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Meritage Homes (MTH)

Participants
Emily Tadano VP, IR
Steve Hilton Executive Chairman
Phillippe Lord CEO
Hilla Sferruzza EVP and CFO
Alan Ratner Zelman & Associates
Stephen Kim Evercore ISI
Michael Rehaut JPMorgan
Carl Reichardt BTIG
Deepa Raghavan Wells Fargo
Truman Patterson Wolfe Research
Ken Zener KeyBanc Capital Markets
Charles Perron Goldman Sachs
Call transcript
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Operator

Greetings, and welcome to the Meritage Homes Fourth Quarter 2021 Analyst Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Emily Tadano, Vice President of Investor Relations. Thank you.

You may begin.

Emily Tadano

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

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

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

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

Steve Hilton

Phillippe strategy, Emily. overview provide about Welcome discussion you, and provide our quarterly I'll everyone trends current significant with inventory, quarter overview homeland fourth Thank housing XXXX. to of Demand to and quarter by on the a outpace an participating performance, Hilla financial our fourth call. seen will buying and market cover the strength year. demand in XXXX. will Mortgage and our start home accomplishments boomers. brief of activity guidance continue for we to remained the from millennials very continued in have and affordable forward-looking demonstrate favorable baby all driven a

achieved the our our prolonged orders records such, highest our again constraints accelerating and spec of quarter we labor sales tightening supply - home company As broke a chain in highest while closings and face quarter several fourth of In starts. XXXX. a market, quarterly the four sales Meritage second

in XX,XXX closing a what diluted the profit I accomplished. proud include well XX,XXX home year percentage gross be highest as couldn't quarterly home team EPS, closing lowest history. closing quarterly SG&A home our results orders the of annual highest of quarter fourth our revenue, and and achieved as We of more revenue Our as a From homes sales XXXX perspective, company's homes. full of has our closing

with our at Price over cost $X.X of diluted also full to higher efficiency coupled full operational fixed increases strong of revenue as closing billion our EPS was closing home XX.X%. sustained Our due gross demand, XXXX and full annual year SG&A record was home a revenue to margin of $XX.XX. home of drove translating next our year year X.X%, lowest closing leveraging rate the our our

count selling growth community in selling continued communities with active spring earning season Our community and forecasting XX% the XXX We're XXXX. grew year-over-year. double-digit

on We demand all our of level expect that for share gain will communities our move increased strategy the coming entry homes enable first us from to digital geographies. capitalizing market and of solid the produce will volume in and

Now to let's four. slide turn

stewardship financial quarter. In fourth results, milestones delivering our to we social impressive achieved to addition numerous in related corporate the

veteran on home Operation team military Meritage donated Homefront. the to ambition in to an new his a around countless organized employees to free Day Start family Veterans Heart, As with a mortgage through and deserving hours deliver Florida

we We to to report families help to during ESG issued and and the do quarter. equity in and organizations season to inclusion support missions which further to non-profit during and approach long-term tree various we also business inaugural programs ESG communities donated ongoing our milestones, strengthen share holiday commitments to practices. our the and planting our DE&I the diversity, sustainability

joined turn Phillippe. to efforts about also issues. employees, CEO ESG throughout with have other by board these excited We you Action share pledge. our commitments X,XXX more with our about And executive and it diversity to than level for more that, I'll We're over inclusion We'll important signing companies to the now and XXXX.

Phillippe Lord

top rate with our start strategy rates years to to the first even knowing home. would ASP business year to When want the Continue at is anticipated Thank five up. that products this lower counterbalance is around focusing has pricing all hikes we you, two since of shifted mid-XXXX. strength have past entry this for mind buy focus and than as act to markets to and eventually, for we Steve. the did on been favorable our by everyone. move-up over land more which a centered market segment pricing is of the level coming experienced affordability, Affordability go first so heart years interest environment ago, I

conditions, affordable especially attractive light of in evaluate expect credit market with FHA in increased all the markets. To we of our buyers. our product remains of the constantly affordable, new limits our online still come metrics we line to we Although ASPs, have and in ensure communities our increases at taken

reports Our and in they purchase that remained DTIs not demonstrating fourth with financially consistent our customers are averages, homes. historical stable to and [ph] streaming the quarter FICO

will interest the continue monitor overall the increases, rate recent our Given we to affordability of homes.

navigate provide to to labor demonstrating today's focusing XXXX, associated During entitlement manage labor, we rate lock later tightening order base lock chain in the we strategy, simplified achieved ability rate challenges escrow, and offers communities fourth a believe environment, construction our through look product quarter, and with ensure in as homes meet and we record customers to home experience. continued supply of still In materials, construction expirations. on quality buying our the most buyers permitting. they LIBOR the more supply our and delays our and in our mortgage By market we options orders close to to in closings their rate favorable cycle rising our and selling margins

also to costs. XXXX, quarterly gross displayed pricing but production our function we these foremost, margins. favorable managing first industry-leading results This also With achieve to environment our ability disciplined and in a construction approach of our was the

opportunity to ASP. have spec mentioned us lock in provide before, we before costs typically As the building determining

increases better construction, meaningful chain allowed with margins. sales cost and our cases to we Managing cost manage pay environment start the in helped to delayed path where continued releases gross manage of we have us our exposure. experienced additional order this generate list our went margins. cost as further a avoid such In cost step one issues, our to supply riddled in lumber, rising to However, risk

remove not our we market demand Although in and chain are do forecasting fully meeting supply expect sales metering margin - they challenges, while our community allow capture our we any once to maintaining to improvement unwind, profile. true

slide to turning Now five.

