remains are to come. lower-priced demand year. remains Hilla. and believe quarter second you, for metrics for key more results with this The we We homes the especially our all economy strong and Thank

the of We strategically could cost leveraging mindful the concerns which some expansion and market successful. in positioned our demand make working capture for the to that the home in carefully of abilities I'm putting to company gross operating drive slow earnings and impact entire for markets. and the confident further growth every greater and trends the through growth, opportunities while higher, prices potential our make team are customers We're areas. hard their affordability We're also most monitoring even of us. increases on efficiencies. ahead the our the of margin We're to for day proud first could additional our affordability Meritage

We you now grow Homes. Meritage the to for and support shareholder Thank open the to continue will remind of expect instructions. deliver operator of and value. Operator? increased your for it up questions, We'll

Operator

you. Thank

Please The Associates. will go from come Ratner Zelman Alan first with question & ahead.

Alan Ratner

quarter Hey, morning. the to the and guys. Good Nice good in on congrats see. job It's East. in the progress

we've was what you. growth can that lot high-single, And the eventually generally little and the generally, Thank for quarter I the sit the So enjoying reaccelerate on front count, quarter. of and comps that degree back confidence growth low-double-digit maybe the softer industry pipeline here, of seen to few think, you of years? in range the of that coming data in a do several macro that demand but got the the order bit seen to a needs X happen trend the your in order the last guess, last next, business, and I I – your this we've the to occur? just in year what quarters, look not through than today, that's up as here been you you've obviously, or the community of at growth, have, middle you think for environment

Steven J. Hilton

if and reasons, final quarter we've been which demand. Well, better this you business. assure didn't consistent demand that us work Alan, growth had give May. in to consistent completed. I for California. had last in we're with that would a confident and we're in our up variety We've tougher to gotten we for very the West, really than June, but count getting we down monthly a received challenge anticipated and order really there. can slowed results that And confident our have products. have development received The community approvals June whether April was were better in wasn't we for a it biggest very in And We it drop-off It's hung would that debated really of the order growth. we net numbers, orders what the open playing really In communities that, been quarter. many for drive in our see We

other net our order double-digit growth in and the think was pretty number. definitely around decent I the regions

confident in our we're business. So really

a We on haven't of pushback seen lot interest rates.

bit rates. summer the because little a there's higher prices probably is seasonal a in think cause don't I years of higher overall, concerned. couple the few But more think to be this and last I

Alan Ratner

That's helpful, Steve.

as the So it think, others affordability business flowing far as we to went I ton of seems the sounds several – to is your like we would having a at there and the pressures actual the those mentioned solve little it in that as the the offsetting the numbers? lock in time, far well. you're the should back a a But you're prices, the cost and that you pricing when through you finish showing of side as if that's of margin little feeling like are year. when it's starting getting that color as material you side, in few see success just earlier is think like the should bit the things? communities up can any concerns pull bit. key give same last still Is terms It guess, to just challenges, maybe just delivery there Obviously, in I any looking sounds relief and up that so the times. lumber constraints start weeks, you at on front, about when your experiencing. How line, over

Steven J. Hilton

Would take want guys to? Phillippe or that. will you let I Hilla

Phillippe Lord

seen we and say wanted at the Phillippe. point. I to right down it's a through do here, of but this a work we But to usually lumber because stay expect now days XX continue bit little to go rising is it XX system. This this wouldn't to We've bit super meaningful flexible. Yeah. as a it's pullback quite lock been We (XX:XX)

on the here quarter And so relocking we'll back to division depending our business. to try next those probably savings to be over the some of capture

So we're that's managing how it.

Alan Ratner

right, All Good luck. it. thanks, Got guys.

