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Meritage Homes (MTH)

Participants
Brent Anderson VP, IR
Steven Hilton Chairman & CEO
Phillippe Lord COO & EVP
Hilla Sferruzza CFO & EVP
Elad Hillman JPMorgan Chase & Co.
Alan Ratner Zelman & Associates
Stephen Kim Evercore ISI
John Lovallo Bank of America Merrill Lynch
Truman Patterson Wells Fargo Securities
Carl Reichardt BTIG
Alex Barrón Housing Research Center
Jade Rahmani KBW
Susan Maklari Goldman Sachs Group
Call transcript
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Operator

Good morning, and welcome to the Meritage Homes Fourth Quarter 2019 Analyst call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Brent Anderson, VP of Investor Relations. Please go ahead.

Brent Anderson

Brandon. you, Thank everyone. Good morning, our and analyst our to to call full year quarter XXXX fourth results. Welcome discuss We issued at our and press homepage. link release yesterday after of bottom find selecting Investor our on at by the you the it our or website investors.meritagehomes.com the Relations can market closed,

which full I'll projections slides call as revenue and expectations and subject as as any home at and year per about you well refer other statements our to share we X to for contain our Those time, obligation to uncertain. operating inherently assume that press as deck trends. forward-looking to the in management, Slide and forward-looking and well and Any any including addition current earnings update are and statements, statements the market you release are the XXXX them. projections change such and quarter in remind during overhead as represent no first margins this metrics earning of closing opinions closings,

report compared and release the results detailed factors, Commission, Our measures. risk certain to annual recent non-GAAP press measures closest which wide discussion Form in financial also our due XX-Qs, a on a their differ well on press more our expectations as of reconciliation XX-K to with related Exchange of slide a We've contain from of as our subsequent release and provided those materially and risks. to referred GAAP in filings as we've variety this Securities identified which and may listed most specifically actual

Meritage Hilla CFO; Chairman and discuss our Sferruzza, and Executive to Lord, of of CEO VP and today Chief Executive Phillippe quarter me and and year Operating Meritage. are: With results VP Steve Hilton, Homes; Officer of the

through after an and active about replay will it expect approximately hour remain be an our and within a conclude call this February conclude will we the available We on hour, XX. website to call,

to Mr. results. Hilton over the turn now Steve? the to call I'll review

Steven Hilton

streamline you, on was our to our support profitability. everyone value-conscious and to the first a move-up of undertook I'd centered largest affordable introduced participating entry-level remains I'll and demand meet - goals begin X. and Brent. higher of that concentrate focus Slide housing driving transitioning XXXX, to and our and part market. We plan to our complete growing markets. the like rest buyers, with which luxury out efficiency business ushered business buyer We the for the the we on more improving Thank for product shifting strategy up growth move a strategic to our our decided homes, end in welcome ultimate the and In around LiVE.NOW. and to home call effort company-wide around operating in today, of our homes

that effectively XXXX results deliver. been the The over improved significantly our three We've demonstrated on strategy impact have years we year. fully We visible last as was executing by results. the each

improve. the in year strong many was of housing start, and end up the particular. an across the continue year fundamentals measures as picked After operating slow demand through our quickly profitability. to success, we've enhance can path to homeowners XXXX on growth that was in good and general Building achieve a grow Meritage a for set and continue and believe year our we for we and to as gained initial progressed. We momentum improve,

We the which XX%, position attribute our were markets. to and for XXXX closings in orders, up move-up year-over-year mainly both backlog quarter, improved higher entry-level That year-over-year the from absorptions, driven that growth quarter growth, first dollar and total each over the Our XX% was in expanding by XXXX and comps fourth XX% of second units value. and through respectively.

success locations, as right We right recipe for price the which the at a the right the homebuilder. in product basic have is

and volume to quarter, XXXX revenue production and incentives. gross to growth, and compared lower year-over-year sequentially efficiencies price well both in of to home due by our addition improved In purposing margins XXXX, as closing as

gross home better earning margins to homes first Studio level. our XX.X%, with close has last been margin our our the XX% LiVE.NOW. target closing quarters, very For the move-up success on two entry-level and our We're both M. homes of

pretax for savings energy were to diluted from tax Our improvements volume year simplifying earnings by processes. margins, the also of they the quarter drove even tax improved fourth in officially as a retroactive both significant and our and before EPS after renewed full last we've year SG&A credits the leverage growth recognized through the streamlining quarter Those and gained and result we year fourth XXXX, the and year-over-year in growth efficiency our net XXXX.