from XX% by cycle as year-over-year, quarter. pace of in totaled which X,XXX times, well over an by X% X% challenging a quarter of level QX closings per of quarter increase late our comprised occurring absorptions. range community Entry partially X,XXX by most tightly X.X Total XXXX our this in the order as of fourth count, up homes, community decrease of current orders was of closings, driven comps the in in XXXX the XX% our long year. in the month across XX% driven new to for down prior reflected increase fourth prior year. in the from per average was active was the openings [ph] The which the month average footprint, decline metered quarter offset X.X Given

buying our through process today. metering We as issues reiterate our home manage is continue and in sales to both maximize an market margins order we supply to customer the the chain in current the that choice intentional

our represented XX% greater we from up orders Entry growing total of compared our fourth Looking know our lift active we average XX% last at in were to the much than sell-outs communities also our our in provided that early level home month of seeing in and year. ago. absorption communities, actual year demand level what quarter for interest Entry pace. XX% the XX% a is

Moving slide six. experience continue of trends in demand strong regional we The to to level our regions. all

of this together region, greater This absorption pace per Texas X.X communities, an increase XX% terms contributed asset led of average XX% quarter. by was to in decline regional order average Central Our which year-over-year comprised month with X% offset in volume. a

level, our entry volume generated communities. To XX% made average market, growth ongoing absorption with the region due orders, increased and sustained communities, to East count shift increase XX% XX% our address in we performance which in solid challenges increase average in demand chain. increased order offset which order the asset average count pace. West supply favorable XXXX despite year-over-year, which partially of home community The by the of in continued average most absorption increase mix year-over-year lower Region quarter up three offset toward a generated highest The X%. to XX% X% the ASP by had fourth XX% from Overall, regions. a With Out product development three pace. community environment, in year-over-year, regions region economic its our regions, was was the state's all Region's East of volume growth its decrease buying average XX% all affordability the mainly a more East challenges

spec in protection throughout we all order we As volume our to increase total of regions, expect accelerate XXXX.

in versus constraints. fourth constraints, X,XXX and We declined has parts chain we total homes XXXX, quarter or nearly of least to XXX% compared this the spec typical accelerate supply rate Of year-over-year, started homes the quarter average Despite get for to increased in home to been cycle demand per continue the quarter second sustained completed XX% to term. homes inventory increases. expect We from ago. an improving line up entry-level Turning given came which one the our spec in challenging we year continue At month approximately or maintaining in at spec to X,XXX XX.X XX% average XX, XXXX Having that an not community our the spec backlog resulting with as December units conversion the in homes our X,XXX quarter, year, This X% a a of were spec X,XXX our to specs a from of period times. XX% strategy. home due our X the near previously X,XXX to the run of year on slide surge with and from elongated in of the as expect trend this XX% with inventory, ended over supply of We in seven. from in approximately ramping push supply we available ground. fourth third over to community and last home closings than demand to XX.X quarter, ended and X,XXX in stacks total XXXX. spec from of as count starts and necessary building approximately inventory rate is less quarter spec third our X

improvement slight the from quarter. third a in was XX% it However,

conversion look will XXXX, chain supply not reaccelerate we we supply times growth aren't expecting stabilizes, backlog will up we ahead will in since in we current the sales and cycle backlog also As chain. any anticipate while order improvements our shorten expect our again, into pick Once rate do the unwind we any conversion improvement term metering. near as

make operations advantages. our predictable in locking and by our a and consistency competitive sequentially fourth repeatable XXXX. has us These providing to products starts XX,XXX XXX% chain construction preferred these deliver and and entry vendor from homes in Since are ongoing we us weeks the level XXXX believe strong our QX two up these with today's streamlined traders. chain conditions to disruptions accelerating our over The homes to simpler building business key Despite give our facility to been in library with and builder what partners helped During advantage allowed and supply work lengthened pre-order. plan has we choice. for [indiscernible] this given can cost Coupling advance than market year. still so us time in a they our to of pre-starting ever We strategy of build supply quarter, visibility streamline relationships to our steady reduced well with homes product construction them time incremental before, our benefits provide we've QX in labor have able us lines, dialed SKU expanded in, volume and some to counts processes are spec into need. more our by we for dealers schedules about

allow pivot selections stay nimble we times. and our with in unusual also if us these partnerships on to strong based our necessary, availability, to options as limited product build-to-order our continue Our suppliers

team short executive top our vendors commitments meeting for been capacity Our with has to XXXX.

with increase big needs our significant results. as now help secondary sources group it we necessary. over to become our Hilla with in grow us analysis additional that to should incremental to our alternative community turn its starts supplier and this will I Hilla? financial backlog we also Given have provide our year, count

