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Meritage Homes (MTH)

Participants
Brent Anderson Investor Relations
Steven Hilton Chief Executive Officer
Phillippe Lord Chief Operating Officer
Hilla Sferruzza Chief Financial Officer
Alan Ratner Zelman & Associates
John Lovallo Bank of America
Truman Patterson Wells Fargo
Stephen Kim Evercore ISI
Michael Rehaut JPMorgan
Adam Baumgarten Credit Suisse
Jade Rahmani KBW
Carl Reichardt BTIG
Alex Barron Housing Research Center
Susan Maklari Goldman Sachs Group
Call transcript
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Operator

Greetings, and welcome to the Meritage Homes Second Quarter 2020 Analyst Call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the conference over to our host, Brent Anderson, Vice President of Investor Relations. Thank you.

You may begin.

Brent Anderson

Jason. you, Thank welcome second and analyst to call Good and to first our quarter half discuss morning, our XXXX results. press find the the the by selecting We and bottom on our to of the release Investor investors.meritagehomes.com the call after issued or at market during you this can we'll Relations it homepage. slides with the website along be referring yesterday closed, link at

year you press Turning as that and X. to current of infections; full caution to as any per earnings call contain SG&A the COVID-XX We'll time, Those and update projections and and count, during uncertain. at our views slides no change revenue, forward-looking are but any well projected made accompanying conditions others. them. of and closings regarding inherently are share; as including, rates tax any of the adverse community absorptions, potential we home statements pandemic obligation to and not opinions gross release assume impacts market; to, other expenses, management, the statements the the this the and which statements, and margins, health third subject diluted wave slide to forward-looking housing well Any economic related the as limited second quarter represent

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

Sferruzza, Executive Homes; Vice and Executive Steve and and Our Phillippe Lord, CEO President President Hilton, Vice are of CFO; Chairman Officer. speakers and Hilla Meritage today Operating Chief

the be about hour, conclude call X. hour our to to our to active will after an it expect website a second replay remain turn quarter. and Hilton now will over on August We through and last review Steve? Mr. I'll within approximately we an available

Steven Hilton

we for spread the Thank of record setting new remember an with earlier to had to second then that season. quarter homes, Meritage. And in meet June few single nationwide all-time due our of everyone and just projected review on look drop less and in but could today, believe believe by orders you, over weeks all We ago, of a shutdowns for like builders, I'd down COVID-XX. time Brent. selling normal selling success like we're the to It's how can't what homebuilders the for orders and it market participating well. slow I'll while call homes preface that saying all the continued XXXX. the month highlights May in is with own. We May and orders. discussing to I'll ended a was of month than the hard we X,XXX and quarter total orders for us. XX%, positioned three our some that the that were Slide years just of surprised start anything, and believe broadly the among safe the record welcome been orders intended explain of in up another a that best-performing We'll beat this we of today spring our demand and our in my discussing we continue growth. you're orders, XX for will benefiting record May hope we Meritage place which driving earnings even or like leading X. to were months which sharp our mid-May the It's I X,XXX to we're execution surpassed strategy March reported to April is a

up dominating the last quarter XX% a of was pandemic X,XXX second surprising New for is XX% Meritage those year, another came is of and orders higher XX% spread than orders, all week, higher total quarter were more remain and June aspect And in our We year. the still for operations that most What's to employees believe than construction of XXXX. last partners. our daily sales midst finished to important last safeguard We of and record preventing the and virus. records and over in issued our every the the protocols the nearly up with all-time that diligent just office it's customers, stringent affecting trade lives. news firmly we

believe new today's a and pandemic forces to selling we to and continuing in us X. turn permanently at also our during important levels to are and illogical homes, will believe slide our market record I'll safely to that's efficiently record it's them research We use we combination virtual for It's for assist purchase to selling, our environment aspects delivering strategy. that and homes tool invest we of seem as a capabilities building capabilities be change close virtual likely certain homes. an on and Homebuyers their our of may in now unemployment, industry. and

positioned new to is a so many market, they're home. afford what's trend, events upon from on have as based they much out, money entertainment, I'll historically at Meritage why interest a affordable X. we behind of going Americans can levels on for to things Many finding purchase days more explain as this eating we as other for slide millions sport is With that qualify more like are homeownership spending that rates so believe feedback of unexpected their our or home. low are have this there not to they customers lows, and what historic theories to listed driving is demand well While believe

For rental home PITI, very about uncomfortable a example, low for $X,XXX $XXX,XXX, in existing is Fort over of occupied five-bedroom comparable $X,XXX three-car are as three-bath, which about garage for homeowners and are we a month. buyers homes. as homes currently touring well Worth sale a sell month our home about Inventories for is

New existing spec homes those available for offer quick movement without typically disadvantages. homes associated advantages with

without As a suburbs, in a where in pools. cramped gyms want never us safety the security of facilities, don't crowded our we and laundry including do homes nation, space, urban amenities We like elevators, our have today, more centers. than or we small single-family the living have we environment. appreciated home homes healthy Most a prefer sharing of own

value striving else. On the XXXX slide shift best time. at and where finishes quality our the forward. deliver. decision or our while that deliver We few where also automation orders space That's of safe as first offered move-up also total will Meritage opportunities is competitive, streamlined proposition quarter a greatest combination It that energy years prices to M.Connected for positions not home the just customers at to compelling we affordable from homes combining X, like. more conditions at Home than several The are a signature high-end Suite need were construction schools driving XX% concentrate our expect. have to homes we our to was look standards outpacing make entry-level we And what to at We homes, of and surprisingly first dramatic our right ago and a XX% more efficiency one homes were home, the entry-level interior the ago and is the our made demand move going they new we in second work kids healthy while of saw when and were differentiated those on exclusively and homeowners. operations with entry-level will reopen for knowing our Meritage's everything right years move-up. and is offer