net Our XX%, the book been the positive just XXXX, debt-to-capital company. per in share year operations, and lowest increased of the $XXX and using cash a year-end ending as retired over we value of nearly million $XXX quarter $XX cash over the in from the it's ratio to for million debt of ever flow with fourth

rebuild excited XXX those of to about When XX,XXX sales, by we for for fulfilled meeting quarters, compares Turning shareholders. the entire added up just well we've for lots that lots that resulting we're we communities us approximately and I to XXX XXXX challenge new market I'm for report, about goal. said were were X. and and and communities early making bringing close year the acquisitions put significant after communities under in it to XX% the with total early way in for which our than on pipeline that keeping happen, the and pulling of our to was We've Slide in presents happy biggest XXXX under Meritage we goal, communities and new that new slowed. accelerated many commend It towards XX,XXX quarter, the And our reaccelerated of out to our our made plans reins products. results last a we XXXX. get and LiVE.NOW. our was control to saying the our three XXXX. to lots reported XX,XXX opportunity control, pace That goal our more put back put our XXXX lots for approximately our last XXXX to in after the team of us progress the end of

I'll now it over some turn trends. to discuss of our Phillippe sales to Phillippe? highlights

Phillippe Lord

Slide you, Steve. X. Thank

Our at orders made homes. despite up and in end quarter third delivered fourth order count. where of pushed a XXXX, this entry-level quarter we'd XX% for which of ahead year's up total growth were community the the quarter be XX% a XX% year fourth XX% for XX% XX% XXXX, a XX% in compared over in of our to the order last year-over-year, fourth year's growth small our We year-over-year They our quarter year full communities from quarter to and decrease of were LiVE.NOW. in year entry-level a with XX% of market our orders thought up ago. ago. communities we

While year-over-year year-over-year easier were market LiVE.NOW. three comparisons of our homes success quarter growth. to terms in the clearly the XXXX than entry-level of fourth of quarters, exceed absorption the first the broader

Ms to your product, our home the we're in new has well In Studio the been and offering of collections success process personalizing very received. simplify design entry-level of addition our to

realtors that you Day in own our November, homebuyers, If you Analyst from directly heard our and sales attended associates.

color, on was provide additional across Looking all three with strong regions. X. quarter Slide beginning I'll demand at local West our fourth the region orders,

West fourth a value. up XXXX, increase in count the order absorptions a in increase total of orders flat in community and with quarter driven XX% Our were XX% XX% region over in by relatively the total,

California last our entry-level and is fourth of to year, one after been strongest turning corner we quarter shift in the California has like starting very the strength. we may had our Arizona the a it made business with results feels this also gain to made hard And pivot over the XXXX. We've demonstrates we While markets success difficult our it. entry-level, to have since be the in the

Our average year to XX% just being a and XX% in California, California year communities entry-level of grew XX% ended ago. community compared we with count the year-over-year

the of just our higher The up along in California X% in state. absorptions a Reflecting with decline with market, little doubling orders of in in combination a and communities that improvement shift, a housing were XX% some out resulted though absorptions ASP. for California total performing absorptions of over the produced at of several average the across an XX.X year-over-year. the in close orders quarter, value. up strong XX% strongest communities, the orders grew we We XX% for community Arizona, in again, XX% company and experienced Even average more per units

on the to despite close absorptions average to to as compared With were in X.X% our ended the Colorado, X% the ago, opened even mix fourth In up entry-level. in year target communities our ASP market, a flat fewer with for our continued XX% year our year-over-year year quarter, the than Arizona a was XX% strength ago. community

more the ended the we to was the and in in with We orders acquiring as terms challenge XXXX. quarter primary growth market. the replace West our Overall, communities affordability affordable townhome of fourth duplex this Denver, With entry-level been region that communities. higher-priced best-performing and communities the quarter move-up have again are our facing half year of closing over

X. Slide

by central in decline in quarters. year-end, communities. the of increase are the partially communities of At the communities of online in a to over We've our out process Turning average next bringing were Texas region. absorptions communities sold and entry-level. more XX% number XX% that in a was Texas had offset a few XX%

for community count, our orders in was up have order of share up All for markets doing expansion. well XX% our in So value of and opportunities X the were despite and decline XX% are quarter. fourth a market and year-over-year plenty growth future Texas

Slide XX.

are in are other we up X/X represents the the of quarters. of the Due That we communities see XX% years. our slightly be mix entry-level XX% growth pleased absorptions, region in order fourth during in on active Year-over-year to huge continued our East very our fourth four getting the for year-end our order product region are the entry-level increase been quarter, East are of focused a and communities regions. mix a the opportunity to was average region year-over-year. in East with about the over shift region as each last XXXX, has couple at and positioned next region We total Approximately XX% growth. quarter. value order to for again the produced more for fewer improvement in target XX% intently the Even as East Meritage

