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Meritage Homes (MTH)

Participants
Emily Tadano VP, IR
Steve Hilton Executive Chairman
Phillippe Lord CEO
Hilla Sferruzza EVP and CFO
Stephen Kim Evercore ISI
Truman Patterson Wolf Research
Alan Ratner Zelman & Associates
Carl Reichardt BTIG
John Lovallo UBS
Michael Rehaut JPMorgan
Deepa Raghavan Wells Fargo
Call transcript
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Operator

Greetings. Welcome to the Meritage Homes First Quarter 2022 Analyst Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Vice President of Investor Relations Emily Tadano.

You may begin.

Emily Tadano

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

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

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

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

Steve Hilton

quarterly our and start first well highest our broke highest highest company's home highest closing quarter our selling history. quarter order quarter and first everyone market Hilla labor start times chain to the a quarter our discussion home our closing first supply the will will forward-looking with been robust, including new documented company provide season closings guidance our results. strategy XX% revenue, about I'll our the home Phillippe gross threshold, margin as financial of all an which first the of our best our brief Welcome and leverage quarterly as in SG&A provide Yet and on Emily. participating of well continuing call. performance. these setting It's has recent across you, the quarterly cover of costs quarterly the a that current Thank overview trends second XXXX. in and cycle issues, and increased constraints industrywide operations spring aspects records, for despite of XXXX. sales homebuilding overview volume,

resale rest housing the Baby supply millennials desire is milestones will driven over demographic downsizing by amplified that rise what and the for was increases low homeownership and in year XXXX likely fifth telegraphed in rates for of event series sequential reflects for quarter Boomers, But we Fed funds growth. count community quarter first market. the inventory today's a also sustained demand months the our be of will We rates by that further for all The believe this purchased. live these demand of new of believe anticipated underlying of additional the for groups remain last The product dynamics of couple solid. of the and interest may change the

so after sell We continue and homes many communities. sales to are we April, shortly in them releasing far metering still in

decision. interest quarters all X eventually impact recent strong backlog our for homes Slide Meritage in of details the in events. to the and half purchased pricing want deeper with customers, market. City interest eligible their a for the bulk dive around of power alleviate to rate recent we the and buyer rates of to to some second recognize Lake help our expansion later. in relieve locks remain uncertainties comfortable buyers both psychology XXXX. rate to on six in scheduled Hilla the We high that We our affordability. of for Now March, Home close retroactive will purchase decision floating-rate that our in concerns are Salt To surge will on their In Meritage confident of since cost ownership home and and February, our locks loans purchase announced the

the growth approved with division solid land into operations steady in new three our acquisition and more With region the in-migration. expands the is pipeline, and west area an first identified

Last campaign planting expertise affordable this partnership We reported that matters. started governance our start Arbor month, we Day year, Clinton have Earth's level team, managing three our national summer With tree this as general year-end. new risk, them before ethics, with and with marketing Malissia entry urban ahead populations. our April nearly the kicked experience, of off program Foundation a brings legal the first support our week, announced and the of Malissia. as decades Welcome to we of counsel. to extensive And community will openings compliance tree she

season and and won we've trees planting planning We this will fall markets each the our in during year. events have of X,XXX spring

corporate trees I'll the share it And to community and enhance initiatives that over Our our with ESG our operate. help turn contributions which in markets of will Phillippe. now the campaign work aligns sustainability with our employees' we that,

Phillippe Lord

XXXX, Since our address Steve. affordability We've underserved to centered paramount. move-up is been markets level level entry around the been product mix and first our shifting of and under-built affordable you, has operations our and and the Thank product strategy market. entry

Although role, efficient collections operations significantly a also AFPs. our our home land play new impact

is we been and us margins. larger our to For in to new further of land ASPs, have lower parcels still online above-average upsell comprised XXXX markets level entry while less our late communities coming generating buying that expensive XXXX, allowing

streamlined masked mix. prices, our This year-over-year SG&A has six and in pricing leverage XX% diluted of in in year-over-year efficient product EPS increase corresponding healthy and XX.X%, orders, our Steve shift this model, X.X% elevated revenue our in the the operating home However, closing record demand have closings favorable growth, last last with ASPs and quarter. resulted on higher resulted of combined still as margins environment a increased today. These basis on over year. quarters is and XX% home demand And over gross a closing noted, backlog

our at and changes and level of our to for the or high DTIs customers our low early credit early to yet remained attractive is and the cancellation profile rate eight out near-term any The products. similar X.X% That alternative homes indicators last stable sales expected for high to who quarter average operations to for historical for market adjust we historical In to XXs entry we this compared continue priced what homebuyers from being believe XXXs remain affordable, quarters move-up signs of that of levels warning are We and to quality our of to January and accordingly. scores. communities. are April, FICO leading typically said, for consistent monitor the our is ready addition

surprisingly which for continue welcome we homebuilding growth. can long-term we will selling current and quick and amenities. or conditions homes dynamics and on with to with the sustainable not we are market down indefinitely smaller with recognize timelines. the starts believe affordable focus is homes offer is necessary in offerings, loans market We more Although any We slow products entry-level fairly sustainable demand demand there movement flex market stabilize. quickly, other fewer our Compared if eventually choppiness stability,

are formal next contracting years. for large the communities several Selling we individual operators. announcing over relationships homes with full two and quarter, to build-to-rent national This

