MTH - Earnings call transcript Q1 2018 | Meritage Homes Corporation

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Operator

Welcome to the Meritage Homes First Quarter 2018 Analyst Conference Call. All participants will be in listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Mr. Brent Anderson, Vice President of Investor Relations. ahead. go Please

Brent A. Anderson

be With slides can selecting Good the discuss Bill. the by to call their analyst and We've to CEO release our release President measures. Chief CFO; me Thank the are first Lord, Vice morning. homepage. and to and Executive Hilla Relations Investor link presentation, financial which inherently and quarter obligation website Meritage. to with are slide projections Any referred wide earnings, and remind you closed results addition well Sferruzza, Meritage; market our our measures including XX-K, Steve order of market bottom of referring press margins after contains discussion investors.meritagehomes.com our I'd of you such due and on contain our as release report our a of at specifically a during opinions discuss issued GAAP it SEC, identified recent as you to President XXXX X also we'll that or metrics call them. which Hilton, or expectations our to be the filings this that factors, along to yesterday count, and different we revenue, you, of Phillippe the the Form statements, call, management, forward-looking risk a on update non-GAAP expectations which Executive to Chairman results as Welcome and statements find closings, certain at results. and in to than variety slide, Officer the press are more statements no refer release as compared Operating trends, at to and we our of in projections forward-looking the materially provided press and well have represents any subject operating time community during today for listed Vice current detailed these XXXX, this reconciliation actual assume our may with in and to risks. our of most annual other and change about our on as as trends. Those uncertain in slides closest We XXXX

We to an maybe quarter on expect and available I'll an results. over replay be our for first hour Steve? two weeks. conclude to it after website active the review approximately call our it. conclude hour, within now less, we will turn Steve Hilton will remain approximately to It a

Steven J. Hilton

addition everyone in in year-over-year participating leverage. pleased market and Thank on initiatives you, healthy growth in were in closings, conditions. in XX-basis-point generally order increase produced metrics, home key SG&A plus solid in X. a nearly and and Brent, the a increase for lift gross on our We with first revenue, improvement quarter of and begin all interest, including results closing X% margin home appreciate We XXXX. closing welcome our XX-basis-point XX% We growth, today. XX% demonstrated They to our slide strategic progress on call I'll our your to

We also East made region significant progress performance. in our

Much metrics operational focused community combination segment. focus we closing count back and been focus, We East the community to Turning of the well in communities very as was to in a on been continued It's the XXXX several I'm close-outs referring in ago. communities, to initiatives. to where strength resulting in markets, the year for and openings. beyond. The a entry-level achieving region, through continued high strategic and partially drivers on strategic to all-hands late early improvement, growth, as count throughout leverage, results to margin about Those strategic goes economy, these housing quarter XXX count demand the expect due team who's our the especially of it due slide improvements our X. the maximizing were our challenge market. growth includes the overhead our to growth home initiatives community With of this grew of in our grow credit during

in margin XX.X% home the improved basis XXX region, year improvement to gross over in to quarter from last our where with the was due margin up much gross year. closing Our XX.X% year first of East points performance the

quarter, cost we rising in and we to our of of across We revenues, last in As more margins. our increases most we most quarter than able in the closing growth to turned the our X% to closing our last communities markets believe XX.X% our the down ratio gains We with corner were saw price reduce East of noted the offset sustainable year. SG&A in home XX.X% first markets, leveraged from which total of in volumes helped there.

region. detail revenue items were growth describe on primary home other few in year-over-year the positive home for in of to again, in which in growth was Hilla Those to down margin expect much the XX% a more revenue earnings. the East, later closing reasons We were leverage and closing in improvement volume comparisons. that continue a for year-over-year year growth increase trend on. improvements XX% the unique top XX% There drove pre-tax closing to our due of the Once show in throughout XX% will

Turning to slide X.

