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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.
Elad Hillman JPMorgan Securities LLC
Stephen Kim Evercore ISI
John Lovallo Bank of America Merrill Lynch
Paul Przybylski Wells Fargo Securities LLC
Timothy Daley Deutsche Bank Securities, Inc.
Alan Ratner Zelman & Associates
Ivy Lynne Zelman Zelman & Associates
Susan Maklari Credit Suisse Securities (NYSE:USA) LLC
Ryan Tomasello Keefe, Bruyette & Woods, Inc.
Carl E. Reichardt BTIG LLC
Scott Schrier Citigroup Global Markets, Inc.
Jay McCanless Wedbush Securities, Inc.
Alex Barron Housing Research Center LLC
Call transcript
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Operator

Good morning and welcome to the Meritage Homes Third Quarter 2018 Analyst Conference 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, Vice President, Investor Relations. ahead go Please

Brent A. Anderson

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

about replay available conclude website and and Steve to it turn the will an hour remain approximately I'll an our be hour results. a approximately it Steve? on two to call now expect within quarter third will over our active for to review weeks. We afterwards

Steven J. Hilton

arrows peers in I'd in initial Brent. the report thanking the off like of my some before of you, slings some that Thank and to by were market. who recent we initially for taking the start shift expecting of us light

we're this going and try fun to light keep to today. So,

begin on to couple shift So, I'm a market some Slide a strategic conditions. recent then few years of review highlights quarter, the X. with the start into of our off on progress and entered we ago, going I'll discuss finally

we had good earnings. delivered First, last earnings in pre-tax QX. and over We growth double-digit closing another year of quarter

associated over increased home we closing statutory which to performance our hold a income increases with the the increased closings higher to gross this with earlier and leverage our XX%, year, in significant and XX% due total were grew rate later. in headwinds, conversion from home improved earnings strategy. tax year, an more despite steady and lower Pre-tax benefiting year. margin growth able will the increased overhead cost detail Hilla earnings discuss South XX% net backlog took closing Our in the entry-level Combining last we primarily price

were As to earnings per a result, diluted share XX% which value increased year-over-year up our book per share ending $XX.XX.

East points on in gains closing with margin The greatly XXX revenue those greater the to narrowed year. over XX% implemented we success. the initiatives more couple mostly gap which we contributed have basis contributed region quarter, the result our significantly to some home of between generated those recognize of improvements last East last which that self-help other want have to the who Second, third measures were strategic year-over-year Those of closings year-over-year, closings gross in and our the employees and our years regions. two improved as those XX% one

Slide to turn I'll Now, X.

The Third higher We the baby compared namely during total move-up importantly, also of homes into this third quarter the a and last for represented our not of the orders our at as active Consistent group a sold continuing They've and much communities the the buyers pace the the in the investment, homes, third our only move-up we market boomers, when second-time than higher over significant opened we increase XX% to move-up than XXXX. much quarters, exit most of contract of Entry-level believe homes. than entry-level Meritage our the lots positions margins and communities to XX% a quarter, slightly move-up the first stores. strategic in largest quarter, entry-level address on made demand the millennials our long-term, move-up communities entry-level XX% of We entry-level our and continued in point new homes. for focused exclusively home out starting were put with of higher total tougher affordable markets. half our luxury but total we absorption orders of and the XX% over communities new approximately and of were outperform continue for market. during our total more communities our quarter, expansion to entry-level under several XX opened XXXX, entry-level the up homes. our

were closings spec entry-level just mostly our most the a from our We're building on of quarter under spec basis of in half third inventory. communities. in As expected,

last backlog the recent third Our demand. X% year's softening down quarter's lower than year-over-year, were X% reflecting in was our market and

and trends. this home Employment wages are the economic homes. single-family especially long-term look entry-level consumer high and is to believe are certain, inventories for based outlook While the of on market less the low, continues short-term still affordable high, growing, outlook demographics makes the we confidence is positive be housing

we've Our first last have strategic price higher the strategy for these entry-level for purchasing shift pivoting We demand aggressively couple is time direction. market focus that for and been of the well-positioned land the right long-term are and affordable been and the market to at of markets more us to confident we move-up points more that this anticipated shift slowing as the the and end that years. believe is for Meritage continues

operational choppy several as insights additional adjust the quarters Phillippe? next Phillippe to may interest turn over our expectations However, some it for our buyers for now their rates. for I'll industry be performance. into