of represented restricted community starts our year While year. X.X XX% and asset we bit this to customer X, XX% were rate first both the process. business, per XX% this targets of to comprised of up QX double-digit a XX% low We volume as to in in cycle that product annual we of the comps and Total seller closings of year single-digit not compared orders, move-in XX% month month from opportunity Entry-level year-over-year, pleased ensure despite elongated in of flexible count to to a to of the of XX were given high our the have XXXX, first excellent XX% volume. from for XXXX prior a for of our average a in mortgage long-term. Slide of Entry pace line by experience that quarter continue closings in average have the reflected last average percentage our first level community up an closing do from times, quick accounted in be X. XX% XXXX delays a closings, quarter expect decline specific below includes under just quarter X% mix. Slide increase XX% for ago. the this increase quarterly quarter starts align shift our we our and X,XXX X.X to X,XXX In per a also lock and prior driven comprise quarter. year. challenging Entry-level first to absorption to an intentionally asset our homes of production orders of the homes we build-to-rent

regional to Moving the trends.

in average orders regions and of count growth in community All of quarter XXXX. our first achieved the volume

to in level pace asset increase Closely asset to business volume last per region XX% this Texas, is in comprised Pricing given QX central year, of during same to XX%. ASPs quarter increase XX% than its average the east quarter of in this increase entry quarter XX% to region, compared added largest quarter increase selling our orders highest power economic pace communities with of month. region's this XX% in This largest year-over-year XX% order due the order year-over-year our resulting in largest last of asset quarter. products decrease east has entry-level communities, year. on the X.X of month. to our environments. X.X the XX% in orders The communities, average resulted Our and regional led offset central state's increase average combined the and primarily region, was state per in a compared favorable more a XX% growth average had behind increase from order This regional in our of communities which

West had count the year-over-year increase XX% ramp quarter, the that in four volume of due average volume increase community to its in up first increased XXXX decline XXXX order offset doubling highest last community Carolina volume quarters. over order The South average region's in this X% more by count result than quarter was orders a as XX% a pace. the

and the limited in inventory solid West pricing Given power our XX%. housing had and conditions, entry perms of this market level ASPs quarter regional on region region, increase strong order in the highest first move

level in communities we to level remains percentage entry its Colorado continuing at Although average mix asset entry the lowest are of product state. XX% towards of shift quarter, this the

a Arizona increase to in in orders where chain its average our from a XX% our expect decline start by We to to will led over the average X% metering in due housing XX% year-over-year robust, absorption time. quarterly issues, market supply numerous pace which decreased And growth despite remains communities. pace, absorption

X,XXX from Turning the starts fourth to to quarter approximately Slide X,XXX We X. accelerated of first in homes quarter over XXXX. the homes in

XXXX of in continue per of the work our as supply. increases count community we community as of expect optimal of to to starts return We level X to up ramping our quarter months specs to X second

to run and XXXX. quarter demand than the this increased ago. X% closing due specs increase less At XX, the a supply with With rate completed the specs XX% of period which XXXX, total compared to our year our first X constraints. XX.X typical of as amount cycle available our ended last are were X pre-COVID We We X,XXX XX% of -- one-third came March or communities. our to of in approximately per versus inventory over or in entry started cycle to times from construction time from times in while expand an did QX average over continue X,XXX level inventory, our not spec spec previously additional the sequentially of year, production our schedules. on navigate average about from specs quarter homes challenges of XX.X community weeks home still we QX sustained of to

from are were now time gain we hold are able back to quarters. few We some next to pushing the worsening over pleased the schedules and

In selling times, maximize maintain to also we customer later in construction experience. addition cycle a cycle are to the extended margins best-in-class the and

Our mortgage that in to a environment for ability rates customers rate fits in lock a the and in date their appreciate plan deadline. their to move rising

and Given elongated cycle units, cycle the this year stabilize, ended up from we and XX% declined will supply later as the shorten we of chains rate last backlog X,XXX conversion backlog to with to again. our sales, times conversion year. quarter rates pick XX% nearly times When anticipate

before to operations on all us and our help entry constraints. homes selling labor and level lean to We continue pre-starting supply navigate streamlined

we in advance line offering vendors consistent the supply provide constraints doesn't work able scheduling, were that into in to with well trade skilled our example, For labor. and lock require and visibility our volumes while repetitive most

our commitments are vendors. view strengthened given nimble of and capacity certain Meritage vendors willing the reduced to guaranteed incremental with To runs year anticipated address we our critical Additionally, can local trade starts and if availability our long-term deliver suppliers, the low. remain community SKU selections in from volume national not to throughout substitute products' growth, a partners, lock their relationships our for to rest we Homes. just count and our additional count, an with We

field from financial Hilla? the our our engage of on over to now focus will to finding to with demonstrating workable provide turn suite up purchasing solutions. team executive our agents to whole continue I results. additional Hilla Our analysis partners, it

Hilla Sferruzza

you, Thank Phillippe.