for entry-level averaged strategic quarter average absorption month year certainly towards Our XX% third more helping for this orders year, per positive homes. over consecutive up our pace shift we comps. quarter our communities. year to for entry-level of entry-level non-entry-level versus XXXX, X.X the year-over-year X community marking first That's growth. partially per the were to our is quarter higher of And for of the first Orders due drive homes in

more be two. entry-level For our next will in lots new Many are last couple or the contract year under of XX% communities. quarters, opening of or

and process purchasing for expect and drive continue less couple and refined quarters We further over to quicker have home-buying our customers. to of construction strategy even stressful providing our while entry-level last the efficiencies

in approximately year. first the the with We are community XX% entry-level having of our the XXXX of We closing XX% XX% of as Those priced the to in market our end our that drove ended of absorptions. in due limits. communities total local they're of the goal of XX% quarter mean classified orders higher entry-level to loan space FHA our by communities quarter below

trends. generate through highlights expand can communities it to general we the As turn of growth beyond to trends. Phillippe what percentage I'll and community discuss of we Philippe? to expect we entry-level order some additional market sales over achieve our growth count

Phillippe Lord

through help offset of management price disciplined to rising Steve. quarter through solid pricing you, Demand to XXXX, take costs. generally remain the first Thank providing increases opportunities

performance in trends, sales and community growth and for progress with our region in provide on great on East, discuss to new our with the color a local quarter little region and Focusing strong each gains more slide order our our Central XX% and particularly products improved I'll X. due the first order East beginning position, East regions execution. drove the the

for Our their last had and year-over-year East and significant strong quarter. Tennessee. in first the increases double were the orders in absorption the quarter. the South than volume first most with quarter gains over Georgia volumes Carolina the Florida doubled sales year's XX% also and up region order more pace digit in Georgia

our price up XXXX more a compared entry-level East move to mix sales lower to for of orders average of on quarter the X% XXXX relative homes previous in region first demonstrating was concentration. Our the

confident are our and in locations We product, processes. community

performance with While up and drive we're improve to expansion still to execution, costs we margin many and back first pleased times, our our get reduced results have opportunities we quarter our land. how underwrite our cycle

the increased with performance success selling slide year-over-year order about ASPs well. double-digit X. in of came value growth. for reflecting quarter entry-level communities West, quarter we've Austin the Moving are Texas total its as down strong and X% orders up another the order were especially this record opened We're Total entry-level seeing continued first market. our in XX% XX% of where

average Our first to average X.X% to the year-over-year Texas up XX% also quarter XXXX. increased X.X% absorptions in in of the quarter count compared in and community first was

year's the continued as our affordability and West several count, we just as communities XX% were helped XX% with the X, a which replace keep ASPs region to decline, experienced down consistent community enough average closeout. new strength order first a pace to the help community nearing made High difficult increase major communities accelerated for XX% The fast years. demand did should to order which We at with communities. quarter. seven band the it orders. in Texas in We expect the high value increase markets first in on in in lower a And decline with offset Slide growth pivot are higher up coupled price drive to in up potential level during Colorado open with job few population the due has last maintaining the West last the higher its in absorptions total demand count ASPs, of Despite quarter slightly. made limits. orders pullback in

next now a the over few absorption We're some to the that to in up March, highest accelerated last company. additional communities maintain Hilla? pace additional provide communities will hand region active pace. over information. open quarters, weeks I to had region net the it of in still our XX the Colorado absorption the the in will XX% three most While total West in sales to four despite closeout communities of Hilla opening decline increasing planning the those they in more to

