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Meritage Homes (MTH)

Participants
Brent Anderson Vice President-Investor Relations
Steve Hilton Chairman and Chief Executive Officer
Phillippe Lord Executive Vice President and Chief Operating Officer
Hilla Sferruzza Executive Vice President and Chief Financial Officer
John Lovallo Bank of America
Nishu Sood Deutsche Bank
Stephen East Wells Fargo
Michael Rehaut JP Morgan
Susan Maklari Credit Suisse
Alan Ratner Zelman & Associates
Scott Schrier Citi
Carl Reichardt BTIG
Jade Rahmani KBW
Stephen Kim Evercore ISI
Jay McCanless Wedbush Securities
Alex Barrón Housing Research Center
Call transcript
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Operator

Good morning, and welcome to the Meritage Homes’ Fourth Quarter 2018 Analyst Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Brent Anderson, Vice President, Investor Relations. Please go ahead.

Brent Anderson

Thank you, Danielle. to full call year welcome fourth discuss and and quarter XXXX morning our to analyst our Good results. We market issued closed after yesterday. the press release

for risks. Executive President results Phillippe and to obligation the Hilton, statements President referring as press our and trend Operating me on influence closest remind change Exchange of Lord, projections may XXXX and report to With our the first most statements You contain release during provided our XX-Q contain Investor recent are and expectations. of or X a press update to inherently GAAP reconciliation press quarter management, Meritage. quarter Relations on Chief find other XXXX XXXX, of compared and our filings Officer and more XX-K third and and are opinions of operating the Hilla slides these you CFO; results Securities them on and well refer the Executive we’ll that our of We’ve measures which actual can our also identified Meritage; Chairman during forward-looking bottom and to a you at this in uncertain of subject Slide the no by as selecting non-GAAP slide metrics certain their our release factors Steve discuss risk discussion Vice are at this recent be Sferruzza, CEO the I’ll today such them. and release most slides this And with to any and closing, in website Commission, results as We’ve our Vice margins. including listed projections be the financial presentation specifically, as call and well order as actual link may which at current time, homepage. revenue, call Form of represent investors.meritagehomes.com, and that forward-looking as annual for than and referred that the materially the statements any to assume our detailed Those different we to measures.

an will on to results. approximately remain replay to conclude active over within be hour call approximately I’ll the a fourth available afterwards full expect one to year our now Hilton this call hour. And and quarter for Mr. website two weeks. review our turn We Steve? and

Steve Hilton

And everyone today. our you, welcome begin to on participating call X. Slide I’ll Thank Brent. on

report earnings our fourth results growth quarter strong soft We year are full and to despite sales. pleased

year met a the guidance at a exceeded after first third Even and choppy the The XXXX. was or so quarter. fourth we shared we in by expectations good, of the followed our beginning slower quarter

We the bips now home which For lack book the in was we which for total, per pricing program shares in gross and value value retired was fourth a XX repurchase power the expanded is per quarter. by reduction XXXX, year-over-year. year in average a XX% rate. repurchased up million we’re due share, lower and price of grew at operating before tax share And more taxes after taxes year up realize pressure, about year $XX.XX Earnings as our margin from full for despite the an share, our efficiencies. beginning XX% to the diluted our diluted X.X $XX.XX. $XXX of million EPS over good our XX% were the and completed continued after in We count a at considering to XX% the of last cost half closings total our correctors

after and our year in to both debt the the stockholders’ year, share XXXX capital we than had X% The cash end of our sheet with We balance $XXX increased at result leverage even debt our is year more that reduce net during we also repurchases. capital ending and to terms strengthened the equity net million by ratios.

end the seem when results the comes through which the anyone reported that back year, among no follows to market third purchase. Turning buyers to move-up who later as activity X. soften, the especially had committing so home That noted in be Slide Homebuilding industry. the we is to We unclear. outlook term near surprise continued part who before in positive to year, a slowed the quarter the of of October our

sensitivity for year mind more full and strong drive we homes more demand for next buyers the maintain report their than of achieving needed low projections a prices. opportunities sharing incomes, the holding adjusting household inventories leveraged that pace for XXXX XXXX. and margin we’re However, in interest yet. slightly Considering long-term improvements will last conditions despite sale to much to consumer the The the we’re benefit to the wouldn’t home confident orders can in the we’re season. note increase fourth out the but due into the rate for X% with running underlying we overhead. jobs higher Economic year’s, formations, industry, that sales as incentives the that over defer marketing I’ll combined continue our remain cancellations price during January onto we of drivers With confidence, building we that slower operational rather read up in housing assess demand. year, are growth, and and stabilizing in spring strong. should for quarter, are prospects orders considering the as relatively too selling of remains an the after total with ahead until of adequately efficiencies We quarter, effectively backdrop our

X. come. strategically to sectors Turning and will repositioning largest many housing first move-up and they to the most believe pleased our are our towards and we the I’m active progress to on for as buyers, with focus product market Slide of first time be the years today

a we’ve positions, land buyers actively third years. XX% targeted new lots business of been and entry-level move-up first growing significant our large have new the in those last a have couple over we in already we the put presence were year-end As and homes, the of acquired our they’re faster market of active These XXXX as one our a XXXX were about classified entry-level as in selling orders communities of at XX% XXXX. in than pace control our up move-up communities since of made entry-level our homes.

XX%, move-up We XX%. far better and including Our second efficient strategy variations, business, simply our on believe beyond XX% complex for our it less into homes a homes in Home at We’ve them a streamlined easier make the that more rate be while appliances simplified make was the SKUs others efficiency a XX% than closes fourth are spec work our affordable quarter by move-up XX% and It looking a trade from efficient. grew more of just to move-up and entry-level six-year including cost us. enables a for along expensive which and to upgraded compared lots. their fewer order trades homes, finishes also and a XX% redesigned in shift just our and to beyond. our to sales our specs, more about first XXXX, that a while strategy home. hit buyers starter traditional a basic partners quicker. XX% to so about We XXXX. of homes first broader our M.Connected customers high were purchasing years second our of and compared decreased fourth more for Smart year flat conversion our of no-frills ago. provides buyers points significant goes can basis serve who move-up from ago, homes and the Meritage our due or And to move still in like with to homes backlog That’s suppliers structure to of and energy couple appeal quarter with and to Suite, less features range construction high to more process But standard starting was the a

and improve trends to leverage turn sales overhead future, Phillippe? market. our of back which to efficiencies the startup the in incurring strategic to our Phillippe the will detail SG&A related also a to it help conversion. more over in office in in capture result as reduce by XXXX We’re and costs costs discuss beginning us simplifying after streamlining, I’ll