the to First, fixed our buyer mentioned their monthly and a that retroactive wanted is of of the rate environment believe construction after current this for cycle, in is earlier. start rate aware their We comfortable with interest I by today's duration rate mortgage covering team locking lock buyer the with payment. Steve

for a since to all wanted in we floating-rate market However, rates customers our The scheduled limit and rate overwhelming. the buyers. months interest purchase different We our actions pre-qualified to steep and And its help cancellations floating-rate find loans half buyers after and sudden for has this of that commitment surge this in psychological in position and and we recognize also financial fixed home loans are locks close of relieve in the the purchased were results and in that March, our applied And been interest second in we Meritage's these several them We value provide exceptional QX XXXX service QX now a backlog the eligible start to the concern customers. below the in backlog year. retroactive ago. of will . to our response to believe year future from demonstrate regarding

even to X%, volumes demand revenue as $X.X in towards billion shift sustained grew a product our of some the more of quarter our turn Homebuilding impacted XXXX issues, supply chain detail. quarter as first the Home Let's a financial Slide year-over-year entry increase mix XX% and to continuing level result to XX% in our continue QX homebuilding ASPs closing pushing by homes. X of declined due in late cover results to closings QX. to we

gross closing XX.X%. margin home was Our XXXX first quarter record a

in our ago avoid higher rates from costs refinanced the higher benefit and from interest improved well more cost addition the construction selling and on XX.X% a stemming as margins. costs cycle The our lumber ASPs, XXX commodity favorable debt. In lower of offsetting from pricing mainly other resulted margins interest improvement maximize homes as than risk us to power, bp later helped year

marketing margin allowed was bp the as on better X.X% lumber Given revenue home choppy next months margin Over to locks commission, prior savings over half QX, year. impacting with couple in the a potential revenue external the to of quarter, we higher to volatility, be sales interest the and us technology year. the in percentage and permanent. SG&A benefit and of our of be of lumber SG&A. current The a and back efforts leverage closing anticipate due cost our internal should improvement of timing for savings XXX

to in revenue the addition growth expect In our leverage we closing overhead additional the efficiencies, future. will incremental of volume pursuit continuing SG&A from drive

The the the on and Certainty first XXXX was quarter under Relief in homes tax Act tax of XXXX's rate XXXX, not first effective has time. diluted to of the combined Tax in closed Disaster year-over-year income benefit enacted The the expiration XX.X% such this pricing to prior XX.X% and yet eligible in lower year. compared reflects margins the XXXX. energy quarter credit rate credits at Since which to qualifying XXXX beyond we tax earned Taxpayer in leverage, Overall, not XXXX XX% power, increase a XXXX improved any count $X.XX. been expanded outstanding led we're in with energy share assuming SG&A higher EPS

stemming from the Turning strong X. and million December as X spend quarter million a which primarily well inventories of ample for about sheet million balance $XXX XX, the $XX share XXXX, March to shares as liquidity cash first compared land during during At as over our stock. maintained million common $XXX $XXX Page was XXXX, of at XX, balance repurchases, totaled quarter. million We to rose

Our remained March to XX.X% net debt at cap as low XXXX. of XX,

cap target conditions flexibility believe to XXXX. maximum debt XXs rate net the economic we current in until should no with have maturities a We sufficient to high continue We debt change.

capital We communities us getting on our market continue to help focus and specs opening ground the gain in incremental primarily our to spend share.

grants may repurchase share million have did neutral, this remaining these and new back shares, just keep to After we routinely we on our shares quarter. repurchase incremental authorization. addition we $XX offset purchases, still opportunistically our to like In buying dilution

As look On our over total spend, we shareholder balance long-term XX,XXX consider lots operational cash XXst, with we March XXXX, cash to our Slide to needs had to On value. XX. maximizing under to control, is five years. flat XX-month a which closing, above we year four of sequentially of our trailing slightly from QX nearly had XXXX. supply Based lots, six on target

the incremental this XX,XXX have the quarter have few on Given about at XX% of that of our past has we net quarters, prior lots, based supply forward lots we X,XXX secured come that through volume online five-year new new the the In than flow XXXX. lower year. from projection over for started year, a closing homes to first communities over

preserve up new our to reach, of more our XXXX of spend grew focus to markets. We XXXX. do pace deal level Each gauge ramp new beyond replacing stabilizing, translated manage our entry we XX prudently changes over opened QX was more anticipate future. XXX metrics quarter, percentage lots continue XX, trends About and or affordable pace XX% evaluated we with at net a options, positions sheet communities, buying We Our from options of its flat essentially March at in this XXX did normalized We inventory in new balance financially community an approximately line we own through purchasing acquisition and feasible count acquisition and we $XXX is to our quarter XX community March XXXX. XX% goals, staggered in land. at XXXX, primarily XX growth by communities in development on is target comp liquidity. lot within measured. XXX land all owned in with start at based to Since for financial we our the go-forward of million quarter our capital Since going merit. combo in home this grew and option margin maintain is the starts. which not XX% homes are was which total where We our arbitrary on than our our development Since to slower community and our terms this of will a use be and spent year-over-year.

secured. auction we a selective March the XXXX, XX% the we land of inventory In position. owned XX, regarding XXXX, of quarter a As had XX% first and remain

consistent minimum underwrite gross normalize volume margin to continue as to absorption incentive threshold. and well We as

underwriting that, to in future potentially down we these a hurdle, our Although gross higher incentives. changed deals coming and online. discipline us This lower band are margin enables new cost further haven't keep increases us move most which and when in land provides communities absorb cushion costs the turn come above pricing to