Hilla Sferruzza

Phillippe. Thank you,

driven demand, results We increase to to lumber a into to as homes. was shifted towards a categories. percentage This benefits year-over-year QX as The $X.X revenue bps believe in quarter margins XXXX we all market home due higher almost our technology revenue Let's year. X.X% strong level generally volatility financial costs, our result slide fourth commodity of cost lower an in growth quarter, the we was improvement for detail. X% a broker product higher cover current the even and bps partially SG&A turn XX strong General of our offset ASP million The the company's eligibility a billion home supply mix over XX% and XX% the of in efforts prior in on of that commissions entry can and eight more sustain closing home ago revenue, quarter Counsel, X% closing in accelerated expenses by allowed of home due was despite of outweighed improvement XXXX. volume of our change closing sales XXXX. which margin in SG&A. from XXXX in awards retired a items, cost better in December and to power, by year us full being XX% XXX fourth equity bps primarily who and gross a year closing One-time closing issues. leverage time decline impacted was XXXX to by impacted to vesting marketing The chain pressures pricing by for payments $X a SG&A in in including our quarter totaled retirement XX and the to third

rate XXX EPS strides eligible XX.X% efficient enacted We X.X%. year-over-year reduced We bps as share improved the Tax XX.X% To earnings was from tax to Increased profitability Pricing count, bps to Disaster years. gross Taxpayer in reflected generated tax steady the increase home energy income beyond a XX% profit in improved and quarter pursue when this contributed the net primarily the qualifying company, combined fourth with drive revenue we're for and of in tax rate effective has years energy had Both automation SG&A. margin rates year-over-year and XX.X% a tax margin of greater rates closed increase been Act. year. rate in states to Since XX,XXX office credit technological the and leverage benefit our for benefit leverage, XXXX. not higher Certainty yet held tax continue full prior to led results periods, the lower order back the at The overall $X.XX. a gross we in all both diluted Diluted XX% the and due the reduced this of such XXXX was not a to XXXX, unit credit up greater years. increase X%. energy to to were with a expanded XX XX% XXXX higher the year home Closings home our of fourth XXXX under a incremental Release tax any about to future to closing overhead EPS percentage from time. at power XXXX quarter outstanding $XX.XX, expansion assuming closing few highlight SG&A of both basis, on compared

to Turning slide nine.

At balance development. compared as million XXXX, as inventory real was at during land we increased and million investments as XX, balance to well cash in million repurchases. in for remains estate $XXX continued Our reflecting sheet XXXX, and year the $XXX December investing rose share and XX, strong December our acquisition $XXX even development

we XXXX, million, shares totaling were XXX,XXX of repurchased $XX during shares about year XXX,XXX by full quarter. $XX During repurchased stock for fourth the million of which

net December XXXX, December compared with ratio Our XX, XX, was XXXX. at XX.X% XX.X% debt-to-cap at

for gives target changing facility revolving unsecured high manage net In December still which and we the our in conditions. liquidity is economic debt-to-cap maturity maximum to December, extended million the to current XXs, Our credit date the $XXX of XXXX. flexibility us

and we to and counts spend of which growth, sheet, increased on specs, market our will share. our on concentrating strong both Given help focus expect we community us primarily drive capital profitability gain balance continue

lots, routine and lots XX, to claim. buybacks shares. over based we December neutral also book grants XX from and had land on XX. XXXX, they to dilution share XX% increased of We At incremental year-end plan to repurchase our offset On total XX-month keep years with under control, our and XXXX, continue trailing new opportunistically supply slide XX,XXX nearly

net quarter are new XX,XXX prior of closings calculation XX prior growth the compared is from XXX entry-level our contracted fourth product, the higher secured of slightly projection closing for While quarter based we nearly misleading, average to about since was lots, in about lots. this We on we of for lots. community X X entry-level. to this mode, QX. size size of supply pace goal a estimated the XXXX on we're lots, communities, which above new where the XX% X,XXX up of to address translate XXXX, loss an net will These year's homes year of our lot have new bit XXX the in this a X-year approximately XX,XXX quarter To was supply is of forward the average orders lots

quarter XXX municipal we around labor of by basis, the the fourth new XX at were a During communities. XX On we our net community navigated from of year-end or at the start net community. XXXX, XX to to up and XXXX. communities constructions and quarter delays count supply We XX% open grew XXX year-over-year

the year, During XXX XX% full XXX communities, in we opened up from XXXX.

higher to run in our count last to million about closings already are in our and this targeted development beyond. benefit and expect QX XXXX community and year's increased and from orders quarter, from rate. line seeing acquisition $XXX quarterly We and spend incremental volume spent with continue unlaid We

our total with and financially XX% feasible. prior year to staggered expect $X maintain XXXX, We annually our get or land to To finance up community At at XX% preserve our we XX% of land quarters, inventory communities. on over quarters. inflection point believe were spend was we use XX% community to owned owned growth into a currently and playbook several to strategy. are dialed lot percentages to actively open inventory several we and the options option compared XX% Meritage, nearing of land be an XX, to and purchasing due XXXX terms liquidity we're options. and our With development our around next plan, versus as we the and in owned new optioned billion was ramp About next December under own over XXX over our as beyond ready our stabilizing

and competition land even price incentives appreciation. absorption. land to in and We with strong pipeline, our We to our are disciplined underwrite approach normalized refilling

will while room we Although giving us in focus threshold. We absorb our option most target are cost exceeding margin our increases changed we percentage arbitrary to our of margin that, haven't still deals on some not hurdle, minimum managing underwriting do breathing sheet above land, gross an incentives future instead, chain penciling great balance the have, and trends, We through gain particularly more current entry-level, incremental can the stabilizes, of the goals. in the margin capital for market midterm. metrics demand we all be our we sustainable at geographies. supply least market communities the Once at believe share the