improved community Carolina also Florida in growth. XX% average XX% XX% XX% XX% increase a with of of decline quarter. Demand count XX% Within produced in in XX% as growth highest a more increase North average and the year's growth the a in quarter was in a greatest the quarter in the in XX% generated Florida region were X.X% absorptions community for increase December average XX% region. where X% largest year-over-year absorptions East in growth the than This the in the orders. fourth has entry-level region, order Georgia, Their combination for count. communities at the absorptions a an and increase last footprint XX, for order higher was of absorptions over the XXXX. offset with

closed year, this our XX% some communities which compared last Carolina count out year community and XX%. South by orders in reduced to We've by strong average our

opening order over We will partially absorption in well growth our increase a South increase Carolina. by offset XX% communities future a growth our LiVE.NOW. absorptions, rebuild in count. new should pace community next the count Tennessee lastly, as XX% that And decline be produced to as drive community with several in quarters

communities. a with LiVE.NOW. We rebuild there set counts to are number of new up quickly community

Slide XX. in than X% backlog We fourth more XX% the we as last in orders entered XXXX quarter more With quarter. closed year. just homes the fourth of

a entry-level available our tenet quick to homes before, spec explained quarter core inventory more in, this XXXX is strategy. were we've XX% is move which a from ago. for XX% spec compared fourth to of of year As due having closings

quarter XX% fourth As our year last to XX% this year. compared increased conversion a to backlog result, rate in the

over X.X began low of of of in payments conversion an December a to or we hard homes the per were quarter Before entry-level XXXX our little compared compared spec X,XXX XX% completed to XXXX. average as to XX.X which XX, community, ended rates market, with fourth our Only in mid-XX% inventory year the were to the We of ago. a XXXX, those XX% specs in of average an range.

we quickly, so the continue sell starts back early aren't homes a see can our constantly to reduce in process pull relatively the we and inventory on sharp anticipating. demand which We in monitor downturn we and that should currently market, construction

Hilla provide hand of will I additional analysis Hilla? some financial now it our over to results. to

Hilla Sferruzza

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

of in quarter assets increased XXXX current product write-downs Our to relating the for our million that don't fourth strategy. quarter XX XXXX closing inventory gross bps margin fourth home fit to including the of XX.X%, over $X.X

Excluding home margin underwriting bps XX.X% for impairment the our similar quarter charges with our criteria. quarter XXXX, and net was of in gross margin a XXX XXXX's in the closing right both years, gross of than line fourth fourth of higher

the improved XX.X% For margin gross XX full XXXX, bps year XX.X% home in compared closing to XXXX. to

were from in compared XXXX. the changed of financial into million XX.X% quarter XXXX down closing line those Our XXXX We home profit, XXXX to now services XXXX, to lower earnings closing revenue services about financial home fourth bringing the our XX.X%. which bps transactions being improvement full to venture with beyond. part resulted year our margin were in of XXXX. quarter of ratio than revenue joint as in are our compared $X.X profit unconsolidated of will XX expense percentage customer quarter incentive. for of of part a fourth The XX SG&A rather from new of mortgage This expense of structure included over and SG&A XXXX, continue XXXX in bps the as relating structure fourth

of late for commissions year as well early cost XXXX. impacted SG&A as XXXX broker XXXX about full incentive payments accelerated our equity severance this from year leverage Higher earlier and negatively $X.X in million and compensation

nearly a Our interest the we interest Prior expense fourth XXXX. in quarter early in capitalized reduce forward. that that XXXX of included to inventory of retirement our not million the quarter on notes XXXX due the We total to early going capitalized December. $X.X retirement, total but interest to decreased our of all year. quicker that of to in notes interest the expense in compared We fiscal in XXX noncapitalized XXXX. XXXX will our which completed this interest extinguishment fourth less with repurchase do of we turns have million XXXX incurred to expense Interest $X.X was quarter any for XXXX last in announced minimal early expect we before loss December, resulted higher inventory expect had million in to incurred XXXX, and due end redeem debt, interest and

Our credits both while XXXX retroactively for for through benefit XXXX XX% that in for the the fourth we year fourth renewed XX% and million XXXX, and energy were December XXXX we the quarter quarter XXXX. quarter full XX% rate in higher our XX% income to and closed energy of year that qualified in the XXXX XXXX over the a net earnings of tax fourth as recognized of Congress tax X% XXXX extended for tax and XXXX. compared of reduced quarter fourth $XX full our pretax increased to of for approximately credits homes approximately

year. rate and We quarterly will the reduce continue these to for a credits recognize XXXX to on in effective basis expect our tax tax about them XX% to

additional home buyers. we costs of build the to credit. we energy reminder, order us a really offset a taxes. energy-efficient view rate As high as such allow to we every earn in in high-quality, all tax rather our incur provide costs achieve qualification, on acceptance in to than These efficiency to a direct our sales a our a to credit Internally, the cost reduction of health