Hilla Sferruzza

maturity $XX the you, $X.X increase, pre-tax which senior issuances P&L to XX% notes million X.XXX% note the this closing new of we offset the by on of existing million our came from primarily net net new and highest credit million laddered loss by facility million home venture about our of generated last $X percentage slide partially sales. as X% gross million was $X.X and million nearly was in quarter home million, another quarter and $X.X favorable year with a $X since quarter the relating We metrics, borrowings million offset maturity $XXX million our one facility this for next impact XXXX, in retire senior issued $X incurred in land of $XXX and was gains these notes profit results, swung million beginning mostly an to repay That $XX year-over-year June that million Nevada. our couple of well home one we our first of transactions notes $X to rate to March a we a an an million We was in a notes exit $XX debt, legal under XX. higher in negative first our settlement growth, in more of a in XXXX. couple proceeds old of XXXX. of due offset X.XXX% revenue. interest from $X.X closing from XXXX XXXX. provide from the retirements incurred. redeem that issuances couple first as negative quarter our in of largely schedule that in of well I'll Thank joint had Land X.X% million notes since increase million increase year XXXX other pre-tax XXXX, income and issued XXXX. approximately closing under earnings comprised those margin for were convertible year items over another time. $XXX SG&A in a effect quarter of use from interest community earnings There gross $X.X our revenue a total closing With Dissecting a with of at not this February our that California, year. a Phillippe. repay used million as total small credit first another. borrowings of incremental first operating impacted that completed, increase few the have until used mothballed other for We additional lower detail last had some to We our land on long-term the The positive and The of

was capitalized interest under that to However, assets most of development.

by last first as to year's approximately XX% just XX% Net for declined ago. effective XXXX than year first our compared expense were was a the higher XX% interest $XXX,XXX quarter our So earnings year-over-year. tax quarter of rate

the commencing million. benefited a lower $X.X benefit tax rate for we credit year XXXX, of extension In addition in XXXX in energy first one-year and to homes closed last XXXX. qualifying enacted the all statutory also federal of quarter from This recorded late in totaled

be quarter. expect for XX% we year of effective We tax our the rate remainder the had closer to XX. to Slide indicated as last

land on cash slightly million. of first development quarter quarter and item. and $XXX of approximately lower balance spent last flow to $XXX sheet We Turning in million than the XXXX, year's first

those year-end held to lot one-third our XX-months spec quarter-end based ago. were we in of a spec of as quarter's reduced at March average compared per homes owned at X.X an communities. of total specs March XX,XXX an from supply community of about We homes, Approximately are focus X,XXX total spec X.X completed building ended strategy closing supply and with is compared were more from inventory XX% our XX on on inventory. X.X XX, quarter of to XX,XXX to specs XX% the per year lots years average increase a total we about our which X.X entry-level About specs XXXX. lot at of lot optioned the community years to steady at about total Our XXXX. trailing XX% closing. Consistent with market, was where was

first to in economic mostly operating in that second growth East expectations well indicators and the on year. especially remain of anticipate half results improvements, Turning we region, slide as Based XXXX, the housing particularly our additional the as quarter earnings in our positive, XX. related

for closings total revenue our for of billion units X,XXX closing to $X.X raising home approximately We billion to XXXX closings and and X,XXX to revenue. expectations closing are home $X.XX

XX% are tax We with we anticipating can year, that rest earnings home million effect the $XXX full of of gross at of rate expect year the to least closing inflation we a with pre-tax of XX% for a cost that price offset million net margin XXXX. The $XXX increases. is for projecting

quarter, the pre-tax $XXX income the to for million million million. closing total revenue to X,XXX roughly of projecting gross for to about quarter, closing home of For second closings margin in we're home $XXX $XX mid-XX% X,XXX $XX million, and range the

last be of sequential expect a in remainder of in the and projecting XXXX stronger ramp-up the for margin margin and most year-over-year will a year-over-year coming the closing to year. comparison we greater had year's the are to margin We Gross back-half XXXX. than difficult profitability year. second closings mix by space comparison This quarter impacted of our lower is from we be

a expense structure that our to some back QX relating due well a in anticipate additional XXXX change advantageous our didn't Steve. in expenses nonrecurring have compensation in rollout, that, I'll strategic last awards as year the more quarter also to initiatives company. new We year we over second tax for to it this to equity With turn