XX. healthy rates Slide In as demand remained steady to our and turning continued Finally, even rising. April,

higher As we orders manage the issues ramp throughout closings up year. our the and through starts, supply incrementally labor of rest and we anticipate and

around full-year For to units, $X.X total to gross $X.X about We billion, corner year. be in of projecting XX% rate billion XX,XXX of XXX and to the $XX.XX. track closings closing $XX.XX an range the revenue tax XX% in we're EPS in combo of XX,XXX with home and home on diluted effective margins closing between low our range, remain the community QX this XXXX, just

community year to We continue to this grow full-year expect count the XX%. between and XX%

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

Phillippe Lord

advantage counts demand supply you, a yet products. and and strategy of rising to ramp driving and starts our To inventory. affordable, and Thank rate we We labor offering community cost pre-start are our take to move-up environment, navigate That continue of and capitalize XX. said, prepared operating for proven positioned given summarize first disruptions, today's market level products, up on entry interest model we're quality increasing Slide through believe on and by well lower Hilla. on focus our

come and accelerated counts and starting the to late in secured gross both in to in we is land continue on run We that position which being price land as margins growth the land visible half the active quarters. count With XXXX, were up the a producing disciplined become community visible community in since very now due last land market healthy outsized have of a last a six post-COVID, several land older our started and prudent over playbook. will back before and our focus the quarters. online The is year strong vintage profit benefiting significant next appreciation from ASP over to is the

market us nimble flexible for Additionally, our enables remain conditions. to strong and sheet balance any

XXX For We count our allow in the to will have company declines that leverage incremental the that, will continue Q&A. the I believe first community on growth potential instructions of market communities. time now operator economies our the to over to scale. further mitigate history, will to us down, we absorption our With should revenue achieve slow turn Operator? the call for

Operator

Instructions] with Stephen ISI. [Operator is Our proceed from Please question question. first Kim Evercore your with

Stephen Kim

the rising potshots that and Great. around rate to Or are Thanks lot, squeezed everyone's the place there it Impressive some usual. buyer very level much, better be saying, guys. place a I is is In the segment is taking think worst people now, think, confusion environment, the be? at as and becoming it of entry a I of market. the most result Right segment. questioning be? to more to going level entry Is

an intersection still taking. taking of including rate? obsolete, Is like in order so in which demand than way about And how supply weakened, So, today? figured entry where economy of we're mortgage there there, you're it if it since communities. the seeing strong, order -- I'd should is greater terms we I if to the lower is kind anything rates it that's expect you, in that fair supply ask level see similar your your big any it reflects communities, necessarily that's sales that and say at today And is you're are demand rates the sort remains to why they the and Or today? are staying remain of to making reflecting

Phillippe Lord

aligned which with statement, demand based the Thanks, rates. on Yeah, is second so current is we're Stephen. the

that entering and X.X% So, it that And pricing, they're seeing whatever the that's the for. our looking a at that rate, X% expecting market into that is come we're rate payment buyers are the expecting they're today. communities current rate,

seeing that's So, what we're today.

scores of and it the we're of given our stability ratios you the some shifting what clearly, at, that, around. backend Now, are FICO the is tell buyers looking would

down level being and are buyers priced entry home. moving the if So, they're we an believe will, you that are phase, of XMU there that buy affordable out to

someone about in looking who now XXXs was thinking house the So, a XXXs. a in for house looking is or the for

see people bands that shifting up So, price and we rates do around on based kind down. those -- interest going of

Hilla Sferruzza

that really, payment. baby housing? needs solving the And both monthly need housing. boomers and believe we thesis Stephen, millennials population a from is is They're there

As rates interest to ASP up, the the of go come house needs down.

not as a So, long surprisingly attractive we'd what pipe along, been looking offering which offer more, our down all them. internally, for you're a call as it has to is product, more like long a they're as bit they're you're and offering little is at with when little as more, with coming our disappointed homes, thesis what bit band now substitute product

there. still is demand the So,

then exceed payment, solve seeing As a demand we're supply. still point, price monthly that long as for can a you

Phillippe Lord

to entry is other this wanted are The created level to all thing I buyers not equal. add

is just is to that level literally our was level entry And school into are are out There So, buyer preference. then, a driving districts. qualified. willing that discerning our more millennials and there pay position the always a to a to lot The buyers of products strategy get entry who for bunch a buyers more little have trying affordability. for whole of that driving are that. there's They're more

is more USA, high-quality that is as buyer strong. for seeing we're locations that high-quality market payment those for is pay and a very entry-level to looking so willing that looking And

Stephen Kim

to the we're day, and sounding there. we're rates watching totally around outlook. out maybe gyrate But of to it, there's down incentives you at of want they that are your ask does which to the wanted fine any wouldn't sold It is Maybe it a market, like what market in not you incentives helpful. understand, of everybody being we're I one, whether been, in very increase the and to that? forcing two, outlook. end just goods gross are your you a I something has think margins rates help it's incentives or incentives what That's is then at surprising on table Yes. of about would that a this or is in buy cost could addition Obviously, and And to called the the and scarcity sort else. terribly is, year? question you example, your lot, a through other what let's level. see like, - like level mean something where is closing of normal your lumber, sort versus say, Great. for like gross need out including run contemplated just than be the that, any maybe rather wondering of where normalized in us incentives that rising it I increase to in offering the first need or maybe market quarter and given that's focus some to