Steven J. Hilton

you. Thank

Operator

question Rehaut JPMorgan. from Michael go with next ahead. comes The Please

Unknown Speaker

an XX% upside you for And is bit is community your Mike. on ended XX% wondering XQ up with, that as (XX:XX) your a total that to XQ you XX%, homes, I I morning. when I entry-level. XX%. any Good and to was if XX% orders. This was from your XXXX of mentioned representing wanted just of entry-level for It's just little count? think, of follow the it there XQ on by acceleration

Steven J. Hilton

slight of Might probably be few communities, of in buying our getting that bit some communities. entry-level a move-up because upside buyers a but there's of upside. probably to we're buyers the not A extra getting lot, some number are we that first are entry-level more

communities, So our because orders we XX% getting entry-level of XX% more probably probably than XX% towards – of in being we're communities. are buyers other in the entry-level total gravitating that from buyers to

part that's really is And over that. that's think the going be business. trying years. where welcome to market want next where to we're the And our we we to that we We be to. many So a think of bigger get

Unknown Speaker

So that ahead. XX% okay. – Go

Hilla Sferruzza

I'm sorry.

get still As that product the the count, community we compared move-up we the time sell, the we're absorptions the that buyer is also seeing of entry-level that accelerated with closer first XX% move-up. to pace to

it So Steve becomes much get volume achievable. as that that that XX% more referenced, closer to of XX%, we

Unknown Speaker

helpful. That's Great. Great. Okay.

X, think should know see be we Is over a steady-state a additional SG&A, you it's should those extent bit basis? on where On one expenses because out. SG&A about had it But do you XX some Or quarters? of to little that thinking next out normalizing more. year-on-year XX% how the guys this room called up X, for improvement? some level. to it of be Just the seems compensation you fall I around about

Steven J. Hilton

We really to less. Well, be it in we to a area. expect really XX.X% be that to little bit want XX%

was already anomaly a of articulated. we quarter This bit reasons of an a couple for little that

back that the around over we're we to that's it several and expecting should come down quarters. think XX.X% So next what number,

Unknown Speaker

it. Got

Okay. you. Thank

Operator

East Fargo. The Wells be will question next from Stephen with

Paul Przybylski

West on the And you a gross Stephen. Or similar quite serves, of on time East. costs? several Przybylski up Actually, plan Do my for is plan this just memory catching margins bit that margins. really quarters, to a case of to past If have a the raise believe for is comparable your East have pricing Paul been with spent the the over Thanks. you've West? I elaborating land a

Steven J. Hilton

in Hilla particularly hard. pushing but Arizona, let I'll respond West been in rising, have Well, the after, been or the in margins we've Phoenix, prices

newer are the in we're at of margins. Colorado higher definitely some coming And communities opening in

I the think to the and in track into West improve remainder on this of year we're next So margins year.

Hilla Sferruzza

this over Paul, increased, mentioned over quarter region So, our East XXX basis second of quarter – XXXX believe, Steve points I XXXX.

has also normalized last Our at continuing and maintained still quarter improvements of some year's The the hold Central pretty to XX%. actually kind this QX. West line. They're had steady. above over They're

drop-off we communities that about XX-Q continuing of California that out much is well everything starting You'll into the the as those couple in Arizona years well, the impact Colorado, normal and a we up see California territory. the markets see break we're comes back West muted, creep and margins FHA-impacted of as in more to that as ago, entry-level talked the strength our of and in Arizona, when But up as the strength some of region. by in

Paul Przybylski

shorter Okay. to of California spectrum get correctly? mentioned open. communities believe, they quarters, four reading end But sounded Am And one that this the six more may know I be on like the I than on to longer you it delayed end. the the were West, if quarter, the I that

Phillippe Lord

This Phillippe. Colorado especially community are expecting growth definitely in California. both Southern and is in We Yeah. count,

other sales fast we're so strong. opening we are because As closing also as them, are out ones

community chasing a we're be we're to delays, assume on community extent. that but of count, some So California. But that that growth going metric six could good [quarters] things, see side to when count shorter we the is to it to have in community four

Paul Przybylski

any one, color Okay. orders? And July on final one

Steven J. Hilton

Go ahead, Phillippe.

Phillippe Lord

then the is month back first see always weeks slow come because a July and always return very two are really as too we of early July demand to of It's vacation. very a people from weird lot Yeah. tell.

to So Steve mentioned it's seasonality, as tell too typical and much early earlier.

