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Meritage Homes (MTH)

Participants
Emily Tadano Vice President, Investor Relations
Steven Hilton Executive Chairman of the Board
Phillippe Lord Chief Executive Officer
Hilla Sferruzza Chief Financial Officer
Alan Ratner Zelman & Associates
Stephen Kim Evercore ISI
Michael Rehaut JP Morgan Securities, Inc.
Carl Reichardt BTIG, LLC
Deepa Raghavan Wells Fargo Securities LLC
Truman Patterson Wolfe Research, LLC
Jake Titleman Goldman Sachs
Alex Barron Housing Research Center
Call transcript
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Operator

Greetings and welcome to Meritage Homes Second Quarter 2021 Analyst Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Emily Tadano, Vice President Investor Relations for Meritage Homes. ahead. go Please

Emily Tadano

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

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

and on XXXX this and as our expectations of those filings Exchange Securities and risk Form which wide Form of contain reports risks. in a may results factors, on press Commission, recent due than be slide identified on to discussion specifically have actual materially annual our most a as detailed release which our XX-Q, the Our different XX-K more well we with variety quarterly and listed report

press release in President results Steve CEO; also of closest their Meritage are CFO as us measures related a Hilton, referred non-GAAP With Phillippe compared Vice GAAP our our of reconciliation Chairman; financial certain discuss provided Executive measures. and Lord, to Sferruzza, Executive have We to to Homes. Hilla and today

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

Steven Hilton

a year. Home housing and remains our strong Emily. financial activity quarter overview and Hilla be provide market will provide Welcome and the XXXX all you, overview buying today, our strategy I'll very to everyone experiencing trends first continues off our healthy. quarter Thank second of to of The the of in in quarterly on by an participating and the performance, cover call. Phillippe we're geographies. XXXX will of the the steady start market guidance. half discussing

Even pace constraints, the as average of month, we our up per X.X from to align with production absorption prior pace managed our X.X orders quarter month year. from was per XXXX second

driving to constrained. power greater us allowed navigated To start seeing we trades address meaningful considering we also We backdrop our partnerships forecast our possible. and cycle sites influence here minimize trends our impact remains in job housing and quarterly and millennials increase in interest payment we low homes, as growth. sequential purchase to where supply levels. chain at X,XXX our XX% as anticipated near of was with successfully from long-term housing interest remain space expansion, long the quarter, and challenges This this what decision above are the which rates June XXX be cost average as commodity March the Buyers time both remain historical demand communities, in in believe sense, our generated to With prior company at also, in payment, buying continue or delivered low than the pricing rates highest as continues homebuying history more and our baby-boomers today. consistent are offsetting rates XX the supply than We increases. year. We our goal. grew community count makes of from the quarter XX.X%. Mortgage quarterly monthly industry gross macro focus so closings. mostly XXX best demographic demand the remains XX, on the We our to our a home-closing is We XXX achieved of what strong. are Lower the entry-level to community second at margin

supply an tight the market. of remains Secondly, resale new issue in homes and the

resale we While persist supply we new will future. believe and for foreseeable demand the eventually adjust, will listings current constraints anticipate home builder pipelines and the

a greater the drive years. turn a volume generate rate over just based communities, Meritage to over believe entry-level the net should I'll X markets, and bit normalized orders, orders on can early move-up per positioned At for with events several on first a next Millennials which deliver to With it and of next in several month. and continue that years. we is are demand drive is profitability orders XX,XXX Lastly, run baby-boomers stages life count Phillippe. align our to and XX now we growing demographics over XXX homebuilding community focus Phillippe? the per store, well of still homeownership.

Phillippe Lord

Steve. you, Thank

meet to the managing net price our shifts prices this basis quarter. increased still per achieved store are to X% month quarter. we increasing current partially a objectives the towards X.X on function ASP This pace Despite favorable this our year-over-year led and to environment. as pace absorption The today's we is XXXX, elevated absorption product order continue in of we We by about in to same While to orders conditions. XX% year-over-year, production, mix orders able market XX% also align exceed with prioritize market even entry-level.

continue increase Although, to from our homes, long-term its pace as entry-level absorption levels. on we historical focus should

the we pricing model operate designed business believe sustainable necessary current and We long-term. normalized not and environment, in stable demand becomes today's are our couple sales pricing to as pace sustainable the dynamics are growth revert recognize While will certainly quarters, next was to indefinitely, at are we more We over markets pace. market being available. optimistic anticipate historical and supply the for

However, are after in that markets. are released. We to still we indicators soon today, some stretched homes are they affordability acknowledge our being able early there sell that is

and first-move and entry-level which Our all of affordability, influences strategy library, land making, based pricing, customers. strategy is plan on decision target areas

to quality Our be been continue homes. and strategy has yet offer affordable to will

shift rates raise increases ASP, That quarter, more prices surge kept housing the in this As payments we us portfolio, masking more our the are down communities. has entry-level enabled again said, to year-over-year the we affordable continue being band. closing ongoing and order, continuing to in to some price in backlog ASPs, and to leading moving affordable. of monthly low interest product and higher average shifts have Despite to demand

And on experienced our with the market. we no for or limited pricing continue have our minimal sell We pushback inventory to incentives.