Our the but only trade continually for suppliers customer bar that customers all a the partners, margins rating. best It's driving standards, sales, underwriting are not the exceeding efficiencies gross raising the share that we've the benefits industry through proposition. and while win-win-win It's our satisfaction gained.

slide at are that to Moving and solid level. executing strategy high a We believe we X. have a

acquire lots second we've the debt great growth X,XXX during under as strongest leverage, new demand as including the some tremendous for a peak the of event new rebounded, the alone. just to we ever in sheet low XX have We in as plenty communities And net flexibility with almost builders quarter other well the have pipeline providing liquidity of has in safety of purchased opportunities positions with had dropped pandemic. downturn. and a robust balance We July another the that

by lot due XXXX, may along more end with and see solid turn execution, finished our our Day and November We're experiencing. Our now confidence over quickly, costs have for shutdowns delayed of the I'll communities teams strategy the to be of more to future our plan ahead trends us and to improves growth. allow assessing we close opportunities efficient that Investor into us that the recent for finding target XXXX That, to discuss land positions positions early we to being our at announced opened XXX XXXX though, that of that it Phillippe? we're development acquisition Phillippe at COVID-related on us. will margins. very well in new achieve makes to

Phillippe Lord

we'd and and every the of the the financial review compassion but each we entire remarkable be our many to market our again. quarter, start creativity, to and way ways. taken surfaced to never-give-up shelter-in-place us but the quarter and for proud up core recommended provide results want would conditions for The ourselves health before for values in This at the continue will to May our now turning demand lifting, we best time the perseverance of to never and a I to Steve. and and for our time and recent Hilla the teamwork government unexpected, deliver to When We to outlook and safe and it. steps for day. Thank that empathy by highlights a to rise we've already over meet build the manner. I'm in facing healthy of the I on customers to customers trends began we grim the enable organization the X and you, of stepped the to a did. member it We prepared were homes team imagined quarter. orders one demonstrated deliver challenge thank another, our results was up Slide found in organizations faced occasion sell, in the some living quarter, beginning delivering attitude, at an our

on month to allowed quarter. communities last continue per virtual We year. exceed and Our second than average ultimately quarter the XX% about during our for us more safety meeting did in second operate selling quarter, the same capabilities in and to five sold and measures we expectations homes the

total year. the of from Absorption month. the than in XX on XXXX year fact, the entry-level in ago. our pace the In XX XX% homes community compared last happens for last communities up entry-level XX% quarter, a our our double represented to quarter XX% XX, more of second XX% entry-level communities. nearly up to orders XX of the active second of it average June over non-entry-level due total XX% second of higher in Much than quarter per were of position, made our at quarter, sold community And XXXX, which and count homes communities

lots over absorptions performed also community our is last for store ago. years higher investing building we're ramp We to when we new the year the communities in strongest. off, control additional entry-level been than on under up when and We've the pipeline of but nine off ago, strategy, entry-level fell to more approximately ended couple that an streamlined nimble. demand pulled average first a due year the total over well, the for for the very back quarter that a an starts that makes demand. of Slide in of the our construction demand demand of than in this as were aggressively quarters, this quickly spec X. where specs were with per communities. process last demand second on a months strong We last last put per homes strongly Executing year homes quarter of completed, couple the couple understandably offset in community, Thanks April. same less as little the the of late strong kicked Approximately XX% with to accelerated specs the pace quarter. XX% of entry-level Our XX% March for able

level X. Moving to the regional on slide trends

highest absorptions XXXX, of communities region operate second X% still at the in, region per we The XX. by of red West in as community XX% driven the entry-level up of as West highest under second XX% quarter, hot. absorption community of entry-level nine the the during fewer the at all than over on in XX%. higher an seven in California XX% of growth per orders has up Our absorptions XX% were average count June and market a for largest quarter with communities But percent is XX% with selling producing month average average. orders produced states Arizona just the is quarter, Phoenix in year increasing last XX% increase the year-over-year the

turned be to said as that communities very we successful. new entry-level resilient its believe and out last of that been Our with We now correct. out have be Texas affordable came quarter would we downturn,

turn order increase of in with community orders Demand in has over quarter were in Texas. growth second in than a the better in our XX%, may due over to Hilla communities of quarter XX% X% Carolinas XX% have XX% We our in with growth entry-level there region despite LiVE.NOW. Our now strong well the the absorption, entry-level of these we also in while East in despite community year, and San decline gains, average on Hilla? terms increase in it segment XX% order growth by a order outperform decline over our provide a strong market, Florida our count. the Dallas posted in a first average expected, were as and weak the and Tennessee to the in increase quarter performed aftermath quarter. in with XX% up a XX% now I financial communities. additional results. Austin Nashville of XX% lagged and retail communities this last continue to with Absorptions been Antonio end. offsetting with very Georgia XX% to strongest analysis tornado count. led the driven energy absorptions. some had of XXXX at will regions of growth Houston