Paul Przybylski

Okay. you. All right. Thank

Operator

Lovallo will of with next America. Bank from John The question be

Peter T. Galbo

Hey, actually for guess, around think color clarity California I John. to get communities. on taking the the very question. Pete this. guys. and Phillippe, I It's want Galbo for Thanks for – would I helpful just

you'd had But XX% think, I six opening in count California still four if about also to that more, that the to the community for company to and wanted be California in Southern said You held. over year than the I just quarters. this X% overall Northern confirm next see for you had talked

Phillippe Lord

Yeah.

Sorry, growth the community the it's already we Phillippe. And it X% year. We be. have achieved count where for to expect that's

we're it to California higher I – than total we're open would in say opening California. lower count Southern Northern to growth will more going be California, base. this: actually from growth, California Southern coming We'll communities in net up be in the Northern more community a California up count but we're growth community As relates see because to going like

Peter T. Galbo

Got it. it. Got

Steve. for Okay. And question maybe a

and that side, the to the faster? the the Can whether efficiencies material side, you Just Just thinking actually a lead a would some instances. you helpful. portfolio the a you about land lot underwriting would entry-level, shift the as think argue degradation would margin. of that entry-level, people think times opposite of to I in do almost that there color would see We more towards portfolio just process it's any shifting from bucket on more getting be labor

Steven J. Hilton

Well, it's all above. the

our They able to spec. cost sites keep love us to from reception line building, up able our number XXX% longer. – people one, building, trades. easier and on better better It's our people get to job So for them They're spec build. we're

land segment entry-level the market They out. So Generally, farther use the it. bit a for we the love that is little trades love of our business. that

of to is make faster. time easier buyers contact process. in, come a it's us From the get the So buyer quicker. the sale time It's with much title. to first cycle it's to easier The the

that is more it's So rising it, we our unique, is And than it's way which entry-level and simpler builders It's some The stability, environment. price nuances rising little be It's different in like believe And and other and think And are buyers it. there's think of the like some got a a we approaching like don't we to that it's process. it. the the we're a salespeople margin customers degradation. place the a better opposite. it. demand just larger

Peter T. Galbo

the and quickly it. around this stick last costs year-over-year? what were brick And Any Got guys. Thanks, one. color quarter maybe on up just

Phillippe Lord

around actual probably through inflation but not X%. about X% percent Yes, inflation, Yeah. a cost as cost ASP of

Hilla Sferruzza

the For year.

Phillippe Lord

For Yeah. year. the

Hilla Sferruzza

a not Full-year, quarter.

Phillippe Lord

Yeah.

Peter T. Galbo

Got guys. it. Got it. Thanks,

Steven J. Hilton

Thank you.

Operator

from next Our comes question with Credit Maklari Suisse. Susan

Unknown Speaker

is Susan. questions. This Chris (XX:XX) the Thanks Hi. for taking for on

capital several And following is repurchase buybacks first question share investments allocation So of think downs? just my How relative up on stack priorities about your that how share over next to pay the your announcement. pace the we should does the quarters? internal other debt and

Steven J. Hilton

or XXXX for when begins. it XXXX, Hilla? it XXXX liquidity Is keeping our definitely we're refinancing Well,

Hilla Sferruzza

XXXX. It's

Steven J. Hilton

XXXX. Yeah.

going liquidity opportunistic. themselves. but as going to could million But that it the sooner, to be going $XXX So we're the spend market, be at to we're for spend it XXXX. But to generate these prices, less steady present And we're that. land aside into today, We're little bit couple get where we definitely our keeping to the opportunities plan. the a back shares. At some same cash of less that's was But keeping free time, expect flow buy our in years. we're

Unknown Speaker

on earlier, Thanks. inflation land, materials us the following and possible? that's guys And up for labor for inflation out seeing in could question the if Got just it. you're Thanks then, break you that.

Phillippe Lord

of all I that certainly our not I X%. Most are well. think there's have a Yeah. that. but of lumber, And Like it. labor detail We of is around up costs said, the specifically don't as component all materials and

Hilla Sferruzza

touched revenue Phillippe a sticks bricks our of and the on And costs the just component area equation. reminder. XX% on is in about before. then, this The

XX% So a relationship. it's

revenue increase a X% X% materials a in and needs only to So in labor offset. increase

maintain to our still and improve cost we're that's margins in a So rising how even able environment.

