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Meritage Homes (MTH)

Participants
Emily Tadano VP, IR
Steven Hilton Chairman and CEO
Phillippe Lord EVP and COO
Hilla Sferruzza EVP and CFO
Alan Ratner Zelman & Associates
Truman Patterson Wells Fargo
John Lovallo Bank of America
Stephen Kim Evercore ISI
Carl Reichardt BTIG
Alex Barron Housing Research Center
Susan Maklari Goldman Sachs
Jade Rahmani KBW
Call transcript
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Operator

Good day everyone and thank you for standing by. Welcome to the Meritage Homes Third Quarter 2020 Analysts Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Emily Tadano, please go ahead, ma'am.

Emily Tadano

Thank you, Hana. to year-to-date call XXXX welcome third discuss and and quarter results. morning our to analyst our Good We issued the closed. press release yesterday after the market

assume can homepage. our with during limited along Relations' home link tax by find well we'll as bottom Investor to changes earnings You to to business them. of uncertain. interest slide the projected and statements, that are others. any count time, as other refer the rates, closings as selecting the management, Those and any COVID-XX, the we the this the refer which rates, obligation well represent the press per gross share at not community of XXXX release website call including, regarding slides absorption, and are statements SG&A forward-looking change as margins, and contain inherently on this at at conditions our forward-looking investors.meritagehomes.com the Please or our revenue, opinions during our by call slides statements diluted health it no cautioning two expenses, and current housing you in to accompanying views and to market; subject to, but the year of projections and economic disruptions Any full update

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

call about website expect approximately after replay we an to Xth. I'll will it on We the will through over Steve? last hour. available Mr. an the be remain November A within conclude to call turn and now our Hilton. active hour

Steven Hilton

you, safe participating families you Thank hope I'd call that on your Emily. today and everyone and healthy. stay welcome to continuing like and to our are

I'd Tadano, sorely have with to big also will Brent. you're like the we'd thank great a XX of quick to call, missed. continuing Relations Anderson, analysts new at years Vice to luck, job of company President least the investors Good IR. Investor our the Meritage be representing our shoes a the to us fill take moment Brent of for to hope say years. He's who XX after he Emily introduce and like retiring Head and like Before you is to as Emily, you done and

is on time the Meritage last call. of address an Officer Executive you Homes this Now, I'll Chief earnings as

operational Executive As will and I we've I years Operating to forward him confident Phillippe excellence In Chief heights retire as our and Phillippe and be past new after five Xst, co-architect Phillippe XX quality group together calls, continue leader, these organization. but our the to new will while Phillippe strategy effective taking was will transition Board. for I closely exceptional roles. have on years. to the customers, to become I first our worked CEO to feel provide continue be under Meritage throughout and participate on I the focus the and of markets the to to to look of lead. Lord entry-level grow in that will with and previously Officer, years innovative announced will partnering Phillippe's our January efficiencies driving the XX of role Chairman value an stewardship. Meritage's

Meritage due XXXX, the about in achieving talk also prices, quarter debt let's our despite capital since ended closing our gross September company's closing orders, highest delivered So, XXth, our while We results remarkable our margins strongest best solid many had since history. quarterly dynamics to outstanding and market XXXX. lowest our absorption record record quarterly are net XXXX, quarterly and lumber to our both These achievements. strategy. high revenue,

quarter, We four. slide previous with quarter third surpassed the we this in and quarter this adjusted XXXX XX% start more saw homes record was the X,XXX I'll which year. So, of than a quarterly

in a Although began home industry quarter and Meritage. in homes, [ph] historically demand market. All interest still another the record the COVID favorable homes strategy home advantageous with supply pandemic, limited into we're which rates, entry-level for affordable translated quarter hordes create new first the long existing and dynamics last macro-economic decade's and sales supply safer move-up worldwide listings, QX factors new of on homes, healthier backdrop, mortgage increased in our low continued a combined these that for focused including for

have are in down with level. an we Moving in price, revenue because while whenever of high increase and five, and demand increasing all exists. prices our we pace to at can achieving capture available we demand local geographies our both on We solid slide market [Indiscernible] sales are spec where possible executing We will we strategy a turning a are in strong not alignment with growth homes. munitions, believe and in

and sell X,XXX market nearly a strategy of spending investments a we take to In QX million XXXX, by pace our homes accelerated control. our spec and main on has greater new put share. $XXX lots at allowed Our record

low invest existing additional markets. liquidity balance in leverage remains long well net for maintained strong, a debt of all growth Our as We provides a a our and very event we safety in for sheet downturn. growth as as runway which even the another plenty significantly

While will active to early resulted trends new some sales mid-XXXX still to communities with this and inventories closeout over in community volume consistent quarter, Phillippe I'll our have which be high by it the openings, relatively of early are community we sale communities now entry-level can turn the Phillippe? spec for achieve our discuss quickly. more at immediately to strategy, closed on pace to accelerated XXX trends. a available recent of

Phillippe Lord

Steve. Thank you,

continue chapter months Steve Meritage cylinders and Steve employees the company well years Steve's times this behalf to upcoming today. commitment Before I I company's the would We honored of and Slide am six. at guided story. today. over entire September deeply XX during the working to as through as like next would to to last and for organization guidance live the instill and that the together values, employees, well of with records incredible CEO begin customers, beliefs our us like as as us all-time leadership three turbulent integrity, of Homes serve to also thank personally that I the XXXX. each and this to hit and ended and his decade. the led shareholders, has vision I successful within Steve opportunity the mentorship company, both in as thank to and his have for of Meritage on execution its on all

entry-level compared of year-over-year quarter for absorption average quarter increases and move-up the year-over-year. which almost our Five puts last and was the of is XXX% us quarter communities near entry-level XX% absorption between quarter. Entry-level comprise nearly during XX% first XX%/XX% to last quarter outperformance had times our over first move-up. a total of of year X.X nine sales pace higher were the orders year Much the active out communities. our third up XX% this the this for XX% XX% market. Entry-level of due strength up in states target the communities from represented ratio third pave and to Absorption than ago, year. in Our this entry-level of XX%