We are incentives adjust with constantly necessary. as geographies, monitoring to conditions we'll accordingly our and local all align

as strong, remain and credit we consistent. the overall of KPIs market to demand and stable our Even evaluate metrics buyers affordability remains customer of ensure our homes

and that an date, our level entry lots in us. on needs sensitivity our in savings to our our we costs customers. our qualify bulk rate greater affordability interest in level ability mind. and pass strategy indicators it to concern continued conducted backlog product XXX% keeping in communities. those sub-markets keep To focus which customers' order our rates us to We've and any buyers' buying on determine is detail, low acquisitions, entry to comes pervasive also we as to along for up. go streamline will of land expensive possible, out Every have if to to allows Hilla in on of business also less building to our ensure When not strategy aspect operations as commitment our seen test talk find to focused are stress about We further spec

DEI leadership. a get Meritage, I of and we hosted detailed would In expert series or inclusion, third-party we training a on conversation, into inclusive Slide to Before milestones equity exciting at share X. of like education our discuss some ongoing and to company-wide the diversity, this DEI held quarter we the achieved by numbers,

DEI addition to management our Meritage help of formed a In we comprised initiatives. conducting survey, our execute DEI to from backgrounds company various also and communicate employees culture council

quarter Operation renewed half transition an customer home technology months. Xth mortgage-free energy-efficient and consumer thank of And webpage. Tampa, civilian our be to the of veterans and new perspective, enhancements I to have back our brand Homefront as feature talking a some further all the From proud with an for our a experience for a relationship support Meritage we deliver life. we This achieved a for service in chatbot first year in wants Florida family. build show XXXX. near We and to interactive their military out about to we'll coming am to rolled deserving

energy digital help create features, new offerings, performance on well innovation, impact focus long-term efficient and continued technological all additional efforts financial value. as DEI to our positively Our as

by through up these elevated closings than compared XXX. it higher increases to closing X% year-over-year X, last current quarter, was challenging Difficulty] XXX of due prior year, $X.X X% has drove [Technical homes homes in count quarter. or over driven prior X,XXX or Turning ASP to revenue push average X% year-over-year quarter's the XX% count, to count entirely Slide XX% to sold and an had a this closing second us our increased significant lower down Together sustained XXXX average the quarter which community additionally X,XXX in We billion allowed of this totaling housing year. comps the to year lower home slightly community demand, of

average housing with home the X.X release the despite average considerable per and in X% order sales mentioned, combined $XXX,XXX second the in to between Both April per end mix Despite quarter pace was year-over-year absorption more improved created The onwards actually up year-over-year. pricing ASP supply pace homes and market of towards when pace. Steve low metered demand conditions ordered X.X and a market. up month, buying As in June absorption exceeded power quarter. we the tightly from was XXXX month XX% the strong

year the communities second a in of Entry-level total the level quarter XX% demand also move-up XX% XX% ago. represented year. active of entry last orders XX% in During products. to the both and comprise quarter second existed average will over first up compared our quarter, Entry-level from for strong

for pace absorption first home year-over-year. XX% increased Our move-up

to regional Moving Slide on level the X. trends

east order in entry largest over our the as selling level Georgia month, a during absorption in pace of X% Performance had X% by the to region compared in XX% XX% Our offset entry strong level decrease at to to last can a a highest volume which result XX% community per count. average in to growth quarter average offset demonstrate entry-level the increased decline continues XX% partially with XX% be prior average shift year X.X region The growth year. in attributed quarter its by of partially pivot. East largely pace, led region active community in homes orders. average the average community in same absorption count this

X% count led Our while average grew of X.X year communities of Entry-level average highest volume. absorption all all X This the highest active our XX%. average was decreased region over pace central order represent month, a markets to the during Central's company, in regions. community the the Texas XX% quarter, communities X% among which the prior in absorption in comprised pace the per to decline

XX% average to us remained Our due over largely California average ASP in are demand strongest due X.X West power the chain order demonstrated region entry year year-over-year. community to experienced second month, communities. flat. West the pace X.X and at faster. in more we Arizona's to in the XX%. allow XX% makeup quarter from even over increasing increase power was count X.X net per in to increasing with supply ASP. If per from to would orders decreased year XXXX sell shift pricing in decline Arizona seeing a demand was level relatively working the pricing homes today XX% in the active average the efficiently, an order community marketplace increase The flat strong XX% Order month. resulted prior the year average volume XX% absorption

year were Slide community Turning or quarter less ability in completed, ground, second entry-level you even delays. is versus in home total homes from push homes on of level the an XX% maintain At nearly X,XXX with to to a the this this of last units, annualized as has ended closings XX.X We quarter of and average XXXX, of been X,XXX inventory, Maintaining inventory We month declined This from year, the our over per came a X,XXX necessary ago. specs as the get backlog as same we our inventory to improvement of of despite from ended quarter, XXXX. validates quarter as this our spec previously and started X, homes with community quarter, in quarter X.X X the X average X,XXX typical specs than over to count runway of our year or home goal spec the although rate started support an about X% XX% average backlog line XX% production June the percentage specs with an X, challenging, of to one-third. XX,XXX supply of XX%. starts our rates to X,XXX objectives. first the conversion

the To drive believe spec in backlog the business backed to month second our as conversions beyond. homes up Having in we focus XXXX cycle. in the conversion entry-level early sell model. coming expect will production and our crucial available is We persist slower to

by and headwinds side navigate advantage a further supply times gives and home, of quarter, pre resulted cycle extending competitive before cost costs We better in weeks, building believe have especially advance. locking By and expansion. spec yet in enabling building able rising approximately us our construction contract this materials plan the manage our not through for were risk in Although on margins, the we challenge in cost seen any a can strategy we us X have pricing starts environment. avoid we to to

months we increase of turn able it will an analysis as financial to our to and has according that us of I believe continue to to Hilla? XXX results. spec market enabled and so our spec communities. strategies market were sales, not back, adjust Additionally, to we'll since do share, provide grow over to our numbers now we of Hilla volumes to our additional absolute demand. We construction spec on built strategy supply