our Additionally, as our with land already Phillippe starts affordability covered. focus strategy on

future later our lower existing XXXX into seeing active XXXX communities in have we're to and than what Our expected communities ASPs today. are opening

strategy by closings. focuses and new land competition parcels, per limit cost [indiscernible] spreading on lowers community the the Our openings larger cost churn overheads lot some which land community-level and to reduces of

slide great to robust. the of turning XXXX continue high At Finally, spring maintain orders pace we to selling preserve pointing strong demand margin level to is a home customer off season, a experience. and remain buying to start, same our XX. will a expect to manage we to time, and

to margins lows. be gross and all-time elevated to SG&A expect at We rates remain

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

expect to XX%. year community We of full count XX% growth year-over-year

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

Phillippe Lord

sustainable long-term We and to execution. flexible sheet operating solid Thank healthy you, our with continued demand land position strategy enter and proven with slide XX. on Hilla. growth our and optimism. model, XXXX on is momentum Meritage with To We and believe market capitalize drive poised balance summarize

growth contribute deepest our XX% ability I conditions. a year-over-year like ramp-up the We I leadership navigating call extend turn over have count. to trade Their Meritage's to remarkable now instructions Operator? challenging employees hardworking community well to partners grow operator XXXX. as who significant that, in will count With our as grow demonstrated the the our closing to already order would on for gratitude while Q&A. community volume and

Operator

you. Thank Instructions] from with of line Our & questions Ratner Associates. [Operator Zelman the first come Alan

Alan Ratner

a Congrats morning. Good guys. year. Hey, great on

seen given your is So guidance increase directly over demand, top on folks of mind the in et the you for any obviously, you rapid the pretty share discernible is right any if Have you 'XX could are certainly, with right Curious rate here? the field, seen encouraging. from everybody outlook now? few And any we've thoughts weeks now. What last feedback hearing or sales cetera? are impact just from the on the order trends, traffic, hearing communities you us

Phillippe Lord

to January Alan. is that is guide feels We you cetera. et I But month-over-month trends really can extremely Hey, share Phillippe. and to what This don't strong. with

the operate doing, rates all any what the demand to anything, and as stable, seen gone our of none. projections is forward-looking form being as all accelerating. where both we're feels opinion, by the backlog over which housing year than they days, like look the priority backlog of generated of and in interest there have leading rates I indication it is backlog my more people seeing we the to could it's haven't way in We interest XX the dramatically think an get - there's it a to indicators, want that you of rates just given more we've we our of into really, with rates are up of our feel when across discernible this the feels mean, like as It's given as back like of demand towards for I in, demand and that if about well to demand and are same. our impact supply. in moved move last be and going also have because the the markets there's back [indiscernible] would but backdrop half it supply just

lift is within resell market home, under they homes, when go looking when and so anything. home XX for XX market they they're into to we're day initially, And And find can't hearing high-quality into a a two. maybe in contract they a go the there's anecdotally offers the and usually what resell or

home we to to and sell metering much migrating new because we're the other well they're space and as builders not are So metering. most over only so

to like tremendous is because need feel move and lack is move of right to the right I So urgency demand move supply. is they really And this there there there. options generated want other now, being the no to now and by just people out

So summarize, to very feels it strong.

haven't thus any far. But elevate. of impact the continue throughout seen goes how rates see it We as year to rates we'll

Alan Ratner

here. easing strong. you full from of you the talk driving imply And up continued you've It if it's provide to margin, half an the through - peak Is given the your some year you kind of 'XX. modest of visibility of comments Appreciate there, What's ago very, compression? a kind you're that? spoke I topic, very just on a know tough Phillippe. year, of a as quarters guidance. the slight costs, for ton ball back what position focusing a which it levels Great. drivers incentives, And I'm crystal in could on where full just put possibility, higher read some But gross potential doesn't the about the kind that few year on a are for does curious creep you backlog obviously, full there? various of assumption back of maybe in inputs the that

Phillippe Lord

feel to we we they're have as the the need to maintain all It's power the We market, side, and And It now. right into in the given pricing our seeing to will pricing like XXX% give the we're we it's related is of costs. margins increasing on - feels going the cost But costs. of to what that. supply it's power like to next overcome us market be lack year. able

incentives in and sales costs marketing right change sell We're to we that any now. going additional need any modeling not are We not homes.

So driven coming X,XXX being units the it's we're being all said, backlog. year by in cost. into with That

QX. X,XXX started, already X,XXX spec have at we slide are and another have in start specs We the

confidence start we're have that strong in do the to there. midpoint specs what - there those teed have first on we why almost on that's know up And get going target. those to margin the starts, those is we We what once we So of sort quarter. XX,XXX to we're our in

So in of as here through ability the confidence more even year. have us move the And is selling profile to of confidence. prices the margin certainly, early the season we in spring lot our raise a giving stages we

Alan Ratner

lot, really helpful. That’s Thanks Perfect. a guys.

Operator

Thank you.