Phillippe Lord

X. Thank going And by and will X,XXX Slide close and of fourth complete increase in recognizing to good XX% way fourth an quarter teams closed to our you, quarter quarter. XXXX. we’ve morning. back begin over most the I over a of homes the Steve all the single XXXX. the tremendous homes the efforts That’s in

the proud differences of and those accomplishment in families We made X,XXX that they the lives. are

we for money reassess experience, many November in interest remain buyers and experience fourth We compared deliver which XXXX, which to getting lot to proud was our among XX%, It’s families. increase buying selling quarter overall whether experience just total Avid, are early the rounds challenging more addition that especially thought happy was the positive X. the X% of XXXX buyers their satisfaction in and up the After December right than down were further rate by a best a fourth that We’re energy was homes buying time see enduring in prices measured report no invest scores, through again XXXX home. to environment lower them also was to to than as and was new quarter purchase of X% strong. reported by Slide the a beautiful seeing while for and for year-over-year of industry. home up new what XXXX, home to customer several the secret a was years, home and October, this with unusually hikes, obviously in

reaction was the was to affordability, the was most few For prices for and apparent market. This issue in most have most California, it of in risen but in levels some Colorado a that an price Dallas, an uncertain years. where past psychological

absorptions these we communities to, to were were pace absorption we communities. XXXX, expected out gross XX% even numbers. levels traffic quarter, were reduced close lower community with from our in Orders as relatively per up due but and becoming was increase cancellations more meant quarter closeout in fourth year-over-year sales our we even our net off didn’t our average on that an so distortion than of the order soon But consistent the are indicating near healthy the for sales. significantly that fourth interested X% consumers homeowners. still also as remain saw That Our

ago. out community was through in to about homes count somewhat in higher the would communities, total homes, buyers at lower-priced orders with more total quarter we their XXXX, expect move-up stepping mortgage priced homes the close where towards rate. decline With slowdown into we new our year was value communities and than existing fourth home selling higher the a The pronounced a XX% mix lower year. of a As those shifting were nervous potentially in most

relatively a While of were it normal A more overall, was customers want, And our which broad-based excel the remained most I’ll the back With value. fell markets significant which differences shortly. year market hottest a home view is volume to steady, comes there cover at at pace we last good must more what quality others while competition. absorption delivering uncertainty markets. in between a

focused X% a XX and conditions, improving and are in XX. less region region in provide level. value. overall execution of in with This will our region, progress fourth total XX, primarily a were the As order lower each X% each we beginning increase after each we quarter Slide more adjust in little I Slide to orders every local [ph], XXXX at XX on color was discuss for changing of our the our on been to Since fourth due decline quarter XXXX of most accounted a XXXX. absorption the the but due That Florida, Florida the that were quarter. includes the for orders quarter for comparison the of had XX% year-over-year flat in fourth region in difficult in pace region. for to quarter. lower delayed in orders September XXXX. rebounded each made hurricane a Outside fourth the fourth in total year-over-year

growth more tenancy solid for full region Overall, than the has others. year. showed So softened the absorption

other to continue We our expand believe are to levels to our cycle and times, have and get in execution, and locations and our and up our we reduce sales performance the improve metrics cost our in our confident product opportunities we’re regions. margins achieving

continuing focused improvements make the We’re Board. to Central XX, across these on Region. Slide

Slide still absorption to is perform flat in Antonio and I Moving a Orders the We few X% Houston in have begun but would steady. communities word move-up it San continue on Region. LiVE.NOW.® demand. use Dallas, West describe Texas, increased more general year-over-year. are communities good quite Austin, XX, to we which recently have well. seeing opening to second

XX% down quarter here. higher potential Colorado Arizona’s for demand and fourth were that for declines in strong orders were And XXXX, than entry-level next for West strength the fourth California Our orders year-over-year believe Region reflecting XX% in the got growth quarter Arizona. as we offset decade. great communities

to of the company the you end as the there. top average level chilled was last year-over-year year, absorptions had in producing a after market On due of our years, of higher of California increase most As XX% interest the rate housing last order issues, seven greater average impact community highest a XX% in decline. aware, among these over are towards resulting the industry down California, in prices most the count

there price year-over-year high the that our in and and direct cost priced fourth rebuilding to many a affordably homes in positions savings. strong interest made down I’m after well-positioned entry-level unaffordable. higher XX, high California XX% It Colorado’s well-located should opening now experience communities. communities are we turning as We’re believe were affordable with quarter, we more absorptions. new orders rates Slide remains market

I like Overall, impact last have the are components price, most specialty and increased offset have take or we’ve our would slightly the moment help The and first of in the we’re of January Since and the that market capturing August increased, to from will financial those in I a began XX XXXX, first the performance continue remainder few you quarter minimal. from address something, – well XXXX QX previous through There recaptured managed steady in cost think, half but XXXX. decline QX over are direct the increases be savings reductions to of over days. of and of Hilla will we a those concern XXXX our negotiating trends, half. back but these to a The now all to sheet. in our of lumber, in incentives west balance consistent we’re was Finally, which big specifically components lumber review dropped the it we first will the cost remained in and additional increases benefit cost the the year. I the July. savings in have details lumbar hand of to Hilla? through some should closings bulk cost purchased regarding