Hilla Sferruzza

Thank Phillippe. you,

X Let's our turn to Slide and QX financial more cover detail. results in

that closing XX% being home. in XXXX quarter our closing XX% the the noted, of higher year-over-year have in increases home closings notable in peaked second than other fixed result increase a quarter X% reflects offset despite costs comp commodity growth higher anticipated The year ASP and was greater June Lumber begun closing positive a ASPs The we'll and lumber by revenue and a Phillippe gross of from home As XXX margin and to decline be way the prices and impact, financials costs. in home entry-level to the continue partially improvement increase second XX.X% of closing of more volume. bps in home greater work XX.X% other mix its start our ago in The margin futures ASPs in in comprised leveraging July. to through May and the may that rise. coming offset quarters

some library, demand. elevated to certainly believe and of this not we're entire is are and a X the in even constrained counts both community margin homebuilding future. of in supply industry SKU for gross up in count, XXX, partnerships and benefit greater our we eventually degree, scale To consecutive we limited due to The finished, delays. strong these materials cadence, lot disruption reduced phenomenon, documented fixed raw ongoing overhead construction many constant environment that navigating quarters some As to towards our from to will predictable all advantages while immune vendor leveraging plan impacted today's

fortunately are local While stable. during preferred labor strategy scheduling We labor and homebuilding of trade. shortages high industry our a are is commonly makes transparency choice, periods believe attractive associated relatively our us with to since of the visibility builder growth, still

due our challenges. to transportation costs have with labor indirect higher some we However, of inputs affiliated had some

of continue monitor indications a We tightening labor for market. to

and XX% closing the down greater below in our bringing SG&A volume both ASPs higher to from benefited our X.X%. leverage goal quarter, SG&A to Our

effective, more One solution permanent to of in and the where possible, XXXX, an our yet out which sales changes in we lower marketing and and employ is increased we refine. cost technologies rolled is continue

Disaster bps XX.X% on XXXX improved income rates year, an achieved the revenues effective X.X%. years closing bps of year-over-year just The increase credit from quarter The orders increase home were quarter in We reduced increases a highlight up homes efficient that Tax had compared under second Taxpayer rate XX% percentage expanded XX% a margin closing as qualifying the stem leverage higher XX%. to was home XXX Relief we quarter and of earnings, And diluted closing tax To of few margin energy XXX this eligible Act. X%, to we price a half closings by reflect first improved primarily of XXXX to volume and XX.X% XX.X%. on net results $X.XX. increase EPS in up the items overhead SG&A and gross to from in both in second Certainty a gross an were closed year-over-year basis, prior XXXX led generated tax

our at $XXX quarter. $XX.X to June XXXX. repurchased million, second shares resulted XXXX, we $XX.X to that charges over quarter, April million Slide our extinguishment and shares approximately a million offering remained we $XXX million On At to XX, compared a notes quarter. million redemption for net debt impacts invested sheet record proceeds. occurred or total of amount during in senior half land March acquisition of the were objectives this XXXX. $XXX all $XXX This issued $XX.X X.XXX% XX, our totaling million notes strong close senior XXXX, this XX, repurchased of first was in on April cash Moving due On we a X% million we achieved notice EPS. December We XX, on stock X, for due million, approximately received several development. our XXXX redemption of our In of in and which of the $X.XX XXX,XXX $XXX XXX,XXX balance even balance as of

still capital was at debt compared XX.X% XX.X% low at net ratio December XX, XXXX. to to Our

with Our and quick events. unforeseen from commitment cap move-up current XXs, in entry-level which maximum is liquidity to debt asset net the to remains our any line first and weather high in turns solid the target maintaining the sufficient offering,

from not have usage wavered We priorities. our capital

new of using to our bulk Routine organic the are keep get will our cash We spend in share continue neutral. and ground. specs land on offset to repurchases intended the for and dilution growth grants

XX, share. shares, gain opportunistically of XX over land had development profitability on and we we based years long-term our with months lots to While closing On land to repurchase June in Slide total acquisition control, middle year main incremental lots when market XX drive lots trailing June of book XX,XXX under line of from that focus to to XX% under we achieve XXXX, We X.X will at increase XX,XXX growth, remains on lots closer with XXX and of on expected closing X our X range our look XXXX. at our target at communities. the approximately supply volume XX, by control, supply but

As goals was community growth. expectations X% to in and in we active significant to end communities both XXXX. We the opened and the communities aggressively mid due believe of XXX Steve We this year-over-year Like get pace XXXX we made count XX were issues down grow the tremendous On at land to communities, XXX a of this supply of of from comp new quarter our quarter. our overcame progress we communities. basis, orders closer we XXX quarter quarter. start said, accelerated an by start on XXXX exceeded to at XXX sequentially development, chain attaining own community our from growth the XX% the

position and both drive next openings with quarters profitability. greater Our strong of over volume demand well to upcoming market community should address the to continued pipeline as X

meet spend through our acquisition by own of control confident land our We land $XXX the focused net builders for sequentially billion will QX expect our about spend are internal to QX and about $X.XX goal, disciplined XXX on land its maintain enough find over acquisition in our pace of spend from of XXX to on XX% already We today, standards. quarter spent and Despite that approximately for remain billion development in from future. on and second billion $X demonstrate are mid-XXXX. the volume, and next to and XXX% XXXX. $X In XX% our lots, development we the of goals all As million higher the These land remaining demand of working new the entry-level. sustain in development $XXX XXX% new the land commitment have we underwriting we XXXX, both than this months, replenish last X,XXX land additional approximately new communities higher secured of while X,XXX about million. XXX of quarter XX quarter, new lots able communities, more which we to all we communities, or necessary net annual are in to then XX active million we was $XXX which translate of will To XXXX. to lots year's about muted same

of land with the comfort that size for for Our interested To and have well was of with sizes acquisitions of purchasing we owned total for competition June count contracted in, we of preserve second as align for allocation, our These as and community feasible. leverage impact in allow lots. churn. use secondary the year. per XX% us to of XXXX, best allowed community-level reduce lot quarter was some positions community to In the larger the last options About also submarkets average to similar inventory XX, out where optioned, costs, are XXXX further liquidity, limited entry-level infrastructure XXX and XX% expensive terms contract less us and the development overhead at lots. staggered and financially mitigate the we lot was products lot

you XX. Finally, Slide I'll direct to

of and X,XXX the for year. provides margin ground rest go-forward the into our in the today, in visibility units another specs good X,XXX which backlog We have more than almost trends

cycle with environment, costs, are Additionally, our with lumber time costs delays. lifting other for lower increases anticipated and guidance strong pricing and today's we allowances commodity

