Meritage Homes (MTH)

Brent Anderson VP, IR
Steve Hilton Chairman and CEO
Hilla Sferruzza EVP and CFO
Phillippe Lord EVP and COO
Alan Ratner Zelman & Associates
John Lovallo Bank of America
Paul Przybylski Wells Fargo
Nishu Sood Deutsche Bank
Scott Schrier Citi
Stephen Kim Evercore ISI
Alex Barron Housing Research Center
Elad Hillman JP Morgan
Carl Reichardt BTIG
Ryan Tomasello KBW
Susan Maklari Credit Suisse
Jay McCanless Wedbush
Call transcript
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Good morning and welcome to the Meritage Homes' First Quarter 2019 Analyst Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note this event is being recorded. Please note you should limit yourself to one question and a single follow-up.

You may reenter the queue, if you wish. to Investor conference Relations. like Anderson, to now President, Vice would turn over the Brent I Please ahead. go

Brent Anderson

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

all can investors.meritagehomes.com, the that you or to for share at Any metrics the time, our XXXX Relations contain management, are overhead referring along by we'll well call, and we the on about including closing, the expectations change with them. on and press such diluted no operating remind statements X as our subject statements call link closing our Slide to of refer you opinions selecting to any earnings represent today our trends. this homepage. bottom which other our uncertain. slides find be in and projections home are inherently You update any that forward-looking slides per to the to obligation Those margins website current I'll and forward-looking release addition projections as and this market to of revenue assume and at Investor statements you at during as

discussion CEO Meritage. measures. Officer release certain in Phillippe recent Meritage; related as contain our be X, risks. may of Hilla Executive detailed and Operating Form closest XX-K, as of with and well President risk presentation a the Chief are to wide as report Chairman reconciliation factors non-GAAP our on our Vice our Sferruzza, financial compared materially variety filings results XXXX actual Slide today Commission, expectations me specifically, in President Our a their and and of CFO; press release a Hilton, to of listed provided Steve Executive to those Securities results and which and With than different Lord, due of which discuss most measures Vice our and on annual to and we’ve also referred We’ve Exchange GAAP press more identified

to the conclude be replay through Xth. expect will conclude website available hour we call. an and a We hour active within It call approximately on afterward May remain will the an our within

I’d the over review our quarter Mr. Now, Hilton to like Steve? turn to call to first results.

Steve Hilton

quarter March over first that And appreciate of first orders Those was XXXX, March highest Xth over order experienced Thank I’ll XX% with we quarter put in your We everyone X,XXX X% quarter of total quarterly up XXXX year. growth since surprise. begin the the over the of last numbers the of shift XX% quarter. We you, XXXX this our year-to-date of Slide orders first we Considering today. a attributable as for Brent. lot. quarter fourth year. year's X. welcome are order first consider our were strongest a the last of XXXX strategic was on flat February a year-over-year, the was interest of the call announced and to market on on of difficult participating which quarter conditions but We pleasant month the and success, first entry-level to our our Much entry-level homes orders communities says a to that that more quarter of increased in

had targeted who those they but of market. the mortgage in November in buyers, entry-level certainly the a Aside particularly the impact, positive incentives interest from buy and us the of sellers also of markets, since strong The be confidence California, buying at fear demand may rates was our help top in space. other all boost decline

down only XX% cancellation for confidence, the quarter. for our their last As further evidence XX% was quarter, of rate

Turning Slide to X.

lower conversion first our of we also quarter XXXX consistent as to backup a than with We've higher available closings, XXXX. the that that increase in during of In year despite spec entry-level due result increase strategy. good a the season a inventory in after the closing order, a getting the start with selling in beginning more backlog addition rates achieved slight was with it to XX% of delivered our

Our conversion closes XX% to inventory for quarter our were specs in versus year the XX% from rate during closings was of the quarter from last the spec first XX% quarter year. first ago. a compared of first XX%

through over closings. the of two were we the targeted or in shift last first quarter entry-level reduced X% XX of reduced and bps increased expenses sorry, decline rest and improved XX of bps overhead first the a ASP offer year orders XXXX margin over incremental XXXX, drive in quarters in incentives year. from closing for quarter, strategic the The X% looking towards fourth helping leverage to a and we while affordable to offered volume home expect -- gross were brokerage revenue. targets by few offsetting combined with combination resulted incentives on with of first these more homes for combination sales closing and this we're the last sales improve quarter Our the home of our our sales the move-up broker offered use the and those the discounts incentives, which while we quarter selling additional to partially the by When where get the

compared year We ago. XXXX clearly first couple XX% XX% strategic ago. were where quarter had of were a to with in and orders X. up entry-level focus wouldn't they entry-level we to of orders believe a communities business our margins shift communities our XX% the Slide of benefiting of to relative primarily a move on market be Turning and and years move-up and our our to like first XX% of our is orders the

non-entry-level average were X.X and our the on gross communities Our higher orders for homes. all pace entry-level and entry-level is our approximately margins average also for for non-entry-level times

first for the up entry-level first entry-level first We're communities. thinner since communities, already challenged of good our executing market business first were than strategically all For that as have those quarter communities, second lots and under lots in put new affordable is much communities. control a the and reasons, we've we move-up move-up move time move-up for more the supply

over process approve is fully desirable lines, to preapproval Homes and for that consultant the offering available preapproved right is so commitment Meritage want of I'll impact it who our highly and throughout those homes is Homes anywhere for less proving boomers secured and can millennials trends. XX discuss innovation. process, simplify exclusively latest be margins the and process. this streamline year. short, the to for affordable now Phillippe through for anytime the review the and digital and next sales strategy expect Along the to some there In in turn be Using Meritages process and streamlined of simplified need Phillippe. loanDepot, millions Meritage our to impact XXXX, as and purchasing new is another communities developments who's on one our our it that with to homebuyers applications, partnership loan highlights minimal of automated, a It's And of no We us our strategy a to for website. than example to our a technology, minutes. but needs addresses of baby