XX% demand channel early XXXX also community anticipate and move-up continued the XX happened demand year led experienced closeouts in than outside improved our and ago. across demand Slide of geographies. choppiness future. strong a year-over-year the sales QX These communities community shocks quarter. existing We with QX to absorption all higher in first near this in Our both seven,

will demand and with wrapped ramped land do have -- up up pipeline our count. up and to so continue community to investments We grow keep replenish to our

have securing aggressively new following COVID-XX pause We to due been lots a related since mid-April shutdowns.

translates XXth, approximately years XXX months XXXX, lots book in year, XX% nine fourth to increased almost first September put During based control, XX,XXX with new XXXX, the of nine new more control lots. total as XX XXXX, nearly almost lots and communities. XXX the supply XXXX. XX, of At new translates lot the quarter. XXXX by trailing than control under of put put XX,XXX much We dozens our X.X under representing XX% lots in more land we've during to This new communities month about as first of we all nearly a X,XXX closings, September months on with from into under come just new XXXX this outstanding, which XX,XXX

expanded. XXX size control We've average at has positions entry-level a our hundred communities community new our with larger average XX, at several under XX% As also life, contract, time, often strategy, part even entry-level been size our XXXX, an targeting of putting of accelerated a of the an place. lots. new lots to five-year sales community three Year-to-date, under September lots land were

XXX more our in and shut XXXX meaningfully pace six XXX on in that to all year We down pace could approximately and in in opening to sales eight, of slide reasonably full securing after latter XX to and regional the trends of believe average are communities XXXX. weeks of eight. Slide XX XXXX community due XXX being to will communities At lots next moving than pipeline up of community open year of of openings the strong XXXX projected for year. half XX,XXX We COVID-XX. new communities communities a a to scheduled produce increase level in aggressive start compared sales show count for per

reflected in QX. All solid of our regions performance year-over-year

central region's per doubled quarter comprising third XXXX. regions count. turn three over compared represented in average average Texas, of per decline order growth during quarter quarter a this region [ph] active XX% the communities XX% in in central six month of to an quarter community XXXX. with the XX% The of central third communities XXXX, of month the orders third Entry-level led Our increase to absorption in despite

operate of XX% Our all during largest in the we year-over-year nine up in, absorptions active in of also were communities. the performance the year-over-year selling through quarter. entry-level shift growth month West the an an with for average an average per XX% and in the third fewer average increase communities X% the of region's of quarter Entry-level absorption West quarter in the of of affordable communities count the XXXX, in XX% XXXX. the year-over-year. Average quarter in XXXX, was community XX% the third absorption for California XXX% states orders which increase orders the communities produced to newer quarter during California and represented of of seven success come there. community region over the by XXX% seeing California in driven We're at count sales highest increased

now in to of each will order the region financial in community during provide count. on an increase additional were decline XX% entry-level of the community analysis active to quarter, region in of Hilla? absorptions over East XX% average average offsetting turn Our a results. XX% year-over-year experienced the Hilla for our quarter. growth I it our XX%

Hilla Sferruzza

Thank you, Phillippe.

a growth home slide in Let's key period same in all bps metrics, year-over-year growth We growth, in closing with home across XXXX closing XXXX as quarter the and turn earnings of to compared XX SG&A nine. improvement revenue closing as in we XX% of gross significant revenue. margin, generated had the bps XXX increase to XX% third percentage

stages couple completed This XX% XX, were than of total we're At last closings understandably coming production. year-over-year inventory. specs of with started up quarter's XXXX, selling quarters more of the earlier closings less from in September were spec spec as approximately previously XX% of XX%

from is evidence driving over conversion backlog in up construction rate also year-over-year Although last is was rate for several our which revenue in net the backlog keeping record XXXX sales, year-over-year third XX%, high sales. We in quarter QX with our as product resulting decline of this the billion pace is conversion the increases entry-level. towards offset a our $X.X the in than that pandemic reflecting more volume, our over generated our up decrease shift closing quarters, closings slightly ASP in mix

from year ago. to third national increase and costs. achieved purchasing the profit. the volume improved and XXXX from XX.X streamline XX.X% year-over-year offset for home operations savings prices Our closing lumber additional gross than closing Higher in efficiencies margin bps record quarter to XXX a a XX% our of closing total The more contributed

to bulk purchasing advantage we have of savings by material we covered, harvest reducing previously where achieve preferred As costs our to have pricing and count in SKU continue been discounts materials able pre-cut while taking available. vendor to

trade. streamlined obtain home also to percentage production current our pricing was the a from SG&A was revenue Our of allows closing preferred us XX.X% improvement labor XX bps over due a as quarter, closing expenses as cost fixed marketing volume which and as XX.X% of related savings well efficiencies to to technology sales higher from in enhancements, efforts. XXXX, greater leverage as and and for particularly

into Tax under XXXX. credits benefited lower of Disaster We with Relief from December in Certainty tax energy Act extension a rate tax Taxpayer the and also enacted the XXXX the

tax year. XX.X% effective quarter XX.X% rate for year, was last the third Our versus this