this in Turning and million items in We to balance fourth communities. and for we XX. land That $XXX more of last what spent control putting over about on land million and on under year's quarter, new approximately year's quarter. development sheet highlights Slide lots our development spent on than was X,XXX flow a $XX cash XX few fourth

based XX,XXX year at lots grow months We compared of to the of to the ended market inventory next owned approximately XX, lot of our trailing reloading XXXX our supply As our of XX% XX% approximately XX,XXX supply fourth and year-end. lot lots for lots total share and with December years a orders total years. optioned to at increasing XXXX, XX closings. X.X we've new purposefully said, several communities quarter materially approximately About was over pipeline we've on been

the and million $XXX of ratio our by redeeming just sales of of reducing increase. from this structure year. we'll XX% just under for planning for the net net land approximately the and even this higher billion growth. to land we we We're to under and mid-XX% flow should couple that ended our develop to XX.X% at year, we end to XXXX at debt, to the of with purchase to growth billion development $XXX to XXXX to manage billion end - neutral last spending, to the count Even the spending $XXX from our million our the we as believe which community next XX.X% debt that as annually at end in is see We XXXX, continue expect year after debt-to-cap We're - from in XXs years and operations. our of and $X.X $X appropriate our count reducing expected continue under debt in range, closings positive XXX community cash to be in for million approximately $X for from of and targeting meaningful previous slightly to with cash year-end targeted cap operating opposed current net

XX. Slide

As homes we've market our housing strength realizing. and results and of efficiencies by look we're more the achieved forward, we're the we affordable the the shift with encouraged operating towards

growth We to and operational of from with exceed gross expect to benefit continue our will efficiencies growth leverage we top our we've the added the made, improved and line earnings margins refine.

and mid-XXs the X,XXX of closing we to turn For home range and gross of over and X,XXX that, in Steve? And closings, XX,XXX gross home the to mid-XXs. XX%. $XXX,XXX the year closing XXXX, first for to to ASPs tax to $XXX,XXX With approximately ASPs the with margin $XXX,XXX it back in the quarter total approximately X,XXX home total home in we're projecting of XXXX, Steve. the projecting full $XXX,XXX margin I'll are closing rate

Steven Hilton

Thank you, Hilla.

is our focus move-up footprint. performance strategy entirely which strongest Our of across the our demand areas and the are to direct first markets, on the result entry-level of

by not only cost ability providing or those efficiently streamlining are want our We they delivering high-quality terms buyers and homes and in homes effectively to and selling what affordable, operations. of simplifying

and deliver has leverage to market a market take grow improving and shareholder Our than earnings better our at growth allowed and the equity. margins to strategy faster share while us our pace operating grow

We've sufficient capital balance strengthened of flow in the reinvest proud been providing first to our growth. Meritage company hard sheet successful. cash entire positive our and for working while our customers to have and make generating every day future I'm putting team

for is demand levels, employment for outlook points, especially price Demand to positive income homes value based home at great rates low lower and housing consumer solid interest deliver The confidence. is and do. which on and inflation Meritage good

committed With have continue the to count over several the over committed investments years. of pipeline quarters - made we've in couple to have order to expand growth next to and continue last our community and the for

strong communities to growth demand We anticipating deliver are trends continue. those positioned recent open, volume that as

for I'd Operator? take concludes like and prepared thank our homes, today. to That of questions. remarks some your now you Meritage we'll for support

Operator

Instructions]. [Operator

with Our first question Rehaut comes JPMorgan. from Michael

Elad Hillman

for is impressive Mike. Congrats another on quarter. Elad This on

and far pace be in trends able monthly selling January? to First, season? would for you sales spring early the any indications so the And any in share quarter

Steven Hilton

in month And is and internal seasonally because slow It was and in that I'd order in has away it traditionally, December shouldn't encouraged we've steady very was sales. say far very less quarter. tell been particularly challenging as fourth stronger real was February you for we're this December so exceeding But January, in some a bump. growth will strong strong exceptionally But quarter the month. our January we you we March. have and by a can March, I carried expectations. I also get that what tell been seasonal throughout comps it's seen strong, the strong was year, than

Elad Hillman

think And you the And what's forward flattish? still XQ? community And community before about how XXXX like then expecting specifically, should we count for helpful. in pulled also, openings are community to count roughly XXXX? the to then That's be growth potential be Great. like

Steven Hilton

count we is Community growth see on. I flattish growth this everybody it But community be-all. matters is slightly up be something count that absorptions. is don't to What really focused end-all year. important. would as the know It's

company, to our throughout in Our increases it absorption it's and on strong early our result growing next growth more in allows XXXX, just not return commented to to advantages said, We absorptions I'm It even we going invested them year. Higher But last us count. community leverage think we really to Precisely allow as earlier. improve. capital. than has to the the than been more have very bought continue year. in, be strong that us That lots year. overhead, many We relatively XX,XXX expect our remarks improve to what too tell. community quarter ready. That's comes count - throughout will to

is lot specific a for think So be each give fall of XXXX. company we a to count into place community from things us big in growth. for XXXX have really perspective entitlement to development quarter guidance really, our the for year a But going to on

Hilla Sferruzza

we XXXX flat. will relatively And think be

Steven Hilton

Yes.

higher. I to think flat modestly

Hilla Sferruzza

Yes.