Hilla Sferruzza

Phillippe. Thanks,

approximately to revenue demonstrated in and from quarter in of a included bps. all growth, margin the to of SG&A XX.X% generated up of compared process improvement several strategy. of of second our closings outperformed charges leverage. up bps as conversion $X.X from XXXX XX% inventory pricing XXXX of revenue about with margins consistent recognize over our XX%, also QX expect last similar quarter also backlog Let's XX% quarter Margins of the Closings we turn in from the scale. XX generated margin second about of home running and million couple quarter increase ASPs, metrics and XX. operations the million additional XXXX. spec Clearly, closing had growth improvement We than simplification XXXX achieved manage over the to increases XXX most we in of carefully that the our comparison, XX% temporary an volumes the a power home of In key in efficiencies $X.X expire cost quarter over earnings bps with from of the concessions started across were sale. coming contract the XXXX quarters in with gross XX% next leverage counts through second XX to benefited although and price to and We XX previously XX% over of we each comes closing second slide year, increases as quarters. volumes streamlined gross year. $X in charges home walkaway bps XX those of this had keep we bps closing of well community but XX approximately through second The offset some for more impact billion as our we as our product in By accounted improvement, cost sales that of declines the in or last termination or XXXX savings

leverage that bps our primarily fixed due improved improvement revenue in expenses. QX in to Our XX closing of additional SG&A was

While we did force. have to took late expenses immediate in we discretionary March, in not any reductions reduce action thankfully

than in to demand manage matter full were ensured $X operations staffing rather the year. of second from began May in in weeks increase As that grateful to a the months, our have June. were Earnings in of activity compared in to improve services XXXX to prior we stability million lower quarter and financial the

debt changed JV our venture as Interest our such than as rather is previously in million savings as As included we incentives services on repayment December a of those being should of part explained, closing on revenue by we offset reported customer interest $X that mortgage financial liquidity this revenue. by part protracted to provide home the COVID-related of XXXX, facility needed offered our our partially borrowed March joint recessionary in disruption. structure by we year, net million now have incentives our using early profit related for from mortgage it with $XXX last credit have expense economic of decreased year from to caused our revolving in environment, the we the

extension lower of benefited credit also with XXXX. from a the energy rate We tax into the tax

approximately tax this year. year last Our of XX% QX versus XX% was for rate

repurchase the of of in improvement items of than SG&A. few this experience just in increase with covered quarter COVID mid-April XXX% net quarter of second orders what margin one in already late rapid this we half started in from The completed earnings recovery further in generated uncertainties beyond the we the from XXX $X.XX year a Our the home bps strong QX our we a in EPS each early and second Highlighting the up QX. year-over-year, diluted year. and increase million XXX more benefited bps very to from the the pullback start XX% in year first offset first quarter, that and gross including closing shares

to on Moving slide XX.

Our balance company's $XXX it's ever condition facility of May. by that $XXX million the against we with We $XXX of leverage had sheet full the the million in debt-to-cap XX.X%. our in the lowest the cash and end liquidity, plenty history including million is best been, of borrowed of net repaid credit

in on XX, had $XXX $XX nothing on of We shutdown credit So line almost for and year's last than as a land June development higher to despite April. we QX slide million near second spent year's Referring drawn quarter, XX. of million on the approximately XXXX. most this spending

We have auctioned. XXXX. year second actively That as accelerated expect slightly activity Steve closings, total as XX-month signed quarter represented and lots, X.X-year June our XX% over early $X which new X,XXX We by spend We goal of approximately in lots added covered. the land of to achieve development we than push sales XXX about spending trailing billion a acquisition higher for XXXX ago. as supply and on to our still forward based communities are lot Phillippe XXXX rebounded net XX,XXX end both with of a

After direct seasonality repercussions for a quarter we and you of the normal suspension our the COVID slide year. to in one from I'll Barring with second Finally, unforeseen any strength of half XX. to guidance guidance, back the more see the return continued updating we're year. wave, the resurrecting

about units, billion an closing of $X effective be gross $X.X XX% are revenue margin EPS $X.XX. and tax and of to between XX,XXX closings XX,XXX total For XX% year, home rate and $X.XX of about to diluted home the to full projecting of we billion,

closing over diluted billion, With and X,XXX closings quarter, X,XXX of turn to $X.XX. back of we're billion $X.X of XX% to third margin projecting $X.XX home EPS to the and For gross that, Steve. revenue I'll it units, $X between approximately

Steven Hilton

XXth encourage in brought National be our and, a are high, respectful pandemic and Thank you, We're wear a growth. first market preparing all with strategy, partners a trade is and housing strong executing distance very cylinders under families setting the new a doing and be of our strong enjoying very to team yet we're new balance hands. mask, thousands level. social on that very At control. home. at well times. move records time, and there's positioned unemployment is hitting We're global wash celebrate into everyone the We're Hilla. to protect while at helping We're unprecedented customers and basics, and still a to for anniversary least, that do high and are our solid levels part a we sheet their your continued employees, to same great

great deal for of efforts thank best a Meritage we're take their That great proud team entire every I'd I'm support putting levels, many deliver to of ahead. first there's of you bringing questions. confident While remarks. of and on up Meritage prepared uncertainty and customers Operator? to to we'll our whatever challenges your the like that day. lies still results our for concludes Homes, now we're

Operator

your Instructions] from with first Ratner question question. Our comes & Associates. Zelman [Operator Alan state Please