Phillippe Lord

what would our that and expect in our We can existing they we our more afford masked seeing trends, the in X, shift believe trends, positive third be well have operational home. their selling overall impact from as outlook saw the as our which order otherwise can they order over and Steve. market that reflected X% of adjusted I'll order reported decline traffic plans at address and third were the though the prices last of at interest in quarter. third have to we home the they as conditions end the you, an impact a We become the the challenging quarter others months. cancellation quarter couple reflected year-over-year, already, have market. entry-level encouraged of up Thank were level. combination and and quarter spiked as hesitating what both decline higher normal rates, Slide buyers Despite of gross orders orders, seasonality,

qualify XX% Our lowest move-down some and an selling to for credit of this third indicating uncertainty from inability XX% home as move-up for increased quarter as more to buyers cancellation rate year and in buyers' in levels delays buyers. XXXX, well existing

some in and We disruptions the had also weather Hurricane from Texas. weather-related Florence in unseasonably Carolinas wet

decline average from fast orders X.X our higher entry-level last third of in in the decrease the sales in weeks The which evident do, to of to were quarter of we XX% after XX% which Florence the Hurricane so The of our absorption in and in slowing to for the Carolina, aftermath. didn't being the year active communities. average in community ago region cancellation orders We in expected year about as increase due notably communities than to absorption part up year-over-year was which our declined quarter price community, Slide to our we we greater per quarter X.X preparations South in did a to We North limited of was lost and communities masked due responsible portion the out store. became our average orders see the a quarter. $XXX,XXX communities $XXX,XXX forecasted. a sell of our California order count was decline of count. for was the pace move-up entry-level operations higher community as East sales volume approximately and our were compared year. X% orders reduced average a in third a volume and per declines XXXX last our two community activity and down higher X, quarter Slower X% during number per this compared up

buyer weren't at price a move-up strongest broad-based only points are communities San in we few entry-level saw performer. as spot same entry-level market. about communities East, to We've able Slide in the Atlanta. Dallas we they in with move-up the are and based But, across X, degree points and other slowing our the Slide to Houston as to continued sell entry-level higher orders the orders sweet extent in to price Additionally, higher offset Antonio which in the region encountered regions. more the to declines be some is our in moving X, to communities a our quarter the more continued at Austin With with of our Central recently. in predominantly some buyers well our region

slight order decline West here in our decline affordability company community Central in the per Colorado the our remain California rising we were third average solid count pace average market the highest Our X% very the been and highest in region our we community Despite year's XX% demographics produced compared well entry-level in presence orders X% orders the as economic for year-over-year, year-to-date. quarter our and local the community absorption rates a a last X% due as our than to has market in reflecting decline Arizona softening and in quarter. in absorptions, a trends. to interest positive increase Slide challenges. X, offset average from value down and for region more

Our long-term positive at price very September, increase the saw an though outlook higher in cancellations for in mostly remains points. we market

to to recently new to affordable more expect over information. and solid have cash our from introduced there. it I'll performance provide Hilla Hilla? We flags products hand now see additional some entry-level

Hilla Sferruzza

XXXX. this the to for third benefit compared of closing quarter a we've decided XX.X% wasn't guidance. This well otherwise share. the impacted several at margin on slide pickup for year our of SG&A seen Beginning third closing and revenue impacted at year. years our highly-inflated of in that XX.X% metric. levels home XX home flat That closing and tail XX.X%, lumber charge to to will in the balance XX% the begin it percentage into for from these XXXX we We was Thank included end relatively as roll incurred provide with as down Phillippe. current EPS of associated to gross technology pricing the but sheet second California quarter BPs some write-off covering Total We the approximately quarter to most our with XX decided due also some for and entered get SG&A million been details have was entry-level reconfiguration our The expenses to third the charge relief centers. $X.X from XX, the I'll quarter of with into some consistent strategy. XXXX. margin on was sales for you, BPs since our $X.XX move-up impact margin assets came the on healthcare in total charge a out rising true-up to ago, purchase per new our of XXXX. P&L studios line of which additional insurance third land and our of quarter our accelerate by in our XXXX by and The terminate as in home the our also diluted approximately design did costs would closing that agreement reserves

Our gross XXXX, year-to-date the months first over XX% year year-to-date improved diluted net volume, of tax the closing EPS are XX% lower XXXX up rate. and for last and earnings year-over-year reflecting margins nine up higher was

Slide the on to Turning sheet came debt-to-cap flow to September net XX.X% balance the and ratio at items cash XX, end from XXXX. XXXX XX, XX.X% our of down at