Evercore from line Our with ISI. of Kim Stephen questions question. the proceed your come next Please with

Stephen Kim

guys. start the lot, all off here. I wanted by your Yeah. information asking times. Thanks about cycle a for Thanks question a to

You lengthen. they fact the about talked that

December. I you a you're curious two I forecasting weeks, and more in could correctly, that, And about I And was weeks any degree little a that projections, cycle it think bit hadn't therefore, you you what related that in said I mentioned improvement November I lengthened two and seeing could XQ. times talk they granularity us are in more worsening about believe, your January? in KB was can? bit XQ think any little you forecasting not And curious term? the to to the had in near if if then you're granularly, seen times maybe give from to you increasing, they heard cycle

Phillippe Lord

back-end trades of challenge The Thanks, Stephen. the were part QX. in

right we're customers unpredictable house times trades things everything that and our the you've to into think we doors, garage that amount our complete some make heard deliver are now looking I homes to to of just right just but assure we're to pretty for. built extra get time to quality our the there's some have hear the XXX% that about cycle sure other you adding we weeks back-end need

home XXXX, through now any and reason we to entry in those a It now. into six our number, see we better feel and not our our think us given get room, can with in or little gives our we like trade seven we we a and improve, to having it look XXXX, metric house improve the we get really good we worse today. best build don't we're level, As to modeling don't on improve either that's conversation It's don't so saw great deliver QX. what based us expect a they our customers. right taken we're right expect that's and for labor, to or partners the to months position And to to from

Stephen Kim

very That's Got helpful. it.

of in sort saying a your two that it's so room wiggle embedding to unexpected been of basically something do weeks in sort tending this - in some you're doing to bit assumptions you're a you're just is of terms it of it's happens, keep yourself So two weeks? cushion here, what which of kind sounds like case that sort of your

Hilla Sferruzza

if now, know cushion. don't can cycle our Stephen. time actual I it right a is I This call

So our we're modeling occurring to day. are point, delays although different actual every trade your cycle from a time, the

getting but trade a bit X maybe is little better, delay. trades So another a got

a expected our time, in that comfortable that I is. cycle it's QX, calculate we're think easy So XX% current again, maintaining conversion with backlog what to

our that comfortable actual cycle I that. think that, time. wouldn't cushion. with I of But two This week So we're say is that's

Phillippe Lord

teed up. capacity, in us something for out that. have difficult out we very That position we go that just capture it's production increase today, the said, and here being get get to there permitted If a we're would houses sit to and we of better, see that can as going we better. and to it indicate suggest great real ton a does And

ground pre-permitting it laying and communities, We lots a homes we're the lot we have and the out. of have on the

accelerate So we the supply can that better. chain does get always if

Stephen Kim

to Yes, yes, it right. makes sense. perfect assume. reason All No

- again, your tricky quarter costs got bit of is encouraging the in the because that sort move fixed In little a - from though margin, level thing. and you move terms to XQ of community very The XQ XQ gross results. always

all the We place. over gyrating lumber had also have

you a in think, maybe as into obviously on you a out, mentioned, that margin pricing bit incremental level for there costs from about seeing little the full gave you heal headwind earlier about terms which number lumber? I you're was consideration year, And margins? assuming us seeing also curious, in you disaggregate was the year? think further I Are outlook anything in what much of welcome. that there. you're of here community taking for full are guide in gross XQ fixed But you we then the your So and gross from can costs help in guidance, How the then

Hilla Sferruzza

in and model market So when cost increasing we in extent. driven, other increases know don't quite -- to the can We the same one model we ASP. and can't it is do we expected we control when

continue the So for us, known seeing any trends slide guided margin XX.XX% plus the to at modeling down seeing. XX.X% year, not guidance that we're slight we're pricing from that incremental increases will margin power the modeling the the why that believe tick have offset that steady we cost current gross for increases. holding we're to full it which XX.XX% QX. to We're And increases XX in for ASPs, for we is to to

But just A two, leveraging. right. piece Number also ramp-up was of is volume. the You're lots communities. number exactly it the of lower it's one,

a a in little bit it's ramp-up -- little We up think year we're It's number I in through. It's to continue you're really of to bit of too the coming the quick a have in lumber lock come to that locks And communities It's rest that the to little lead months bit show of financial gone that last the to financials don't the through three six a QX. number, yet QX that the here. seeing That's that guidance. over through little then bit start a of lumber that, that. costs up statement. other the seeing that in

Stephen Kim

the all much, help. Appreciate Excellent. guys. Thanks so

Operator

Thank you.

question. the from your proceed come questions Rehaut Please next Michael with JPMorgan. of Our line with

Michael Rehaut

results. Hi, thanks. Congrats on everyone. Good morning, the

topic want just sure understood make I to answer before, margins. around as always. a Obviously, First, I your key Hilla, gross

see same increases. now, you're cost but trends future price be with costs thought able modeling as some the to cost you inflation offset to any I you you not say At the expect that continuing, - I price. time, heard it You've modeling said continue cost to

didn't a pace just your price how cautious of on for little it all reconcile those former to increases? purposes, and statement future really intents being, So statements? I Or you're the bit that is know two just

Hilla Sferruzza

I wouldn't margin say say that QX that, that that year we're cautious is on future lower pace of full coming price than would actual. increases. in reason the I

So that are that last because - increasing. 'XX two they're little It's already some in telegraphed know a the already what be bit than we have coming been full costs going I've experienced year for to quarters. is we've we lower