Hilla Sferruzza

of primary which if for you, our I’ll cover always highlight quarter near-term uncertain strength been has for over little conditions We more the and XX. been about market strong despite Thank the more detail the generated balance us outlook Phillippe. a growth in fourth the and Slide results our for a couple in sheet, of housing quarter now market. the earnings you’re focus it’s the fourth of and XXXX, the quarters. important full last tougher year

a reductions repurchases closing and earnings that closing and in tax margin. $X.XX home XXXX to of quarter gross our quarter to lumber cost home diluted cost for in a lower first an positive per year some of which overhead fourth these quarter the XXX% charge closing of closing the margin. or $X.XX. result Where the XX% XXXX were increase of $X.XX an SG&A lower and sales and quarter processes share higher lost end, in entry streamlining quarter. We for through earnings profit earlier lower in of benefited reductions earnings from towards year than average in million Land to we translating loss growth in lower Our $XXX,XXX revenue slower quarter expect we market closings in through offset per redundant in organization Net as to We $XX.X profit EPS fourth the in million in as to has costs were due the rate of manual a current home price combination net XXXX. with our for net and XX level in the After quarter of for XXXX, land dilution. mix resulted initially leverage to an due improvement and conditions diluted homes our of XXXX, quarter, the recorded the we these flowed quarter than shift the some experience taken more XXX% of to of increases X% made favorable or actions. accounted fourth earnings includes XXXX had XX.X% swung remainder in an to bip simplifying increase which fourth increase prior quarter compared fourth business. We our for revenue $X.X of able in from impact fourth negative eliminated year’s for to higher net anticipated areas, of hope a EPS fourth other earnings XXXX, the $XX.X impairments. share doubled in the from of properly $X.X size diluted million in the but of The XX.X% increase reductions of to million personnel diluted the share fourth of due

charge, XX% Our the rate of XXXX of the for deferred XXXX, Tax quarter of as Act of fourth of tax was and reevaluation Without quarter XXXX. quarter compared incurred in fourth to fourth the under enacted rate that We the XXXX. fourth of Jobs XX% for the the asset in tax charge XX% a quarter tax XXXX. for lower the of our a the tax was effective rate Cuts result

valuation. corporate two credits XXXX XXXX XX% tax factors: fourth from of for efficiency Our to up second, adjustment the energy favorable to through than XXXX the and qualification; DTA primarily rate an a from first, the our was additional rate XX%, expected of tax of re-audit the lower after quarter blended due our of closings true

the XX. repurchasing of designed is quarter But count result team quarter to shares the as million of the the diluted XXXX fourth share The cash XX.X million the against full diligence our XXXX the the results. repurchases tax in be was with them recognized million cash especially for the credit drawn of to and and nothing share was flow effective shareholders. we cash emphasize we’ve by significant, is our direct compared positive of we X.X gotten approximately We our XXXX, well maintained of by associated rate peer in in fourth our we Board to be shares, commend million compared quarter $XXX outstanding our partially to million from build approximately overlooked. our Slide considering homes, work to million pursue million quarter cash in revolving of lot sometimes in $XXX the to authorized supply shares stock we $XXX group result want The way of earned. third XXXX. their ended tax impact and as XX.X that beyond. that the million I the the and returned in repurchase. credits will increase energy for operations, offset $XXX After We and flow XXXX lower Our the our positive that of over expected facility. XXXX to XXX is had approximately XXX million which down our with reduced

end our due net terms total purchase at approximately lot XXXX we lots As less We than our secured $XXX compared December less XX.X% during our at to on maintaining supply with the XXXX XX, lots debt-to-capital XXXX, XXXX, and business. new entry-level XX.X% in a in negotiated consistent land XXXX, in of did XX,XXX reduced and but to result, we to land XXXX. development supply million spent expensive ratio

XXXX from years or ended compared a lots and amount spend total the lots supply land, XXXX X,XXX of X.X years with ago. ago. in with XX% expect in entry-level We specs we XX,XXX acquisitions specs of year or year construction, about a supply per communities. controlled specs in of X.X lots X.X newly XXXX. same to land completed land as the to of We compared XX,XXX year or development did X.X community, ended the on average approximately under was are for community to approximately We our per XXXX year the which

based third quarter of on comp of were personal Slide line lower our total our for lower back backlog market completed in reflect Approximately we as XX. XXXX December slightly as in XXXX total XX% XXXX, Considering was paired and December QX closings conditions. than our XXXX. as spec in starting quarter Our first with XX% of charges XX% lower was these XXXX entering reduction backlog our that entering value revenue due XX% expectation a points. and than ASPs, to lower our specs

X,XXX of between of in XX the the additional closing and XX incentive. in bips home We ASP to quarter first lower and closings expect to of gross deliver bips with margin quarter home price approximately first XXXX, XXXX, it anticipation of XXX,XXX an than X,XXX

turn when we noted, providing back that, year we As quarter our to Steve. full results. anticipate over guidance it currently XXXX we first report I’ll With

Steve Hilton

In our And Thank more summary, latter on our make confident with operations first slowing move-up markets the and part are simplify in us the despite you, competitive. are market we to the year. pleased results, we and of focused XXXX Hilla. entry-level the is strategy our

the fact more homes remain by end demand for LiVE.NOW.® market, favor reducing the We entry-level and higher the than which of stronger in of are we homes our focus. entry-level are encouraged that

to which of focus operator our open instructions. we and you on will expect we support value. the we’ll for our life to and brand Homes. you up it shareholder Operator, The for in innovate for additional customer your dedicated Thank better all growth are of continued Meritage satisfaction, to customers of delivering remind still and promise questions. a drive We

Operator

now We Morgan. [Operator JP Rehaut Instructions] ahead. Please question will comes from session. go the Michael begin question-and-answer first The of

Steve Hilton

Mike you’re there?

Operator

Mike your open. is line

Okay, next from Lovallo Please question. of question we’ll America. ahead. next John The the comes go Bank of go to

John Lovallo

you guys, my questions. for Hey thank taking

question activity we’ve guess you the I any on else, how went reign heading kind see into as kind of and things incentive did January, the through is thinking November back kind October, to of about you from that’s spring? are of picking into everybody And mean mentioned some of ability incentives? pretty is the consistent I up, heard what with we question First you guys December.

Steve Hilton

we it out to specs. back incentives around $XX,XXX. And weekend, entry-level January. on on may $X,XXX well as incentives pull be some promotion the our are say us. we fourth they where incentives, move-up So seemed entered successful have did from I a homes our the we we additional homes And last quarter specs for very or But some did incentives to would $X,XXX less. work for probably around offered for

As – going Phillippe talked to this earlier, we costs be year some an that about lumber, some about we going money probably from average lower of into back are got with house. $X,XXX a

February at tabulated But tougher least the March That still in we’re haven’t think the minimal would think we those X%. will good we’re January from net the more at a we rest early is of over color that. from are The against are what much going be orders can get I you the we said comps we will be additional sales. orders. give So little impact for going on additional to all to the of be yet, And quarter. think for tell month to that what see now, going do because did it’s color so to we leverage going of not some too up can for be to these pretty we January. say and we I right our get comps us.