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

Given our community of we be will than XXXX about pipeline anticipate strong at greater today's December XX% level. communities openings, XX,

projecting to home we XXXX, QX back billion gross X,XXX of for of it billion, $X.XX in closing XX.X% I'll between EPS over revenue $X.XX to to to As With total the XX%, diluted are $X.XX. closing home Phillippe. X,XXX to and margin of units, be approximately range $X.XX turn that, closing and

Phillippe Lord

summarize Slide community Thank XX, led to commitment sustain you, Hilla. significant To on our to healthy land our demonstrating strong spend position. growth, a our land has count

we goal are our XXX community We confident that will achieve mid-XXXX. by

can strategy or the greater robust and and margins to supply for environment, We backlog will over In current backlog continue to X XXXX. spec the believe greater on challenges pricing Our continuing our revenue increased entry-level the execute and order we levels. second share in exceeding deliver on us drive demand we combined bear, push will increased elevated to first-move with great based the in closing $XXX,XXX, and allow market orders while on to demand chain what profitability. under the next to pace capture half home by counts market normalized managing ASP account volume at our and of will years

call streamlined entry-level to over serve future. instructions and the I operations strategy Additionally, the in operator we communities our will Q&A. into us turn for will believe the successful well to spec-building the Operator? With on now continue the our that,

Operator

Instructions] time Ratner first this Zelman from & question-and-answer [Operator conducting be of question. At session. proceed Our question a today Alan your Please Associates. we'll with you. Thank is

Alan Ratner

morning. Congrats on Hey, really results. and guys, the quarter good fantastic

the some realistic sales, the So, the by guessing you absorptions. demand the couple pretty terms around quarters. that's of expect this clearly kind point I'm quarters you'd actually community that the to guys benefiting expenses kind and impact, would timeframe driven you at very, ramp over it pace that since being I'm seeing of any, would probably long you as of just fixed But expenses. is like have the you or the of curious eventually, leveraging a the supply. very very in kind that And if from gross strong with next you're I see normalization mentioned outpacing what kind normalization leveraging of trends you Phillippe, Hilla, up of some the on seems run few absorption a today of count. But of I as think margin some on limiting strong you you're about, set put call you're today. that, expect opened to comments imagine, benefit over flipside fixed at

So of occurs? absorption side margin the just the there talk pieces kind on moving through that can you normalization as

Phillippe Lord

Yeah, thanks, Alan. margins Obviously, back near-term, to the in of of the going be our the what we are we think kind guided year. half to in

today, isn't we if there. prior as the be, communities, like used mindful than to we in some it able it as the feel feel market offsets our prices were profile power we're still the to so, we even the there's of like though push And, being lumber we're still in more And X margin is in quarters. moving of in Even strong down. the with pricing near-term really strong, sort of

to of couple normal As things out more and we the look that there's a a back future of pace, into we revert sort see. absorption

communities opening we the First to that of get all, XXX XXXX. all the our XXXX, prior is pandemic, bought late we're to to land

really think going with what's land stabilize. profile looks the lumber. We seeing with lots costs do good. So that we on think in We're will margin

still are question to of place sort some just think of is of to achieve normalized are that kind big there market. without it's sort going beyond not in that The the long-term kind out pace sustainable we of out there, We're going the that's do? a what to incentives So we right direction. thinking incentives in the go a pace, push prices

if releasing now, we hard say extent As we're Hilla that not it's this next couple anything into incentives we're But has fully that to know quarters anywhere, to that. the add today. sell point. of as To over that really supply to else come of will I what the right is, at expect incentivizing anything does. market don't to back houses the

Hilla Sferruzza

in I just from discussion, sake, down, additional market just pricing Meritage I to question, continue on think I those to more we the having any your offset for just it of side at current steady, But to able the lumber hold margin to than coming to store argument's we're that increase volume on be sales. specific, Phillippe. communities, agree the it's Yeah, going with if per normalization going think answer for and with pace indefinitely. the even don't

So I do higher. think be will our overall volume

at that coming look even if lumber in X, margins runway we're we quarters, see normal have and just a rates, some slightly the going the probably from come that, that down to normalize. lower interest absorption cases until next we harvest our start with X to we longer if back to So X, savings

Alan Ratner

Got it.

really That's helpful. Okay.

seeing early some Second stretched in any being question. I'd that supports made also there a might you have Phillippe, you're comment is markets. love kind additional you that that color some that statement, there indicators or the increases, of consumer, whether any enthusiasm just be great. from general give it's perhaps data given mortgage your less would you so from price commentary the you're company, seeing can affordability

Phillippe Lord

much of looks have from even find our payments pipeline the do, ratios. out given achievable. look backlog, the of prices, stable the rates still just total current Yeah, DTI new percentage priority score, where our at feedback, release we payment sort interest affordable that But at to it's thinking our pricing that to for go FICO of just FICO not at out point, later. and and very is they the be at homes list, When trended, and where look priority sort it's stretching it's there's are more about right? to way scores, were that larger going All they're because prefer list of a their what more prospects, the of today, obviously, We was their how house. this at buy of the pretty consumer a

last the from qualitative have priority are list XX seem payment. the still price we it's is at plenty XX, So of the this than our more and say, But have quantitative. definitely with point much comfortable who are to days. willing seen more to over We buyers it pushback pay

Hilla Sferruzza

stress call think Yeah, as DTI, the we're to our if there. of just data appraisal points kind interest that continuing FICO from calculation rates rates make more to which additional one a backlog. that net and really couple the a money as in is and there's increases whether that the data were mentioned increase test well to ability of to we we're our prices, it's perspective, up monitor interest quarter I that and doing in point, on last payment broken buyers' on it is or addition

hold steady, the population price rates is So even comfortable buyer with how interest increases. if

same for issue have community. for were still that backlog qualifying less expensive qualify for, our and is slightly same in looking the could And of percentage although an are the has effect. low fund continues almost de often so test appraisals. very under nonevent minimis a house the appraisal would the a coming extra are it they The broken stress Buyers with to up if exact that house there certainly be they