So think by beyond that We will what future offset be we price that those or know increases future are. increases ASP increases.

see in So as it. marketplace and to above will power anything we're kind the and holding have our we structure of pricing it offset that the assuming beyond today that current

Michael Rehaut

on average of I price. of I was percent you by fourth quarter the maybe sense the of that. and achieve the increases for helpful. maybe that had to roughly the That's topic if month? wondering you secondly, compare were what appreciate or communities just I to during either quarter, quarter the guess, Okay. price what a able third and

Phillippe Lord

of looking to our we realize focused and now. affordability to I for We amenity. would pace fourth with on have on don't that Really on up that relatively prices I But the think we have thought us. looking ultimate follow you the were customers in stable. our push data available business. to I that. not very in getting say, mindful were is right price quarter, We would the to We're pricing just

certain being our raised our really power prices like people waiting it was that, we we're I demand strong. pricing didn't think which again, were So us in gives things now. there's a some in But think lot seeing again, January, we QX, seeing frankly, homes at although in we get the accelerated have feels look where in places We we and are metered. feel don't once confidence for like list we more priority QX, as some that

Michael Rehaut

in out want a extremely those spring there month-to-month to in you get basis. go right your or are What either seeing detailed confidence you too season with are you a some But seeing or I you're that be around little what of January traffic pricing that accelerating? now don't comments better perhaps corner? right strong could that you're sales things the power to now terms the granular or that of Phillippe, when pace? more increased on around foot say the either gives know you things selling

Phillippe Lord

year. the There's buy little back Yeah. a usually of just they're a seen the in year mean, people bit the a in are active. to able were later I selling we've home market, lot very of season And spring urgency. who lot wanted that to a starts last

we're our adding are communities So versus [indiscernible] growing priority miss Our more sort people. in or of stabilizing

it's activity homes. We're on. The Michael, traffic. profiles credit competitors up. have We're they're well traffic in-migration where best There's really the our strong in have strong said more have buyers We They seeing of payments. our extremely for high. of quality mean want across Their job waiting people that still to is it think across but homes ton our spring markets at sit gone we're because truck the have the where growth the as to and debt as the metering fronts. We're These as least interest It going They're feels all really to risen. like in a markets. in and we selling today, country. market And market people coming of it out I continued exists, rates have also even earlier, like I all buy a above. robust going seeing if a sort our feels retail be relatively season, fronts, the is into strong that and into housing with people home. moving rising mindset, of rents a photo there. there's maybe lot the rates are all of

Hilla Sferruzza

add points. two I more would other data

we that in mentioned month, early first when community. in for And very number prepared seeing we Phillippe The certain sale, a the release month, his of sell. to reach the per we're early that we goal lots the in once sell they units us there's remarks need, can

earlier prior months. that hitting pace we're So in metering than

basis mentioned, really but on the that's another prices the there We've increased QX. ASP through, allows Part increased indication January muted much as just pricing. in also, that seen but increased we Phillippe And here cost the growth So our is of that demand seeing of market alone. really robust. the because customers us. more we're we've in as out from comes is no we've increased a pace pushback And

the on us giving strength January. data that's So of confidence that's point another

Michael Rehaut

Great. so Thanks guys. much,

Operator

you. Thank

from questions with the next line questions. proceed with Please your Carl Reichardt of Our come BTIG.

Carl Reichardt

a And that, one of orders whether the boomers. if boomer the got following and than Thanks, was a customers, baby talk different about demand you've to also millennials just percentage wanted I to of for do releases the you've second And customer? component closings mentioned or purchased that fourth you in curve, the everybody. quarter, sense for came I what about bit of move-down curious, a on have a in baby customers as little while sort entry-level they talk about your any could to state then buyers and you in? from

Hilla Sferruzza

pretty are Carl. specific, Those

They going us as on largest of homework and data bit there. Arizona, but you provide a in with continue to It's baby some a far little the And little looking dig more the in-state Let then the I'm active up migration. buyer Florida, couple bit boomers, of point can be obviously not very business, there we for. that you part baby but back boomers circle what and and do Texas in metrics sure as are a exactly you're while we be will behind another also a to rather entry millennials, than seeing we're starting the component. next years, is to although business, of them be early right cohort our of our home-buying coming percentage years that think a over material entry-level still generation move-down

although to to meaningful next over think through, years. X that the much we more we're be starting X play see So that will

Phillippe Lord

by very that are the moving product and it's or diverse a and all more Given locations, Colorado states because group the moved-down quality of in very that stores. the looking location. leading folks it's Gen less and of our a and the and of affordability they're for are the communities, to all It's the diverse seeing Z, affordability housing come and South community millennials. through group buyers are affordable affordable our and customers of moving colder folks It's we're driven it's to Texas Arizona that It's states. Florida being our our

Hilla Sferruzza

of quarters point counts. for the community growing last lot One in size mentioned our at we data several other anecdotally, the is

for that communities type those with providing boomers more As locations. that we we our community those that, active the have as align typically baby lifestyle, And in needs well. we're type that those of deals, robust amenities do in larger of amenities for looking are

Carl Reichardt

different, the I be significantly I second, mean why the or is the sheet you interest is which were rate to cash just - asked. point of types and the flow customer a the whether obviously, and spear may the of year But OCF balance 'XX? really Hilla question your the so And obviously, sensitivity positive this in negative thinking, shifting looking positive What's delivery pattern? Thanks. on be invest or land much 'XX, not as of spend you the sense OCF at you in there. not might for or