$XX.X reinvest the recent market in or current We debt we conditions it and to our comfortable XXX,XXX more excess average the million target as repurchases We may to than used repurchase quarter. are our equity $XX.XX the this either $XXX planning to below choose temporary. million pause is dropping cash authorization at quarter. share if approximately and in in pullback as the market an purchases into evaluate And redeploy of we're of per stabilize retire shares repurchase third purchase low-XX%s share additional and price the land

our the Total We to last and forward benefits million EPS third spend compared expect of XXXX to was basis. million $XXX see land development $XXX a on approximately quarter. in in the quarter to year's third go

first our last land than year. million less total spending and the months is XXXX, five approximately of For development $XXX

are quarter. strategy up and still more longer positions are terminated in being that land we that tying actively underwriting, our added have control We lots XXXX are no although new were approximately zones. with conservative low-price the We XX% land in our aligned point X,XXX entry-level the of added XXXX strategy. our were year-to-date for under lots during we've control fits for under

approximately lot Based increased revenue weeks our XXXX by owned September into about September September orders to at XX,XXX of homes as That's compared this total to our $X.XXX X% closing XX% translated to closing first to of Our at approximately closing with inventory, lot year We X.X-year third supply billion growth option projections of $X.XXX full-year X% total under the XX, on quarter, our our trailing supply for supply roughly homes we're few about X,XXX billion. adjusting of lots with XXXX. in XXXX. home XX. on XXXX. XX-month contractor remainder That in X.X-year based October, over XX XX, total homes, X,XXX lots. Slide to the softer about the X,XXX to year-over-year

in net the for effect to We $XXX to roughly full home percent compared expectations last pre-tax of for of are and full those reduced XX% reduces year revisions pressures our be XX.X%, potential to to margins closing expectations earnings also slightly The anticipation year. price gross about million for adjusting our the year's $XXX million leverage.

effective Our to remain the XXXX. expected XX% it I'll tax With at rate Steve. back balance for that, turn is to over of

Steven J. Hilton

the dynamics earnings year rates appropriate a to Homes. more pleased long-term on the growth the will only been rate rates over confident interest you, for this affordable it rise; we X% strategy Hilla. and summary, as In we've well-positioned community of delivered are to Operator? we believe is for open Thank with Meritage We've the intensify the in mind us these the market for with of support the new providing have we've evaluated long-term. and had market will positions. instructions. the we so your questions, interest operator Thank up X% are well shortage focus will now price two far that as We'll the and the for band you serve remind market expecting homes. single be years we cycles, We've We're shortage. interest pivoting our to been the in homes. down of for affordable given and believe family this place best be Rising our

Operator

Thank you, sir.

begin We now question-and-answer will the session.

Please first with Michael The question from Rehaut go ahead. be will JPMorgan.

Elad Hillman

Hi. on Good This morning. Mike. for is Elad

mentioned XQ think, to be year. to and versus XX% rate cancellation You the I ended that Would it that increased, by quarter? where provide you month, XX% last able

Steven J. Hilton

the end quarter that can't it we at give by but did up month, No, XX%.

Elad Hillman

a average that quarter-end over kind is the or the number that Was Okay. quarter? of

Steven J. Hilton

than over in That's was it a quarter September. the little the average probably but higher that

Elad Hillman

for you far and the on in also you October? you. then that progress those of Thank just year-on-year seen what month-to-month, secondly, a kind throughout have did months, how provide then And so sales quarter, maybe Great. could Okay. pace and

Steven J. Hilton

in whole year. can July, were later in We So, part was and soft the off then weekends that week, prior double-digit the month, A you for you And numbers, September. the in we in a took had cancellations down August July we comp. weaker lot I week. without was July coming popped the the tell more fourth were of the weak, then far. first the July two But the specific soft. increase later pretty so down of from which But been the has in of giving in we people entire sales middle we our But month, October things was a slowed had a September, so in had again August September. back. good year-over-year had of

been traffic tell we held can have October, you weeks pretty few in soft. have still first the So, another our weekend really has up well. I left but

Our year traffic in places. up and even line is in some slightly with last

believe just buying bit prices a rates. homes, they're to question digest are we of longer that taking not are make it's to of new pause higher whether taking We people they these and and in interested a they that higher are. decisions think So, a

Elad Hillman

thank Okay, you.

Operator

Kim go The with question comes next Evercore from Please ISI. Stephen ahead.

Stephen Kim

On just a to went like Yes, that your but it on a typically thanks your very of guys. up took. your this And you backlog necessarily orders backlog we not percentage cancels, the because as backlog, much, of basis, that it's very cancellations rate not look issue, much. at percentage can on

So commentary out. that was see obviously suggested I you worth wondering, calling was but did your something

or and on other Was can folks sales? you So any Was of folks with put and what can had doing I buyers kinds who kind the the what contingent were there's I just perspective rate? you entry-level simply of this more could provide kinds of was if on rates afford, communities perspective some couldn't if this move guess, wondering more qualitative cancelling? the higher-end

Steven J. Hilton

didn't when bucket people the particular From we've the one to couldn't it wasn't canceling in from was is towards our of talked because they the People people now rate to move-up. not any We home a more but buy. exit canceled generally heard and they hadn't the would interest they we've time about a home backlog lot sold and them the It of going it were be qualify. to just they're tilt what higher concerned buyer's felt their interest say survey, in they I'd see good maybe versus their it cancel group, remorse. fell current on what's rate, some or of that have

we to lot to at So backlog. throw people a and try didn't the of keep in them incentives –

it's think I a factor qualification a So, psychological more than of more situation.