Alan Ratner

lot, a Got it. guys. you. Thanks Appreciate

Operator

Stephen is The Kim Please of your with next Evercore question. proceed question ISI. from

Stephen Kim

But want thanks good to Lots I about. lot, this lumber. peak address of to talk of Yeah, question guys. things a

I thought have think you'd you from mentioned quarters. the you coming impact in positive that falling lumber margin that a

give little you costs P&L more relative XQ. your what of through a what a with get saw to to want you the foresee Just granularity and lumber XQ? us running Can XQ you sense in in shape of bit

Phillippe Lord

to all see this go about lumber into, For the of starts, back we're half starting we're from not re-lock and a year, impact significant with on. the to going August that

the have most lumber at already rates. that year higher close So homes to been going of this are started

what see - start those here. yards savings be lumber more there to It will us, positive some of take through staying rate, exactly inefficient, in time. some very the takes way to that we savings XXXX. is experience to saving and here. supply the as the will they which We'll year. significantly push prior bought But lumber for to they're achieve dropped half There's still quite we all at trying the in so it's those So dealt needed And real to This is lumber be significant there, prices a of about. builders impact many a written bit re-lock back in have still the don't very

start things come next we'll QX I get will next impact re-locks the here year, and But really QX, else if meaningful block at of think So August. to big stays in some the everything that equal. after

Stephen Kim

year-over-year, question to guess, was to be wanted think maybe about shape year-over-year, the that thought actually, also, talking of that margin could on with one the than addressed. costs mentioned might will. being your in And that But that higher benefit, then the headwind, would that be Obviously, your hit, means they absorbing lumber is of if incorporated guidance. will it XXX even a to about respect I my XQ, backend if points kind you clarify you range. just clarify you there and the XQ lumber peers which amount in I the the that bit, that. specifically higher to XQ, I absorb comment of on little of I that lumber in absorbed actually would you what XQ. and have that, just could in of terms maybe hit basis want see of XQ lumber

Phillippe Lord

think exact But our we've I experienced we unique in lumber don't I what math. cost are that in versus peers. have not certainly,

going to in would accurate appears peak be probably to lumber lumber probably in there, So the agree your the P&L. to But they peaked that QX, All mean, with in will I which of an out had it QX. our number starts question, impact I QX, is went the if yeah, close earlier that.

when has out, the costs, we're be margin the QX. right, comfortable and you're power said, is that, pricing in But, and we yes, guidance. QX which Now, as increase XXX% our Hilla biggest with the felt than close why to the going I is here market in impact in said of lumber more offset

Stephen Kim

then, with business any And at of comment really incentives part I encouraging. times. that's most Yeah, a respect normal incentives, doing obviously, mean, all. are incentives in you're the to you mentioned the about not

to talk wanted about bit. that little a I so, And

have you a increase, rate is the of market typically when kind what is? normal do all, have consist even of prices thing? is it of incentives, incentives - First it you just think And you normal as about like low-single-digits Is a what in words, that an over in incentives? normal would the increase asking year, time? you would same of the also your having consistent level be next incentives some I'm course of have at So you if be increases asking-price also the other they

Hilla Sferruzza

I'll take that one.

just differently. come you're Meritage. I does bit forms typically, know a incentives it right, So me in little clarify, here at every X seller let

affiliated our using company. And We incentives we incentives. then, with mortgage traditional have just have

incentives right, environment. are there. our to for are into affiliate visibility affiliate use incentive those number a are incentives that company us zero. ones Those an regular are in the So buying home, the Low single you're our The mortgage right just still to ASP community have additional for and they into increases. with backlog. go lockstep right the and is digit And around a typically coming

think difficult will fact it's normal to So in X%, normal come be a or and come again, if will proliferation incentives, increases increases abrupt? It's in X%, be which or ASP a to should in of a to chicken, to first, is or Is to look we despite you steady an going egg, it slow? of ASP maybe continuing year. then halt predict having that as in difficult still future continue, and know it going to incentive normal the what the kind normalization. how X% ASP, environment, Is be. years, going are a Now, That the like normalize, you're

hard to of they're try has So market think builder of pinpoint what increasing as inventory, it's loosening the going There specs the we that home do quarter and is action well. next with and over starts get we'll ground. to reported X, that's specific in But far feels bit see be be. inventory that X, the the to every X so the to quarters, looking mentioned any - the existing more a little to

think in we a really stabilization will increases decision. that the itself incentive, return sometimes slower whether So And there. some the there manifests be on of that's or that ASP market-by-market

Stephen Kim

Appreciate Sure, I it. in one, here sense. just One makes is could sneak if loan the it last limits.

raised you that year earlier fact the think loan was this limits. things of One I that the

of manage in the significant forward know we And limits bumping X. communities. degree to much something a are being loan jump some limit will up curious room I customers loan You're you with to will sales-force in, you as on your in the XX%, loan against but strategizing a yet, as may the you who can look I before, in a the was And January given come X. of how perhaps how abruptness January terms on because that think never seen who challenge, increase, provided limits formulaically XQ, we've breathing of be little that, to as

Hilla Sferruzza

an is a more data that So loan is We loan, So data overall lower point, the going with maybe but are in really buyers. opening a really do availability FHA our to looking right? upcoming of be have we're important few tandem limit, just I driving our loan is to important think affordability, one point, because get that ASP. communities at at quite affordability for limit

issues. broken we we're really it So is the that the looking will alleviate at appraisal. the But of way think some that

get coming available opportunity as the or ability ability? over to the the from they So, and that the the They're really FHA, get had do house looking there. we part, cash with If to last have that they've for price need their do FHA have XX the our most are customers checks they stimulus loan, more the for that, FHA, split. if months. cash mortgage still to doesn't on them success in the And want where customers a hand loan total or see bit they even that's economic that little an is have put above the down below slightly