QX XX%, margin, strong bps more quarter and of closings in in cents $X.XX percentage bps QX. that increase also SG&A closing we any XXXX. of were closing highlight The increase a benefited in repurchase shares offset XXXX earnings, pullback first from rapid September start generated recovery in XXXX in XX, experienced a basis, gross up had year-over-year revenue. to net year-to-date early XXX an a a were very uncertainties in X home our COVID-related XX% orders than as quarter just and up To items started diluted XX%, on home improvement third mid-April for results of we EPS million the from and of late Our XX few

investments and development. to land, sheet slide Moving on continues even in very XX, to our up we strong balance be acquisition, step as

purchases store cap for We liquidity to after our at lower including inventory available about is communities next conversion Slide net nearly the the in the anticipate spend to and million market history. and of backlog volume solid our average of to per second have in committed close. X.X lowest note quarter spec market facility, into count and We will year increasing closing housing and hot aggressively nimble our debt in grew dipping by available spec XXXX our of our cap development pullback XX.X single quarter; we our an to acquisition on with also this increased in can net improved XX, specs back a nothing of company's increase debt quick quarter credit $XXX land is inventories quickly and housing the million on a spec plenty our XX.X%. heavy when slows. for entering in highest $XXX this in We into a backlog result end spent are year. development land into very strategy ground We We to cash, our our in history quarter drawn on

land acquisition year. $XXX XXXX, XX% than the first million same last on higher of and period nearly was more we than the of development, nine spent For months which

to lot options terms We allows XX% which XX% XX% and our September us options. staggered XXXX which was using or at improves XXXX with XX, to owned September more of secure are inventory preserve was compared and XX, our owned loss, About liquidity. to XX% options, total purchasing

We anticipate could year the XX. market uncertainty XXXX continued financial pandemic. spite the QX, these of but I'll Finally, be slide in election, to will record by be results in you volatility. COVID-XX, caution a direct or surrounding strength impacted

rate XX% XX,XXX to revenue of $X.X EPS and the of back With to gross between home to XXXX, of projecting to over effective and XX% $X.X of units, I'll tax year XX% margin XX,XXX full $XX.XX. be closing diluted closing to Steve. to billion, $XX.XX closings home turn XX.X%, cents approximately that we're and For total million it

Steven Hilton

Thank you, Hilla.

Homes today company Turning in to a XXXX. than when slide XX. I To Meritage summarize, co-founded different is

and efficiency, affordability our that has delivered and culture superior we home Our have proud transformative. every build. quality, I'm products, shift energy innovative the strategic of that in we been

and future. results is strong Now, leading move-up deliver first to through on on roof, Home the one of the pun into market Builders, the current well demand is intended. capitalize entry-level is Demand positioned Meritage

growth benefits and on SG&A price operations product, on push Meritage some which from closing our to pace. closing and of we're Our streamline focus the both seeing affordable of Layering the of revenue us revenue leverage allows top strongest in results growth, history.

to financial cash Our and comes capital had. a sheet growth from flexibility balance lowest net ever strong debt having excess the and with we've

accelerating mid-XXXX. land get on are growth by of to community early to to focused XXX by our count investments, We goal

company the was Meritage. and the our dedication this I in of transform Meritage We truly opportunities incredibly homes, our boundless I are body people combination personal for thank I'd you leadership. talented All and long-term company, and hourly we'll thank the team. are to executive increase our team you, and and future your XX driving the of say right ability success want vision employees the creating want of I'm for how it the believe scan. and note, this questions. for the to value support had full close to the an shareholders. After not people for my like reality. to strategy, growth and a our outfits of quarterly and quarters to form community your a sure I personally anxiety for for execute without brilliant On made thoughtful -- interest thank investment

over instructions I'll all operator? concludes now of remarks. you. how the Q&A. know our turn That You'll call for to really on much I prepared miss operator

Operator

go Instructions] to Ratner Associates. Thank & Zelman [Operator we'll And Alan with you. first

Alan Ratner

Hey, morning. good guys,

Brent, I miss for you Steve, calls line best Phillippe. everybody next that luck we I in the these Emily, big think off chapter. But a well. on everybody of the I certainly First as speak congrats so to will guess on Steve,

Steve Hilton

Thank you.

Alan Ratner

is, think I continue focused this expecting have is But concern for is into intentionally obviously XX% selling the the have you mid-XXXX for topic optimistic. of I here. season So, product that enough that on topic, to have know, slow to a ground today cadence where reasons. a There's community big kind point and I builders And is target big you year. of nobody of, we like? And does just and positive obviously, growth obviously know, of by question the you the activity next pace certainly guess extremely concept count everybody's that heading XXX look multitude think, the on the what hit of the

going is the somewhat for front opposed better are is to it guess, I a your So on driver of spec. that, of perhaps smooth growth to high spec inventory, as be since weighted, weighted, percentage your halfway back communities, year the halfway top but of such sales

into you can XXXX, of just basis of planning and the have spec counts, growth? give us little a target idea we some get So, can of maybe bit hoping what so a heading you're a year-over-year to on your

Steve Hilton

there. yours these a the the of there's I and I Alan, So over lot question. last support appreciate to unpack appreciate decades. couple And

know, And ride. great appreciate you some us guys very we that. and I really a that. provided have it's research. it's appreciate You been been, And coverage thoughtful

Alan Ratner

you. Thank

Steve Hilton

it's think won't. homes backlog. it's even long-term they're if reason they're why not I have should when big because at just selling solid I be sales to our question homes they really our to the we're strong lot. next a We'll mean, we coming his XX,XXX to with the a a them have just the continue, to don't a growth specs. are just to investors, more selling entering a And source in see particularly of than XXXX. it. the when if the for versus going got quarters. finishing, But as said, company. little earlier backlog, it's these And produce little We're of communities us on bumpy come. we've they're a next Philippe Obviously, in been analysts We been look long-term year, for least important question a when starting in really cycle for to going times I able couple we've stores -- is quarters, be in going couple predominantly sell we selling this which which building though for section. a It's