Alan Ratner

morning. on guys, frame. execution great difficult Congrats time truly and, very Hey this obviously, good during a remarkable quarter

strong back in looking year, at half. trends question, seen you're back So flat seems at least, good of continued continuation the look obviously, expecting it your in and, spec it's my specs, the closings, for the at roughly When half through quarter. supply very year-over-year, yet you've the first of I or just of growth, guidance the a the

to few with either on is see little a So side? do are the far as some ramping concerned, that more you a kind supply as supply over of willing I permitting? the given constraints dealing question bit the you strategy sales spec sell first Or any presale, next shifting little guess municipalities, maybe the bit gradually of constraints labor labor my is side to months,

Steven Hilton

So I'll answer. a kind give you of complex

reengage that late coming quickly the Of spec but into April course, in area May. early back pulled in starts, on we we pandemic,

started month. be started We're more X,XXX on that. top And this trying to in orders last start going we've of think to specs month. we've addition, build specs about I to even

certain are that vendors We're factories inventory out spec So have chain same very some get delivery slowed different we had of there do have COVID-related with to who've business At issues feet down closed two being back it the our the impacted there supply up. our hasn't yet. items, time, gas but on the mindful.

we've isolated to had on stay COVID. trades, COVID-related plan of issues to the our the we see any don't can't reasons have we to able We it. been rest for around work due why but continue And year with

Hilla Sferruzza

add point the at spec we on data XX. per other dropped One we're even side, is count store, and on entry-level last to store, XX it to quarter were nine though, now at the per

limited fairly kind a of shift a of the doing actually just we're drop. what communities the spec levels So It's in there. and assets the and and mix noncore our

which So XX% overall, our the fairly obviously entry-level, right business drop on is the is of limited. now,

Alan Ratner

it. Got That's helpful. very

Second over business in count you're and the years, next well. on probably that's targeting, what expecting overall question. as the over of growth lot you're X.X presumably, growth Obviously, just community XX%, a

So high, on to Steve? remains see is gas as to on path far maybe I need you're would question you're you here, cause my the demand that change Unemployment feet guess you strong the very would what yet both as on ground. current seeing the

would simply is to anything bit starting a that it bit concern? you would the cause quite just perhaps a Or levels? orders give of there from a So little current for pull from back macro have perspective to be

Steven Hilton

to a orders value-based starting the compelling going that's reason, been able We sweet as the grow right provide think And that single certainly strategy next with for But going spot our talk product simple the able the we're we year locations going reasons see count to be that in And And of our move-up. just outlined. we're quite is be at bringing the pull community we day. to we've and points. be first for happy you entry-level It's bit land our pretty on our find to price forward, And back. some to customers No. to to to as able investigate we forward. every that. of market land

now horizon dampens So our don't anything see I on that right growth. enthusiasm for the

Hilla Sferruzza

early add it quickly. we very able uncertain and was very demonstrated quickly. To visibility that, was we were can very on In X, to back pull March that to and Alan, when near very, pull back April we spend

So can in while the we're pull certainly be back gas, another or should on there economy quickly. sector, pickup feet in two we the the

Operator

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

John Lovallo

you Thank taking my guys. questions. for Hey,

one, of Texas little and two your a markets, now by been The hotter more bit have being first Arizona impacted COVID. obviously,

behavior couple any past you the the the heightened have in virus? of given Over weeks, concern consumer around seen changes

Steven Hilton

No. Pretty in The no market, said, of show I in our that to and even particular, have Arizona in the sales opposite. have here office strong we very increasing the continue And of signs pandemic as down demand in weather warm retreat. much the midst we here July.

not no, So at all.

Phillippe Lord

not And for highly affordable that their We're home, houses. and true a to have qualified formation bunch buyers. the It's not household jobs investors seeing strong demand about just up worried are don't or sheet party. buy have balance seeing buyers of don't household jobs, show to the

Hilla Sferruzza

release gave guidance on dropped blended, XX% XX% cancellation from June. to we the that to in in XX% rate that that And in April Yes. dropped down call our our but

rates. buyers a To are that seeing fairly Phillippe's we're So rapid in cancellation are well-qualified. coming in point, decline the

John Lovallo

encouraging. really That's

community the about And of fruition? guys think expect communities through of early Great. And you count in out, terms similar a how should laid cadence as outlook come then sort XXXX? we that of should to sort in those we SG&A that get of Okay. ramp the

Steven Hilton

this down, to lot faster expected. communities a be delayed due we're count community than down going Many through even communities particularly to we is got to COVID. flattish of the year, selling considering Well,

close pipeline through the getting a got and approved here, rat of in on our our a many for big through end cities We description, math we our But And another orders we snake communities getting means for coming online of a we be challenges opened experiencing at next and the XXX plans you what certainly the that goal can that entitlement communities have huge, year, do of throughout and by to XXXX, process. deliveries are for moving XXXX. pretty of should where or lack XXXX,

Hilla Sferruzza

No.

it's we're quarter to of to Our guidance XXXX, in I the remainder think going the count don't year, community built that the declining for to give what guidance, XXXX, yet. prepared flattish in obviously, pop for

Steven Hilton

the by year the of But, as yes, we... end

Hilla Sferruzza

Absolutely.

Steven Hilton

can't it's like. I you look what quarter-to-quarter tell going to

Operator

Truman Our from question. question with your next Please state comes Wells Patterson Fargo.