Unknown Speaker

Got it. Thanks.

Operator

will question Evercore next ISI. The come from Kim Stephen with

Unknown Speaker

is Congrats the on on for quarter. This (XX:XX) Chris Hi. actually Steve.

respective do the just be more closing constraints that be signs the year of You shift full softness, affordability the But, emerging mentioned expect year-over-year. significantly to you entry-level? ASPs XXXX expect this to reflect all with down down or you some previously and obviously, towards

Steven J. Hilton

shift entry-level. It's of the entirely the

Unknown Speaker

Okay.

Steven J. Hilton

we're We're are not ASPs of to not. going or our because We're – prices lowering shift because homes. discounts. the ASPs lower-priced down not are giving declining

Unknown Speaker

Thanks Okay. much. very

Operator

question comes Please Bank. go The Nishu ahead. from with Deutsche next Sood

Unknown Speaker

actually This the question. for is (XX:XX) Thanks for Hi. Tim on Nishu.

just guess, into regional digging I the margins there. So

XXX about up to came East So points around in the XX% basis quarter.

as a that into to? the we mentioned get how normalized bit range just can region to curious you So are point. of Steve, inflection positioned this an

inflection headroom we or So through levels? is your to past get How it? left that midway to (XX:XX) point just are curious, March much

Steven J. Hilton

there quite room have of the from of an run getting We other area expect South to are we yet. the to in not on the improvement But normal parts particularly. But, the the of continued are some see definitely, East that the margins. levels. a more to We're bit margins and still business

Hilla Sferruzza

there's be reason for not no normal. the to us to And in East margins the expect

company if expectation XX% should So to they're entire your for mid-XXs, there's be is around earning closer headway the XX%-ish, clearly XX%. which go. to something still They to

Unknown Speaker

Got it.

Now, that's helpful. very

guess, I well the on as – similar just So margin topic.

build. build. spec towards benefit lot mention the the guess, I a getting You more guys that from did you're the spec shift about

this the you could spec quarter? between regional the spread a different help So basis? and margins the in us that saw that build-to-order you margins Yeah. Was understand on

there any of details be would Just helpful. sort

Steven J. Hilton

that entry-level our There's in within margin build. no the only the because that's communities, segment we difference in way

for in build. be have that charge able premium our to difference argue to a And the houses-ready you no customers could margin. versus house months we to wait six should our So we there's to

in a they want see their But specs a think and margin to interest because to between in people I in rate we quicker don't lock build-to-order. rising want gap environment, rate. move

Unknown Speaker

the Great. Thanks time. for

Operator

next will Jade with The KBW. from question Rahmani be

Ryan Tomasello

question. Thanks This Jade. for actually for Ryan Thanks. is on taking the

Just pricing? in you terms are competition any costs or pullback based market, of the changes there increased slowing seeing sales, maybe and less land a perhaps home on construction in

Steven J. Hilton

seeing there's to it that But any ago. were markets, changed generally, they're But are It's a year that few hasn't it market-by-market, subtle. but maybe And much. not changes some buy a parcels opportunities very dramatic. more we're than

Ryan Tomasello

compares with your piece you of growth lines pace, how other and absorption Okay. terms rates? in LiVE.NOW. year-over-year product And quantify terms the in maybe of absolute can the

Phillippe Lord

is or we're to X. Yeah. Phillippe. And seeing the then, the we're per move-up move-up, LiVE.NOW. first above, when priced average, first On X. around product This is about In quarter month. XX we're our closer

the on company kind those average are So the of segments pace those for three absorption for

Ryan Tomasello

can maybe you basis, give year-over-year on a that rates? growth And

Phillippe Lord

LiVE.NOW., the On it's pretty steady.

For been move-up, first it's on bit, move-up, migrate the little first slower. it's seeing And then, the buyers a to second second increasing because move-up we're little a move-up.