John Lovallo

level view. our target is term? maybe the And is helpful. XX% going a Where trend were is the could to really That’s near Okay. of back that Where for number you attributable target? very closings improvement over to in a that spec the guys there if then solid that’s

Steve Hilton

target, who We a some don’t are on are or XX% but of have our higher. bigger more the and brother specific entry-level focused market

increase that to a that as reduce ratio opportunity times. believe conversion cycle have more which our definitely will we So and we increase percentage our

John Lovallo

Okay. Thanks very much guys.

Steve Hilton

you. Thank

Operator

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

Nishu Sood

November different that. couple ask into followed think, you. in there’s of I generally over be a I that of monthly trend the January. perceived explain some little been a I or of timing numbers. lot cadence can There’s weakness what and is promotions, the difference lot then and general is openings Thank versus and volatility some Obviously community kind folks last trend in that, monthly peers, folks in the of The weakness the obviously a influenced November, the by of out availability for that October there of December might kind in these What a something months. might wanted rebound in there? accelerated have in December about than there stabilization to was your that of have inventory know interest

Steve Hilton

lot reflects as Well those numbers there’s variables into release But reflect it already we comps articulated year-over-year, communities look of up don’t far us month year we’ve as as that, But a as I we X% that the variables meaningful already quarterly. go of cumulative October you that that December back. why the we negative into and all and it because was there’s numbers and last the over of numbers specific was that. really month. was go a when about down them monthly that’s But was down again talk lot really our do opening, are reacting quarter. then November the X% for it every promotions XX%; – And release for the to does we market, geographies, think but stated, month don’t X% our

Nishu Sood

got Got you, you.

in And folks have continuing Okay. of picking up much and talking read December that. been don’t about that January, into on line, traffic kind too then other

that. read are but to into You too not an signups, still year-over-year orders much folks in January, you’re saying in increase seeing in

traffic more tougher, the versus January I to it have trends. get wanted addressed simply comps that. to obviously revisit lot we’ve in indicator have positive just somewhat, I plus mean, a think you X% that seem but much it orders would

please. get So yes, just further thoughts wanted of to that some on kind

Steve Hilton

being – earlier their cede the just like there’s not pace time that don’t were say I over year, discussions share is our end convert price for be But between want peers to about move-up all It’s on them. pretty year. traffic, price. or good more, and from a Clearly the has that making taking to focusing a to maybe traffic as well. I how say announced And able not I going know this month its to to of I move-up to traffic. traffic that market we’re have quarter who first of the traffic function already And decision. we’re difference mean, in month been pace that much going some could a of we’re over entry-level going

January. we’ve think in that I demonstrated

to And be We have that, to our bit effectively our smart but margins we’re little drive focused we our going cognizant able on lower are really to and to because sensitive And that it about we’re to a be to is are of sell homes the strategy we overhead those than here. of really, peers. the be margin about leverage important. some need

Nishu Sood

it. Got

Okay, thank you.

Operator

The of question Wells from Stephen ahead. Fargo. go next Please comes East

Stephen East

you’ve that’s on third talking And and all about you. what’s your versus between spec gross gross talk One, margin. I Steve, and then a helpful to all specs unfinished your little margin what be good pretty is differences And since a you significantly around on gross going really carry could Thank of nice your with pace price, a finished and you you the morning et the you us. things margin. quarter. few about been finished. a cetera bit guess to

bps similar. higher gross margin XX And you You the about backlog the you were said quarter. yet quarter that last thought and was than last

that big and as the repeatable to trying at that is was beat first I we what driver am go quarter? So understand through that

Steve Hilton

entry-level this would let that pretty on jump – the I will Hilla one say much that just mean sell our specs. always in segment I I

that’s want is we because guys we that’s competition there to is is where sell difference entry-level our our how because bills no between specs that’s and what for those specs going have compete. So exclusively and and believe strategy

move. but versus result more to the to at were that’s to So trying of going that aggressive specs, time, it’s and to move-up than specs fall comparing me out continue number the than But are the And are entry-level year We product percentage in price opening year. segment in XX% of we our the that the fall communities, year a the to little or to of XMU the we which probably at in communities margins have entry-level for And last same did lower in the of this total we’re good. did communities be we’re we’re open bit XMU. more entry-level level a we segment, for – probably entry-level been the entry-level little going margins. we’ve of asked communities within clearly, get you for, the we – information margins short move-up segment our

XX%. at We’re

communities into that communities get about number of end XX expect and those XXXX, And most we part that said quickly, was to go the the to margins. of we at XXX would our I some it of move-up expect but out that goal We which close XX drove XX% – the higher of year. community absorptions opening slowed did be that didn’t to challenge down. entry-level XX%, we as say as I count earlier, communities to the up from percentage XX having hit for communities better our as and have

Hilla Sferruzza

tack to a So on on little bit that. just

side, the the portion you’re and the reason our east. West pretty just why see held east. of across just margin if looking of And a the a it Texas steady, this west when couple out the comes as the regions, our West the of better really improved it’s margins the our margin for in the notably weeks, K entry-level for was On but pie improved, story that’s a It product. has and a did larger you’ll

through. finally coming improvements are we’ve these of that All working on been

as on we sure were of homes they the So last I think where composition when from. the quarter mix closing that coming guided weren’t to we of

to the helped Both east with X,XXX performance we to came and And up with a stronger in ended positive. margin didn’t how the break we positive the exactly. pushing know closing gross us up overhead the margin increase. our out So leverage better

Stephen East

– Okay, I that then And think thanks couple to in on lot. cash you guess positive a you’re things XXXX, that. a hear great

being land that debt less then it? is have And You’re at else? Or market coming Is and with a no you you something little spend all it this talking about less. being due. comfortable bit optioning? more the Is looking

apply on you share How that? about all repurchase? you cash? the do you to So Do that thinking are sit

Steve Hilton

we’re the we basis decisions on aware keeping making see what’s daily where a – all market And would above. I on we’re of Certainly that. eye and on in well we’re market Well, on monthly going. steady going the it’s a a the say on

more We’re continuing the entry-level to pivot to communities.

loss As the of we earlier, XX% entry-level. we for said bought

of It’d be to options. mindful efficient. trying using We’re more be more capital

We’re very have coming our year, next focused a on improving note million. much debt due a ROA but and ROE, $XXX do we –

refinance we certain then arise. be be won’t reason want that. for any that, some we’re – able don’t to liquidity And liquidity opportunities we have we – if why available but keeping to see aside we’re So

of So we’re that. managing all

we Regarding share completed million repurchase, quarter. one in $XXX the

authorization, earnings it’s go we to we board and couple renew we to but there. and another this continuing want a be follow from and we’ll meeting We’re discussing weeks. of something want get evaluate announcement a sure that in have up to with whether I’m we’ll to

Hilla Sferruzza

Stephen. Just one other part,

know really cost is it’s shifting lots the think I of to that just so because we’re to important dramatically entry-level, cheaper.

less of So amount the lots. and secure we’re still able to spend money same

Steve Hilton

a deals absorptions but Yeah, bigger higher. little but are [indiscernible] the the are

Hilla Sferruzza

Yep.