Truman Patterson

everyone taking my and question. thanks good morning Yeah, for Great quarter.

first, of balance $XXX to XX% So almost and hand. total on about the debt cash allocation, net capital, million capital sheet

what do strong program, repurchase reduce or pretty reinvest Just to in in grow looking going business forward? possibly now. and start M&A? about Are a trying debt further to a because really you're share you're Is to Just situation you land to this company? the going and thoughts the thinking get right purely your

Steven Hilton

one Strategy Invest is our community only And of to any more to strategy. We plans one debt. most, grow the about business pretty our plan not all, quarter. reduce to moment for price on us We've grow have land, back. been We What's the our the that stock organically. buy number average in if deploying opportunistic early the see I capital don't million back counts. in did that. buy We that? shares in

Hilla Sferruzza

$XX. It's on

Steven Hilton

land next At going almost almost be deals to But shares have for to the year. are XX potentially that for we potential buying the ahead on for about I now, even I said the buying approved XX That's not the XX our month. either potential quarter. will $XX. and remainder approve plate communities expect we're talk what's of unit that in don't or this month the as right not we shares any But and next earlier, months

land robust capital that. really and a be going directing have pipeline, we to toward we're So our

Truman Patterson

Okay.

I addressed minutes then coming so on And if comps apologize we're up an on would tougher this. hopped order late, I year-over-year. But few a July also, I give update could you you on have imagine trends? Okay.

the any rate. there's the among settling been in July that then are growth the pretty in know units But regions June did should what with and they on kind line about? absolute with in June in disparity some of have And levels? they kind recently XQ? trending the of really line maybe much Or we So

Steven Hilton

is June, before tell what to number I maybe be as wanted had a certainly on I going call, quite we to debate We give with got think going that. July in can here you had I lot to strong, outvoted May. as much be. but on and very specific a a not the I strong but you, line is very June

Truman Patterson

of Okay. an kind On absolute basis?

Steven Hilton

basis percentage a increase. On

Operator

comes Kim state question. question ISI. with Stephen Please next Evercore Our your from

Stephen Kim

price Are about could a actually very than on pricing price? affecting the like I see community-by-community people you basis. push is more thanks a it's you've entry-level demand pace across like whereas, terms forward in than to if I much of to that felt probably the that I'm pulling is had guys. a Yeah, that on something times. because push little drop my in regard? imagine rates the price it's you're ability more in lag. as to this or to push ability is wanted what obviously you on down. side what both the if and the lower allow rates view Yes, just in bit between the Curious I your seeing opportunity you're coming and probably would with your ask the words, ramp In higher, well some other rates move-up a price that of exciting sales? creating I an curious maybe are think as it move-up managing that, And bit that finding the been respect any entry-level difference of something there's some on to and mortgage product. thoughts operates that the is about seeing

Steven Hilton

than overhead like leveraging is I to other a our more is large mean, critical really price. strategy. entry-level-focused pace our our business model, builders, by few And driven absolutely

May, to start with So we push have and more to hit in know not we as on But back in left more we a price probably the into harder to run did on how demand as in because we price. We're the robust probably that June, and want going didn't are out then July. harder other strong aggressive to we order level, But strong pace. But absorption going keep in strong strong but dollars to that. be. May, July, as get was I coming of we that have on many builders now. in of going were still we're Phoenix price We we're market done that there's to markets price We up that said, price to be growth. May are, weren't add coming could don't other very, very right know you probably and people because pushing because even Phillippe, opportunity in little in, button that a demand lot certainly, want we've really that yes, more pushing were price if table. a to some we price didn't just said, it's

Phillippe Lord

getting pace because I now is and Yes. are so we the price mean, market strong. right

coming focus been and and starting pace price June weren't what to in a said, get environment. pace. the we of the on shelter-in-place Steve had We doing. big we've able market July, deficit, and But certainly was As out sure we

the kind a lot don't the we this pull-forward this talked around thesis far a demand here. demand I or As as scenario. see around being of mindset forward, the pulling about

I is think rates increasing lower mortgage the actually demand.

pandemic the increasing is think I demand.

the pull, we all actually versus buyers increasing pull that pulling things the it think demand call the I our mentioned forward. is in

We for are because before are and looking hadn't home. not they a seeing buyers seen looking new were home currently that a new they for we

think I they like this In the feel it's the moving don't it's just on planning to they they they anymore or at the this before. pulling forward didn't demand opportunity in fact, suit like it's prior point. house that an doesn't not good and feel have them whether situation, money or mortgage of just rates have too time at were point whether fantastic a the bank or we're they

in I market have the demand actually think we increased

Stephen Kim

encouraging. Yes. that's very No,

want raise from results you your outsell gap seem be you talking competitors. sort got how in sorry, between to the your push of would lot it price, you're that and definitely able little price much already competition and and point, Steve, clarifying not mean of you over as peers. were push your might able I you price a as prices some to about pace Just to established a the of you've bit of already a gap

that marketplace because might will less reason there that have about here otherwise whole are think So the will would you Am to you the pricing see the you saying your actually that that be market up, established. move than Or thinking raise be prices I from sees less would already market no than pricing growth gap dictate? here there degree to you from what right? the

Steven Hilton

No.

communities I our think other we'll be in most line not lowest with builders LiVE.NOW. the in market. compete were entry-level that with price. the situations, Look,

home of So value. the of little efficiency, you home premium automation, pay a of a going to because get because because extra energy Meritage a the the we for are of that bit buyers and great get design

brand is. X appropriate You're have that with pay little X extent we that the their prices, going Y of be And in bit Y. more to than ours or a mindful that spread line But brand home for we'll and are raising what our to brand premium. to theirs maintain be to raising