X,XXX -- addition I In to homes at X,XXX or really on to now. homes trying we're X,XXX pipeline, into about X,XXX start get think that, spec the focused we're around

is the specs you're if and us which selling you next going season, the be help two, away. we this year. long-term pretty darn not in company thinking have, talking -- or if -- with the also. going about it bumpy. looks our It want But headed if it's, deliveries we're a excited you're in we're investors up think our for And our I will is about and But, ramp year I'm only you're I So to pipeline. pretty, a next I -- know, long, long-term, long-term And think think for spring looks what where it's you investor, quarter also that good. looking pretty should

Alan Ratner

know, Very advantage Steve, term bumpiness, the you do any occur the shares the sheet that shorter balance certainly, you that take with to well. not as context. appreciate I of And on have disruptions helpful,

front might opening strong, be show those expense communities? the to growth, it's that as expenses On associated would count far SG&A as those extremely are should with some up? And considerations we there loading any be community here when going

Steve Hilton

take Phillippe, that going and he'll I'm to let one.

Phillippe Lord

ramp up the growth with talking didn't to even occur. count, Obviously, pandemic our in XXX about, XX% communities, community Yes. the you're if

to that, to organizations layers the And of different have community. so our to support higher we add, to scale support

see expect mostly can to opening. year-over-year, the it's community the you time community, going year, with be next to So, SG&A increase

specifically we're year, expect revenue the overhead the overhead would very I occur trying to year, field to adding know, piece. you the mindful first happen of half of half as in we that the the in be always start to the more So, a back see

than land of and we to be that going to half we to of ever today as it's company, towards land the of get history in weighted know, land back mid-part maybe folks Hilla processing development So, year. something the we've wants But the more well. added in have have more you this we're next folks, as XXX the strive And to to add early to XXXX. we communities the clearly,

Hilla Sferruzza

Yes.

I you and to we one of Both and a that direction. offset capacity in know, different components, that the going to right? portion very guys obviously, to in a be going neither There's them, other to think lives lives going have add two to headcount SG&A. is we're So in company, portion right? overhead margin have in There's some be meaningful, grow

So, you're not going to see be going to see you're continued improvement deterioration in going not either. our material SG&A leverage, to but a

numbers. wanted we just sure make those to have some So on guardrails

Alan Ratner

Very much luck. helpful. Thank you great very and

Steve Hilton

you. Thank

Operator

to go Truman Fargo. We'll next Wells Patterson with

Truman Patterson

Hey, good call everyone let my morning, everyone. And on to well. throw out the as me congrats

I've to see been Now retired, -- move to there. that so Brent's what to we'll happens what officially to Phoenix convince finally, him trying

a meet some and higher thinking, clearly, count elevated to replacing at little XX% maybe on count, absorption your the are just that, focused you XXXX, will offset bit this decline, a orders hypothetically, bit walk all better really markets but your but, of market know, you're which absorption question, the have through are pace, XX% should also do XX% communities you able clearly pace, volatility XX% hypothetical? own lot effectively in the think count community an I'm through in be maybe us in of you you're First growing, a investors of a market the community a you or half clip growing, which the a if really, XXXX, success, in of clip victim first

Steve Hilton

it know, should be of give XXXX. focus than we with it getting, we're on just the I a quarter numbers, number. specific for We first in you little count we're you be first choppy had year. said, the can't was know and of and XXXX. the I sales absorptions guidance XXXX to some going good can February decent I if quarter get But you don't produce, community a greater this as But if XX% the to higher January and pretty the all be Well, a able

on good of After look if, and more one and I counts said, couple when backlog, solid it's have a results. XXXX going And, The don't than kick-in been, of buy lots opening, I have the lot finding our of good we the some going But community count it's ever closely it's seeing good to opening. bought we're resistance of really I we're not know long-term really And that some we produce question what And the long-term before. us as more We're produce spec it's communities short to a really again, fit community rely issue, I which earnings year next -- strategy. and term quality an think feel else that we've for the we're that that to about the XXXX. we opening of we We're of numbers. count, if lots. So, I a communities to within at that are into the question to really locations to the into continuing communities the could to lot. tell quarters it's not a first numbers, And, going be really should start propel of XXXX, a have that, to issue. you.

Hilla Sferruzza

point We're not to committee number remarks, community XXX, XXXX. in some there be in that count can't next we quarter and counts, that to the to get will our XXXX on XXXX, Yes, call, guidance. we at all inflection directional of get that obviously adjust in think right. going do But but prepared going I point next we're an items couple just maybe -- the quarter in a

in communities those see a So increase there not, in will are we're for the after. effect lot sales at not opening, eye very pop those And be you a you'll see material with in quarter point where we're ground that our XXXX. come closings a community of then you'll time, see we'll and on come built getting the shortly which a target count

point So, point that, to heavy to And enter a the everything during kind accelerate of a I we to really of addressing the inflection we some you're going think by path then year, will a tried XXXX. little and lot provide -- shift backlog. how of an by at we'll have where kind see bit back the year, of into there

Steve Hilton

more these in to which And will that, be out communities XXXX up level communities. to higher open our skewed absorptions to throughout come heavily even addition as brands, with new than move or they the living entry

propel year? sales also the the as will we which into number later get So

Truman Patterson

you then is Okay. closings I of know, clearly, investors Fair enough. into And lot on if XX% your couldn't expanding? -- the of But in Steve, ability to cycle kind I construction parts flip a that, actually growth issues are, times order any Thanks on the convert focused the you mentioned know, Okay, builders side, for tell those Having that. cycle. any you construction the know, seeing you product ground? are extend? starts of cycle earlier. seeing two then, shortages are the labor that leading getting or on you of that to you shortages? lot a are And But

Steve Hilton

We anticipated you Phillippe got that on to a that. response question, and

Phillippe Lord

Yes.