Stephen Kim

where incentive actually the actually really I going and that's Okay. to next. about important That's comment go was

we the mortgage incentives pull some in through and away builders through the company the or so lever So and imagine to move so first options protect to ASP. general, increasing giving as forth

or your where would entry-level in more You've what right was to about? incentivize I is pivot cause to a anything to is comment to you incentivizing? have been on that far you the October, you're now, you you recently as moving otherwise that offering have shifts because more difficult know a would seen hold as And strong curious whether could have, off contemplating you've in part strategy a incentives with driven was that decision to there standardized should in that standardized obviously as maybe is element given communities that to so much to and not entry-level product, different your offer there make you any we more could to your it

Steven J. Hilton

across year incentives Well communities most of – that had on will with don't XMU done the have but I'd (XX:XX) we a we've primarily our stronger communities this the fit increased that builders all, strategy. same we've on homes our those done as close and board, say incentives say that spec in I'd increasing focus have first and

aren't segment, like more niche, that incentives. that shift So, to we've offered our in and accelerate to more that assets those quite entry-level in we'd so

market to we feeling a those bit the on our and clearly as we're homes. to increased sell have Although away feel have entry-level, don't is incentives better give like we that much

Stephen Kim

Okay.

So have you don't to as incentivize much?

Steven J. Hilton

price of are give incentive a certainly But to right give there's a now entry-level don't there. degree, to incentive because have we point, that the we have to misinformation. at lot Well, as little much more reporting more the so demand newspapers

Hilla Sferruzza

looking incentives communities, there's by holding targeted massive that based And offering not other really certainly incentives. we're but don't on do community at clarify, on on closings are discounting and to we're and strategic, some just the review up very that possible our every builders It's same. specs what's market Steven of a community well and QX need one occurring doing. across-the-board no we're in we're seeing And, additional thankfully

Steven J. Hilton

that, underline I just by market. is mean Yes, Yes. it market

much it's have markets all lot priced, the think Certainly We others less than more most higher what the affordable are. those markets are of that a certain and require less challenging widely are and reported incentives been I markets markets. stable

Stephen Kim

Got it. Thanks very much.

sensible. very Sounds

Steven J. Hilton

Thank Steven. you,

Operator

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

John Lovallo

if cost I go on in continuing near-term the prices real confidence home, and well. In these Hey, I to buyer, you needing consider for more maybe top having mean on getting questions by my horizon, words, would what need-based somewhat would or guys a more you a taking rates going buyer a less rates? up buy the little a feel, do of millennials kind And go to less space. think goes with bit, of remain married, mean if give guys. they're or that's sell you as they give Thanks just nature, they buyers no go don't home, strong? interest up When relief in buy specifically, And about think would maybe not being kind rates maybe what that you this little that to fact to confidence children you is if the going how them need home. first-time up, of to but supply of bit that, up the other influenced be you

Steven J. Hilton

an before time them. the these and children living a been I rate, going have for focused parents' And on going on the interest just much buy of they're so the their they're or that lot longer up for move time, suburbs they the period long payment to have a a they're and a focused get generations that of home they're and assessment millennials once home of think not generation renting buy plan period like time is, in longer what Well, below. them, to have accurate to before that's really just than married, but they for to a

and have a many have plan We got two. when up plans higher, we have bedroom to like line And we reason six that because rates square to there's generally at smallest eight that's footage. we footage a interest in do or down our are four just they plans, the move the larger square

forth So, rates. I interest back move the think upon we and band based on that

John Lovallo

me. Yes. makes tremendous That to amount a sense of

Okay. called efficiencies entry-level was of the which And you the then in the this slightly I was than were entry-level the called margins, this you that move-up guys me. process on the was just partly move-up interesting out higher this incentives kind due build to product? higher I mean believe better or margins to out, on

Steven J. Hilton

build; incentives. which build trade probably is the most a or just that for like stronger efficient. us is mentioned, doesn't on but pound reasons. But we're and contractors much it's us do basis, it able a for to you of build pound more that is a and lower better our it cost to per mean of to to product, us it as more for importantly efficient some It's those demand I allows for lot require

those we get a to So for little all margin. bit are able reasons, better

John Lovallo

Yes. encouraging. That's really guys. Thanks

Steven J. Hilton

you. Thank

Operator

East Please ahead. Wells Stephen from Fargo. of Our go will question be next

Paul Przybylski

correct focused I of wrong, is I price that hearing versus on am if actually for on Przybylski and your I year? but Stephen. it incentives this for on guess spec I'm This of guess you're given pace me your end lack incenting the Yes. still backlog Paul focus on correctly