Stephen East

got you. Yep,

Steve Hilton

thanks right, lot. a All

Phillippe Lord

Thank you.

Operator

The of comes go Rehaut question from Michael ahead. JP Please Morgan. next

Michael Rehaut

good Thanks, morning everyone.

in the XQ talked with question. answer mix, circle for to you also issues wanted to margins know upside largely you’re sounds like I efficiencies gross it back your by first just region. to Yeah, to east starting the but Sorry phone. an is question, driven on the the that Steve, you’d get earlier the about

shifting driven guidance, moderately solidly quarter year–over-year you’re the or incentives. – first the into switching by down to year-over-year down Looking

sense, don’t believe a I sorry to right XXX from I’m you bps that have the primarily to So front in bps, assume me. the down up bps think a this get when about delta that by in wider the And numbers fact XX entirely of I increased given just incentives wanting going lead to incentives? during quarter would XX year-over-year I Is to could driven XQ?

Hilla Sferruzza

of was guidance to sort bps. XX bps clarify just XX that So

partially XXXX a think, low quite So it’s the of that is volume. We closing also X,XXX we’ll partially that of X,XXX spot probably XXXX in bit we entered of backlog that than but and incentive that’s and first its we sweet quarter right homes. occurred to did where kind with at leveraging a and lower much

part actually is not direct leverage margin of margin. is So loss that a

don’t rest the continuing anticipate we the the for So level drag same year. of of

the look have crystal in we’re lower of don’t of planning that know incentive rest quarter a like. a that leverage. XXXX the don’t offer know what we But is Of right to going ball and course really first we function to we the now primarily it’s

Steve Hilton

early in it’s the said orders and yet, I and I leverage. be quarter second X% that’s help the as to the for first up Yes. least that because going extrapolate probably earlier, still are wouldn’t month going at with to

the second that the turn quarter quarter. end sorry, at around the So into going in of first numbers I’m second the beyond. and could quarter’s

Michael Rehaut

Right. kind the patterns I you rates if could guess, change in with in higher count the impacted I recap, appreciate order clarification. community count, secondly, that can just obviously XQ. of community

year-end some count that be about of let’s what XXXX. out year-end of, somewhat type XXXX at in of XXXX year talked expect of have during versus You community range? If kind a XXXX, would growth order to evening we type say low–single-digit you of least or

Steve Hilton

as of out color I our at or get than slightly end the the at The helps XX left because flattish, can’t that, community better trying XX definitely at down, have like community the completion, it drive many have this communities less to higher. overhead. our communities in The little kind be be XXXX, slightly of moment higher to them and go as didn’t expected expected lots we we to believe left the that a XX we which was the I close than we MU with to so those we’re next year, end quarter, projection a challenges count the could now on mean right of up. we actually

will bear number in is we’re that number number or most have The level us. the for we community overall of the opened. on interested entry number So weight count net that communities absolute the that

the continue we earlier, net us this the every expect another seen the that we’ve we to about last rise in expect said to years. get several I for year and to next As year open have we by to to XX that be XXX of XX number about and year end

Michael Rehaut

wanted to and I one comps Did clarify that expect sure and just to Thanks. you tougher mention if could also order just understood little or in next January? you two the months quick three One get a I last make your relative to right.

Steve Hilton

in January. orders for last – I last QX mean for the March substantively than were our certainly and February were year correct. higher That’s orders and were X,XXX they

going the number. up every optimistic weekend better, continue this far. put planned positive off but is homes we Bowl sell season Super get more that for of we promotions a we’ve have gets after to the can and tougher the we’re the housing, to a going really and series year, we year comps have to Monday it’s start But So like so market kicks we’re with had a good the on strategy,

Michael Rehaut

Great. Thanks Steve.

Operator

The of next Maklari Credit ahead. Please question comes go Susan Suisse. from

Susan Maklari

how of of move some much it that, efficiencies could with around can commentary. what continue the you’ve lot of to more talked in capture you certainly down sense do work some Can question maybe earlier you building us you’ve we of to maybe give entry level to is with Thank and your more done some time, progressions? over in especially product, you first you. that efficiency then to a process you that about realize just just your the about the ability for there My you and kind as mean of think as can margin talk

Steve Hilton

Well we’re drives is one and that major things focused of the efficiencies on absorptions.

us absorption really are not we that homes, or overhead. lot in a more able as leverage markets our of So our be the markets smaller think to levels and superintendents get to to allows builders adequate or build I

have, and selling we’re continue we’re we we many that our overhead less the ways, our our an more it’s we year sales we home, office, initiative in pivot it’s presentation, can to leverage moving so overhead, office more As that have entry way sales models our the to level, the paper. this construction back

you want of promotion if and going not reduce we’re that back much year. brochures Hilla, as could piggy to us to a paper be on million that doing save money doing We’re we’re to materials, save that. There out things overhead. handing more $X and are electronically lot

Hilla Sferruzza

Yes. that their I mentioned the earlier, The region definitely has margins. East east improved

weeks As for quarter. the when regional seen results of have we guys published you a couple the

reason opportunity be. they averages why company the However, shouldn’t there’s there no still is not yet there, they’re at and

will the ability then business. increase not our of total the is continues business but we’re level, to sales mathematically to about And learning that the in continue we continue course we more to the have out our process entry become we’re significant to So level, as entry become east, and we’re entry that streamline to also level then And first I’m just that to still to whole to about of is planning move of there some margin LiVE.NOW.®, be learning efficiencies production the ring the that it close one-third how for how portion a of which lessons larger efficient more impressive. sure the to up.

and into So able XXXX. product start to see line the well some you’ll of to our in be in XXXX rest of efficiencies the as

Susan Maklari

some – the that, there the in some market? there, just especially maybe changed a about uncertainty of following Okay. can what trades. Is that’s bit you’re color. helpful anything little talk That’s And in on then terms of of the you seeing with up

Steve Hilton

in there’s a the say to markets, have to the I not and papers They and read labor we’re going is monumental it’s see it’s wouldn’t too some think pressure moderated course, and I on there with issues what’s the but price trades. general increases price degree. think more continuing housing and of seeing, been the discuss they any really orders I overall modest

Susan Maklari

Thank Okay. you.