Operator

Our from Zelman next & Associates. question with Ratner Alan comes

Alan Ratner

you're about are and my on range potential what makes of coming guidance comps closing take you if drivers steady are count. sense, scenario, market want comes kind or a solid kind you and spec The on not you're against the up thinking for where on now that margin think this high way which this spec of this. that single-digit business rate at when But right is mid- point Steve more of right given business. your And comments XX% one are up given somewhere But on kind certainly, predominantly growth the I on that. the is, the there encouraging, really based in about am to how I some look the community your growth front? and fact take price count, strong more the to great of about thinking generally Congrats extent, definitely and sure first Hilla, to another year. end of is just I'm quarter a that year. the question growth that higher? control just January Or single-digit curious, you year-over-year. your If footing on and perhaps high the the of the and solve volume Just is continues I push to through that - would your it's becomes now price mid- going in demand I'm is. volume comments and to keep margin curious that And

Steven Hilton

No.

I price entry-level there are are then price space, think we're same. we But going to can have to the degree. the do competitors in significant there some volume. going if some to really ceilings. driving competitive push be that with on Obviously, them to there's And out we're focused

think to balance higher price I we're going think volumes, and but we the inventory I have just to produce spec do pace. we And that. have to can

do get be about I overhead And price. from more our I and think more than that. it's we we we think efficient. for can us, But leveraging there through volume do

Hilla Sferruzza

Yes.

top Alan, to the of point, of is the your think, I digit. low - midpoint guidance is the single double guidance digit. But the the high end guidance

depends willing at margin this to So us, sacrifice to what market not we're the going volume but for give point. on is

Alan Ratner

That's helpful. it. Got very

Just touched And that. overhead. thinking on Steve, to on hear your the you

about leverage SG&A with But given maybe XXXX? roughly formal tad, know in we the the flattish, think revenue of of you guidance. how SG&A kind midpoint I haven't up should being So a

Steven Hilton

want as point. give don't of we'll at percentage I any able to but down. to reduce a the revenue, to think be this I specific directionally continue But SG&A numbers

Operator

it. Got

Stephen Our from next question with comes Evercore ISI. Kim

Stephen Kim

mean touch is that about it two all, dollars it then or down, of I - ramp the as Great think communities to SG&A sort first right on quarter of online? quarter. follow-on Or spend ahead Steve, to on comes a that communities that - you SG&A right think the should dollars of increasing answer to - the SG&A. directionally online? we increase actually when come on community Is And you well, assume just year-over-year? think regarding the

Steven Hilton

to that the to going have part, in Well, year-over-year. I'm of rest you take answer I'm first let yes, it. the Hilla going

Hilla Sferruzza

the increase of remarks, live, we the piece communities obviously in know, said big XXX guys my at the big have have The we communities, ramp-up XXX. a you a I XXX margin to happening goes prepared ramp-up as really before apologize, community million is I actually So a line. so that

in with prepping the in maybe the just overhead we in folks So the ground for so community. not have a It's much G&A G&A component, where a it's on line, the line. hair

So our with we're that increased holding that even to margin, still in full burden year. for mid-XXs

Steven Hilton

For gross margin.

Hilla Sferruzza

as called noise issues and There's in of will full that margin. margin, continue. operating of year that couple directionally our lower said, Ms, for gross For a SG&A although cost be out we XXXX, Steve XXXX the in Studio won't obviously, recurring

Steven Hilton

SG&A guidance because do leverage be to back first upon better for with Yes. the even that SG&A and job we'll you mid-XXs go But to us today, obviously, margin more. out directionally the for that gross to able year, we our if question the we've had But volumes it better down are allow closings. even a based that driving put will

Stephen Kim

a wanted of And things. Got the then clarify just gross regarding margin, it. couple to

commentary that the or benefit terms the of assume was financial think about, of there financial services. about said, did all, bps XX the into it you event. out of any not was of I got I margin the the affect quarter of I First into a a moving the online the the know GM expect, or fourth from last I whether transition - basically, to wanted of gross services of kind out what in the of from quarters next year. - XXXX. we that margin in to not other can impression

us? that dimensionalize for If you could

to gross you the made that earlier and And Alan. margin gross margin, broader comment, then regarding Steve, comment pricing

the mortgage bit if here the probably, of next ability have borrowing term with price that loosening isn't take let's with positioned really DTI a prospects I factors think perspective, that six you is you as from affordability anything, do maybe other pace, right? advantage that a to about of you that months. - kind it to at mean And months entry-level be forth, an in rates, a so there right it, terms the down good near perhaps form up and the little thinking and sequentially context, of would correct lower from coming these look onerous of in the to coming of - that you in say, move that's costs price less way think calculations entry-level. were balancing the ceiling fact talking But about versus talked to last, the that. six of because I of Is about