Phillippe Lord

Sure. guidance, those Yes, margin the the half year buydowns gross can thinking incremental or year driven that those. We rate be cost in expecting incentives, the to some to QX, continue the that, whatnot to very true maybe to hit they from And the realtor being seeing. seeing our whether come cost process. margins buyers full still our here a we're on that QX, go And we're we actual back through of the from is move of to continued increases focus and guidance. meaningful in top there's that we're and as we of by form the some look are going then or of incentives not you additional from up lot at increases as see saw

year this we full which resulting being interest of sort at guidance. environment, as So conservative sort in with rate our that look rising is of

incentives underwrite we our were our normal imbalance, really didn't environment we around could buydown that incentives what absent in were was to when see backlog. in But to X%, -- the of have land a X% did mortgage a sort around sort looks really is housing X%. the QX We anywhere basically relates like, in demand typically than QX. what other they normal it any versus and we for is supply As of X% new from somewhere environment,

Hilla Sferruzza

reflected as is it already we that cost for that and mentioned And lots QX rate QX even closing.

as to seeing portion half and one we're low with obviously portion you're of of the don't difficult what a XX.X%. months, next closed the the two just incremental out close it's gauge it expected the margins when out the the from to coming be quarter portion to be, of to A and It's is the gauge year. the in it of a market is a back sequential through the may to the of in needed. we a backlog of expectations difficult read that what just Fed There's the have that our we decline quite over to going you XXX% that's So about conservatism flow back decline yet. what half XX obviously guiding at is there's year year

Stephen Kim

that's conservatism. Yes, you sure. I was what that incorporated say, -- were to hoping it I Hilla, going was that

market, normal true market, a Just one When thing at that you in to a it a low incentives normal to talk mid-single-digit though. of normal are clarify also a rising home rate? sort prices is about in

Phillippe Lord

we of don't current land in is piece That's prices, at that a new typically underwrite today. underwrite we expecting exist at are the what new we today, doing what structures at a We traditional of land to look underwriting current when home at buy and market But cost, we piece but incentive happens. prices we are appreciate. currently

Operator

from is Research. question with Please next Wolf proceed with Patterson question. Our your Truman

Truman Patterson

to understand demand of reiterated to in quarters you're any rates. to First, that the close order get couple cetera? cycle you line? Meritage, what of them questions despite outside follow if place trying mix shift for all your on I your there's Are understand been before. healthy, have to floor? across for least in your at shorter margin, seeing get you time just wanted the move business at more the have think Just seeing strong pretty you closings, Steve's But shift, the are et I'm consumer to behavior one growth just you model, expecting next before is there remain which indicates you up to of XX,XXX trying a to handholding on more qualified ground order, they the traffic that

Phillippe Lord

we're versus subdivision list having lists home. those deep of strong qualified the priority have into what our is pressure by get go for often going priority Definitely their deeper deep to buyer one having deeper certainly to their the above. subdivision comfortable the the getting what right really We the right first still getting level but a priority four the three, go won't be, going to being to people or of more on they there and to into to loan is going buy all it. find in with Yes, be, payment list. handholding in We're

of what categorize but was very, we're frenzy strong, come those as very where highs, a seeing sort just unprecedented was a indicators it frenzy just Still wouldn't it out I leading anymore. very, all there. of off So of

Hilla Sferruzza

say than at we right? LTVs more process they we're were. I any the it So different buyers, that DTI our was get FICO qualification previously, difficult than it and not When will looking is the once any is are than not

into of of sure. part from as So because on that we're a having to available. go bunch list, the is the their becomes on have down else lists. priority buyers for the They home of someone deeper But whole needs bought

call the the on sale. gets First

metric. we're So a had qualify to buyers that on consistent the still financial our homes able

Phillippe Lord

all And all very still very activity, of They traffic are very, the given in and activity, as strong rates, but our certainly strong homes. around their in center those indicators of very, web interest the peaks leading of inbound well. contact off all the rise flow come

Truman Patterson

Okay.

Okay.

backdrop? there's activity change level not mom-and-pop you're institutions. having in either the smaller bit list go a to communities, further been I'm So deep, trying of And this do If of the platform? BTR activity mature able trying the platform. think will. given the the you rate two you BTR kind I'm to of question, or if investor, How appetite part be of And decelerates, understand investor just investors that to are your consumer quickly core any you'd for-sale investor still in the priority whether in. or to the understand larger or but market little for-sale

Phillippe Lord

Yes.

pretty on our we our governor We tight and We've have communities. allow of investor the done amount in always that. activities a subdivisions

can try mom-and-pop open We to X% limit and that we of to investors community. up it So overall the around whatnot. to

the that's it's where about X%. quarters, So four at look when last at is we about

we seen don't more haven't that. follow the interest market we to seen interest on closely. we don't up you pretty – We have I'd I increase with grown, from particularly -- mom-and-pop. do that activity. in govern that has we Have think investor but the

they an the buying business from we as our for at that or buy today. sort out the see decline. last along now, that it that here. they from a thesis our also partnership On mature and we as And the to strong provide interest way tried very us. as look quarters quite anything to rent, core on the the soften volume opportunity perform very, And of they were to those in this we of Right the and year, remaining we've least the waiting we are relationships can sale conversations increase if That's quickly as build into interest place although to partners we can have couple over very, there's of them. a find strong how anything well, very that's have in to