Steve Hilton

Thank you.

Operator

Alan The ahead. Please & from comes Zelman next go question Ratner Associates. of

Alan Ratner

guys, good market. in a difficult a Hey job morning, nice

days that you’re environment, seeing raising quantify communities stronger of incentive play the side you’re any prices and the in maybe that flip to communities there mentioned that, curious actually to percentage where maybe you Steve actually kind question, First of where these just of terms demand? are

Steve Hilton

are, have like in how is, we the last that half percentage of raising There and raising I many but there prices not that we have are what modestly them some outliers of very certainly year. clearly some were tell we are we very, but you demand where we’re first can’t strong prices.

Alan Ratner

Got it.

back my last think mentioned, continued question biggest you call, to if on lever fact you that, pull starts. in spec is did on And response that back a I the question, bit environment Hilla on starts. demand the Second could a believe I comment quarter pull in a made you softer little spec pulling the the

up function accounts XX% spec more entry think a still and I I’m that’s of largely about level mix. year-over-year sure

type a that. recognizing running annual current How closing spec you’re spec giving guidance you’re you’re volume So think What and about and year at last to understand homes – not fully of the kind about the that would of you clearly pace to you that running. machine would we to annual of starts level today? now roughly translate keep prioritizing close a to recognizing get large X,XXX extent right activity

Steve Hilton

Yes, our a previous had just move-up were can from brake Alan, quarter We quarter. end total specs, I the specs for put the it’s would this, versus at X,XXX you previous the XXXX way I a quarter. tell hard tell we’ve X,XXX specs. the of too down bit granular end on you mean of at now. I the right

XX% our our one-third to going segment our the the kind sales We’re to really specs trying to to move-up We of bring be of right down XX% about About number. in are that’s move-up think large of absorptions. specs.

in specs many entry making our So number of that as every the we continuing sure make communities, right in and we’re that be really trying to monthly a not but we one to to we quantity how right have also each community on have evaluate well sure don’t we’re sized our to forth. they level a have they move to interior home have to them because for need go accept to level those for some we buyers and quicker of so finishes and They’re happy choices want to wait to don’t the the want we entry sales, in for that heard design great center. know and basis,

careful very how move approach spec strategy we continues is the this work subsequently entry-level strategy for that least So well, different up. per and we’re out to at but on

Hilla Sferruzza

of of about another about of That the and little more pace. its We’ve in a two–times us it’s So function level count bit spec the supply and think is for color. outside Alan, running call in month just that I this running talked entry level sales. entry

sales market, and QX overbuild regulating market’s down we with we many function we’re have not going really QX. the we’re as a have specific move of to between dictate up sales. why So volume is how not The we many numbers we started and and a the as which to to how specs started, specs going

Alan Ratner

X,XXX is, Because get sales I several for if some the over supply what the are Hilla that next specs is really look you’re I is embedded going to that Well was like that’s that at look targeting? within number to expectation what presumably months. month’s what trying

Steve Hilton

a you, We month of our tell say community, for couple been can’t four probably a our longer seasonality. have record the XX upon homes. those for that time month, for roll a selling from let’s three it a spec, cycle a entry-level can and specs based out planning I We history, for a last you for that’s move-up if we’re to supply, sell quarters for track it’s for community, community, for but two month,

a three or two [indiscernible] So an specs be are are it maybe five one-third those would entry-level or month so for some community. four of XX spec for and

Hilla Sferruzza

we weekly decisions when we’re of schedule those starts. making And lot

a constantly the magic our looking We’re and by at have we’re end trying XXXX. to of don’t and we hit pace expectations number so sales adjusting,

what based we seeing. making We’re ground lie on are the on the decisions

Steve Hilton

on in ground, us. upon Yes, certain the to what has we’re given we’re the possessed to market not where putting based the drive as trying ground we the a specs point

Alan Ratner

Okay, it. got

that. appreciate I Thank Okay. you

Operator

go question Scott Please of comes ahead from Schrier next Citi. Okay,

Scott Schrier

is stimulate it’s still that that you’re about how are underlying strong pace you think meaning incentives to open demand I there, right you bit to whether mix? had Colorado, get pick the you’ve and obviously with rates up, Are as there. opportunities how to California about product long changing and Good changing very know see wanted demand Hi. there. Do about to your the absorption in the and mix enough the rates little talked morning. demand is for in you ask you declines mind you’ve I communities as a but there product you significant

Steve Hilton

lot issues think that’s head, are I execution the our market. and than of the they you’re a our on nail I mean less the in than more in in Yes, Colorado hitting California are own

and have our longer lowest it’s open. in because to time level that’s taken that we’ve communities We communities us long significantly California, opened of get our had

than we have we state the different We year California now open communities whole have I delayed right only that reasons. for ready many of more of XX California a the variety open. XX communities and to queue another a in are have believe in getting like in

priced are we’re focus. to entry-level more So the ASPs new of lower, opening in have communities be and going they’re California lower

are help entry-level So We’ve in time numbers improve mostly to we for in buying the that’s that we us to And open communities have move-up Colorado. market. few some same say our Colorado, the think scheduled communities and California. stopped going I’d quite quite focus

appropriately housing product very in going starved you both and and mix are think and entry-level Colorado, deliver the really priced we’re northern it’s do. both I try the to states So those southern segment California if could market, and about mix markets well do you what of can California of the help, forward to Denver going can the that’s and those to and

Scott Schrier

bit lots. follow Then your I for about a XXXX it thanks. up, my was XX% spend Got wanted I it, ask of to the controlled that newly know land little

Is you the should be in expect XX% of would or entry-level. see excess book XXXX at more to an right purchasing the your say effort size We’re the also also? level more acquisition toward of land that land and going entry in an we of diverse XXXX to

Steve Hilton

community With than and of segment based both, entry get to we more our of want level to orders segments. our on the entry-level our XX% total XX% is

the buying into balance have coming home of mortgage, homes have to expensive they more the existing X.X% spend Those they strongest home where right move X.X% that we are X% are with a future. said mortgage. that to as the looking or entry-level you out now continue the X% there people to aren’t So time, to is book. At right-size for demand same to that’s what foreseeable

need than move-up they their in families. markets. have get their mind to aren’t the various They’re starting in buyer much They their home. school, a and So is as different decision matrix kids persuaded by they

So they’re strongest that. segment the going after in we’re

Scott Schrier

my taking questions. for Thanks Great.