FHA certainly take FHA monitoring rates little today's in below we're today FHA in kind we've we're company But hand typically a objective for bit limits than the FHA entry-level our we're limit. the be is since with the So affordability, environment, seen. just is unique our monitoring And limit. product lower of general to

Phillippe Lord

today's today's to want pricing. last land drive point our that there just today's product I We're us at allows position sourcing FHA, lumber that at costs, home. below to out FHA,

going land ASP our in to down, of might And important products future in prices move really our to But for up that's they're below what thresholds, get position, up. to continue to I we understand, I be questions move know the land our what lot are down because our all folks business. a is think for again, certainly to FHA we're look they not about land of and doing, going and buy future. focus FHA, current So

Stephen Kim

Appreciate guys. it, Thanks. Great. Yeah.

Hilla Sferruzza

Thank you.

Operator

Morgan. The proceed with next Please Michael question your is JP of Rehaut question. from

Michael Rehaut

Good try X and morning, questions myself here. to limit thanks. Hi, everyone. I'll

and you your get talked sales about pace to love thoughts, at same I'd as time, - pace come supply Hilla, through despite, you're I kind ago. and about out to pulls. having quarter forward decent different online some relative think still we point more At a the year, constraints, the talked at progress normalizing. communities First, of pushes and, sales or there's you're going obviously, a supply you putting starts pace X

the how rest this to So, XQ, is just and the sales XQs pace think about pace think relative should and XQ wanted to we we clarify, year, even? sustainable about as XQ for point in at XXXX of

Phillippe Lord

that. so sales market in tied XXX% really to to to going The the pace is being so Yeah, true sale, today I'm stay I we production. to guide mean, don't

consumers. can So started, what the sustain we on and time sure consumers we on based great complete to ability experience fully to customer into to house spec deliver get interesting our around, a those managing get can we're the and stage, orders that's making just to and deliver transact,

not So, continues the I could supply any chain, be to biggest don't better worse, say if challenge it and I the it's market. getting know getting the it's to

I know being achieve just and just it's answer then margins. sales plan what normalized we X to lands production absorptions was pace. starts I'll new those in to looking tied month X cycle, per our and that what manage X back XXX%. back to and the LiVE.NOW. different, QX our on unclear, year, something be we'll get the keep X the pace. for, that thing this underwrite and we it in that's maintain So to in right at the line last you're to backlog conversion for a all our X-year of but get to through X.X of really, we're ability into kind trying on sales that not of business costs say, under looking sales our XMU, strong the you're our connected sort will for that's And now. the And pace per half ground think with month are And It's

how new XX,XXX that of that, We'll So that's up, opens middle unit the get as we if there communities, be the we achieved than business at X assumptions when ad we generates month. more But more that. into a year. than that go we think land. get we underwrite next And XXX a

Michael Rehaut

higher. trying playing X kind that push position bit above range, very the could Okay. to I that, the Is be saying goal rate Thanks next clarify this are then, X of much. Maybe that that you you yours portion in their quarter, you're to To would that builders just the just off you options appreciate just you then getting thought my of of staying how option Phillippe. sustained starts owned expect is on to maybe isn't extent half? second production question this obviously and little maybe And a out? other do And talk your the pushed XX% fact here. in have the finish back or to a to over lot have see that or XX%-XX% years? worse, just

Phillippe Lord

an do we're on much we option. absolutely to as Yeah, trying can as

do are focused so product at builders getting and be if sometimes what you markets have continue depends in - try ASP hard attractive both deal. now I and on to builders to our better a push and harder to markets to to And, more that again, continue being what do. what lot compete a bulk option. the we optimistic just today both transaction, on deals, will them. that very, well right position and going it do the do other our other the over gives for Getting to willing with affordability and are on down We're point, future do of do successfully price to really other That our can just out side is think willing options the paid very we're But landmark on to more. said, the there we metrics, the have a we much land You and competitive.

So, continuing we're of we think, to we're kind where I push. are and

communities. we the in said pace, as almost to it almost business changed on far days, we fully We're these us the And way XXX where getting it We're other start to XX,XXX clients going units. as right? the be do I'd same ramp say, a expect the to As should We've the calls, specs. it selling model sales our cadence, are you XXX% can continue start for works. but we've to

as try up XXX count need starts we the we the XX,XXX communities, year. And be growth to for right, that as So it now, believe to our we at ramp community to starts continues.

continue behind we count So of community growth. And that's homes we're the cadence the trajectory count started to the bunch on we're growth getting I replenish to as it. comes that's last why fully community start escalate trying a to spec, but expect also quarter, our

Michael Rehaut

much. Great. very Thanks

Operator

next question Please Carl is of Reichardt with from The question. your proceed BTIG.

Carl Reichardt

about to ask Phillippe, everybody. extension. wanted I the morning, Good cycle time Thanks.

a for thesis just then talk and the is more of related, I sort got being The it pool bit in think, our sort where Can end build and occurring? build extension. that's point. area I they of process you said is right, And low love subs that you it, labor that about or X-week in little a spec product great it. here on

to a of got jack we've lot starts. other Now builders looking

you forward of next about labor move So couple quarters? of are you retaining X feeling the maybe that how pool as sort

Phillippe Lord

good right was driving that. big great of quarter, really it considering it feeling houses we I'm team and a focus a did started ours. about effort The last job Yeah, now, X,XXX