Steven J. Hilton

quarter, focused third I'd than price through Well, say on the pace. more were certainly we

we but We got into to pace. farm rotate get not get give some to the price. have get to pace. going we to As fourth we quarter, away, We're the still want

our we're is that. homes incentives for on spec year for and this deliver so And running that that reason, can we increasing out time

finish then into if back be left able few selling buy a we're won't spec, weeks next we to and time. Even to going year. have We a be you in

all builders that we're as our these to get books. year finish and trying off just off done strong the homes So doing, are are

Paul Przybylski

is your the what you for gross on color quarter? margin this the versus company end Any reported backlog and what at

Steven J. Hilton

pretty it's close same. think the I to

Hilla Sferruzza

a quarter. is, expecting not we year. of deterioration We're have coming strong the numbers the throughout Part that into

QX also volumes. this We incremental leverage have in higher on

of the a guidance, math XX%-ish did kind in little do little at what and in than to or to get QX bit come that full-year the we have numbers If better bit – QX. you a

Paul Przybylski

Okay. you and and entry-level you for luxury? move-up with guess how your move do first completely I think it offering to completely to be base will move-up, long done take second and

Steven J. Hilton

and next at be year, pretty be Well, the to more a going it into next we'll projects. that will tied communities be much the later end that land we're of focus are end of that stragglers target But it think can we're of next most the of XXXX. all but up will XMU desirable positions that of are that then go into and really trying And XMU to and looking the really our about we get will irrelevant an face and we end of of XX% tailwind course by At as maybe buyer. few little be year, getting become of think end XX% more XMU when brand a at XXXX, we market, of going of we're of contracts year. have the land really the closer a in we're with communities maybe I have XMU. By another the lower XX%, out we'll we to about end or be this entry-level bracket the more the the affordable, XX% higher so. year, By that the really the on on number

Paul Przybylski

Thank you.

Steven J. Hilton

Thanks.

Operator

Please next will Nishu Deutsche question from Sood with Our go be Bank. ahead.

Timothy Daley

actually Daley is Nishu. this for Tim time. for the Hi, on Thanks

remarks is, regarding prepared several to with in thinking kind going should saw buybacks on as following style going guess, to years statement and in this are more the from be how attacking about Steve, share this clearly it it, we of the call question the of the But first was the done telegraphed interpret buybacks then just the quarter I structured my So opportunistic, move? authorization. buybacks be first or program discussion you -- the And more is this press a a there? release last

Steven J. Hilton

both; for Certainly to Well, prices, sort structured of I think it's us. these now. attractive it's at it's

We we we and into to see we'll continue to And million that. are. execute going have on $XXX where as year, authorization then next we're go

when a actually September went into a Certainly it up coming we blackout was about in November. period have stock which talking be We XX. have but meeting there, we board to we'll back buying stop

So, were prices then, and all we market since clearly are we'll to bought XX the shares here the can. get we since September prior into and back lower the

Timothy Daley

Understood. Thanks question. and I then second for guess the the color.

you -- to from move-up SG&A headwinds centers was well the the design the quarter entry-level So Hilla, improvement of the technology as it in as in reconfiguration I I the this the the mentioned sales centers. guess, think

more reversal the that can time. on So, -- these of guess or changes? quarter? a us just headwind bit kind as Thanks of you the color then any guys if this provide can for you And I you some well quantified for benefit

Hilla Sferruzza

Sure.

up. at a we we've previously the up change think about first how in move talked sell I doing we're time So, options that it

get So technology to that we need changes order do in some physical up process rolling. there's and to new that and

underway. is that So

behind additional in new new I mitigated into at process with level into entry-level country, our a the going be XXXX. going so have upgrades that's XXXX. through leveraging cost rollout see rolling SG&A and on into do able done QX pretty sales that some our and we're much we're then to and technology will rest to We're of divisions and continue We of couple think us. the more a completed already of of the although rolling communities,

Timothy Daley

you. thank Okay,

Operator

Zelman question with Ratner be & from Next will Alan Associates.