dramatically And chasing cycle perspective, Steve specs a to up had expanding, our we've ground. the in we capacity times, which COVID. as have more So at the least ramped are specs means articulated, we're, bit, of from our out are starts we're expanding, sales get not little

ever started we're starting we're we've selling history. we've homes sold ever It's that just more homes in more So than in than history.

count we're where way. point inflection up ramp this the in we're community with other to going So, trying specs decline

performing But quickly. issues very building there. homes times, So is well, we're really cycle still is what's the their not Labor backlog the any stretching capacity seeing we're out conversion. extremely that's

seen supply that of and chain and around boosted recently lumber, know off we've guys supply there. specifically level chain up dynamics, You aware the although

permitting. we starting the the and really to we're streamlined I and a start actually the as we're challenge, are really side, quickly. We're cost cost little because and as cover a pressure homes of just operations, we from said we've bit seeing homes that in probably able on perspective, have history. performing So are bottleneck. they pricing And we within bit are lower the -- many the homes the pressure, But building municipalities starting our spec ever are least, as then labor's even market, more today than than dive earlier, with continue That's biggest cycle that's because in we at times approving our well. builder, a to were

working we're the of those the most, we here. capacity probably that's the If So, opportunity. were those -- to from biggest but challenges, area through the -- increase

Truman Patterson

luck upcoming and All quarter. on good right. the Thanks, everyone,

Steve Hilton

Thank you.

Operator

to next Bank Lovallo America. of John go We'll with

John Lovallo

you Thank my taking guys. Hey, questions. for

first on for one, the outlook gross margin The XXXX.

you're in I or of versus savings think so you margin I gross the is, the I to is worked of activity part of about? basis And savings think you that on this the how the front, up you do which that think out Or hold the as that do implies guess side. XQ able points being the guys anticipate up mean, question that vertical latter labor year-over-year. around have pricing of some those, some on is you XX.X%, terms that guys some back? give enough to and much have to here? on horizontal of talked XXX I picks of

Hilla Sferruzza

question. the John, Hi, for thanks

builder, a definitely to the to is that's to full we're of a reflected increases, expect the but for for times. lumber portion of able going a you to think be coming year in QX, of offset I another us There's quick said, in see back XX.X% pretty XX% already number, we our if QX math, part lumber because napkin an of of our that. through that we're of So cycle projecting margins, increase our in because in blend. can do hit you kind Like you target QX increases

to on out. some seeing from QX, efficiencies started place increased in locks and cost at were in still higher are continued some So pressure ASPs when because that we going the lumber that's side, coming we're least have from cost we

lumber predicting the to what going assuming shoots, for green though even to increases. you're really we're yet finding some anything now, the ability steady, that there's and probably that that XXXX. in We're margin, bit. is not down product, right efficiencies stay But component we're is for fixed mostly leverage come seeing So will in a price overhead

John Lovallo

the guys nicely. that of year impact? step folks here potential full trying guide the ASP the what outlook, at And and back would again affordability? up do into you looking just terms would sort pretty high-end, again, concerned of offset out all in Are it either you at to can pricing of market about to XQ then the the And appear it. that at got Okay,

Phillippe Lord

Phillippe. This Yes. is

look level get that can't buyer in and market, seeing, entry conventional They're brand, not the We seeing a are story. probably above at important qualified at we LiVE.NOW really the it's very that mindful loan. you which look below FHA. governor, we its communities of that's think that operate own community is demand just has that, we're The why as FHA. the that stay every We

really the that's governor. So

below there. And to in have some we're lot upside -- have opportunities we little we pushing places, some and there's and Phoenix, getting not like because well still of So places FHA. there other a definitely we're a opportunity continue

really entry doing. also us. So is That's leverage. community-by-community. the about. It's the pace. about the about for market-by-market, level what story that's it's is all We're competition But We're what it's business

able our price to today's so of although get we And we've both in praise mindful are and market. pricing, been

there's As there that much further. we move year, out pushing absolute into governor next will it us limit

John Lovallo

That's helpful. guys. Thanks a lot

Phillippe Lord

you. Thank

Operator

with go Kim We'll Evercore ISI. to next Instructions] Stephen [Operator

Stephen Kim

looks right be was lot, yes, about. the you, still to communities. question I that in we these Steve in Steve we going Yes. to on product ramp thought of and like Brandon, to Thanks we're couple which over hearing luck putting going been was and everything. guess, at we years watch, and I year-and-a-half thought now thought just but best it's Studio hitting the in a with your were Brent, Studio calls going California, time. a -- particular. communities important guys. the seeing on My miss starts remember Well, forward aspects -- you talking off, California for you look or Meanwhile, the M about so to of M, two or we're be I'm intrigued we you've planning mix, last

it about of month. at been You segment end of on up go M, the didn't -- but call. to the level, But energy lot of entry maybe was after. seems don't but this more much market, the today the I other higher what think how there's a talk talking one too builders Studio about move Not exactly the the

target next about we and Studio market M, year? products carry them talk the M higher your for what specifically be with whether saw Studio you can can So, and margins with California looking to that forward you

Steven Hilton

words kind too. of So, the miss there's But guys you Stephen, it'll -- thanks be all. first of for I'll a around. relatively

Stephen Kim

Yes.