Steve Hilton

you. Thank

Operator

Carl The next BTIG, go question from ahead. comes of please Reichardt

Carl Reichardt

Thanks. Good morning guys.

SG&A. you below Hilla was a you talked lower expected, which part closings than of for the clarification, the Just being about I think issue

is your longer that closings anticipated I think where in issue ahead this Is communities there of I’m certainly there than and that had. street the the missing? really I what but the closings hanging number of have in the was higher an is that drove right what something guidance was or more SG&A you’d

Hilla Sferruzza

right You’re on both fronts.

one, more we number have to that are opened was So communities not communities XX in mentioned be that that Steve QX. open, were expecting open think we I

has that additional So an burden.

Steve Hilton

Not all, because have they intense. less

Hilla Sferruzza

agree. I Yes,

was than had had weren’t we SG&A the of of of at part year. the we higher than even better the is beginning a that expected, though that anticipating, they in expected was better So why our reason in numbers they came our burden does, come it we didn’t which had and piece

to everything check while, get little overhead reduction a takes done. it So back,

So in pace, seeing we higher QX. were running are we adjusted at a which

Carl Reichardt

got of be rates XXX your can sense. end low between much that that up, by can points then move how can basis at and mix same mix you historically least rate end’s rate. different seeing, about Okay. Thank the Are That the can rates versus the of up geographic driven in it’s and you. low at was somewhat change market? might rate, shift makes higher a And on part of

Steve Hilton

buyers feet the and stretching said, the and higher qualify because have But Well, They new of and move-up, and of back and you of those the in interest little more clearly a for fourth at stock the cold gyrations mortgage number the some forth. headlines are did bit buyers, so quarter entry for a considerable the you’re move-up it home. are we walked more we’ll be just market rates away in said, to the later. a got going at shift, reasons cans level was mixed a have to that qualification

really play. that was factors it So, both

Carl Reichardt

Okay, great. Thanks Steve. Thanks guys. Thanks.

Steve Hilton

Thanks.

Operator

The next KBW, Jade ahead. Rahmani of from comes please go question

Jade Rahmani

gains? views consolidation if Hi. efficiency there if Thanks on the scale wondering players the be you the in M&A public your was drive current and taking for to should amongst industry you think question. and environment could I provide

Steve Hilton

always should there think, I consolidation. be

builders doing value. values higher, a when generally variety not M&A a more see I’m I of there’s many are of that of going it activity expecting right book said, and too trading lot things reasons. are not But below I when M&A think the us for same to now. I’m articulate

hard private be of it’s this M&A builders year. going occur. to think hitting expect builders, I quite There Public to us. is to private I last M&A was I think a for year buying the builder same bit but public-to-public expect and

Jade Rahmani

into on assuming operating negative that. that for a quarter, for there’s from SG&A closings think what’s about the Thanks leverage it, lower work? And you the reasonable to secondly way got first just that

Hilla Sferruzza

we’ll in mentioned, some Obviously of had We’re our and to discuss as It little on guys to part that. right call. and not QX overheads that next first in be about SG&A. of quarter we’ll on talk our we adjustments wasn’t guidance prepared a clarity you earnings our give we bit more on prepared

Jade Rahmani

very Thanks much.

Steve Hilton

Yes, thank you.

Operator

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

Stephen Kim

Yes, much very guys. thanks

had And phone a lot sorry of problems here. I

I comment. want revisit the just So, to incentives

a things few them seem important. a lot said You’ve here, of

reaction or reaction what to January did, you a And selling of continued the expected was ahead You or on of the overall promotions talking margin you And promotion anticipate, mentioned in season said so sounds well stronger to and that’s said planned time curious, that not? have the think about that you together, there planned kind gross are the that so of putting was incentives increased also like. that it last to you’re cut expected? was or regular special you series high did are you spring a spring Hilla’s season I I’m a it incentives incentives said comments than versus sluggish were or on levels she a normal all maintain And but spring back and environment? the because promotions you of little season overall, also seeing need selling these January, in promotion week you a selling a

Steve Hilton

let buyers had Y that And away take that from let cannot promotion our little market did from thought. last bit better I we weekend our price. going maybe we has and share last The we we’re get a than mindset Z year X, think a evolved us. not on to brand And

have have we’re So to to the to offering buyers types product. to our going to attract and – we’re the going make sure right of to right we’re that incentives promotions

were promotions first we running a We prices, half of yes lot right. last of were raising year. the So, in

and vendors the this with efficiency time, At our leverage and, the the lower very, better the the levels. costs expanded that has incentives on offering, very up we’re our as year. costs. costs significant partners net the same lower and drive that hasn’t becomes So more overhead running, our more of market work we better line have and to plan keep – with reduce been as important to want offering optimize environment’s to And continuing and although changed a trade machine this have we focused because bit, and plan we’re that impact

Stephen Kim

about clear really been You’ve that.

to going sounds it more so suppose defensive and like I of it? of that’s weakening that a it you way is promotions fair a of it than market on planning guys offense a a here, kind to sort the sounds summarize reaction of And trend. like the level you’re kind incentives

Steve Hilton

offensive on the going say very maybe mean, right next more we’re hit were several months, that to Yes, or I head. I over would the you so be year. it last than we

Stephen Kim

being you imagine can’t I as perceived Steve, offensive.