And they'll get we'll ours. get so theirs, and

Phillippe Lord

at new look footprint. everything you And they entry-level well. one power and really, much new sometimes our power another $XXX,XXX, been pricing buyer as kind pricing one under There's versus there's seen we've and of on the and been just overlap, global But as had question pricing frankly. you one new if power, buyer, in as strong that

Stephen Kim

over? get virtue that of in having affordably goes And two in up in part with your as to it. bigger of got last Act the put not down to you've and me. the levels seen whether then if minded Am had elevated CARES with loans historically that right buyer, I ability or curious on student the been student the come place September. those one for forbearance by that payment buyers for through your so, have ease that I'm of Got just And to thinking impediments the debt

Hilla Sferruzza

in a a necessarily not There's direct tracked survey. correlation that we've

come for being one student been the down be, a to the may reason loan during with It's whatever a to see down with come up up forbearance those. ability this do we ironically payment Although of payment easier time.

certainly So of drivers. that one be the could

Steven Hilton

mean I managed lot a from of and dad. mom them were

Operator

comes Our your JPMorgan. with Michael from state next Please question Rehaut question.

Michael Rehaut

on Thanks, congrats And again. good everyone, the morning, results

and to and First the was the recently relates one real We around strength, on guys put it's well would visiting the and have several have over it planned a you how a that been that half it virtual focused SG&A? about out of question, something and some be new on the results of to survey without or the talking interesting comments wanted home to over buying in buy that person. of are respondents months, comfortable the last but bought homes hit

curious from a to of with time the And the so translate that structure. side, that seen obviously, SG&A might the in. your we've how cost side from you've strength investments that over digital and fits virtual I'm all kind lot put of the

around that If interesting. you this side in standpoint, kind over the impact impact place, would in you've leveraging SG&A fees of thought a be business investments there how about the if might could next any years from broker it your and this terms even such, of the put just of couple thoughts of the

Steven Hilton

rate XX% is we're realtor, the XX%, with thinking thinking co-broke that our competitors, our it co-broke their though, but to above about really, prior with Many reduce we cost. day, is community that they website. commissions think our even about it's how every Only are estate that well, visit. realtors, really to were our of process about which there. something starts real as our back of customers through But whole that's virtual we're the I realtor with realtors starts our some registered keeping along And that getting customers The came with selling high.

XX% website our pandemic. the team. was makes inside QX before. QX sales Our up traffic to of also of over the year sense it But in It because connects

both works appointments lot ever virtual really that a on a the than those appointments, in-person inside they mostly leads they had team more have before, and website, appointments. sales but strong We set

in we're figuring of So innings the of SG&A. the out how we early the out squeeze cost can

have in versus only a several building used three years two model our less to we four in Most or of days. communities for old now one of the or couple have We models. have

those reducing models how been been been the we've sales we and of we've reducing of that So cost. our We've reducing cost offices. the cost furnish

the plan. Google to we a digital, Zillow So But Internet. to our having the the money on part us have of hard world, and costs of spend of that with the It's on marketing the position into important marketing lot an more go the are changed.

I new the it's of part going that the overnight. from as costs an time, but So happen normal, of think down, some to we marketing period learned things hope yes. our extended of that over don't pandemic I become the come

Hilla Sferruzza

Yes. innings, early We're definitely in Mike. the

I learning lessons great lot think we're of that a there's right now.

the we sure, side in some often For a previously. and technology much marketing but providing of higher to seeing what harness smaller incremental these be or we're increase versus are that the components processes technology collateral we'll were efficiencies some on virtually, being in spend, drivers able accomplished manual it's the

a certainly QX, want Steve We're to learning lot a But machine. isn't this an don't spigot what like the said, QX of kind of us. event. turn We there's for sales opportunities So off the to works.

So we're or next you but in trading the year over some cautiously, area. that so, declines expect can not

Michael Rehaut

bigger of I No. I secondly, obviously, it's the That's guess, helpful. And without of next area couple opportunity think question. maybe over doubt. years, an another a of kind picture

had amount last the of obviously years. guys three success with the how in You of tremendous kind over you've company have two a turned the and LiVE.NOW.

Las reservation, But hit very very Seattle Portland the well-suited And close. over LiVE.NOW., that be in had Also are and you've plans in a maybe with time. but there highly the your near of that obviously, this big next know managing lot some have term, you for exposure that, is time. Northwest, focused geographic past. Steve, volatile issues a on through slightly you're could would delayed, add your even I And Vegas year. with market backdrop. think count where for outlook could you over affordability community to reiterating Pacific potentially taking back, Obviously, that market. current You're parts that curious But about or of effectively step around the

maybe You there market, could could some traction. that's good another that argue that, be

is thinking from if that do bolt-on standpoint? organic you portfolio So standpoint standpoint? of acquisition bigger about this something a picture, And you more are an it, how thinking be markets, about you an would or think from those

Steven Hilton

the are in to we're It's are markets the XXX part an that not working basis. formulate to East, of that on plan color There's in give XXXX. Mike. that there's we're entering some But for If our can we're realize some and and But there's at There we'll the all an new markets strategy going communities. Good in we you and our we're in markets organic in we more do continue for going it. and that's behind working to enter question, interesting, call to organically that wait new M&A markets as to that on new to some primarily we'll some the point in, some have some get enter that next grow that we market on November. share to a West some add a on to new maybe with can't opportunity plan to pursue comes organically. some we But about, us scenes our be certainly markets coming up organically. we

you tell about we'll next So more that quarter.