Hilla Sferruzza

the And you're ramp-up see a going activity. individual sale home to in

under of quarters we grow to committed. have been that's the As that the throughout X% current bit the already little it's inventories going year and mentioned, a of quarter, but identified

structured we the next communities operator. entire are As year, be mentioned there's to into build-for-rent sold we to that roll that

market going participating emerging that you're results the everyone institutional construction. to The here, BFR volume in home again. new see in new consistency for So our

So taking But our for additional now, business. and It's with see that the business incremental we're core we'll what additional appetite them it's units from securing for not away for identifying us is. labor.

us time. for So this this at is just a plus

Operator

from Ratner Please question. your with & proceed with Zelman question next is Our Associates. Alan

Alan Ratner

the in quarter. the questions and performance great taking for Thanks

First topic but recognizing be going to shift addressing the like over are of What question, were just on double expect to early, from Just it's I since the mix the business maybe know your there? you that X% look grows economics? digits volume that next do it. BFR just you as economics there's what some to year.

level of you're that assuming not I'm margin that either type today of? margins be that there are mix for differences the XX% you're price think should notable kind on sale. generating on So But or we business expecting to any

Hilla Sferruzza

spend No. It's costs and we platform, savings consistent. certain to our BFR that those the There have actually pass don't utilizing we are partners. to operator

don't think majority of getting that savings a for for that neutral a straight to passing And us. net it's they're what getting have the since actually, they're it's They're NOS. a for So off saving net along de-minimis in at net just same us neutral on, them buying we we're costs the some variance. There I It's XXX a time, spend. it's there this but the line the P&L item, actually across now. new bps for point as right roll shifting might slight XXX, communities net-net, be

homes. an community On versus individual at accelerated But pace. the full in again, material not

result still a So to net communities impact the neutral in in and those Meritage. the is going leveraging efficiency to

Alan Ratner

helpful, That's Great. Okay. Hilla.

new the on kind made to guys And would know growth your a accelerate that land some chat obviously bit quarter. side, pulling comments I bit out consistent there really you forward really before you're your count little a which in curious worked of concerns about Is acquisitions a the lot of to reaction plan in concerted what of or Second, the with your lot this in little environment back some effort a you've have, well. peers to that going love acquisition of kind with seeing community rate was the maybe mortgage year-over-year. had place there. down and has that I'm

you a kind the in thinking normalized out or Just always to inflection more or envisioned? whether of an return of to like is change more this path growth whether trying figure this was

Phillippe Lord

of that that there to lot of years more out closing intentional positioned unnecessary stabilizing, organization delivered and which out be very on I COVID today, that accomplish saw get opportunity here in this XXX risk. XXXX, allow a land and, Both. the we're soon we we to are in it happen down take A measured But on we ago, to that. ago. the XXX we But to to by put as frankly, we going little making way, to was COVID, growth years mean, the getting land bit. contracted goal jumped to quarter. mean there, stuff about plan successful XXX the I always we that two were get we and as slowed up from that's bought X-plus going to not to what us

year through rates So the for residual low land, all. the it's last us and higher But the really pipeline XXX flowing well every the that land We interest our to land our next two we've the prices have through land lens land, the have be and that's a of land rate six frankly, years escalated in over years. really the that going plan at next any of allows from grow don't interest to bit the does risen, next make Clearly, forward. that piece all going looking beyond for two and our as quite of priced, we're land need closing, business quarters. rationalized at environment a sense

out frankly, today, seeing kind me, you're uncomfortable. And the opportunities so the that good land it's market there. to in there out There's some of

in you XX viewing. to tempered like, to we which see measured pipeline think expect sure just to look much us the that. going a at new more disciplined from and at our we are interest from stabilize But deals here I as find still there best we're communities XXX we until look and modestly have land exactly grow what to be X have can and just very making that then rates the you portfolio You have

Alan Ratner

Yes.

moderation I think translate healthy pretty uncertainty, well. cash the given that and to that growth, that of and the a some ton generation as I would given makes imagine should all strategy sense, in

Phillippe Lord

I agree.

Operator

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

Carl Reichardt

had of the under you this. if quarter? actually talk sorry, at you how I Did I'm the end construction homes about many missed

Hilla Sferruzza

spec Or homes total or homes?

CarlReichardt

Total homes.

Hilla Sferruzza

plus like the spec It's Just backlog. XXXX.

Phillippe Lord

backlog. so. or houses X,XXX X,XXX Yes, in

Hilla Sferruzza

number, yes. actual the is X,XXX Yes,

A –Phillippe Lord

Yes.

Carl Reichardt

at about average quarters. four last And you the three -- here to to going flatten the point the now up. see the models if is But as margin to mean, that seems here. year-on-year the start look been price think coming hit time really and I'm communities that's mix you expectation you'd strategy like but start there. out this Okay. a has just maybe pricing trying obviously, for in and think we effectively the ought is you're we flattening And kind the or of now on then looking up our forward forward, just ton look where I order or still as as at this it it. go to curious we And it makes that is new take should a is sense And online it'll where AOPs

thoughts that. So on just your like

Phillippe Lord

XXX I has my we're a a have We give plan right? company, can and ground-up communities you business I make thoughts. every our mean, community that we story. up -- different

Some have a lot of runway. runway, some have of bit a little

month. some our five scratching Some for for have a years, demand we're

coming competitors local So buyers the market the market doing? we doing? price the are our the Who conditions. communities. retail are What's through What to

market. So based they're products been so we're the demand we're pricing frankly, demand down still the our demand have The upside there, based market and supply dynamics even all market. today, that dynamics each pricing way in in the through on supply and on

do from going prices to it's here. So to are hard what say

to to ability us to look demand what's If would the going April, for on at prices in expect on go to dislocation bring supplies of market. I you and based continue the up the

to a diminish push Certainly, to costs the say. to will the our well. interest not to we're hard continue start where continue up it's So point go to as to Maybe rates going prices. demand

there's they're So on coastal have cetera, price markets, California, [indiscernible] Texas decades to demand et coastal have markets, the where and we communities market. a in those lot going see urban, Florida, we're just we'll to of for where to underserved But month-to-month.