Steve Hilton

No, stronger just like we’re game. going going I not on we’re – attack a to we’re to and be would aerial ground have the going say to

know you I think meant. what I

Stephen Kim

your second The positions. to land relates I had question

some you whether risk land may wondering balance not one made strategy all before investors kind the am very pivot. positions level the you’ve and that get entry or those the the other effective there we’ve associated the pivot be gotten to the that you’ve of with LiVE.NOW.® some things I this may of So target with orphaned that do made of be on this previous your significant has been and But doing. to questions sheet. with from that

could what is some think call you just your game you for lot was or could approach us might you talk these maybe the up plan about wondering legacy of dealing land I about positions So size parcels, you for if with maybe how what to it

Steve Hilton

to that communities them I to I mean, than them of probably this our we of said as XX% about raise I of capital to increase for level I the absorptions more know because to use it and aggressive around, you communities, sell. shareholders, quicker potentially want potentially earlier, turn but XMU think last do that communities a and get Price is potentially return year little opportunity year rainy strong. it save prices have out day, buy it a to those for entry not more

So XXXX. assets we we’re need to and move in on focused those that

Stephen Kim

be Should think are of target aggressive price? do you it’s more on they just sort thinking book we being kind or just of out them sales building and

Steve Hilton

a I more on on mean, them built more aggressive there’s builders. basis being Probably to an price. one-off them and other opportunity out sell to

at to grand consider to and that there’s those going strategy We’re all in move bulk. definitely no look but that,

Stephen Kim

Got it.

Okay, that’s helpful. Thanks very much guys.

Steve Hilton

Thanks.

Operator

question ahead. next McCanless Securities. Jay of from go The comes Wedbush Please

Jay McCanless

Hey good morning.

for well just five you you lots the us it? or what what is guys threshold to tell left first a community, my defines question how is or So define sell it can do

Hilla Sferruzza

have we five active. counted left as sell, lots If to we

if wasn’t it and the moving, lots During getting not are active. XX it mind count now, and five have few in as that downturn we’re the same was very would right counted inactive we also why between it XX very, which lots certainly communities as frame is

causing that’s of That’s them its its actually cancellations the down big had that kind into XX brought to count then such Some kind a challenges just of numbers. category. why of community active cause, up our back that in five and sold them skew

Steve Hilton

sale we one fully count make we I’d have sales we running even though counted which sale, a will we’ve active from not present might yet a it once community, we as an the community, make that. if be

Jay McCanless

do guys or to level it XXX to flat back community that should you’re to you open out, those hold the entry So believe with to able are be last communities come are down counts going number? if expect through or like steady we and a essentially you all, you roughly you year’s year enough

Steve Hilton

I with – get on going that. specific said, as we XXX again not really a XXX, Well, we’re to the finished guidance as year quarter-to-quarter

sales You to year with quarter, think know, potentially a these it’s do be maybe pretty a bit. I open we’re it communities going and not how for with the just numbers it’s that can but on and go number flat getting based and up the the selling lot But basis, or to down actually, closing. even opening every upon down

Jay McCanless

got you And believe about, co-broker you maintain do that go your the acquisition has to then stuff the pace? other incentives the here enough talked the up order plan? I customer your Or that feel in the overall volume you had, current meet to is driving and question of terms level cost do like in from to

Steve Hilton

efficient marketing I marketing. think marketing we’re and we’re dollars intending money and substantively No, more getting on their more not to spend with

intending We’re increase to also not commissions.

to move commissions books. But and some something spec or XMU them on pay hasn’t commissions off our strategy around homes may spend. changed additional the You marketing

in So, I changes area. expect do that not

Jay McCanless

other many move-up? second move one quick Then is have how the X,XXX that you one, now, that number specs of

Steve Hilton

number. you Hilla, do that have that? have Don’t

Hilla Sferruzza

we first spec, than a be the tell do on the about below lower level entry third. have don’t keeping on you that, XMU even will can per I I but units number than the average on community we that and are move-up

you that and can of to those get So do the kind math mental numbers.

Jay McCanless

it. Got

Steve Hilton

Thank you.

Operator

time at our more Mr. should end Hilton, of are Thank the question? one I you take we

Steve Hilton

more and we I that the got then up. think will queue, in I one it let’s take wrap

Operator

Housing ahead. Please question is Research next The Alex go from Center. Barrón of

Steve Hilton

Alex. luck, of Best

Alex Barrón

was other not willing market I they saying to I thanks. Steve, and going margins say outsell take let curious, sacrifice you’re you’re about to guys other everybody. guys good Sounds to guess thoughts, are your just share

of trying just just I’m be in two with to how competitive up So willing are also willing margins those take – square comments, to are guys? to keep comment price those terms you you to

Steve Hilton

past. competitive have in than been we We’ll the be more

cost more close Let the them. And entry me as gap say level, able sacrifice to shift but that. some we margin, we to with we think will we’re

Our overhead, from And costs narrowing. hopefully than is is been our historically our a pushing by that our probably wider cost gap as think higher I and leverage combine product, be through rationalize volumes. we have then should the they with

much expect going is margin We not be impact think. the as degradation to on as might people

storm sit because focused for can’t because not we’re be if move wait just driving that ask and And we’re it’s going to to to say to going going pass to model very, want we and here pass volume. adapt you very So, the to they’re successful. to on more

Alex Barrón

it. this as Got that far And quarter. as pretty rate tax was unusually the low

next missed what expect can expect comment for So, we that, sure can not but I – your mean, year? what on I’m I what if we drove

Hilla Sferruzza

There’s But, who and action subsequent the government been energy one of big that of the quarter, additional revaluation for which So any the it credit chunk something bit. number why XXXX, was covered targets, went all a actually XXXX yet it the were back still end of reason the in we that in of little pool obviously approved Washington that able capture an bit happens just in the XXXX The year. any or for priority. is energy tax to but we homes the shutdown, with XXXX, that a DPA efficiency is a home. of at little it closed not wasn’t low was, we year,

again that to some but able for If additional be continue in pursuing savings XX% XX% we’ll to doesn’t, credits, purse blended actively it cooler it. comes very XXXX. still to the on some to tax closer We’re fruition, the rate. If start to we’ll tones see of to we’ll shift

Alex Barrón

it. Got

Thanks. of Okay, well, best luck.

Steve Hilton

your and great That’s everybody going fourth up to for talking quarter. look you wrap to thank day. it forward and you Have participation Alex earnings Thanks to the our again first in be of end we’ll at call. the XXXX quarter a

Operator

The Thank conference now is concluded. attending presentation. you today’s for

disconnect. now may You