Alan Ratner

Thanks Hey, guys. Good my morning. for question. taking

has sales So, But, year-end Slide to entry-level. bit down reading I year-over-year October increasing you up your XX%, lot up seems alluded look in like if like had but completed big the I'm X% some absorptions incentives October. with in it I at sound calculating Steve, to really of step-up here, And lines, increase. a little XX, you know still sales I do a to almost here, a shift little which that specs to about a are doesn't the specs the big with know a it and pace between in bit are maybe get your

that concerning are point adjusting even it is doing increase? else in with level to the kind that start something an or schedules construction of what So, And does at either become or that your at number, target you? to opinion anything optimal really number you just

Steven J. Hilton

Well.

new specs. do just a know, you really big As start can We impact on to we Alan, any something simple that. don't have

So...

Alan Ratner

getting Right. that there. was adjusting really Is That's I right that now? something what you're at

Steven J. Hilton

we're Well, in not this every were that doing and absolutely. mean, month. I at a vacuum week, every we looking

started a be won't So, can there communities. specs in you, of promise lot level hell I non-entry October in

and we're we we close the the there, comfortable number. and can managing think have on not feel focused very We a strategy that. enough this little we're it's a close, with, here yes, So, with an sell too that year, inventory appropriate impact we on but to could maybe have we have amount, to we comfortable bottom line, and that have much and

has our presence are a and they peers, way steadily up to away. and think we entry continuing buyers rate conversion a in that's a Horton be because a months rise, has excited sell about that's bit have those and right Lennar six risen with move of to going ours level interest home have, to segment. than for a homes, versus would the to buyer rate I conversion rates move higher like that don't up you you of to significantly the And new lot waiting and know have moved stronger some even that like have Our quite builders those in

long-term. So us strategy this over will I the think benefit

Hilla Sferruzza

then And level space just to a Alan, specs month's supply targeted number clarify is for that function a have of each of of sales. entry the community at the we

sales if with tick for new are down our ticking is calendar down, to specs naturally start So, it. going when to

starts. So we're week's monitoring every new that

Alan Ratner

to system flow from aggressive specs a new that just in on But sales start ground. take there. every sales adjusting we to builders, of and pace the to that a in optimal? going would adjusting the on the side, say the put through impacts are you dynamic order pricing pricing, that is your Because little day, how spec mechanism pricing obviously how that some you starts the actually changing keep level I – on are – guess bit actually hear you while based other Hilla, So

Hilla Sferruzza

sure, For that's a fair point.

I in the think most strong out the that specs as close year we that will as as currently. just in close mentioned and specs Steve aggressive incentives to the out company certainly We're specs before, QX possible are can QX. close in the in natural looking have

by on are We monitoring basis. community a community

Alan Ratner

the question that. of cetera, curious your level, et at you've any closings, of I the are further in sensitivity to buyers a your with analysis little shift buyers appreciate if second I I prone to rates, would obviously entry if I backlog kind trying on these just imagine. get are to because am affordability be issues, some and And to your could, moves Okay. there run more if bit to going

closings stress So, points might were your the income determine be say on basis what current if XXX fallout have based to another up profiles? go let's backlog you the XX, tested to or rates

Steven J. Hilton

that now But the and people selling their cycle, form to in on they segment housing last if believe We're which doing higher in that they past overall right wanted underleveraged communities compared actually higher that the are both In that more the and And We're could spend segment, ago, that cycles, homes in now. doing if to can though up a communities to we payment to. of years chose, buyers at money entry yet. they if at new XX the compared have a we've even pipeline stressed, we but we're in that it's still those interest on really we to today, the we're and eye no a data they are they looking keeping don't afford this the and see speak, they higher at in that. were time DTIs close all right a remember been had we our to and as had think and rate. I different buyers buying look payment, room vividly, all afford that completely level do have we move back

Hilla Sferruzza

And Alan just one more...

Ivy Lynne Zelman

Ivy, jump there, in to Steve. sorry, Steve wanted it's Okay, just guys, –

utilizing If percent FHA what you product affordable lending those are offerings us can criteria? tell in your of buyers

Steven J. Hilton

have Hilla, that? can that. I tell you you

Hilla Sferruzza

think I about Yes, it's XX%.

think So, as actually. much you it's not as

Steven J. Hilton

Yes.

Hilla Sferruzza

incentive So, it's they're buyer we stress as looking in the where your one it pool. target dollars the Alan, certainly the point, always interest top. we're buy this buyer at – off another incentives we're And ability the to that's more lever the we're offering into rate if that pull just can to only of they type point, clarify finding cohort are is the that we're utilizing can, that but – with that they're not rate, incentives, not qualify customer. the that to attracting or not downs

Alan Ratner

guys. All it. Thanks, right. Got

Operator

Suisse. The (USA) demand the of next can question Credit to is guess or from will that? from morning. trajectory LLC Good perspective. significant with any there change there question East be the Securities Suisse think Maklari more go that trends and I gap - demand a margin sort Susan realize, ahead. how the Credit of current of progress made first you Susan around, expected does you. in Maklari the continuing Thank much you Please the you My region, is close