Phillippe Lord

Thank Steve. you,

due of the Slide West conditions over X% were each of I'll to quarter region, the color first down XXXX market quarter local the provide for region in to of orders region first the the primarily with software up additional beginning in XXXX on Central Our continuation with California. East X. and

by the accomplishing leverage, better primary that selling they to we than are to order grow in gain East communities Our and have move-up objective is communities entry-level replacing. our opening much been that are in business new well,

orders North combination was surge with Florida our the March and XX% in was In in were last throughout XX% strong year. a especially openings first region fact, first community count Charlotte average in XX% communities were quarter. quarter Demand demand The in up East in increased in and third we more XX% and stronger year's year-over-year year where improved there communities our last XX% slightly by primarily driven improved were in mainly the with quarter the the Tennessee, gains and over Demand when stronger average also Carolina community during an orders growth Those over interest the earnings a Orders with led up by of East fourth X% experienced region communities order expansion quarter. count the year. increase we a region. of orders. over increase first XX% due in by entry-level than first communities. in increase absorption. higher the associated and in last and entry-level quarter was of were to XX% quarter XX% up after the absorption in community last orders asset rose rates in

community had come while was are A to XX% verses for several our of higher couple XXXX. X% it average community the softer other XXXX region but of replace community rebuilt was California, success of result over as order now order two our on sales our information. region the The past as in four we the country price I the for first Slide orders communities for were as a Dallas, XX% markets to last higher them. affordability has though down in we As communities, presented down for in the in Absorptions value in term returning decline where absorptions of Texas. Demand results Hilla? experienced total in XX% could overall entry-level count to from our first our there. compared years. count order all orders in much additional will in increase X% end levels we than the entry-level which and land our lower just some lower the shift remains entry, provide quarter a remaining higher turn should selling for first through We've quarter entry-level, more orders XX% only nearly drag parts increase of Texas XX% across the decline the total moving quarter, XXXX order be there of despite there selling were XX, move-up in Hilla higher as, solid and due the average from temporary of expect communities business, to previously AFP latencies XXXX Central order X, also increase in an success our Texas longer Slide over end to quarter and the demand market region, in to after strong value experienced offset which than strong to XXXX stocks Colorado only sell-through years. increases. on to year XX% the the tightening produced is homes community our than the pace demand given count at healthy our trends and not the years historical had our region. Those the West absorption. been the a growth grew a new over growth X% East

Hilla Sferruzza

I'll beginning on Thank as some P&L provide results as Slide Phillippe. XX. details lands metrics you, on well operating more and our

As our we quarter, up down lower noted when closings we to reported XXXX XX% first quarter due to expected starting be backlog. last year-over-year we

over were we than and up So, actually much are lower down revenue had closings closing we was pleasantly surprised, anticipated. the XXXX

interest earnings top revenue provide an items home to we decline of as far we with lower combination in closing comparisons. a internally year-over-year in better-than-expected in year-over-year as due the didn't and performance. well the earnings quarter, The impacting increase line profit, forecasted several exceeded guidance one-time Although, for slightly earnings expense our was

XX.X% from revenue XX.X% leverage reduced expenses and primarily from lower first due in incentives in the last of construction quarter Steve closing closing year, despite that was the margin overhead of targeted the growth gross X% our home discussed Our to volume.

XX had SG&A first that XXXX, revenue and of a quarter cost The increased increased X.X% to on first higher of lower about our quarter also XXXX, pulled amounted the a SG&A litigation X.X up QX included Compared bps. the million, benefit by to combined XXXX XXXX. on future from gross bps. equity of another forward brokerage XX.X accelerated quarter margin million expenses we compensation negative the in commissions, in impact which revenue, X.X to XX of impact our three those a for million of approximately from $X.X had total severance of home leverage, first our into SG&A The items period. Additionally, recoveries closing

Interest part steady. in improve million, We as the result is strategy. SG&A construction entry-level expect to expense remain capitalized assuming less throughout times to leverage inventory to under of our year our assets interest conditions development, primarily X.X increased which turnover of market due faster a

XXXX. benefiting throughout of settlement case to which accounted a the first net favorable be to million, earnings of the approximately would for also negative continue A from to year-over-year that expect in We X.X legal XXXX comparisons other due quarter earnings decline income. net most

rate compared $X.X for tax XXXX quarter in when totaled benefit all benefited quarter XX% first tax credit in the in from Finally, XXXX million. XX% This we extension our 'XX recorded one-year of the in qualifying energy of XXXX. effective was to closed homes just of first the our

We of the Slide the rate for XX%. XX. year remainder be expect tax our effective to about

in cost. lower partially last the revenue average compared XX, interest spec X.X entry-level X.X spec community for of $XX year's million total the a specs last than Turning it Based XX% are and results. first less building of for March the to XXXX XX,XXX million in were to first has home because as during We to XXXX spring supply in we our million ended the the to entry-level an that of of billion total approximately the homes cash optimistic XXXX. community compared of spec in of $XX approximately March XXX rent compared XXXX. our X.X at average this first increase sheet approximately million About for a Consistent to XX% repurchase a with quarter quarter, and March year translates XXX,XXX in closing. X,XXX results are completed XX, on in remain about this first million used market, and lost loss were last communities. home average will for of and approximately $XXX inventory on and those first items, We the $X.XX of year's total the of full homes we owned XX, at spent to and closing an per X,XXX flow XXXX shares per with ago, of on encouraged repurchase ended to first was development balance quarter XX,XXX closings the stability projected approximately year quarter we We with our and are our Slide of as to $X.XX to currently focus homes at million, totaled billion That quarter XXXX the year projecting auctioned homes respectively XXXX. outlook of by continue XX, more XX lot quarter are X.X approximately cautious rate begun. XX% month season we year. quarterly total strategy outlook, sequential X,XXX

earnings the to expense share full XXXX year. with per to gross be throughout and year closing churns. market year studio development start-up diluted this generate to asset showroom will $X.XX improve the for from expect $X and approximately open be of but Interest million the of to home anticipating due are margins down to in continue We margin remainder around XX% XXXX lower in we higher and SG&A increased trend higher year. and cost slightly QX land to than our $X.XX should due expense spend to the our faster of Operating commission for