Steven Hilton

right energy market in There's the of segments now. all

I was think from you're builders, today that a builder right before hearing results. us phenomenal there with other

are times mortgage and the at with their that COVID I I more there's price in energy the demand points. And homes rates people fact low price created think all think spending in all has points.

it margins, in of getting more though, one LiVE.NOW the LiVE.NOW, than are We're priced new I well Studio to of multimillion selling solid. works that some it's for us in land see my career. I've think opportunities dollar is seen before like never maybe homes us, we're competitive higher the some these shocked than the in margins I'm less segment discos, LiVE.NOW segment. are touch our really, out not seeing M the of it's but high $XX for million and for the it entire

communities, XXX bigger community our And deals churn. trying I lots, we're lots, churn, we're for our think to absorptions the the last much this lots, XXX are reduce entry lots -- I we're in XXX because higher. level alluded count chasing deals, call, because to quarter building XXX the

to you're the If models, be up, find finishing organization, models, of starting you're closing opening longer, our it's but you're for community goes only to better on you buy hard a little a bit overhead, replacements. can have smaller community the It's bottom-line, you there's people as it labor that a year in off, lot you're with and a land not on and it to in work if hard a or allows two, that. you're

those we We don't big many finding even parcels. and builders only We compete have the as for a public builders that parcels for bigger those with. with few public's. less competition of some So, compete we're private

believe to So, But sure. a our land. we do and community It opened And in That's hurdles. to do time. we M, our that California, we've skewed California in that and we not to direction. parcels. for and you tough land count a lot going we takes up. there's pay to got there acquisitions And with new year buying respect continue has it's to long Studio been those don't it's don't And a to because a And love are with this you of one or we're bit say so. to place find specifically, increase risky, in

We're better it and for big a for that. But there. us it's matter. do challenge builders So we're happy is that -- for a all doing to

Stephen Kim

Got it.

going comment for seen, is was quarter. fourth ran spend land I the that year. could it to Hilla, where at that this mentioned in probably if could wondering but I you'd highest was number rise going million guessing Your think you ever, up $XXX the you you I'm quarter. think that you're the wind to on actually,

I think next I'm is outlook it. what and that still, think year? a guessing or $X.X you reasonable you like said it, something billion missed around for I

Hilla Sferruzza

We haven't XXXX yet. given guidance into

numbers. for expectation specific good I didn't year XXXX. X.X But We much full get a pretty spot think is $X you're on. between billion billion and

we're for So had obviously, weeks six at there XXX math, the the year-to-date, you we year. do kind pause of in a

So we're going to be accelerating that.

But that number no expect guidance. in that to to specific XXXX, to XXXX. acceleration continued XXX get to there's more continue give can cap accelerate. and community without You We'll way

north go can that. You of and of ahead model kind little something a

Steven Hilton

of about cash deals wave hopefully, it land And to fourth make. of absorb the the chunk just really they're got lots big development approved, we're a and land we purchases, in coming. that need through contribution we've our through quality will retained that coming our and quarter. bigger, spend and we deals There's these make proved it's of a going lot We've earnings, in excited already our can because that a and land committee coming October. even the a dollars to lot And we've

Stephen Kim

a two. wanted room, a maybe mention bit month how was of or close. you months FHA something, clarify FHA something, pretty loan it, of had a generally or much little we're rises to a a the made And or places, hear about getting right. usually Phillippe, I of That's year, a the Yes. couple a limit, loan rises about limit great. just I it you thinking little couple still once we'll

season will actually that bit think right? amount that That's some of So a you're is the all that that. affordability against not first significant the Am in is you degree due I point of increases. at And some more and there kind have I So a half years missing and theoretically, level Phillippe? something to the the fair about generally, selling the -- the year in little that, of bump issue -- entry later spring generally, up challenges, to an the of price right? headroom,

Phillippe Lord

exactly right. you're not That's anything. missing No,

board. prices kind So opportunity market we'll and on clearly And across creates year, that of the based up the next what are comps. revisions see

Stephen Kim

Yes.

Phillippe Lord

to expect So, sort we do us some of increase give there opportunity. some

Steven Hilton

reported. Let me right a rising. just it's number last year's probably widely add fiction, been have now. FHA with that. dealing And It's And prices not X% been month. on We're

up I us, are So are already. on the entry loan can just to around don't this the or know the fact it's you still if in year, so go our XXXs we're across of not have And XXX -- FHA at line X% to limit or completely now this lower XX% with year, board. adjust we're going up that for last end FHA on But limits what level places But increased. loan is bank prices most the XX,XXX prices the low products year.

to got mindful. be we So

times Phillippe number. So inside stay that articulated we that couple already, a

Hilla Sferruzza

FHA we then able the increase headroom, putting seem that we and FHA have the why ago. a that underwriting Yes, where remember have to of to getting was the were I deal, were two that to of time it when but will why that be approved limited this FHA bow is of away. because amount kind we one around to that's this, to everything little That's underwriting bought we close at the we've limit bit been kind today, years we we're

Phillippe Lord

the -- say, you just the unlimited. is, lower and we we want lower some about to, have sell the want houses putting just price at could as mean product these I fast as almost It's comes and XXX,XXX first to the the production, points. as it many on would some I it's of do to the We on ground. under down band, we demand places, as stronger communities

Stephen Kim

Yes. the had do, everyone's blow all And of forced there's with money. because to to nowhere our that savings

people off I've FICO You've heard scores then the basically levels folks payment, And anymore. for got across for hurdle not the hitting nation. are down record

as So well, all that business benefiting I and of you're assume from your right? seeing in

Steven Hilton

Yes.

Phillippe Lord

Yes.

Stephen Kim

Good still Great. look and speaking Thanks, to forward guys. luck with right. you All afterwards.

Steven Hilton

Okay. you. Thank

Operator

Reichardt We'll to Carl BTIG. with go next

Carl Reichardt

morning, Good Thanks. everybody.

Steven Hilton

Hi, Carl.

Carl Reichardt

a just a only you last company and question, what's book. of lot XX make It remarkable write in co-founded I business Up comment really is it's Is that? such this you but several a to years. significant a you for credit and of ran for been -- transformation in have one happened years. congratulations. there for Steve it a a And courage took that company lot

Steven Hilton

you. Thank

Carl Reichardt

what I -- better That's modeling you? for congrats, asking. a backswing It am can am I I'm only--

Steven Hilton

going I'm fishing.