Steven Hilton

we've I in really what pressure mean And little lumber that starting of it's in been you prices. to already of so certainly, volume see Yes, also encouraging. on Yes, January cost. of just to probably means a far, seen mind keep we're bit course. higher course. more got But

So the we're keep you to talk - competitive. the we're I'm to at Hilla won't drive joint saying all you homes can, not clearly, I mortgage bottom got be value want - the entry-level, the venture But about all it there. doing certainly, that prices can't and not line. we to to equation what come to but you raise at the affordable

Hilla Sferruzza

Sure.

will a event. QX go-forward continue Stephen, So you're right. It on basis. It was a

We insurance beyond, flow was quarters bps. three services operations the go-forward with financial margin financial to and mortgage first and you'll clarify, become and the to financial title will impacting revenue with our XX, just services be in that And component services to of XX still just starting that that's it's insurance up, it XXXX just have versus into not it's to basis. the meaningful our So our year. more continue it continue see companies but companies through ramp not a will and on changed,

Stephen Kim

roughly commentary clarify, margin points because year-over-year of largely mid-XXs to factor, assuming of basis this in just correct? XX of gross betterment so your basically And you're

Hilla Sferruzza

Correct.

Operator

question next Sachs. comes from with Goldman Maklari Our Susan

Susan Maklari

begin us talk to guess, you I you little to You've stabilizing. on bit regional you've with, the bit been some California just can seems a a of that the color give that? fact seeing? more be that highlighted to Can trends

Phillippe Lord

in low the last to up up. market. Philippe. pretty California there, is Yes. a quarters. out demand There's it seen here Last of starting definitely bit a We've This year, incentives, confidence buyer two are wasn't a firm firm Prices quite was lot coming of 'XX. difficult was

is is buyer demand consumer quality traffic, importantly, the there, interest, the the better. confidence much More of

much half on, back quarter, early January, seeing again, and at early kind of in conditions. the So we're last different of

we California I But the entry-level optimistic would California all to feels a think Southern I you, a stronger feeling get than anything we've tell else. obviously, also before ways And little were I overall, stronger than got we're this Northern turning bit happened. back feels long you where is to kind of California. that, that little corner. tell would

there, firmer much out still of I think year. last than structure a but we're game pricing the incentives will seeing be part

Susan Maklari

turning Okay, side. to very the land helpful. great. That's then And

talk about that You how be noted more that you thinking put, How the I you're to you Can going about quarters. don't XX,XXX option control that? of in thinking under we should than few know, last lots piece forward? the

Hilla Sferruzza

Sure.

So percentage XX% the where can see you years. been our XXs option low land from couple that of we've to increased last of

leveraging sheet our growth but we're increase. balance large to acquisitions. balance our that incremental lot course, We're that looking sheet, so count that So hopefully, for encouraging. you'll financings of And continue sheet number to actively see own off to seeking balance community opportunities, also off was get definitely

Operator

Our next question John Lovallo with of America. Bank comes from

John Lovallo

Philippe. I one, guess, first for The

points feeling bit are a most you're there? Northern California mentioned price at You better What that the particular. interest seeing in the little

Phillippe Lord

$XXX,XXX we're feels it sub-$XXX,XXX of but where we're our most much even think definitely stronger. up, essentially, $XXX,XXX opening that it That's I feels if communities on focused point, - really closer and good. communities, you're that price LiVE.NOW. below to

John Lovallo

then And guys that you on in help outlook? outlook, contemplating maybe thoughts product in gross cost are that mix terms in just inflation some margin the and with can the underlying the change helpful. That's of Hilla, us Okay. of you

Hilla Sferruzza

now. is from mix too different going not our are look where and first we going is products that up right de than our to pretty product with to minimis nonentry-level hit the the time contribution move We've only exception being The pretty XXXX. much noncore be in target

lumber. some to else first-time gross the we I entry-level, XX%-ish we've guided Everything $XXX,XXX were entry-level for power. still from pretty normal. we're think it, what two still or or in going first Steve ASP to then those pricing you So little a starting where in up that And see is time see can that around than full bit noise have notably categories, move year, mentioned we're to of margin, is - feeling the reductions with shift that XXXX. that's the incremental to We coming to $XXX,XXX not

us these communities offset burden revenue all a the incremental about fairly that Steve but the even and covered on side certain with can concern overall well we're it like can't gross and cost the we've give guiding We're and can think I very don't XXXX. feel talked that getting with to for point, new what as what comfortable to we what we online labor of is beyond higher margin. going push seeing a won't we still side on above to