Hilla Sferruzza

to hard year a year did volume next I guided year. look where to if of that to we've It's we guidance the much this basis. thing $X same at for you mean model know a up lower our on this quarter-by-quarter versus and That's full on things we year, ended billion acquisition development.

a out be would of walking we're expect would by year, expect, positive. percentage. for spending larger lot bringing or intra-quarter, door similar there'll slightly a think in we money we be since I the to full of amount neutral variability So

Carl Reichardt

on. a Thanks Appreciate lot. time the

Hilla Sferruzza

to clarify, to the little sorry, XX hasn't point, better. now that bit I our XX months. The data question too of your just buyers understood last One other a moved in much percentage really cash

steady. that's boomers, if baby So holding kind a that's proxy you for for of

Carl Reichardt

Hilla. much, very Thanks Okay.

Operator

you. Thank

Deepa of Wells with come questions next your Fargo. proceed Our questions. from Raghavan Please the with line

Deepa Raghavan

upcoming a everyone. for is a talk that spot ASP home to you mentioned morning, question. as could is of you mindful what's XX,XXX would as sweet buyers? target affordability. be range what sales? for be steady-state And working you have the you Do sense your towards that you for about be want is your pretty the January, the for that lower interesting communities Thanks increases Hi. price It Good but ASP in taking also

Phillippe Lord

And below about Yeah. I different markets be really we a where of mean, spots business our obviously, different. the lot sweet to kind thinking FHA. are of used we're then in

FHA, in recent we increase get that. than lower the With

position in the for looking us those market. allows like constantly Xs. and that We depending we're land the products think Xs I our on to price points

millennial a people that interest consumer As four three that think Gen or anything in segment. we we are is rise, front that it to or is of move home the ownership, it's whether at to payment attractive seeking attractive with down or Z very very rates think

then say figure by all where it's I'd So blended concentration depending is. that. on around our the of kind And market, ASP out we somewhere

Hilla Sferruzza

our at You XXX. sales for can are our the see Deepa ASP XXX. quarter if is our you look But current backlog backlog,

shift to our obviously, coming down the trend products starting product mix is we're So impact the if us increase that you can introducing. ASP prices we're to due that continuing start new to to is see net because

Phillippe Lord

of in great, when Xs. We to that the position land, XXXX a lot of a product coming XXXX lot we a basis. bought was market, very in the that's at that land And land and attractive underwrote great deep really

So now low maybe sweet or the kind Xs. Xs it's spot. But high that's of

Deepa Raghavan

looks stable It there's good pretty with, like run here. good it. Got rate to stay prices That's should know.

X%? Just buyer mind with switching profile, should kind some your for increased gears here and a for little of bit is, the of investors just XX looking rate are what about sensitivity peace year around we mortgage

Hilla Sferruzza

to So today's prices. consumers constantly at analysis XX what we priced bps to ran according sure we from a and at sensitivity can look make XXX our afford XX, that we're that

kind So of about of north X.X that.

they from in is digits or homes. that full amenitized buy buy deterioration slightly rate, exactly low don't assuming slightly expensive in digit, even backlog and less So our products like we were today's mid-single scenario, same bps that a if to double XXX less the the a increase

XX, that the certainly percentage able in to our capacity XXX minimal be think pool. we there's that substituted than pre-qualified bps. qualified maybe there's we And additional to with would could the be consumer, even are think on small sheet that a out, overall XX, the psychologically impact balance buyers of So the other fall absorb

Deepa Raghavan

color. the for pass on. I’ll Thanks great. it That’s

Operator

you. Thank

has the with questions. from question line with of Wolfe come proceed your next Truman Patterson Our Research. Please

Truman Patterson

questions. Hey. Thanks taking Good for morning, everyone. my

incentives early to First, hoping means newer which to shift any that communities. legacy with to lists continued And you your your wanted will. just a areas rates touch kind then of little the have these just in now generally In tertiary on out. online, bit markets, up? more an of Are are you get competitors affordable gauge wait increased outskirts, are moving seeing some communities the line further and in if absorptions that come

Phillippe Lord

I'll last then backwards. you and take the work

we competitive any market rental activity stats, are at incentive incentives in lock show I just in anybody before, market. yet ask private what but not the seen if communities, – then out market I full out. of above about We're either the of start least think ask, of not to new that builders, We so retail Haven't to is. all in our push have any we're think of this seen far and tends said not And any markets, across the builders, up go going as People yet. or the rates the the up. our public sort incentives no way when getting sort infrastructure

days priority a there to new new XX interest homes, in scheduled interest so build these community they communities. a we're that start list, from And releasing we new open, seeing tremendous of to are Every tremendous our extremely out is and in and robust amount we stores. the

Truman Patterson

margins Okay. the past to for gross look is margin changes business for level margin But all shift. the to had where history? gross in hoping quite pandemic, model, the XX% years so, XX%, you maybe prior basically know just historical necessarily frankly, then don't to long-term relative I think all the that. your you on over strategic you and just And based you we range. But that five made gross or significant all to today a understand normalized at can Thanks

Hilla Sferruzza

of raised mix today. that model driving bps think to has at maybe but demand the really current we environment lift one, a in can't operating industry every incremental right, our not change Truman, the product of pandemic hundred really current we're that really pre and I I we look it's just we seeing you're couple the a So is our above think averages. that's in our are margin demand, where what did The function

longer that we as builder put don't but - who type reset we marker of are if to a is our that above I It's It's couple right of a it's discussed understand product know number because what previously, and of a probably definitely what hundred we nature probably XX or just of we're think or on going north today. now, averages. bps XX. the XX the no that XX. this I

Truman Patterson

Okay. Thank you for that.