So I'm place. it. feeling pretty over shifting around things are But all the good about

different kind on et happening depending us It's happening trade asked in geographies, on happening. relationships, where of You it's places it's everywhere and cetera. depending

down trade, kind a house of that and generated slowing cetera. there not and I planned could XX stuff by over we million the death of end in I'm in obviously We like they're place. So cuts, for just stage end But back is sure for we're inventories, planning kind QX. our allows trade been the operating it's time, it will a a what's way. it's - impact tell to X-week I'm us versus elongated the of And already you which front that's to what know different turns which days. et start need feeling that cycle model We've all

think So we what told you the them other seeing. consumers builders strategy lined we're that move far they're turn, the today. we're it, seeing thing And we're trades, into quickly to as we're spec doing, where in getting want the And think gives up. as doing what we it, this, got how I and the same I doing then,

quicker them move to ability that's in something the important. So is really

really So though, repeatability spec they're in. is drive business that key, the diving The your cadence. of to

you're SKUs different lot managing, lot sales design still the a building on down like different things that, relying you packages of just it of you're your out you're pick and out there, folks If process. slows a have plans to

working our like feel these builders X did with And that been they're in QX. like other that's figuring So we can I'm it, why But that years on out. ramp that. jumping we've I confident we to up stars into X,XXX

we're seeing based So, able this thing yeah, to I'm to be going performance, our optimistic QX, I'm up pretty ramp fast. on and in that what

our by we to year, I'm ourselves that a have the specs in getting next that we're putting So to position long-term the XXX goals. on communities in deliver

Carl Reichardt

particular change? very the at and basis XXX the differential Can of XX guide walk the basis as under Thank gross this And looking you XX% this that guidance? points at quarter, drove basis a last of like Phillippe. much, at you margin you're sort from And guide points then, end quarter. point just above what Hilla, - through quarters that specifically

Hilla Sferruzza

it's - of every kind category, in it's honestly. Yeah,

those impact. were so So of was and backlog ASP, sell expected, lumber we there entered some higher the on timing of the specs, bit Depending on little period helps than into every we a savings obviously conversion that had at off volume were what the spec the expected in category. what a our from we higher because

up on were closings when material some there then, the pretty for that component a the with and the leverages increases. us well help component So savings cost increased well as side, ASP fairly volumes that's of the fixed the leverage as us volume again

for the kind those was across long but mix, been lands in costs obviously, So impacted have it very sometimes for part, your fairly the fixed time. most of board, that's the by a locked land

the So that percentage land a increases, dollars of don't as and your you're but ASP piece of leveraging change, increases. course,

So all slightly lumber when the a based to all the of volume, of of that just the on pricing timing power lower it's started really led close and on increased that kind the improvement. function the home home

Carl Reichardt

Thanks it. so appreciate much for detail. that I

Hilla Sferruzza

you. Thank

Operator

The next with proceed Please question Deepa question. is Wells Fargo. Raghavan from of your

Deepa Raghavan

quarter, is generic. guide. everyone. morning, Hi, good question great first Great My more

and add there any far? that so some we and post-COVID expectations you back. positively trends normalcy As seasonality surprised coming to underpaid Are your reopen resume or

Phillippe Lord

and it's to we're off so, in single weren't And we see when if governing really change hard did sales community. year what anything from took the - sales. because in market exactly, last we community, for everyone every No, governing would us and every the really tell of governor metering we

in we to hard like market. our production have there for the So have it's the are we still the as most seeking market. it's there's strong what a say part. constraints. in we exactly And supply But change very seen and communities, of can much because we of healthy People that in lot now, really buyer given everything the demand we don't feels incentivize out still constraints of haven't just a it, behavior to governor's are housing, and sell out a right have,

was So, of buyers days, more other seasonality not like. look we're a than back have no, our typical you over the XX and we certainly there summer last really gotten way But how nothing's sure things. would haven't We're vacations even us. seeing come through still people doing plenty into communities, surprised if

anything's this it's really as point, at seasonality. to hard to so changed, And just if say it relates

Deepa Raghavan

right. All fair. That's

Does than still just achieve this right a a than chain, better constraints the about Or expectation tracking are it other for hurdle. this community XXX getting now, to the That's you'd little mid-XXXX? target And, earlier you're victory can supply big by there would You're mid-XXXX like by cetera? be have thought? mean XXX your talking you itself? et count

Phillippe Lord

of because net, close as mean, I communities out quarters. community we next over Yeah, that the communities That's are XX by we to going essentially our right, grow well. X count

next communities on the has take So X the everything we'll execute opening over up quarters, XXX-plus organization it. to

sit we this. months more - lot do July, in of here As execute to a we're have here great have in XX we we and but shape, to on still work

be of And don't I that so pull think that forward to meaningful there's community a council. going

Deepa Raghavan

All right. I'll pass Great. Thanks. on. it

Operator

Patterson Research. your Wolfe Please is Truman from question with question. of next proceed The

Truman Patterson

Hi, good everyone, taking morning, questions. and thanks for my

online some pricing, discussion a the when not through regarding through going thinking XXXX. be main likely in or kind like I financials, you be is home or consumers largely land of XXXX. when seem kind only stretch? outstrip you XXXX? item for affordability appreciation of anecdotal Is through and have look on little at gross early happens additional what seems correct? that it you some but and incentives you of price XXXX It it all bit that at on, capacity of comes really this pushback most their when on forward commentary I concern going is So, doesn't to cost of that's the offsetting fairly pressures outlook. like whether is I'm heard online guess, question the First item that through you seeing might your low margins coming inflationary the If seems like lumber correctly, there's least And lower flowing is

Hilla Sferruzza

data one that's excited certainly lumber other down, industry costs category lower Truman. see of as an all Hi, the come are up. points to Yeah, the there is every going

all, increasing. from somewhat other So be lumber first of savings muted, will the commodity the impact with every

the this And X, So X, little of the guessing labor but adjust] look [already capacity over at on right like this going as incentives. it's of now, trigger. a then, point still start commodity next to the The comes be X that a of be is to new unclear bit course, [ph] will comfortable, rest to the on game quarters a it's what side.