Carl Reichardt

where welcome question couple and at it are in percentage terms your and But mix? of higher, next think in get the at drive the to which places. Emily. really years, just one other you really significant where I of LiVE.NOW And obviously as lagging looking or can of LiVE.NOW Phoenix and you penetration had penetration, if of what is, you terms guys. it's metros states your look I Thanks, you're

Steven Hilton

Texas in going the it's Coast. Yes, of is and us be. really most where the on I West, In maturation to for East big really are opportunities the is think LiVE.NOW the big -- the

newer there longshot Metropolitan performance we've with Although big said in. and Colorado, huge count dramatically the lot we as in it's coming of lot Florida, builder some because markets lot and for Carolina. intend of bit all come But the East opportunities our at really we're And all are parts we us look and come Horton LiVE.NOW affordability other Texas been to for issue to a But and then a up had there. pivoted slower on the and -- Florida. little in you a is that's then a two of growth, rest after Dallas Coast, driving in come in It's have Houston Texas in go Atlanta, us stuff that. slow for largest stuff LiVE.NOW. and here. it's the such an of from out those that's when we in opportunities Nashville, community in we a of just going by Orlando, LiVE.NOW and In the

move penetration it's really the East continue the really opportunities the needle. biggest So, us Texas and to on and is for that Coast

Steven Hilton

announcing now we're are make little will to some markets yet, markets new they hopefully, but of with additionally, bit quarter, also, ready by be to bit of several vigorously those and little say we'll which announcements on next working I'd not new to are markets. about a announce specific be we able markets able We're start be to some and this going theme. a that

to So, as think, some to go have Coast room our in with that. I also we've LiVE.NOW along some in East articulated, market, brand, grow we particularly markets our Florida, but we'll have new

Hilla Sferruzza

XXX an just does cushion that contemplate us. markets, that's extra community for new account And not so

Carl Reichardt

All to That is great congrats. hear. right, Thanks all.

Steven Hilton

Carl. Thanks

Operator

Morgan. We'll JP go Rehaut next Michael to with

Unidentified Analyst

[Indiscernible] is this Hi, for on Mike.

market or Steve levels traffic on starting signs First, on and and comment is October? if if on any I and question sales the could to of show My seasonality? your slowing was pace you was, results in of luck to so first retirement. Brent the curious far regular best And congrats

Steven Hilton

last because think sales to number two maybe say October year's weekends little I'd bit in or quite a be go with for we've already But as a as to strong. September month, of go. continues to XX not days nine October seasonality. strong I surpassed

produce versus change So, number that don't order dynamic. anything that's a horizon see to I on I And year's big last expect it pretty going will the for October.

Phillippe Lord

a Yes, traffic this down. levels coming this are election describe weeks, in usually stable. because that things slows up here couple there's To think I all

paying an But house of isn't and they shelter. extremely least So, surprisingly, all they're this election, either the for housing or market year. at maybe are the perspective, levels even for traffic attention are stable to a from buying time way,

Steven Hilton

house, them. to going put gun we were couldn't find every We in a

Just sorry. kidding,

Unidentified Analyst

even to something clarify And prior gross margin, higher On LiVE.NOW noted above products But with the mentioned or by time the now generally call. M. a than in as may were entry-level move-up maybe earlier Studio the parity be think hear. gap I the calls, you to move-up then that little wanted narrowing the offering. the I bit margins at gross first bit from great entry-level helped Really

just that a get make more to I'm it around those clarity comments doing right. So, wanted sure and little

Steven Hilton

the Hilla really tower I'll give specifics, and strong. let you but is pricing you the entry-level the

I seeing So, think that's the where we're better margins.

prices disconnect that demand Just to higher the end. down more a at point the price probably really us lower that's push is producing allowing than supply/demand

So, first I'll higher the and move-up. specifics. are Hilla have believe entry-level our still give in I you But margins

Hilla Sferruzza

of our year. products. this entry-level kind highest producing for products consistent our It's Yes, held margin

basis. but still there's bit actually increase move-up a a it we're entry-level power, more time relative a bit, First looking little behind when did pricing them lags a bit at on

Unidentified Analyst

Got it. Thank guys. you. Thanks

Steven Hilton

Welcome.

Operator

next with Barron Alex Center. Research And we'll to go Housing

Alex Barron

builder of the the all to and the wanted you Yes, retirement to big forth. or is so I thanks I organic wanted and just would turnaround the that to based on acquire is verify all growth expectation guys any in a on just company. XXX and congratulations there have to get this focus communities on that?

Steven Hilton

much pretty do stores land organic. It's all And we all it. contract have the to under

make it's buy go like land. already got to that We happen. we whole land and of not the to So, bunch got a

have in getting a there in mid-XXXX. to high of we So, confidence degree early

Alex Barron

Okay.

Steven Hilton

way. along may It choppy the be

out sell after. faster have this we closed we next quarter; communities XX may quarter the community some communities those quarter, out quarter did closed said, because As we this like we out we or would

have stores, have because was higher community in them, have in we the year and them our moving what So, process, they have XX% selling shelf and at that more closed will rebound a homes a We when faster would the to the we're higher count number XX% than sell we're fly little quick developing the later more be and the lots, through going be the bought we the quarter would the end. and count maybe last But lot. because and COVID community This out the the -- of been we're this of been have anticipated maybe QX, But off the we higher driving we or QX lots, out in of bit QX, down. will XX%, homes two are we little communities here. because quarters. the it's is

Alex Barron

buyers I market. means good. you're taking don't any see out problem selling the Okay, that's of all with early out just

Steven Hilton

Exactly.