quarter projected over X,XXX reflects home closing second the mid total XXXX, incentive million revenue savings XXX XXX a last for million offsetting closing X,XXX the home closing margin and year. For approximately for which of cost quarter, gross to we're percentage in XX% higher the to for

that, it demonstrated. current but We the be the beyond much completed. at season update higher and turn spring to of to spec to our of per outlook first uncertainties expense volumes and to market. year earnings the and for That traditional the could stronger of is the back to selling a will quarter expect estimates as over Steve. approximately lower the from results persists to quarter. our we selling demand plan and due into for don't with higher closings in the With strategy earlier to our least benefit have as for reasons closing if season benefit conversion We inventories interest $X.XX Upside to throughout those the housing visibility occur full SG&A than stated of I quarter our $X.XX the future for share diluted next XXXX I translating backlog rates extent starting

Steve Hilton

are those Meritage over Thank solid I'm for to our reflect Demand and Studio selling we've new continue of most experienced still and level for first exactly with for that in meet designs to entry-level spring make leading for their attractive In the the we that streamlined home. ahead macroeconomic year. is affordable our to seen support the first pleased team industry and communities seasons increased hard Homes, energy first satisfy the the your homes with housing confident and to We at we've strategy Thank the We're operator of deliver as and for for demand There's for We're make factors looking every our Company in few results all value. first new their offering efficiency, clear Meritage positive shareholder the turn the our are satisfaction we opportunities quarter them you to industry. our what LiVE.NOW the Hilla. selling in our of same ability summary, questions. and shortage our customer product It's offers customers with confident extras first and move-up of to some the early up you, three M healthy results the day for spring automation, and pleased and and we've homes far to remains in provide in increased grow of believe successful. us, working believe we buyers stress-free putting months open who our our give success have I'll of expect buyers the of of Meritage a their a for needs purchasing more homes. home leading our as wants. experience appreciate that we proud scores industry advantages homes, our implemented buyers entire improvements. fresh along those Homes. Meritage with so


the begin Zelman question-and-answer Please session. of The now will question Alan go Instructions] We Ratner first & Associates. ahead. [Operator from comes

Alan Ratner

entry-level and congrats on quarter strategy. the morning, on the Good

market I you So, of And get the info little think the incentives to the you March, kind to incentives contracts bit. read a on of in the of incentives orders them the those where then very I a know the just January, was and kind in sensitive to and was obviously you maybe lot strong. were out you bit of the dynamics a and pricing more pull hoping back, very mentioned little market softened when some I have tried when

on a were the So, spite the actually incentives incentives? sales? incentive you doing in when sales? pulling those you drove Would bit experienced the strong were what you back they say Or on March in front of

Steve Hilton

do a Sale, January No, we March. anything than announced. didn't better much was we called very drove in national unusual a XX%. January which We up promotion that had we in was January successful, previously Flash

anything with do doing what months. And pretty consistent it. in had little and we on that we a It bit February, less, really big Down national we sale continued in a it not think a buyers In didn't didn't I program Rate as the impact to basis we've local with for were many had been February March. fall. Interest incentives operators with were the orders our resonate Buy and rates left but on

Phillippe Lord

higher Alan, were February. this I not than March is say to January and that Phillippe. want they in

slightly were fact, In they lower.

beyond and in what although lower. really So, January was incentives we stronger without slightly March done February originally had tweaking

Alan Ratner

here push high the from the payment month the At low And as tightening some be same the dividends you then order to FIFO or has DTI, well Obviously, programs. entry-level some assistance the second down for on over loans so last paying seems FHA side. there time, the been question. nice incremental some targeting as

the your loans have of those much how of types through seen of guys curious, from business, FHA? whether far looked into any So, impact I reliant April from you've that was changes kind is and thus you if on

Steve Hilton

seen any not We've that. impact real in

buyers that few from that a that category and we expect don't be into very impacted at fit have We to all.

average XX%. Our is about DTI


question next Please America. Bank John ahead. The comes from go of Lovallo of

John Lovallo

second I level same the of expected the EPS Hilla, one correctly, year. for should kind you at if the as taper percentage the I the in The we interest in that believe, impact versus expense full heard Can you is expense first frame throughout experienced and help quarter the us off year interest you of was at perhaps mentioned capitalized quarter? fourth just

Hilla Sferruzza

the the elevated than that's is that be breaking So, piece going a changing, not throughout in any to is consistent to more to elevated. that's going quarter and percent capitalized be QX other the slightly it's It's P&L year.

slightly should home fix than lower the has through last So, turning in year, our and much just land ability we what modeling less than bit be because lower a been is have QX in asset under you QX then spend saw QX just to we definitely to higher interest is going construction production FICO that slightly slight to something capitalize QX, faster. is it and

So, that component. there's inventory month interest of the get I less

interest overall, it interest our is changed. is it the economy So, coming hasn't P&L margin It's or in the through line. just through really actual

John Lovallo

margin first a there benefit quarter the from this? was So, in

Hilla Sferruzza

fairly It's We're turning is that just much. consistent. in margin not moving too faster. interest The inventory

John Lovallo

from about And in equity think we XQ through then finally, in year-over-year the commissions comp should XQ? how impact

Hilla Sferruzza

the So, of in 'XX. just at in tax 'XX. then cost in It XXXX. the the tax one-time shelters us some comp equity end changed one for rolling the pulls charge that a We laws into QX. is change forward had with And year

the some were occurred compensation equity not with So, overall tweaks that timing, but dollars. there

obtained QX. in we're on market in and can and than back modeling pull monitoring we but at we different have running commissions kind of the rate the year. see there's if but quarter see, spike for you'll now, are what we QX. a than And slightly QX conditions expense the up, then elevated So, The of lower first those that remainder no expected saw right commissions