Ryan Tomasello

for Thanks Great. questions. the taking

Operator

this At of a more we just questions left. you. Thank have couple time,

McCanless Next question Please with from will come Wedbush. ahead. go Jay

Jay McCanless

changed finally what stock A Steve, everyone. that. mind on morning, your surprise to buyback? Good the see pleasant Hey.

Steven J. Hilton

we cash the Our but a flow ability low now, to business. I stock excess and lot the expected the right generate price have be really confidence higher our stock. to of in of

investment to the next lot a it's a of I it are on price. our buying in several things be shareholders. confidence we the back And And have years to our shares We accretive good invest books. think stock where to doesn't seem reflected going. have And is in

it's time we the opportunity and right so the right And think now. right

Jay McCanless

line or to quick of then, either income And you from other What items like other Hilla, land year. to the back little leverage profit year. for up guidance to sale half are on get the earnings going to wondering the something from (XX:XX) Good. pre-tax expecting the in question there's the a guys for Just of what be SG&A in profit? there to make a of looks if bit some

Hilla Sferruzza

other anything really not either in forecasted There's land sales. or

the improvement, is some leverage see revenue. to material of to expecting the are volume highly We SG&A and correlated

units see the back some SG&A. So we'll leveraging as the of in the on year, the revenue half increase and

Jay McCanless

you close don't how then, labor I contract what how are or either it, had, where know times, us that's affecting not you terms the there, all in now your last looks guys any measure – question And or like wondering color to times. could availability from and cycle just affecting you of I if delivery give

Phillippe Lord

LiVE.NOW. we're all last again, Denver the In XX Yeah. another our and we've LiVE.NOW. of time product, year-over-year where communities. This there. first we've Phoenix, down big XX move-up on much around second our started LiVE.NOW. is seeing are cycle which products. reductions. cycle times we reduced to day story But we're or probably days a to just how probably year, pivoting somewhere to on is move-up again, much the a Depending depending it's Phillippe. on, probably because variables. those since times the cycle depending But than XX shorter have region, exposure

Hilla Sferruzza

in also, time LiVE.NOW., for ground, time becomes us over construction, the the it's repeatable are is on it's some an The that it's with bit stage in the a quicker. community easier ability turn one, then, And the little less; that and homes of your per when cycle of a a benefit. dual we're Number XX% nine volume to from coming specs to cycle product. so already less. product monitoring, metrics becomes much that is But build,

Jay McCanless

Okay. my That for question. Thanks great. sounds taking

Operator

question will go from BTIG. Please ahead. next with be Carl Reichardt Our

Carl E. Reichardt

Hey. Thanks.

most you're do three, and to LiVE.NOW. from traditional about looking at more to Sorry I obviously When ask know or year about you which and expect I'm product? about others. new curious buying so Steve. that the Arizona the bit high, that. see at the is significant mix wanted next in now We away looking regions product you're a towards already change land your the entry-level, pretty

Steven J. Hilton

we do more. in could do in We lot there. in we Houston. don't California. do We could a can Certainly, do lot a Well, in more very we've much more Colorado a LiVE.NOW., Austin, everywhere, Phoenix, We're of could in could still a more bit more. in We some we've for a a of Tucson. quite more entry-level bit Really, we lot do got to quite got lot In Texas, need looking Dallas. get but more. but have

pretty lot entire lot of it's So say for across broad-based in markets. there's opportunities But a of us country. a the I'd

Carl E. Reichardt

that next at And year, as say, total have dirt the significant of today, percentage over the course shift when the most mix let's a of deliveries? you looking supply be to that expect you do where

Steven J. Hilton

answer that. Think an you do about for Phillippe, that? have

Phillippe Lord

Yeah.

lot Florida and the going region. in buying South region you're see a entry-level we're dirt of think I to –

see to a going you're So big shift too. there, but Texas,

look land that's the grow need couple said. the that's to really that over do and the the we is. Steve business. quarters of our see percent bought what the all and when to strategy. at part just Just LiVE.NOW. think where That's opportunities right everywhere demand you We we last is what now as land we – And of

Carl E. Reichardt

Yeah.