Alex Barron

the the The were to about other question sales you of said you're said I I that think had you of and is communities regards the this that entry-level -- with I growing. also think XX% buying quarter size

we So, percentage towards next the that up basically, pace should will trends also couple entry-level that of expect the communities? should over increasing? expect sales keep in we keep basically, the And XXX heading years going you're the as will

Steven Hilton

But was underwrite that make that with I tell predictions. higher per to we'll per don't I pace, the-- were than the higher don't community. I part the at levels -- Well, was we've was at ever think much month pace, high of it's sales we question and want about competition almost I than looking mean of whether the and historically our to you continue the can't any six I been. pace second

Hilla Sferruzza

--community?

Steven Hilton

The -- XX%/XX% being don't more it's a that sales be competitive, mean sales in we we in or course, to you. aren't enough. a find harder one, page communication It's land. of finding LiVE.NOW LiVE.NOW is because one a from yes, slower. where And, that. at investing one XX%/XX%. result probably you said, than he we big that'll U.S., one higher but that I Yes, in little deals just goal I at from a think are I and different still looking underwrite it's are don't versus land, perspective. the we're even a XX%/XX% ratio The to But pace LiVE.NOW of is to percentage as

Alex Barron

of job. best Thanks. Well, luck good possible. Okay, and

Steven Hilton

Thanks Alex.

was last Two think question right? our operator, I this more.

Operator

We'll queue. in more Maklari two with to Sachs. go Susan have we next Goldman Yes,

Susan Maklari

and question year. congratulations around for everyone. you thinking is to next My Thank consolidation about

think private community count to recently positions, see trying Given the up go could industry on peers look year their that as smaller one lot everyone's that buying load we saw we we you builder. more next Do to out? of in ready your have of and a

Steven Hilton

the factors into to M&A. just it. last I it's and quarters quarter know so to that I XX ask for -- so most many hard get question go every There's this predict

issues, I'm there now that of we're say but been acquisitions, be, than because going what and focused our social their are more are thinking? what are it's and I strategy. many So a retirement could on that goals sure more or fit we're We're or about we're probably we the saw year of strategy. be Frankly, objectives to -- ago. interested builders what particular in within seeing be plans quiet. going deals the kind plans inquiry to And wouldn't our the

as it we said. the wouldn't product outside and new a be solidly the fit can like of is if be that for So, entering will market us. build, feel just product the And we a grow we they we long-term organically over

to of tell always M&A are what to eyes hard is be. it's open, going our So, pace the but

Susan Maklari

Got you.

Can earlier bit repurchases? quarter, the allocation, peers you commented the in Okay. have that that you how you restart do you kind given talk today do talk And the can quarters, of be returns, the that, that Now, of then to going on liquidity little about just next thinking your a what bit that forecasting little to willingness fourth capital couple the sheet. of to share are start of your up would you're on following they're one it? to shareholder for a bumpiness about balance

Steven Hilton

share the it comes a opportunistic ago. did it on We're price repurchases. it more to share than today, a looks based lot pretty -- week appetizing when Well,

share share try using be dilution from to our XX% stay want going mean, the to we to a at that's lot balance cover sheet think to going enough on certainly not we're at And we're have buy of I not we'll cap, paying today of never and we're topline, We I shares capital grow debt issues. to But to -- pursue our been. a least them. bottom-line. net take a makes dividend to to the extent We're the grow be buy going the repurchases money using company. to to to them sense, advantage the land,

that's doing we where explore to commitment are. continue We we have made And the a concept, to that. but

Susan Maklari

Good you. Okay, great. Thank luck.

Steven Hilton

Last caller? Susan. Thanks

Operator

We'll go next to Jade Rahmani with KBW.

Jade Rahmani

Yes, thanks very the much for question. taking

or individual about as over industry, efficiency provided multi-year a wondering shareholder is Steve, homebuilding the message term to conference to maybe of call I longer was have communities, any value Just the overall for the time for the industry's, you as relates this the think your ahead you for to you road it drivers future being returns? send the any holder of industry horizon, want homebuilding last since if parting words,

Steven Hilton

didn't mean, a to good respond question, anything it's mouthful. Well, that's for but question a sure. I I prepare to that

shares the pretty to everybody today, going a going by not share hard got I a yesterday, comps next that stocks good to everyone's woke Q&A, longer get year. We I are news have as I up so our in seem horizon. I to And -- prices is, think And very figure programmed are short be the and I to week, out. guess, Just needs that more fact think the just today, the to to much my tough mean, down, with next really term up everybody, computers. had the it's in our thinking. said, in -- everybody trade attention little as span industry the of

continues I So, to innovate. think industry the

same built houses the I out our years don't control trades really are way ago. were Homes to built dependent more. XX to we're has build control how got they figure change. think the destiny pretty on way We to We've and labor; we contractors. much our own

lot lot on of business. think back sales on the there's There's in We've manage I coming. on the a side. coming a text -- the the seen of we how a there's office, probably coming lot financial already innovation the more functions

Me, fun. and to But is our are working where I'm for and to think Phillippe and a keeping going be I'm team So, be on Board his leading this It's long-term I'll -- touch excited future Phillippe I'm going and think I see own to on the future going fishing still going and be and I'm my our well. to a for excited as do phenomenal go, and job. and while. to still going to these interesting for strategy, it's I excited I'll calls be and vision, with around the so company's in be

support and for appreciate So, question. thanks your Jade the

Jade Rahmani

Thank you very much.

Steven Hilton

today. January, to at we then. of Thank That the fourth our We'll call talking up you and Okay, thank release have wraps at you forward look of Take you. the quarter all to end earnings our our should and you. we'll talk care. end to

Phillippe Lord

you. Thank

Steven Hilton

Bye.

Operator

And participation. today's your Thank conference. that you for concludes

You disconnect. may now