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

Paul Przybylski

Could transpiring with This Paul the first perspective And you order I up guess first for move and incentives? levels difference you're give on up off. Przybylski lines? is any from color on saying how move to any in is between actually and if some both respect us April then, Stephen. and product incentive LiVE.NOW also

Steve Hilton

great back say but really So, but April. our last very do The was April has have had a incentives and those believe Easter in I'm decline. I'd only on over to this We weather April, been in of we weekends very modestly, March, in I Weekend confident that is really results pulled March. plus phenomenal we did April rates in we -- it helped for have Interest month. we have numbers feeling weekends good. continue have will year modestly which four whether and five

but So right one Certainly, of better Other well, some than It's good really others. are strong in some those markets the -- good feels Phoenix exceptionally strong. as are is now. are certainly really states right but now. markets it's it like entry-level really,

Phillippe Lord

just first And answer the on entry-level, mean, not move-up of little a in compete from other, are and I they with incentive year much. to doing, last are the entry-level, competitors what higher other between to but question terms

clearly, the business. bit move second up of articulated we've a than that, more aggressively getting work and that First little out then, move-up

reinvest they are capital that we ourselves move-up higher get those were move the up entry-level So meaningfully than last strategically try communities versus type second into the to as incentives and out communities. of year business on of

Hilla Sferruzza

in first slightly elevated to XMU the half of get margins our year just be end next see start really and those and the off business into the in taper year negligible from of year. You'll as we the then to incentives

Paul Przybylski

any community the growth, just California count set get as down? that inflect? reset, and rates bigger through for as that really pricing with is in move -- order decline you to trended we into see it sliding quarter And but to market the strong did market the Or improvement

Steve Hilton

some seasonal that some improvement and saw opened. I action our we communities think newly we lower certainly priced we of in more saw certainly

But of getting count, challenge communities there, California our and and been inroads it's to some as our and California starting more say, communities some well has performed very in in So, of our I'd biggest didn't community really well. higher local performed some priced open. make communities our

Phillippe Lord

in Yes, California market They definitely ramp locally we're see we improvement incentives going going to want count look landscape seeing where that other because to that aggressively those deal they're to just at that make highest. expectations as deal. get the then around builders community And but you buyers' the a of up, coming in a expectations with competitive being it's are delivering are the deals.

competitive very right a now. the incentive from standpoint it's So, environment


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

Nishu Sood

the incentive wanted I to ask about environment.

of obviously been has in that how there have concerns, this entry-level. the with driven move-up. think versus pressures need success and experience I about have of on over different difficult your prices some The product and period for rising conventional kind you that the had incentives through wisdom but debate affordability couple home the fluctuations by say interest says across last the quarters the rates affordability that the entry-level entry-level more gets Steve hit more segment,

by markets? rates market more get what been it of company? what to in part use has What here Or that? Is specific? can the And that end like driven are just affected market of company So the by of those I in and -- on wanted how your just incentives we really Is the seeing take generally differently volatility the it from in you each it. where is affordability? thoughts

Steve Hilton

has are Well, been market Number entry-level one, underserved, think okay. things two I the entire happening.

becoming product capacity entry-level supplier their millennials not has entry-level enough the market, to the as because into the home more serve to been buying segment there market, put years. So, bigger or are is getting

saw we impacts rising that rates So, that from the is way offsetting negative year. last

quite In years. bit addition, XX a last housing prices over have climbed the

for of back the go as they lot are a they prices mid reasons. versus what to today were XXXXs risen rose, lot You a what the in

entry-level So, to went of back skipped are a market. the market, first or market the beyond people coming move-up entry-level lot the not to

we is down as buying and but boomers they're they want entry-level expensive, well, because new then homes baby these still home. So have housing moving a

rising the space mitigating interest rates are are others our doing that's and digital that factors self those in why think well. I So, the are and

Nishu Sood

even quarter, factors SG&A, out those On had deleveraging in some the one-off we Hilla. so you take mentioned, that SG&A if you

that driven the down fact the deleveraging up. revenues because So, were even though by of volumes ASPs went

your will on strategy. obviously the fall success to ASPs probably of Your continue entry-level based

So, forward? SG&A rest throughout you You leverage 'XX. the how about expected happen we of think going should to mentioned

what's And So that deleveraging? ASP declines what will that driving require? the with even that dynamic where the or driving

Hilla Sferruzza

in item cover taper related, either So, toward to this. just we of bps the be that year already you time slightly we to over Because expect expectation recurring. going 'XX. our kind which I which SG&A one number are you've I'll of again. off starting guidance to slightly commissioned are price, There's XX 'XX be think elevated touched don't elevated or that was end our on XX.X% and the even expect that for of or elevated

efficiencies lot of second up inefficient community are going a the our there through communities. exit with They're we strategy. sync Although, move-up are doesn't rest that That be to our of once coming absorptions highly pace. around

space will first number were that we So into once the get redeploy entry-level for and leveraging. the to fall efficient back able back to and those and be move-up effective have more time able off resources an to move-up, SG&A those communities target


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

Scott Schrier

from the strategy, thinking impacts faster wanted you're bridge. in seeing buckets know maybe about cost asset What lumber quarter talk things versus of some deflation if to and for less you're you some margin bit going as the overhead so seen well churn year? from inflation forward gross how the your in little might where have those a your I of some of as the you from other could about

Steve Hilton

that cost Hilla to the over and second quarter quarters, We get then piggyback quarter some the in last third the take on of of savings that. piece I'll back great were starting really can year. three able or last maybe

margin. what We were those most go those We're up. As in costs really in that half business. our to lumber pretty to are that structurally you in was of capture QX. our And claw the captured are -- are impacted back And they guys our out first lumber the ramp know, saw forward much costs in of our all We before able successfully. costs XXXX.

commissions the it us offering incentives the offset and helps So, that in market. we're additional