Hilla Sferruzza

in seen bit the do what what We're pricing else we're our to doing not going increase a I push was market. think market. with take not everyone and margin, you've shy maybe from little our to trying more. even to in the line available what's We're

trying get certainly by the ASP, cheaper not lower we're it challenge does. land a us. affordability, take market but starting to And there giving we're think buying I at what the is So scared to

Phillippe Lord

that's Yes. right. exactly

only on it's market buying, it ASP are though bringing We at is very, even strong bringing continue producing land are land our the year. Not time, this the we the to is appreciated but we down, margins. very

industry growth So the had completely count producing communities. and in highest community we over count frankly talent community We've the these only flipped or margins. industry. all community are we're the We've the in bringing mix growth new industry-leading our

margins. deliver teams and about have all products one of to done our us our the really single work the of it's right one at every markets, help every land affordable that great strong buying So single land

Operator

Our next with Please question. from John Lovallo UBS. your question proceed is with

John Lovallo

higher not But move now, homes on very why you sold do customers demand going supply have I a have the rate folks right a seems dropped you locks given I'm those concern customer like how I that I'm The is, good you it at action first mortgage think of out backlog one guess, for reflection mean, tight actually is prices? that could And the or is a purchase backlog. it I curious, mean, in forward? of took. is this the asking this guys is service

Hilla Sferruzza

was It's as we who our not issue, are and a it right. treating concern customers company demand a

it at thing can or customers the thought. thing do house. thing customers. bit on to your two swath of this right the set feel the going it all to than table, company was fall That but the do. don't what The us that was like treat up the your three. to us right know be interest when They're they're we to what So And customers. to it's locks buying when house, They our going interest rate we're going houses absolutely rate not closing for out, more one large of quickly market way little rate right they're Is we resell around probably is We current folks to when that moved the a the can the resale go not today. in X.X. walking of and a from to below-market door

it's to yes, the longer So taking build us houses.

were just more moved time than expecting, than more they So expecting more up looking than more is likely variability probably everyone to was see. what frankly, walking closing, the we the rates what at even everyone from dramatically expecting were they're to time have that the they're is

So not customers market for below we're for I anything we're new and the offering same us, at selling said, pace. like

the we are company with demand an customers is lock. of our So now we're using indication this all not marketplace, locking thinking although mortgage interest rate in definitely in an

they payment to Now that just with close that business available that among is, what so the a be comfort good really going know we today. to locking that is that their the rate, they're them market the house. to for it's solving rates know they're good it it's think It's but for multi and payments in that

we in before loans float, But using to of we're asking at market. So lock company wasn't to our mortgage in variability lot there rate. a the current today, allow buyers all

John Lovallo

correct. that's different extension any in mean if some saying. of a makes you. of you sense. the are times cycle I not that mentioned you think I guys That lot quarter. Thank Okay. And mean then did than see further your I first in competitors

So of I'm seeing allowed when just curious, to cycle the further sort maintain times you what you think has are others extension? do

Phillippe Lord

our Yes. any is QX. additional I schedules incremental didn't QX expand from see or didn't true. schedule We to guess delays That

preplanning the the those to just all I commitment think it's the spec strategy, starts. starts

and these to Despite As committed got the plan. we've and perform our all because the trades partners. that We times, interest knew complexity. committed we intention business our our less our rates, that coming. that of of We've to we've and are communities We out the starts. ago is our can number out then trade have We're said starts months and stayed fact for out plan. front a business plan out our planning of of rising we in started different this built streamlined our planning when six better so year. scheduling And

last cycle sites I'm out still what that that's to still and to stacks there. bad. definitely And times. to occurred, worse not but mess think not haven't better, get and it's, get you them It's it's business the to quarter. our a for worse they didn't think not played I and advance. this us difficult the very seeing tell and material has it's it's and gotten very quarter, labor the any out planning just I our here in we're in very, well again, commitment out get things

Operator

with proceed with question JPMorgan. Rehaut question. Please next Our is from Michael your

Michael Rehaut

did to specific on First, - get lock your have your or of fixed are more talking kind if floating number the this loans, assume a about rate missed one, I it, of impact down wanted terms what potentially break maybe actions of just I you're in rate when the percent I loans backlog little I been rate. most apologize, of,

on So I the roughly what providing of curious is was dollar company? that backlog just percent kind impacted that and impact the the was what to of of the

Hilla Sferruzza

Yes.