Operator

Our next Please comes state Baumgarten with Suisse. question. from your Credit question Adam

Adam Baumgarten

in in if Do demand savings industry able any now? may revert labor And over the that of been morning. have to the balance expect good strong contracts guys you to such renegotiate you year you XQ? expect right the earlier so, given as would some Hey,

Phillippe Lord

to sunset what those commit because days because to the the now after potentially XX We're up going So pandemic played recontract this knew none savings a was of the for occurred, able most into QX. long-term were we is no the in one Those meaningful part and up set seeing Phillippe. because When have sunset board. QX that really to demand were trades some itself is on. and out across deal generally get wanted to contracts

So it play in play some we That itself and itself labor itself it should did cost both savings. out in QX. should got QX, in out play

seeing don't across previous As categories. Capacity lot seems a our not into QX, I pressure. labor. expect probably of labor Labor to back I expect of don't in a we're our forward. I good seems and do on place to savings going move cost be see to we QX pressure most good. cost see structure, to we're

high think pretty good I at you guys reset know a lumber has here.

kind half over expect back six shakes going to do some any pressure expect the of the we'll out But we I and how that see to So see savings don't see in year, cost of months. next this forward.

Hilla Sferruzza

And really right Phillippe we And reset the to see XX as that quantified about much don't beyond to are we we're from addressed, that those continuing now. bps. you said, we impact expect XX those days where XX

Adam Baumgarten

these increasing Got just competition meaningful may then as any entry-level lots? you just price seeing for it. land appreciation And second, be are

Phillippe Lord

market situation. not a the mean, always competitive I Yes. is when bad it's land

took a I are on builders down. come didn't away lot April and from Land deals. Land deals stepped sticky. prices that think a pause of we prices saw in

in works. the secondary in moving May original as even there market certainly, of tight people our seeing we're seeing what the right land backdrop. in June, a again, we're negotiate the of price in markets, on price land tertiary you're the of increase in we're some wasn't tight one prices But of on we're willing off finished price especially markets, to and markets. the staying is some is what land the forward, pandemic And the strategy. recovered So so and Phoenix lots, hotter and prices go markets as hotter lot is, pressure really We on even But there really and markets, disciplined with seeing know that for top certainly land up. our compete builders the We're that.

Operator

question. from comes Jade question with Rahmani Our next your state Please KBW.

Jade Rahmani

the be currently of to you you statistics Do percentage have you much. share demand multifamily? being thank move-outs Yes, from by able very any regarding driven might

Steven Hilton

that. we XX%? we is single-family No. but do rentals, track that have it's rental to mean that if number? for from a moving What that track about don't or people We don't I distinguish rental. multifamily We

Phillippe Lord

don't I'm can from moving in owner-occupied whether we it. we front you. to versus situation. sorry, have get like that We a back said, We Steve do number But track, that you're of for-rent us. have an

you But a number. rental break out whether don't we single-family multifamily we rental. that can So versus get it's a

Jade Rahmani

the Okay. of is? at stage? Meritage's is rentals. size are children? average what in they homebuyer if multifamily of of Even would Or given within the bucket, you household children the from these the could with typical first-time yet those families homebuyer just distribution relationships, Also, Are the expect the I rental quantify not market, perhaps move-outs majority from but in units,

Phillippe Lord

We that as but... It's pretty Yes. granular, track well.

Steven Hilton

I think it was like X.X.

Phillippe Lord

Yes.

Steven Hilton

half young their adults have a had the traditional family are couples have and working their I planning kids think or families buyers a already half families are moved to our either to or mature on. that have So other and family

Operator

question. question state next Please your Carl with Our comes BTIG. from Reichardt

Carl Reichardt

it ask Thanks X.X. to Obviously, about that the everybody. in are you would of guys supply, to where XX/XX you where could I Is number wanted it's over option, years, want up? lot the year-on-year And owned Or that you next that comfortable? supply. that or a your move target interested is couple the backward-looking that think or split Are way? Is in then sort option. kind owned that you at mix supply be? change do any three you of

Steven Hilton

five-year historically operated band. We've that to in four

there. in stay to probably intention our it's we're think I

to continuing on equity. and on improve focused IRRs return our are We

So want have that the although communities we balance we our the we to what impact and larger can mindful sheet. to be reduce get churn, in to longer stay is of

an the don't not they're options to cycle. I strategy option last think as come the it It's may sound strategy. was available. as is from to do without we own the an in generally not convert not more And high like to they a cycle. in pretty certainly to like it But extent Cost would easy they're that cost. it's

expect is change much I it so don't today. from And to very it really where

Hilla Sferruzza

Yes.

availability Just head. the be be quite up to highest is we really the land liquidity hit The Steve balance sheet. not to the have, have while. options willing to said I Having pay think or a that, been that to say, optioned it's in the to nail XX% off on we're of

finding we're So if XX better. off that to eight last a us seller that but you look structures as structures little with deal up aren't necessarily work leverage at cash existing land-based to allow will inching book, quarters, the is very we're to deal slowly

Steven Hilton

Yes.

Carl Reichardt

faster you guessing, those I'm exerts, the lots out self-developing can you're turn anyway. if mean I

to Studio about just had an M me entry-level. time So side, maybe I a wanted that good a little Studio about margin profile little also talk and bit out? Can update rolled the business relative some how And that makes move-up sense. ask give absorptions. you is which M the has of on just first to

Phillippe Lord

the then and take of Hilla initiative. But about it's everywhere. the out kind I'll will last margins. effectively the rollout, rolled That talk year was Yes.