As it costs the Labor cost, now. kind right pretty stable. are our stable into pretty is of vision to forward-looking relates the

in key cetera. et any Our et not commodities or stable. lumber pretty concrete, cetera, tracking are spikes We're

we So, about pretty stable forward. cost good a go environment feel

been drive more our efficiencies entry-level I'll strategies. of let a Hilla able is cost in repeating allowed costs we're which effective forward. us just through pivot as cost a and we've which and really benefited homes out in refine to manner in piggyback, cost we've rolled Lastly, has the more lot product And to offering, build our also in go really been the there our products what doing dialing we've as of efficient our structure manner, we our entry-level,

opportunities continue help capture to want to market. we add. know, the those to don't us So, manage And you if to anything I have

Hilla Sferruzza


the mentioned prior expect we that from the bps calls think about margin. I to we be So, in on XXX benefit lumber

baked fully couple had into now locked So of construction that in. those lower most of a our quarters is QX numbers, of with rates successive home we've

slightly revenue are incentive the and components offset fixed of the offsetting there, that's our of lower Now, higher overhead. course,

So, all that margins, there's overhead. in the is not fixed revenue lower the components some offsetting that lower overhead, the the

Now, to QX QX. the improvements on lumber, just are there from the and reminder

have year quarter First elevated of last lumber. did not

with was you're quarter. first actually fairly consistent comparing it last when year's So what limbers apples-to-apples, the

benefit year-over-year not there's basis. So the Even benefit though basis. is a a there on successive and quarter

it's the does just We savings entry-level reminder, And and to that were shakes last of incentive. first that gross that's margin legal from actually margin, a XX then volume how script, a incremental it case was successful able kind of with really through margin. our So that recapture from of about year's out use change, mentioned strategy. was higher to some this all this there's quarter related the bps settlement a bps in XX running we with that

So, kind XX.X of that was it's apple-to-apple XX.X. some to

decline So, year-over-year basis on the incremental really a is nominal.

Steve Hilton

we're our January, in reaching our we've to to had or headcount be add below. more of -- overhead efficient this reduction reduced headcount really overhead took we with also or But why X% that year X% our mindful would charge. I levels a and we last event be the trying and $X.X hiring year our million that's to trying in

Scott Schreier

Great, thanks. all I appreciate color. that

Colorado. ask my about second wanted question, to I For

are the still -- absorptions get you to there fact your were you declined X%. ASP Your should able say, that significantly, but or I down despite

So to you're product I'm to that priced get seeing? there slowdown lower different offer overall the the product through more burn you in curious have if an maybe market and something there still have you that the ground on Or incentives? there, is

Steve Hilton

you're and timing, the communities The the much I Phillippe? do going not you're that there better. if lump Colorado add quarter. up with wouldn't is very too if full business and I open, don't that would Business is open our for positioning end, you bullish that. new in the some more -- pretty We're But I know to weren't good. at that read in want Colorado into about lower to our have Clearly, feeling we where to California. No,

Phillippe Lord

definitely mean no two market in -- wouldn't saw a entry-level that more it. by buying years come I ago Yes, been affordability. too I impact add It's stuff. has much, and We that started

of that in strong occurred Colorado. second has that end. some strong in a really softening some offset But and It's market. So move-up higher has move-up very had pivot the we the communities

in a offsetting bit continue space. end. are off entry-level is a that perspective. absorptions And good some So which we They're that of still then up from open although little to pretty the higher the company softening in business,


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

Stephen Kim

to and more I the to going the Yes. guys. more wanted assume type incentives national Thanks good quarter bit about a away ask it incentives. regional guys you're up little job a It in moving the forward. sounds from and that's to continue to maybe ones, local market. the the navigating going I like leaving lot,

that see in okay, event? So if the Empire, in California, going to should have? communities is in specifically wondering think of of or And present via at your that full I the to know I your incorporated to Sale number in is are a did your there, you pace changed, we do Inland on how from this need then one incentives repeating Or assume going -- another guide? not actually we to that, incorporated national year that you Flash January, you bringing more the and enough, all, that you're to was with course has already over sufficient at respect than absorption if increase you attitude your year. were

Steve Hilton

first do great but second Flash Sales month can't was what's what can't the would Stephen, What question? bait January, some change to when of But of use. local. always to to and plans creative, are do may promotional we're changing month we're national you tell good and disagree are have we really there year. definite not. because a the the next his not were going going we're I not have the there I But going And bait we would the be say, we're learning that to working -- going to part. effect the what its it's for the going fisherman then is in the fish bait, and a may you every course. rest and to going Yes, we ideas of and what's the nimble and a part be month one and with be

Phillippe Lord

Empire. Inland

Hilla Sferruzza

Empire. Inland

Steve Hilton

good the Empire, are Inland Empire. Inland not barometer we for a

have two out think open there. I we stores

you on encourage market. that others seek to get would I beat out a So really to

Stephen Kim

to the guess next the XX the sense XX I to of was of forward? number on you My case were that's Okay. then going be bringing that course really going a not over them months.

Steve Hilton

until No, again out we are stores open. there. But more bringing are on we some

a really not what's happening there. going on beat to You're get

Phillippe Lord

of for Inland to sit here. and sub-markets. One one just we doing And Steve the the said, in here in Inland bit diversity today, and communities have Empire. Empire, another two As only opened Like we two okay, right. has been that open they're we're a opening lot there's

good, so just we're market a how that on data not is And a doing. point

Steve Hilton

from I'm to, mixed bag. we that it's of kind talking other builders are that a hearing

in well not. some are doing people Some certain and locations

Stephen Kim

that's Yes, fine.

regarding then more in look the development. longer-term a And way you -- really development. Okay. little a just when previous willing operating that Meritage double-digit was land in from of the doing Today even were I perspective not margins, do as you're generated cycle, back, to much and margins a land

so the cards longer was term, And think just if over for curious, is, would a and years, be that? is the double-digit of do isn't, reason you the it operating simply or what I not couple it in next margin

Steve Hilton

got or margin be XX% close to more in XX% the mid gross cards year. we more that cycle to in the But and our got had to to it got double-digit XX% get a And position getting this margin. to not it's really the We last efficient. But we get clear to SG&A our future. the higher XMU. Well, hope certainly entry-level operating to XX% get we we're a entry-level. out and we In targeting of