Operator

next with Fargo. question from comes Truman Wells Our Patterson

Truman Patterson

a throw me congrats out quarter. Let there another good on

year-end, First, to flat just that's correct? regarding community count, the wanted question clarity prior on up, that's by

Steven Hilton

the to That's a little year, up. the but correct. dip through finish flat year bit we May should

Truman Patterson

Okay, okay.

have on an target You've that's finding and your bank gone some end exceeding you adjust the hitting the more to have wanted by land XXXX. underwriting in you get out update hurdles? do pretty you go of and aggressively of And you hurdles just that regions? Or XXX much purchased to or had still Are One, of do certain those in land community in count how much all on your lots Have to then hand? side? XXXX. attractively,

Steven Hilton

the continued up. all it. three, and If land, for et process, need refine it of we developed, anything, absolutely move we continuing community we the get to we've much criteria not strategy have of fits documented identified open, land, say tighten contracted, Number two, we're fully And that to to most changed need that would through land cetera. count, land still the we that to like at get we entry-level entitlement that and almost but XXX the find land I of the both our number to first our all. have underwriting

a going do. happen. to that see work But we real to work still much to hard So pathway we're to getting make there. And

Truman Patterson

many to at It over cycles, pretty your so. Jumping it's cycle. boom great. it's and year or been hot Phoenix, these bust seems over past this least through red Historically, in Okay, gone the backyard risk orders But market of you They think bit. a should still about at do XXXX? we at were how Or Phoenix decelerated up that XX%. the Phoenix like in softening all? about think is

Steven Hilton

Phoenix on No. Absolutely count availability. more and openings it's line community in not. and a flows not orders The the and of straight lot related to store are closings, really and ebbs

has that bit don't a market. bad move more challenged. the a be waited I communities. of jobs those some versus think that opening XMU more into of jobs averaging being communities. we've rid Phoenix a available up some the the We years, closed market lots really some XXXX we're I we strong market. are here in jobs and XXX,XXX significant lots new on so little entry-level entry-level been some And see in news communities; in job some continuing. market that made almost communities. has fuel And luxury tremendous lower year. to that And We're some older on strides So feed market getting news that's The made acquisitions why bringing wage several is of Phoenix is over in to good lot that XXXX that market we're last in really But growth

taking that. for and there's market entry-level demand Phoenix pent-up the is going affordable of think I a homes quality, advantage to be

Operator

Reichardt with BTIG. comes from question next Carl Our

Carl Reichardt

- or in total 'XX, Steve, slightly now up you the net you've versus but got close Hilla, outs, close you're opens Phillippe, can out the and of percentage of when flat what communities open? you about the to talk sort

Steven Hilton

but first I think ones closing I we're out - big XMU or of entry-level. X that going most think are exact I we're to number, have be quarter; don't going to X the communities. open the I the be know in

move So towards just to communities. better absorbing continuing we're

really We Texas going next the some opening in absorptions. have two to drive large quarter that communities or in we're should well-positioned exciting meaningful be some

not over us to to continuing the issue the line where the we it's most trying for could we're try to in off have. market demand. quality place And if the market to move count our continues But that that right I'm to top And there's business think remain I strong. undersell the So propel the community quantity.

Hilla Sferruzza

X-ish four, been Carl, That a are vocal a X have means community about some year there are that it our lots to very a takes of about going. course, of five. two, some to to So I year get supply you're lots. selling X.X look are It - to years. at we've some years intent are X that through that

little are just figure about any little us, year in roughly think more, communities a annually, if rough a given of So three you like that's community about year. for X/X life, your a less, but turning a

Steven Hilton

With been on shift our that positions to larger the to lot with entry-level, said, focused we've buying turnover. reduce

Hilla Sferruzza

Yes.

Steven Hilton

There's lot spot more the getting positions we market higher find the us out. longer. turnover of help rather are entry-level that Because in a sweet doesn't turnover in the could cost smaller - in getting and leverage overhead. stay of that we'd with bigger our positions And

buying the of per transaction going lots will So churn other average lot continues decline move think that we of into and a to well. years, later we're metrics number that the our we And is just to increase. help as as

Carl Reichardt

Yes.

my makes going was That That question. to sense. Okay. next be

I did answered though. want it. you Phillippe ask So to just

East more move move LiVE.NOW. in year, the this will be the right I to East, core towards still of Is in through mix the similar right 'XX mix is to sure terms roughly want that understand now LiVE.NOW. East? LiVE.NOW. but if be - just needs in Just mix about of going I other your this, you move versus the towards of to in if company to make most shift the think the make a way the toward think for