Operator

you. Thank

come with questions the your from Ken Our Markets. line with proceed Please questions. of Zener next KeyBanc Capital

Ken Zener

Morning, all.

Phillippe Lord’

Morning.

Ken Zener

as to you you're inventory also talked a So time we it's what we it's but My two percent rising we as lower of a see units. one about offset measure, question is function measured helping complete. Obviously, as partly this. cycle weeks, starts,

roughly five X Your I quarters, right? Just lower - about have you decision per times, the to slowed starts first two that kind last you've you believe. XX% in that. about done XX%, talk operational that ease of talked would time can neutralize inventory the more that quarter, take being in Can cycle you community

level. you're our in be start because what order decisions, business dictate can - to level view, your you As opposed model, your your production your think production types ultimately,

as Thank per about should component governing much. your that Or it's there kind of a longer-term more So of entry community rate is of that is five there think some production level? very thinking? kind we part your you

Hilla Sferruzza

is a wanted number than little to we've The we lower chain addressed the probably Obviously, be. constraints. supply where Sure.

starting a to like is obviously, where be, increasing pace in community. function both below it's then that aggregate, pace community and the a grow our at start going definitely significantly just we'd So we're we on per like not also it as to would the homes of basis to

of kind a effect doubling going you're see to there. So

focused at what entry-level, we which point X really on in us, this to we're XX% month own. like is lots X For of of supply

a So of for probably most proxy good communities. our

of month of at to X in what keep market the when to us. an equal to going always of ahead a that's X communities. be that to an what month peak So to give and selling those we're we're selling. X we're months the of looking going is just starting X, here units We supply amount us X function X We're a want supply loss,

or on to X supply to see now. ramping You're we up of because that don't the of own month inventory X going ground right don't a have we

to maintain up you're as that unwind, to going but see that of chain then to we're ramp supply going So pace. constraints us kind

every one If at X to substituted start. by that are you're month X sales that

that the that see X month entry on move up. level and below the somewhere around per you'll at So first X that time a to just tick in

Ken Zener

you. Thank

Phillippe Lord

more Operator, we'll take question. one

Operator

Thank you.

with Sachs. questions. the your Please Susan of Maklari from Goldman for question line proceed comes with Our final today

Charles Perron

is plans This adjust everyone. to Thanks regarding materials my dynamic the you, for Susan how in. How first questions, Charles affordable environment? standard, finishing the build homes as specs squeezing such days. your homes can order on meet Thank or Perron actually affordability you early taking is me these considering those today. guess for in I quickly question especially when of to floor you unsold this to need the my certain

Phillippe Lord

features with homes home, nothing a price. to square do. future Well, features start a to we square But really less in house, on do lot not the we help starts, footages once or we there's them can there's footages, them start a other the smaller lower But pre-started in plus than we price. on can can

Charles Perron

Got Or a to the in going desire out home begin see given you're as pricing? move-up mentioned meet own Got you in continued rate a then impact their your expect how with this to level higher housing coming expect still maybe their outperform buyer? past? you do rising in this to the payments the given buyer to And the demand to that do move up increased entry as home across pipeline recent more follow-up, it. you think just it. environment, that trends And entry specifically, relative to you level ability

Phillippe Lord

Yeah.

home. they homeownership. is particular, down price thesis rates the because need entry-level going looking a move our clearly, home. to mean, people as I buyer both. with for to rents, think on in I And are still really that And need they're the increase, pressure

go as affordable think we're the as buyer relatively one then and entry-level especially feel spend opportunity which more when they Hilla new basis. a we that go, rise, is money into a get we they home the where buyer, on buyer about rates want on, much entry-level buyer they're talked to going move-up as month So we well long is what and as is. down focused move-up clearly, per don't high. the the they think And performs don't rates And too like to think moved communities a they on the

entry-level the a about payment of looking the targeting entry-level of higher best see for. the they're that's We're very it's and for looking the, about a more of more sort I'll for buyer. we shifting So that. affordable what But home. It's targeting we're nicer price-sensitive call, the price all home lowest qualified the really not not buyer

Hilla Sferruzza

call entry level themselves, just we a to them And buyer. move-up and they're first-time

a going point. So sell they're price to for

where interest have one that's we our point, a to price lower, call is them communities. next of If when can and if that bulk to we offer are little point community we the fine. the go they're monthly price not, what a and which bit So rates going at solve for

Charles Perron

this. color Really you. the appreciate] Thank on

Phillippe Lord

thank Thank rest hope for your Thanks, have support. Thank your and everyone, again. operator. great We day. Well, continued you, you. you a of trust you,

Operator

today's Thank does appreciate you. participation. We This your conclude teleconference.

rest the of You may day. disconnect your at time. lines this your Enjoy