And that where our want factors to be. to double-digit goal in why where we were not that's to clearly, back there's of we getting of just a we're So aspirational variety other the cycle. whole are point, today. last But we

Hilla Sferruzza

And more one then comment that. just Stephen on

move-ups. time We to and have entry-level first intent pivot our been on telegraphing

a different some fully operating and new are read level, old implemented through the carrying the higher there's you're new product converting as are since processes of to points, of product require So old we little pivot, that process, bit we make the community price and first-time and in the inefficiency, just as the and you you structure move-ups. a higher entry-level as

the full the right efficiency now. see benefit place putting will You that we're of in

Steve Hilton

But that our is double-digit those volume we able to our more strategy houses is XXX% XX% for and path goal efficiently, to get per volume, store, being to built there strategy. to clearest believe that the around entire faster, is build and business a through about get and driving our all operating, higher

Stephen Kim


that about have been and clear definitely guys really progress. making You

with to -- -- had grown good to Meritage volume; integrating in has related acquisitions. been success the been most been the last My has past, that's builders question most see. among is So has the that the

your worked with the made, on ago. be while slate which here several whether of kind to that a that's enough stubbed like if through toe to toward that your pipeline that level, your has been the in a am as speak observed strong again curious You you've so, the preparedness out year your more we in but pretty I curious pivot recent the interest the could and once now confident general open to something entry-level, you M&A feel you the transition, degree in years and you industry back, past to been M&A, have over you're there, regard. to or do doing -- it seems seeing that have and

Steve Hilton

do M&A. to ready are We

Our fits that eyes are looking with very be open to them. doing going regularly to our we're strategy. M&A about But one opportunities. disciplined at We're

But opportunities and those make last who for So fit there sense. haven't is of with builder a is leverage have just so to our is we've our not just in, -- seen over strategy anything years, seen that us really prices overhead. And at we That's market going good not buying is can that -- not the to in in the deals we future. that to say, a many couple going the really move already fit somebody not we we're preference to up find of our be for that us.


of Alex comes question Barron Center. ahead. next The Housing go Research from Please

Alex Barron

the model. how seen build So just In being to kind change my the see benefits bulk, these the year in benefits homes, just your able buy far? you more new spec in based the or entry-level or the questions things the much you're think you can if been you're your speak the to can sales about your you've to, interesting or I what to improve on do this in margins cycle ability I'm talk on of experience time in of experience in you able so or curious so guess, in kind has of guess far in around driven been to, -- changes precisely -- were more I either space

Steve Hilton

for we're to mean, nicer that premium carpet, half entry-level renters, the it's six of later. all want customers do and but Alex, But a to want getting get sooner overwhelmed we talking both. move They to go volume choices both. to more We're it, months our They center, the our surveys different our touch. finish. more want want to wait from than a they flooring, customers carry nicer nicer just I mean I don't from seeing and cabinet. don't selections. in feedback a home, it's down design are they by than and a they want

product. able those our ready. can demands helping. way really their their into of build-to-order, They a see to them. spec love love our come their building products people immediately us They really for They work houses text customers and kiosks. They consistent having on be our come really office, it's that site. the And the to we're to easier it or keep all email selling our our LiVE.NOW side, over for other that's we're will the needs that the We production pace. side, and They on those contractors really they -- got can prefer phone when them. on meet So, job to that's with sales available, it them

better giving are pricing. We

those lot our a both significantly, pivoted we engineered of our been entry-level it's the with construction value equation. other product sides sell as reduce we which to able more homes better get us the be We've competitive value working entry-level and builders. to to the of for and our so to deliver have costs When high-volume able now down, We across more allows we're to country. costs customer,

out come of So but would I and lot in we the new also day. entry-level space, one encourage the space, a in to Studio only learn Not every move our M's. up you see

way that seven through move-up design love designated a the module. move allows the quicker nine all is and to the customers curated people and sell timeframe. design those the I paint or revolutionary, in by approaching cabinets, for away the flooring, professionally from that choices price, for it really we're eight packages margin, a-la-carte higher efficient the the the one and the whole buyer package that better, our and to moving feedback countertops, the colorization think or options a more it's model makes at include offers process all and really in same getting the the a us it the colors, one customers, model more from there center experience -- are they and we're

an and we're doing term. excited going more on us space, move long it's both what entry-level things the are about and side we the those over So we're much of do efficient combined what make up on to

Phillippe Lord

more as can't time off enough to us weeks to Yes. companywide, emphasize bill on structure. has Alan what building And business, Phillippe. these entry-level drive cost that communities. in space, we our entry-level two for in is I faster allowed to anywhere does just a our efficient able average homes rolled into the three much we from this and just been shave

trade a manner. faster to builders the more homes have articulated, work predictable Steve for point As in builds

is are business. So on the significant building our a speed in which our homes we impact having

Alex Barron

the point can achieve just guys point? you're are market, the mid have like and along transformation get in been great. of right XXX's, bit, able you to revolution? Okay, that kind are able there low would been a furthest And how this markets have price how where Like which you're to a you you some talk low into this little kind you of say now, of

Steve Hilton


be going price we the $XXX,XXX. the and slightly I us, their be are price So are two the a and those spot in range communities and to that The the are. in Texas lower In mid have But sweet But that south. $XXX,XXX for to entry-level slightly in mean cost lower to definitely we in names Phoenix guys, point of few lowest or price for there have entry-level, below in than -- $XXX,XXX not we Texas we're I XXXs. the is Arizona we're communities going below have regions mentioned not producer are we're $XXX,XXX. hitting homes. a per one

quite again, the particularly to our not builder be the communities, and We going or we're in ASPs more and a affordable. Florida, be few townhouse But drive to down they us anywhere. are $XXX,XXX more are allowing building $XXX,XXX South


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

Elad Hillman

and pace Congrats quarter the for this growth how and floor was quarter the full and the the sales year of community communities is on should just openings Hi the Elad thinking out guidance. the and the close of count new strong the wondering community? Mike. on some on for be given the about I for XQ of we

Steve Hilton

on next the of The community move-up count communities moving is year. read originally to for for we going to through than But growth. probably anticipated our community down better which get and growth quarter the We'll to count is quarter. we're slightly that able -- muting a lot a be second be our flattish faster

Hilla Sferruzza

of Although total become our you'll competition see percentage entry-level the more of community. a meaningful

Steve Hilton

Right. Right.