Steven J. Hilton

it's significantly we feel Florida we're both five other than of continues – way California are margin although We incentives precisely down there the rest particularly priced are than East meaningful Atlanta very is, and that. South can't markets and there, in say and than a is high our like they no absorption, can business and more bit a But we're Orlando. Florida opportunity we you seem markets. we're a of in hear to I be for in the South but bigger we not on I'd but lot demand tell the Colorado. you good. and challenges manageable in pretty divisions and much certainly in little our probably in situation the I some Well, quantify don't the there more country, the how in to in better Tampa seeing different more little to of have still the there region focused improve more, in is in

Hilla Sferruzza

(XX:XX). Susan Suisse - Credit LLC (USA) Maklari Okay. Securities

Hilla Sferruzza

just a Sorry, correction. quick

So total. we're FHA under XX% buyer

a level, then For XX%, - it more Susan in higher on Suisse little bit bit It's little second color the your remarks us to than Okay. the that. a mentioned division. is ticks Credit give just question approach you underwriting. just my Securities the LLC And Maklari XX% Can depending a conservative around, in entry are (USA) land your taking that that? around you you more

Steven J. Hilton

– about of the out product velocity they deals today pricing that at have the in those I a out away impact margin we're looking our maybe purchase. we're mean, we're longer on margins more emphasis capital, and ROA that that bit. deals thinking to shying some quarter the of how that the from markets. there I how the require higher we're and up incentives on and we're are little requirement think some putting of our run that and probably fourth We're option impact under in and Certainly a and deals ratcheting certain deals, contract

bring land We're So also do we – to next back approach. we're spend debt have down and stock want potentially XXXX we into also because taking we want a buy available other more as pay down our go to things. liquidity conservative and year to to

So Securities Credit we'll committing buying just - we're what to. Okay. Susan on be more conservative and Maklari LLC Thank you. (USA) Suisse

Steven J. Hilton

Thank you.

Operator

comes next Rahmani question The Jade KBW. from with

Ryan Tomasello

on This morning. is Good actually Ryan for Jade. Tomasello

changes question, or that that competition off the piggybacking you're wondering pricing you're maybe seeing your market was any Just seeing, notwithstanding in based on of land underwriting? if

Steven J. Hilton

yet. Not

Ryan Tomasello

you a can to market color any from varying other market or that market give on is basis? there And

Steven J. Hilton

I'd any hasn't change in there board, say it's any been that's the across markets really notable.

Ryan Tomasello

on wondering in thoughts and the aspects of was And I if solutions various then, expected process? construction you home on Okay. margins, given near-term your give of off-side for pressures updated just can fabrication pricing terms the pre-construction

Steven J. Hilton

in a pre-cutting things shift. more the of of there opportunity but that lot into componentized houses waste a that Lot eliminate really to of if few that site. labor, job ideas, the is panelizing drywall yet where items built and think pre-cut next and a get factory great talk, going in a we lot that that believe to going go and really a in out way completely area. see I to home we're that's the the fruition could to give framing pre-cuts area, to in We still delivered is modulized we paradigm we think nothing's a place long There's that home don't really happening come on we from and have other in years.

really more we're and efficient and process efficient make new reduce a So, customers, on of we and our marketing the home purchase deliver sales eyes the home. open keeping more and of can a technology-based the their to how cost also process focused can we're our sales how we existing

Ryan Tomasello

the Great. color. Thanks for

Operator

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

Carl E. Reichardt

Thanks. Hi, guys.

question, wanted spend land my move up but I to you the answered lots. ask You about

want maybe thinking XX months to at looking XX make months. second to I to clear under right to think XX% time to the XX sort lots of up. XX% were too in XX expectation lots not your sure control for the of months ago I just next course designed we're through really long that of months, in is move that I'm those

point I'm your particular expectation price you're how not giving next on that slowish but if what's so I And XXXX, might margins guidance on business impact continues curious, year? be that know to in

Steven J. Hilton

We'll early too to tell It's you next tell. quarter.

Carl E. Reichardt

Okay. idea here, period? to of and controlled process want clarify, ASAP that is is lots through to I'm XX% work to XX% that them the the that But you right just it through

Steven J. Hilton

Yes.

Carl E. Reichardt

Thanks, Okay. Steve. All right.

Steven J. Hilton

Yes.