So that our year, came we had out footprint. we a now are this into couple of but rolled across entire stragglers effectively

markets is pretty moving. that that's have We don't on much any ones process, convert. We backlog entire the the some our even to old last of backlog sort KL have were in

effectively the margins. we're rolled the on So and Hilla a comment out it's successful across company, highly can And program.

Hilla Sferruzza

Yes.

think I company. strongest that entry-level said we've previously margins on the the margins our are in

First efficiency time strengthened. to margin has we're little rollout leverage better. is the move-up strengthened a The able M. with Studio of costs Obviously, and there bit

those seeing bit a another. just actually bit little one but we're with line a with pretty little of still well. a differential they're as ahead, So There's much entry-level, in improve

Operator

we another the conclude? the Hilton, would bottom Or time have Mr. you Do to two? of or hour. we're take about like just question to at

Steven Hilton

One more question.

Operator

with from Our Alex question Please state comes your Center. Housing Research Barron final question.

Alex Barron

another continuing are on that, any finished Anything prevent the in. me pace? buyers is any you constraint? the do why there. land that assuming buy, is quarter. or to Is job there there there there squeezing for a Thanks lot Great like buyers, wanted In ask, words, labor And if from ready the to why reason at constraint? other that I would X,XXX are were can't they guys. pace, Hey, a constraints physical

Hilla Sferruzza

a because to repeat just going you were little your out bit. cutting I'm question

answer another where no, closing, any I X,XXX let question deliver block we think is I'll your couldn't that performance? any or constraints sales labor The Steve on us or that of of lots but expand was, material constraint it. would quick from there in level Phillippe is

Phillippe Lord

only now constraint is mean we community right count. I our the have

selling of things previously have out count. We decline faster in we a than thought. community We're

But capacity of to able a over homes, go to as higher community those build as we're of start count the through really from going the quarters. of in us absorptions being of we community preventing quarters. nothing And drive declining as far count couple have the It's we to out labor volume of that. next couple we there's on sort the so doing the the continue sort having about homes, next market the get can homes, that the to

Alex Barron

X,XXX words, In you're and starting specs, X,XXX Okay, that specs, sales of doing the great. if was including And when that that specs. be starting kind that, assuming you correct? said implies that wasn't homes. XXX you you're other built-to-order X,XXX starting you're only Is I'm that would

Steven Hilton

Yes. little more we're the expected. a going We were sales Not and behind back track But to that of that But sales match but been have those close. of as last our get August, closely. we many, to months a the on into been bit starts numbers get has because quite we more a challenge. July we're our couple than up

Hilla Sferruzza

some of you're But obviously. correct. The X,XXX them not are specs but are sales, dirt, all

Steven Hilton

take Maybe I one operator? one think, sooner. you we we out Operator, we think, I'm can couldn't Yes. Alex. question. get take more sorry, Thanks, there, can we on more

Alex Barron

Yes.

Operator

Yes.

Maklari. with question next Please question. Our comes Susan go ahead. your from

Susan Maklari

Thanks over you can there land me the anything But of squeezing question Jeff changed a talk first more months? some a to the deals little Steve what you terms M&A on opportunities I Has couple earlier. you. seeing up of smaller maybe touched for Thank privates? environment sic bit last you're or is in. about out guess little pick in some

Steven Hilton

promise write nice Only you if us. something about you

Susan Maklari

just last nice night. wrote something I about you

Steven Hilton

Okay.

their in picky of Honn, changed stages M&A with XXXX. the anything a We of the going be and seen seen. many more in ago, titans passing. to XXXXs industry. that with lot that COVID was activity weeks we've company deals our hasn't bunch the it hasn't yes, into the But business their don't we're He one icon with a scared there Actually, the fits There certainly, M&A that's in segment his mourn We how a And selling of early just passed Mike No. haven't an front. of that compelling. did think of who strategy. a I been lot companies. builders few away Okay. been just on M&A

Hilla Sferruzza

enough end initially able But in other pipeline actually builders regular up in deals some land environment. deals the to we and dropped we land land from deals that opportunistic be picked we We deals were addition picked then up from land own that on dropped COVID activity. other up the builders our and dropped our to on positive from net COVID, to of resurrected community

Steven Hilton

saw pandemic, in a stages like with risk land we the and lot parted we approved like went the ways of And out liked we felt had, to deals others we that that we lease early and then had deals had biggest that we grabbed. the of Yes. we the and that

Susan Maklari

things That's remain seen looking side, obviously, buyers. right. on could All there quarter? anything that Or helpful. really that's seems the market to the that mortgage you've change like Is it people qualify there then anything out? to changed accommodated over Okay. And ability your

Hilla Sferruzza

No.

analyst be the call. to we're think after here right sharing the I slides going

as no the along. is at XX% real still humming and company, DTI, still are see trends Everything us. for changes low historical a You'll

Steven Hilton

just no of I would you changes, see change. like there's type like, It's surprisingly, X just mean, expect some change. to

Hilla Sferruzza

Yes.

Steven Hilton

and to Meritage in you. talking for Thank today in and you forward our quarter second look late presentation That thank again you to call, up we'll wraps October. Homes' participating We Q&A. our

Operator

parties All a may Have day. you. great disconnect. Thank