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

Carl Reichardt

Thanks. of your think following and quarter, last minimal talked the said effectively Hi guys second third you that. fourth store margin expecting end by on the and being about move XX% just today, and last quarter, at up, Steve, up I Hilla -- you of you're base the drag.

backlog? be it, composition the quarter? backlog XMU XMU So a of at of versus it is and What the of see the you your end the at year LiVE.NOW. or entry-level what first will differential end what's the of margin as

Steve Hilton

I was had into we We number. -- today there. -- wrong count? I'm and stats I year and Oh, gave XXX some adult XMU we bucket. were And we XX had don't XMU some that know, in we active and and we've a that there communities down put call have the bucket ago. so that done We you ending community have we now we have XX%. the luxury got what now, communities here? in XX. have I the sorry, other, in are And at down We am -- looking It's what

Hilla Sferruzza

It's communities sales is going to continue pace the to those decline, in but much slower.

exiting. the our we be entry-level first two community those community we're from homes meaningful of going importantly, versus could margins stuff less There month and our in decline what communities, basis communities for become when count can it the that far the difference that's an active margins, be our as of in right. on the But time while, a then and a couple move-up a hundred more to to going one to volume total. coming to selling So as less is point sure. or And between hang the for quite you a consider noticeable you're

Steve Hilton

a get today? you we Carl, out believer of

Carl Reichardt

what about Not is a fast of belief, of function things. and think out drag it, matter have of to impacts that that just a how you we how it's get

it about rollout, about with and You know more terms curious are I too. little And to though, how what we of about help Stephen, it, being and would your the go your at to what think entry-level. I'm can a ask improving wanted the margins? better do is able in in or and speed build, M efficiently more Studio far options the which price of back function you along it a you anticipation what's just terms of of you that

Steve Hilton

It's all the above. of

this there. We of end are we the end quarter, will year, XXX% be and -- there, we will by of the of the way halfway be the

tight. every So it the it year, the have dialed of to of has do really Studio we'll a products. really lot divisional the end is, single M source its us allows by and in What

know, the the of Shaw. other same number the into example, the then and from go and of them. the buying it We've by the materials that gives carpet us and to ceramic You the roll, and exclusively all efficient opposed thing pricing. a studio. with by buying Shaw carpet cabinets sell that tile as flooring better And design house. -- some all to components SKUs, you wood for We're the the reduced more makes for and we're -- EVP flooring

able to them at to which We are goods. pricing. better pricings the to get of those sale gives of our value, but We to on customer, pass allows point on also the were better increase able some that much margin us

quicker, product, be going we but we are that locally. products, to are stock, less we certain products to can our have because that for not buying waiting you're having in slowing sometimes that We're our for wait products, the vendor's down So cycle. warehouse in get construction more

of of them -- studios, being studios. and So whole contractual ourselves people, out. few reduce run a vendors for some all have We the costs them. in-house to run most part, these But are able by outside them with my contracting this a is versus we're plethora Meritage not to relationships do the advantages just running also their we're

long for it's great be term, think great, to a I going strategy XMU. So

Phillippe Lord

more design usually studio think make of it add last our taking all experience, two that go traditional I Studio onto three the if in typically takes offer to through appointments would one for not will their find other that to customer a able selections. customers is, I than you to two appointment, to to navigate M you thing builders hours. our We're

allows imagine house much faster that the us traditional permit a can billing and you to design So than start house the experience.

Hilla Sferruzza

were the closing then benefits costs. the I from you're you But And just SG&A, building last are the one on in margin, the your don't homes you're if these, the question drag yet. is know a the reason is incurring not, aren't there to financials as alluding coming this point, why or and those

of see new all since benefit is throughout in which XXXX, we the are option to versus the doing going year this of So the the year. expense through the the the Studio under M rollouts running just closing divisions country, this be you'll will the transition homes, structure, then in be and starting revenue,

Steve Hilton

Florida. today are open We in

We open Houston. are in

We are open in Denver.

open in the particularly markets, other the are to going then that have year, we'll heels by really And soon. have in Tucson. south, We're open. of of coming course, them on Phoenix in be we open We many right the the end of all


see end the of we're at that hour. I the

The time two Rahmani KBW. or Jade go is for there next questioners. more of from ahead. one Please hopefully comes So, question

Ryan Tomasello

is for Jade. on This Ryan

spec versus gross and quantify differential entry-level approximate terms move-up other difference the your margins, product your products, build homes? and time non-spec between the the between In of and similarly, can you first

Hilla Sferruzza

what is strategic exiting our point mentioned that to versus XXX of first higher anything product, just A and which second time and we they move-up currently think geographies. a I move-up. there's luxury similar. is time basis but out its versus benefit of, the entry-level benefit are depends level It we couple slight the on move-up, So entry-level projects first fairly are which on time community

question? and consistent what -- fairly your am second was are sorry, those So then I

Ryan Tomasello

non-spec? difference the between Just spec versus builds

Hilla Sferruzza

build. so spec Oh, is entry-level XXX%

is that's we all built, our offer, So that's and business. half to of no be almost comparison there

through spec So time will there between not us and on that it the differential non-spec. saying really I most fairly is for of a inventory non-spec, and market. between limited it's blow a segment because we're and spec But trying that spec move-up differential and non-spec by between second part, the caveat exit little bit quicker for us. the for a is that

Ryan Tomasello

that market, then in noticeable just competition of in And the response terms to change there or any market choppiness overall? has seen the underwriting or land prices in the