Phillippe Lord

Yes. That's to about right it. the way think

our we're near to for our you will, each around think if mid-XXs I XX%. target, our said I get goal, and in in to for is the comments, As prepared East region entry-level

lot still LiVE.NOW. our going a year Florida, next of goal, which the In year this the is opportunity. opening we've of some there's propel opportunity up and cetera. East Texas, So really entry-level to kind we're in are communities, Most of in well regions, et as absorptions. the other there achieved communities although that there's

Operator

Barrón with Research Alex Center. from Housing comes question next Our

Alex Barrón

kind to you guys sense Great just you year these about Steve, strategies? a larger or made much give of kind they lots? versus In XXX like kind us sense Can of shift job. lots of versus, roughly larger are say, other a point of you how communities. the the ago words, the wanted years you give I about versus what ask look new before Is XXX two a us you ago it this shift is strategy? change of before does two when just Can you the like? - community what

Steven Hilton

Yes.

I'd average we've and couple a XXX of probably is or of was of positioned multiple positions homes houses have together. We've about have going ago, XMU a higher community. XX-foot bought where it But think is I year. lot median the than probably product to XXX many We We in together may offerings. few a years XX. even town because, value we're XXX, I think last bought have entry-level positions a the years an may couple XXX say today ago, XXX. And about lot

also perspective. efficient a us that better construction perspective, allows from leverage to So be our overhead supervision from more marketing a and

where that's - is we're heading. that So

Alex Barrón

helpful. That's Okay.

a necessarily community doesn't equivalent there's flattish cold count mean have an pace? So order basically, even if you

Phillippe Lord

focused why couple the absorb higher absorptions years of were much That's with is we on when were ago we're thinking lot now faster a we what they buying years deals primarily price are deals X.Xx we focused buying on DTI where We're of XX move entry-level because bigger point. ago deals, we competitive buying were a up. No. two were when

Steven Hilton

guidance X,XXX count. Yes. around so little the than year community I mean guided less reflective to a in or that's flat gave. XX,XXX We closings we on this versus

going we're to means absorptions. that higher So have

Phillippe Lord

that's I whole mean deal. Yes. the

book are huge, at it ASP, that a three absorbing communities but still, and of of lower at is six, with another land you replace You our absorbing group volume month, take percent volume the difference. X that's

Alex Barrón

sense. makes it. Got that Yes,

of wondering affect will that to labor starting are again. homes? your labor or deliver they have you that larger to seeing you peers couple commented Now just any whether I'm ability of concerns availability feel a are shortage that whether issues kind your guys

Phillippe Lord

the trying earlier, on stable deal to the we're it's right out side. labor We it seeing I now. still macro much some now it really some to feels issues tight pretty to us. of stable sort like. not Steve lumber, dedicating said But simplified there seems seeing of we're in there. still not selling just with. all focusing very Right what lumber, looks - see right labor that. pretty that strategy, what - like have is strong. it's of all We're the Like believe but to We'll we've piece season that have out specs, what's what But on spring really we're necessarily increase now is I doing. mean our

I our think our homes of are easier to competitors. build then some

to there. good a right labor we a access of pretty have builder like now. choice We So out feel we're

that hope pretty a we it stable and like capacity. helps better right So feels us now solve that else. feels has But little labor bit everyone than

Operator

comes question from KBW. next with Rahmani Our Jade

Jade Rahmani

wondering the And the higher you for on that provided In any guidance, ASPs. of could $XXX,XXX, XQ was you what given the ASPs was the you which you biggest $XXX,XXX is to on terms differential full guidance - of expect than color particularly that, what year. if give

Hilla Sferruzza

Right.

ASP see As decline. continue our to we communities the move-up out throughout continue of year, to close you're going to those

And combination entry-level it's communities. time the So closeout the higher end of openings first the move-up and accelerated of communities. the the of

back yes, But number. our $XXX,XXX ratchet throughout pretty that the this shift $XXX,XXX, to we'll You're quarter now. that to It's our down ASP we're QX continue quarter year. successive, right going ASP decline will be full that mix highest see to get a in to XXXX. quarter and you'll then pretty be year notable see so the - highest throughout will

Jade Rahmani

M&A On Meritage's to M&A, in are are private local you whether builder of with terms And respect seeing platform? terms to thoughts trends, sense homebuilder that to what deal overall of notable your flow? makes in about anything add

Steven Hilton

the There's years. unusual, been last pretty nothing that's steady what with going few right now, that's much on it's

market the of it's years, than the same. strategy this the We moment to with and is acquisitions. will And has that the many to private culture our But be a in couple I say different much to fair, last fits opportunities. it pursuing can't builder keep open our stronger and prices reach it at been that extent we an continue or mind pretty weaker

in I results. will our question, I our thank to forward for call, first last think look you. with you everybody April our to that operator. we quarter was in And and Thank XXXX year-end talking participating

Operator

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

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