So QX. mortgages is these do. are which that for And about and mortgages through mortgage just XX% we company the of our these business are partner, QX

last only rates. So XX% not low It's historical in prior the with aren't the run-up was pretty is up. backlog averages, by The going is to three locking interest to in of rate likelihood locked, line that but People our right? to go about the rates, going go down, years. much

to But onetime even year slowdown just to going down below on maybe of Not February it's rates sold this a though there block this well. loss, go going clarify, higher. let go Now market, expectation lower? only rate there as on have the that are been a this is me buyers is of is onetime rate look

So six lock. very the is five, changed last asking That's fewer weeks. lots. Everyone the dramatically in

our a But lot. in So was going backlog before what that's favor. was in definitely obviously the not

is a post the action, backlog have of that the So now year. we for half locked of great majority back this the

Phillippe Lord

the mixed notify on they interest-only other. is the flow house. floated. fixed, loans about a not Everyone people Don't but Yes. close got talking having they let rate until XX-year get We're

Hilla Sferruzza

Correct.

Phillippe Lord

and locking close. were to walk And loans before were we letting days in on earlier during no XX then or was it floating. build rate the is one wanted flow locking This interest-only we So but were that. they the they arms doing them that time

SteveHilton

reasons, but for is costs not guidance. our We're specific cost the giving the competitive baked into

Michael Rehaut

first guess, it. second Got I roughly doing margin XX% math, half. I second I versus gross the broadly to And then, trying would in point in guess half range, the half somewhere gross understand more margins the just speaking. to

basis XXX-ish maybe at If point you say, you Yes, sorry. look let's still that there. differential,

that. about Sorry

anticipating? second between you that other incentives increases to you're trying first just at in a increases and If sense of conservatism maybe of and look get the half half, the that two versus cost much difference I'm anticipated how is some

Hilla Sferruzza

margin year, that that. the is is piece on hit going the closing for rate half yet the piece we have We'll it We're breakdown for analysis back of think haven't homes incentives year. of It's to Yes. not but right the news, future the of of lock, be full I a it a all sold in the anticipated you Mike.

everything of of is timing costs. just had half we're starting And the in right? now, that's of We through higher lumber, to that it some has costs direct closing build back flowing higher the year

full still XX.XX XX. the year the we year, last of low from bunch although, to of flowing back through obviously, our guidance dynamics whole that raised half expectations a different the there's through quarter are So

we realistic we improvement So to ago. three hold. couple also cautious just the as are where an of months trying to and forecasting still we're be months from But were next what overall,

Operator

question final is from Our proceed Deepa Wells with your question. Please Raghavan Fargo. with

Deepa Raghavan

chain a very to me X.X, with X% here. you I from X% A you've stability set Is up try inflation. we what as and to share do we that grow is stretching housing like since scenario, in is line yourself And ramp right to what question the Meritage XXX volume now? do housing X% that How also that starts pricing may volume the count be for not growth, strategy for have base in annually, community with an mean, idealistic you high-level in everyone supply here? that market? that X.X overall define take welcoming stability end

Phillippe Lord

to X Yes. you strategy starts been to annual and housing historically, Meritage's and so they've But XX,XXX look period. I five close get can units rate at think absorption over four and MU or always has of to mean, X.X so, between I that's we're kind annual not do EnQ an level, and when even we that. communities, XXX blended think been we between a

the from And so that's will there what us market give market based as grow on and our strategy. well. And then us land we what the will give

when things the moving really then not that And that's home X% to about a think It's the So what prices, normal they've you strategy. two when prices are years. last are done complicated. over up X% year, not

X% old X%, we we think new So When include will prices we don't that's X% -- cost X%, we appreciation, include that our we land, you'll up or will about up at because think you underwrote. go assumption look up and costs end about go what inflation how it. to don't is with

and variety reasons all over X-to We at would have still market will three And much that let absorption communities four that right what's them of we We're than clearly industry run a there. articulated. been for sales I pace a opened metering that's us. entire time. to the to now. for just if We're think normalize they a think pace higher up we X-month So across run, not constantly our the normal today said don't

Hilla Sferruzza

Yes.

you that which total asked, I starts, was maybe you to building know that's what XXX% underserved. I are think space? it's it's the think building? that do first we're tied housing the homes don't to that the think that in question most entry Do we of is Steven the area back what

buyer a as for direct ASP where market normalized time but the rational all that's chains be everything it's doesn't fear to come is for. market starts, housing with dynamics bit Land we're extrapolation when take, alignment, little us that growth into And stabilized the they're that it back makes prices the normalized So in environment a that, the at and maybe the may said, not than a a a make have we've normal. sense. X-ish, sense. more labor are as looking that That's does market. buying bad Supply the

Deepa Raghavan

year? you if you apologize around some provide for on Thanks able that. about volume for My and have. follow-up color. great I coming That's numbers mean new SG&A additional Are some this leverage to the missed is from talked you I it. reset I that

Hilla Sferruzza

expect The different than it guided what We've to we're closing right wouldn't I something to do tremendously SG&A, volumes. now. doing higher

quarter, going always from but X.X% There's would as thing it's happens to look that I bump different to too to had nuances what expect So that this not the some around. we quarter-to-quarter, that.

Operator

question-and-answer session, remarks. will end CEO, Phillippe turn the the over to closing and I for reached of have the now We Lord call

Phillippe Lord

to to much really We Meritage quarter. forward listening for next interest your appreciate and Thank Thank you our time Homes. you. and look so you seeing in we your story, you

Operator

time. you concludes disconnect Thank today's participation. lines may conference, your you your this for This at and