Okay. And last one.

Let's XX% it you sell-in think it long you at say the as look it you big your guys long-term Where today? would the sort about of Where you're percentage future. picture of entry-level? would comfortable total XXX%? LiVE.NOW. business, peak-wise put term business a XX%, as of Is

Steven J. Hilton

least at potentially assess XX%. we view it's get we'll and at more. re-evaluate be it and And could Well, with least when say, them, how XX%, it's to it and XX% I'd doing we're but

Carl E. Reichardt

Okay.

Phillippe Lord

But move-up we our the very move-up in the part first they're segment strategy also, second sensitive other the think market. prices we buyers, rate of And also the strongest piece. the that's up. – second to is going interest All

So we think a in lot move-up that is first well. as of there buyer strength

markets And and there. we're those lot opportunity a there's that we so are our two after of think going

Carl E. Reichardt

high versus think some that a buyer percentage LIVE.NOW., is selling product there you Okay. of look that move-down – I'm sorry. percentage If Can I Is you at what first-time customer? going that well? as do that's customer buyer say just one to more? entry-level to that ask

Steven J. Hilton

the of baby XX are communities but nice buying buyers, probably somewhat those move-down third people as which it's as There's surprising, those is see. much – boomers, that are to

Carl E. Reichardt

so Thanks much. Great.

Steven J. Hilton

Thanks, Carl.

Operator

Alex Research Center. comes from The Barron Housing question with next

Alex Barron

the having the thinking for aggressively? about too trying four you of guys maintain Are the this by or direction that focused the type entry-level. Thanks, I you raising was of sites guys more particularly pace the in versus price buyer. maximize curious the pace are on and not to on to price how congrats move price

Steven J. Hilton

buyer. a than are a certainly buyers entry-level the Well, lot more move-up price-sensitive

as more certainly our pricing. be. to your overall, they with So really you need be getting But focused company, we're where a on to to have margins careful

get have gross X%, can bottom little We to (XX:XX). by to places provides give we of line that our in pace think our up we increasing So benefits that. bit certain a than better price. less the margin increase long-term

earnings driving versus we our grow the by pace. So business on price pretty can more focusing substantively of

for growth. it And course, We're right not, year, we margins. time, we I year the doing. think, expect what at And full to we're still now. get need the for Of get want but or, push to the same I up, X% our better that's X% to to if more

Hilla Sferruzza

entry-level Phillippe – our that pace Alex, sales is in the same. last year pace about this mentioned earlier And, the year versus

breathing a on give where design FHA be underwrite allow And seeing is still increases. the for some by big we we that the So below are to pullback entry-level push room even of though able to we're pricing, buyer. a limit, communities to pricing these part ourselves not we some

the increases, FHA it an under limit, still price despite So extremely offering. we're affordable making

Alex Barron

maybe feel versus more guys to through it. land curious attracts I I other land And Got merit seeing you. it Thank some labor, are regards Obviously, so guess, some second some is bigger, and there's M&A. just question, my interest in you any it whether private organically acquiring in I'm acquisition. your forth. with opportunities, builders guess, other to grow because on or thoughts continuing being attracts

Steven J. Hilton

markets, certainly last eyes eyes and to (XX:XX). we open can market open keep some our opportunities our it to end every said of also some And already to markets count in. primary certain be Our opportunities I've quarters, But on it new opportunities our keeping we're on lot as – lot market And going quarter. acquisition but we where eyes as that not we're open our market well. certainly to can several share in grow are a to if But it's we're those. focus, having the eyes and in we builders find the some open. under have our grow always tuck we're our

Alex Barron

right. of luck, Thank All you. Steve. Best Yes.

Steven J. Hilton

that's question for Alex. today. you, I And believe last Thank our

Meritage. our we very Thank So for And Have quarter. much. great the I forward talking Appreciate you up next we're being and to everybody think second on call going a to in to call wrap look day. here. our you support quarter

Operator

today's presentation. Thank you, you conference for Thank now The concluded. is sir. attending

may You disconnect. now