Operator

The will Please from Citi. with be next Schrier ahead. question Scott go

Scott Schrier

now price you're quarter down, the your community what I'm margin like-for-like like now in be? improving about pricing pretty the might in due in looks terms pushing ASP margin of Arizona curious Arizona talked to Arizona? in Hi. there. what And morning. Good it the from Last count's thinking is up hard, trajectory you what's West in

Steven J. Hilton

has to on mean be earlier, I and Arizona. not continues relatively guidance margin we're say specs year. one been getting our any a now. the to have strong dropped give right Arizona as substantially going said also communities in increased margins you entry-level Arizona as even I'm I'd I quite mean in saw the Yes. our California again we country, particularly on few. But of in our we lot community have has I a action across that our last which of over challenges count our

quite direction of We in other and were QX in few start California. the price point. opening communities that at in most level entry them going we're a And expect to

be desirable will So we QX help the think Coast think we're and to satisfy homes affordable in – to that some over hopefully to West deliver out California able I QX going into position. rebalance and market there our our

Hilla Sferruzza

for by We look the provide the can by margins the next week region. state, early but you filling guidance XX-Q don't of see and then

Steven J. Hilton

Yes.

Scott Schrier

then And ramp looking you community little a Texas. strong count absorptions mean Great. obviously about are count up still I I if spend, in did when there, bit. that think Texas, land really community to looking your But you're at

Steven J. Hilton

grow our mean to are Modestly continue to I level open business our there. entry so. eyes

Antonio. We have is oriented get deeper and of so we're too but business the the band much up we We'll down place on in -- let very definitely price business. Dallas where Houston, San strong in side entry move Houston the in level Austin

really to focused we year entry market level are we lot on doing that working last XX So months. on we been have the have of we to and opening and need down communities that a get for there

Scott Schrier

you. thank Great,

Operator

The next question is from Jay McCanless with Wedbush.

Jay McCanless

morning, Good everyone.

the of negative the basis and in existing seeing talk moving those what on the in periods had a that move-up several homes outsized has of should I that look rate the seeing both where a when Meredith we've markets of reason year-over-year inventories type business, maybe activity your First field pickup sequential lines impact seen decreases. cancellation is seeing we're we had, an the you're and inventories a be move-up you seeing that question on sequential the along in you're about Can side? at on for operates increase up you in sale

Steven J. Hilton

Clearly, level buyers, the calculation when inventory rises, there's right. less

homes whether people are are more higher and home it's X% it's is of they homes well got of more existing today, because interest rates. their X.X% saying, move-up decision. or of looking is people a less new home home rate there's a or at choice, So used more and Entry-level need here. interest Move-up homes buying of elected I

this buy a stay I are somewhat new at electing put. price they in a to and So home X% rate higher

what been not we've And talking about over flash. even in previous certainly about summer so that's been talking people and news the That's quarters.

do So, making the the to think that's market why going to market's part better. and we're entry-level that why of shift we

Jay McCanless

so, that. guys come now acquisition on a to make basis, Are level? into on where sequentially follow that entry for seeing shift an an Okay. to any that are And starting the maybe land year-over-year opportunity if does open and you second either you to up accelerate prices and question down markets

Steven J. Hilton

in we hit change any couple moment, quarters, That sellers' over haven't has we across that country No, the any may nothing seen the of the the before, markets. next change land in but really changed. at disposition

Jay McCanless

Okay. Thank you.

Operator

in and with At this Please go question time, question Center. we Alex further Research have that the from queue one question ahead. Barron comes Housing

Alex Barron

now? guys. you or closing do form rate you prices, so costs have comment could best you was right wondering working offering feel Thanks, or if for far, that cutting even more broker anything worked raising for on incentives I what feel or commissions downs you is of buy like

Steven J. Hilton

now, around selling to the buy-downs the three. it's quarter, been of as homes center. a generally it's we've incentives use more and the more We to cost people combination can traditionally, closing and just spec selling rate design and in suites. But Well, we build offer fourth that price, particularly at lowering shifted

We have a increased of offered commissions. not lot

our how we've limited sure competitors not of incentives on kind and really very changed. we're use basis, strategy effective but a the the using nothing do it that before it occasionally. has of We that of toolkit Some is, used same

Alex Barron

the And it. the doing it you're Got reduce starting to to so but in the just like spec in level, entry specs starts? more move-up, are confirm, still guys you sounds same

Steven J. Hilton

month houses weekly month. homes basis, sell don't if to a and But correct. many we a as on a and That's going this monthly not in we we're next certain start monitor lot of spec community,

Alex Barron

Got it.

Steven J. Hilton

the what And it's sales upon activity is. really determined based

Alex Barron

Thanks, sense. Makes Steve. Okay.

Steven J. Hilton

I that's call? think question. last Is last the Alex. Thanks, our Okay. it

appreciate forward early to this in in our quarter results. to again everybody's participation you we'll talking our I year-end So much. call February Thank look you and on very

Operator

The conference has today's now attending concluded. Thank you presentation. for

disconnect. may You now