Steve Hilton

in the mean last fill to last now No, And away sticky, that seen to land builders the -- that that down. some them are move just much. They're quarters don't expect move. up, really prices we resulted pretty sales market. But I are have the things they we hasn't to from pull things people coming few picking over out and

I'd say land generally, So the market. haven't we any really seen impact


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

Susan Maklari

been for as talked what maybe fully talk in think question we will do made transition constraints a times, place that build strategy. transitioned can in see entry-level today, you realize are mean Can much your more as to with improvement build first how to and what model? you to to about you and more around, they this -- that there, even are you you the times, able is My think you've you've how just the

Steve Hilton

in than XXX I mean, building less entry-level today homes we're days.

the we big months, a all in that house opportunity homes pretty are down. We a we drive -- think able number. so to our little building three that's as here. down think drive There's that, that's a be too, labor some there's efficiency target. builders So bit good. -- don't we a get that and continue I pretty to might the more, what We build good That's and constraints other of mean, to

year do how that a our drive any continue going how Steve So really build those don't we times, a further. to big be weeks thought of X continue be The have and we're now out move bringing margins adult, pursue mentioned continue move to going that again on profit down a see should money, good we cost $XXX focus as of back is making entry-level be $XXX pretty segments, over priority the I as of on right lot There last up, our be, impact million to is I and drive that up is we ROA, move opportunity our in term. first not is -- is of then to entry-level sitting. into product a But efficient, some we're number repeatable the for -- to more make would not to on to houses, active structure. ROE us going it which but that's long X the much the and the out and our to really to benefits sheet some mean we there, move balance luxury on second impact million which which we these meaningful

we there that's faster homes also think And I better So then new have our move-up it's as us allow build what and that times on. we're focused really studio to and cycle going will to some the first well.

the our So financial everything improve pursuit today of our strategy doing long-term in metrics. all that of is we're to

Susan Maklari

what Thanks. And Can then you've strength that maybe it remarks, expectations? and you the just been generally markets, Texas a Dallas. to to just compares opening as saw mentioned Okay. talk how you some in your follow-up, your seeing in in you relative

Phillippe Lord

Yes, horn. around the go I'll

know have a You well good I us. Antonio really market. know, We're to difficult really San more there. feels suggested doing builders other

We our have great operations know products. know We our markets. there. We

So is we there. are like doing really market well feel We that strong.

of strength below We overall, and entry-level Houston places are need is we market. much there. but slow, And of of see an a if sort communities see buyer it's continues competitors, strong, $XXX,XXX. more coming dogs, healthy pivoted move-up The new $XXX,XXX, . the of unaffordable. four, Overall, are It's be business a the but there to of especially entry-level very on, entry-level, pretty highly is new market. tremendous to slower cats is buyers market move-up the Especially we generally business move-up. haven't have strong competitive. our just strong we second We strong, than all it's gotten some Dallas very have it's positioned certain strong, s the We sensitive you're a is below incentives, choppy Austin But entry-level are move-up that coming rates. It's as kind -- very hard big then like the our there. resistance, wanting probably and market. interest it's Dallas lot entry-level. the that communities extremely and choppiest specially

Steve Hilton

I'd the say last the up not it I March lined all in to But sun, have we we're the or that I'd to mean, going Dallas. killed we to be our month cycle. It's XX focus the not the are much really pipeline metro more since in month. all star, area, the also good say in had this Dallas as in that so in March moon products dramatically a going Dallas, best distance, XXXX, long the entry-level XX we market. opening the exactly why by communities and in in in in and Dallas, are next really Since also that reposition on March months entry-level sure


the Please will today be Wedbush. McCanless And go ahead. questioner last Jay of of

Jay McCanless

what timeline in earnings starts. point, potentially out at of the way; this try to and revenue still through I guys So XMU seems because and fits like I for internal volatility other, those some and guess getting on you as is your think sold it there's and through the move

Steve Hilton

of our a be six become don't business. for down to But Yes, But be going drop it's a it's we like will the relevant. while. won't below XX% we it will continue quite four will to quarters, XX% then down to still continue closer to less and gone and within this X% all it drag. to make as think But next like year. pivot, to that zero be I

Hilla Sferruzza

as viable We're wholesale it margin and But this getting wholesale the the We're not not at product, we're charges. at large off as to books get selling a quickly it still it this low possible. discounting. books is discounting off we're

Jay McCanless

that the if better organic core you guys strategy? that us out, that orders could the And in a in the breaking then give just would your entry-level, where a and closings, because is out start I of request, sense breaking think versus growth XMU

Hilla Sferruzza

some Yes. headaches, level it breaking of number the that detail. at a start of too that's Yes, of us It's right. to of small create to going

be to -- and it of incentives volatility the to think financials. some off. it's going clear, So, on we to continuing it's meaningful from a I mean, through been pretty going being There the by have those rest taper going impact be XXXX, 'XX stops I is

Steve Hilton

to can continue our color call, you try know We will every that that give detail. give we on to but don't I

Jay McCanless

you XMU And just maybe question, and there opportunity what one the it, single-family associated it quick this for folks quicker? that you to and get rental some hearing guys of even from to of are the through some those you other move guys? help off land with from Is investors, move an

Steve Hilton

want They don't talk and offering, will are money. entry-level, prices want can't XMU. make they them and is that to we the What they we really

So make it the and family and them can will at retail didn't of product, single we we success premium is, sell sell we build why them we build more rental strip-down generally I products. the it. entry-level why been a more for don't for asked have And, we are mean, our and we buying to answer have product. a just really to wholesale, any them, entry-level of about on ourselves build at communities and when that selling market, a for money

segment. are old tone not the we again, So to deaf

But and can't a it certainly explored really to seem out We have where examined it. figure it makes us. sense way for


This question-and-answer to conference our remarks. to concludes over any Steve closing would the like turn for session. I back And Hilton

Steve Hilton

to when very with speaking second our a we we here forward very call day. you conclude in much. the participation Thank Have quarter. you your and look earnings great for Thank our first quarter again much you summer, over


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

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