now. the of or in the yet about kind offset of we ball again savings there's that lumber balls costs, other some next clear agree whether absolutely from savings, XXXX, perfectly going going So unclear couple unusual there's crystal in the the and that direction enough, a lumber couple or they're expectation air, will expectation, is into industry items concerns quite think of right that significant months. harvest certainly to don't I lumber just something with offset be not is more unless than but the the happens over the The

the I decreasing prepared But hold be lumber thesis XXXX to steady we're don't one. think the should XXXX. if into the is provide it that into So correct guidance

Phillippe Lord

Yeah, excited land we do about now income pandemic. right we're land the land our that. prior only opening here all that is even land bought statement is to the that XXX bought But we're up we is though the before to get

land that not cheaper, come we're lands have about the flowing that excited through. getting So we but

Truman Patterson

Okay.

a nice just through hear any improvement The growth Are the Okay. about Thanks this? you I that. kind to And you see all the community end couple reiterating on year? of believe guidance of should past XX% I the then got sequentially. quarters, we count, I on year by it the XXXX. normal for and don't did - not traction of XXXX, And sequential

Phillippe Lord

Yeah, think, end XX%. we will as the comments, approximately year, be here up by we believe the in we this XX% of from another said opening

Truman Patterson

Okay.

leverage for communities we final amount Okay. new you're against leverage, the balanced Thanks for about that. And growth, should solid on at one while forward, think going well you SG&A, internal kind parts. opening, nice those just some builders third-party through that of one encountered how outside lowering we've time of commissions, realtor pretty as ticked moving same walk us the as can fees down aggressively, just help hoping just

Hilla Sferruzza

And so commission on are for sales Yeah, be will we hopefully, some count couple there community that timing see to up from you'll of here, for those changes. Again, benefits the as recently are the ramp take growth. through. quarters implemented offset going come those the a to costs it's

specifically. SG&A So providing we're not guidance any

Although to we cost savings next of expect those some the couple commission do see quarters. through coming in

Truman Patterson

Okay, the luck in you, good thank quarter. upcoming and

Phillippe Lord

operator, up. more questions, we'll take So, we'll it X I think then, close and

Operator

Yes, proceed of take Please Sachs. following with Susan your Goldman Maklari from question. question sir. We'll the

Jake Titleman

Congrats on on quarter. Hi, Titleman great a this for Susan. is Jake

you as think grow Just about count as scale the as your labor to business? your geographically a you in necessary question, the as how existing well footprint, challenges the both do there just community expand you markets, securing given continue

Phillippe Lord

the I Well, pools business, labor labor. I largest how best the as in access those to have the the scale is secure builders mean, think you you markets.

talk a access to each that in always trades, being you about gives top-X better et we and capacity, So builder land, market, better cetera.

Charleston, focus, the that our on big it's earn new top-X grow can. which that, the So market share. There's we're as little the why to is access seeing got guys And that's our up. to in of ability as entered bottom as our our challenging. many be fast capacity. the And builder reason a pools. to in markets, markets comfortable think all grown about But That's like, we're In labor why way the it's go really more a we we're order. we we of right. our to I pecking the best to to feel We we about got we try going

Jake Titleman

Thanks. are in and sense. gauge here industry as curious appetite. makes I'm curious guys exploring single-family my of to rental And you your entry for active if That involved focus get market, others on just becoming the possibility the given just level, the in follow-up, more your the

Phillippe Lord

written so growth. just Right an now. It's on really energy successful. highly being space about now, right There's we're It's stuff organic filled much focused it. exciting

and growth focusing strategy, products existing investing great existing our a people, have with and with strategy. markets We our existing our in existing our

So entertaining some we're everything But right opportunity. other focus might that the scalable always now. us that's give

Jake Titleman

luck. and good you Thank

Phillippe Lord

you. Thank

Operator

Center. your of question. Barron Alex Housing from next is The question Research with proceed Please

Alex Barron

planning seen guys at squeezing some quite go communities I $XXX,XXX. $XX,XXX, prices bit on places, new points. And you in Thanks We've in. this you're introducing me home for said year, price a up up lower think

smaller prevent How you some communities, curious, they what's size? from type do cannibalization? these So I'm new in of different are about

Phillippe Lord

We've been it's a Yeah, focused so first all, just community, newer on for pivot, a the while. really this of right?

that cheaper in is in which we products typically buying us markets that So to position XXXs, the where we've our been path lots versus of tertiary in allows XXXs, secondary growth, we XXXs about feel the play. good

The I quite but we've successful. just we've think a second bit, thing, very said been this

us to has lot our we're market better bring which residuals, to at the larger deals, us which very helping to prices. successful is the basis, homes more land, and also out lower price costs land sourcing team deals. spread larger the horizontal prices, getting in been at And Our buying lower allows over able

of our So really ago, buying we deals to land, it's start more that price through. affordable band. product are a a going the to X flowing that And us years larger lot started and in position it's allowing

Alex Barron

Okay, also thanks. if I'm mostly to that And not release have guys for is, it to X curious then, changed model X the sale, building shifted of last specs. just you months? question guys obviously, the you meaningfully timing my the in when shifted home or you second has business

Phillippe Lord

of release changed the constraints. elevated because and has demand we it production when the well, - Well,

pandemic, always and stage. specs third specs were of normal early of our market of were before were had, complete. were of our the A in third our our specs a third So stage, the sort we middle then

Now, and were, their they because to less able back want we move it of we sort everybody sell that move. is to for X% to can a something we and where earlier so we're when there release. and third, and like in demand where finished, have have the to of need a there third, than of a timing We'd specs third, to have meet much are we out just get

We're buying So on are releasing environment. things them have houses on earlier changed. in people and earlier today's

Alex Barron

Okay, thanks so much.

Phillippe Lord

great team in have much. you, everybody again, a I thank for like Meritage Well, call, and I'd your Meritage you continued interest you for effort great operator. to Thank you, who you. Thank of very and the rest high-level execution. your entire their joined our thank hope We And you day, everybody. Homes. thank thank continued

Operator

conference. concludes This today's

participation. You may time. Thank this for lines your your disconnect at you