Steven J. Hilton

their key healthy, we their day for and proud their automation, designs of of wants. buyers the pleased are results homes. our and extras some affordable who for homes the Meritage Thank success the our Demand and we of abilities that with working quarter looking attractive homes, we're putting LiVE.NOW are meets a experience our for opportunities with us. confident the with few make a along first delivered you, remains summary, Hilla. purchasing entry-level every buyers progress for stress-free fresh of home more In first our especially most positive industry-leading, to successful. all also a the metrics. on hard products and pleased to of nearly Meritage new shortage in home. our make There's team needs them first to of We're energy-efficient, company homes in of our for satisfy our entire and customers gives ahead still I'm all offers

grow you the to We for Operator? Meritage shareholder deliver your will you open continue up for Thank instructions. We'll operator expect remind The increased to in and now interest questions. Homes. value. of

Operator

Thank you, Steve.

begin the now and answer session. We question will

question Rehaut go comes Michael from Please JPMorgan. ahead. first Our with

Michael Jason Rehaut

morning, Good Thanks. results. Nice everyone.

on something from this and Steve, continue we when is and you back remarks, prepared refine understand in entry-level you Hilla we the kind I visited in LiVE.NOW about of to approach. that even entry-level your with of product of your Phoenix with in had strategy, talking type less more – shifting customization, of that mentioned question was what and, mid-March, more more towards First

So terms strategy level and how the that of an refined – of the on and just get margins get has your in of over been last wanted quarters mean incremental could returns? overview few kind an to what

Steven J. Hilton

Well, sales (XX:XX), homes with it. in operational talking how things more we're customers the some technology on with the pricing. and the and how office, brokers the side we're doing We're dealing we're of on about selling

Our put the the at the right offering, the the spec to we we home capture into can. features of of spec, have we to buyers the time specs, right specs that mix is we refinement the make upgrades the sure all into the pool of part biggest inventory put the

to would from And you when communities continue you learn a home know, spec open. what the we year. few the we're communities experiment we quite So for call primarily have the opening are do And here, communities LiVE.NOW of those that remainder but to driven. came I out as more

Phillippe Lord

This it's the which Phillippe. changes. biggest spec, – is gone is Yeah. We've a XXX% one of

you So spec home. only can buy a

a You to-be-built. no There design cannot do studio. is

select option which of our drive are trade cost contracts, times us is our aligned options cycle national our site. all You allowing our right with your on We've better. to down,

really times and the we're at ability costs and that's to our operational impact driving just drive better our that down. improvement, more our seeing margins build what's importantly, So cycle and, homes

Michael Jason Rehaut

more spec-driven XX might closings just sense of what account to how approach understand closings and no customization work Can what that a just approach this say, trying approach, going of off let's this give LiVE.NOW the then of more. for? kind have to you next, kind that working you is percentage how more and the across So us over percent of months of and of where the of revenue or much company a

Steven J. Hilton

those will of them most will the be quite communities our of coming are in than think our be communities. almost higher the LiVE.NOW. be they XX% a not end to in of entry-level higher XX% – year. And percentage move-up that We communities, be means there'll the closings since that those will of of are stated communities all them, this from entry-level even previously all we total Well, by absorptions

year, probably the So next think sooner. XX% by not end to it'll of I be close if

Michael Jason Rehaut

you. Great. Thank

Steven J. Hilton

you. Thank

Operator

question comes from Alan Zelman Okay. next Associates. ahead. with The & Ratner go Please

Alan Ratner

Hey, guys. Nice on the A land couple quarter. morning. questions Good strategy.

seen count, lots in points, at of points year, the optioned, lot over year XXX basis about I an seeing actually balance and basis is XXX look other flow versus if more share as land owned bit higher. are you've So your which cash really to drive sheet different builders off and far as returns a than talking uptick about trying option push what to

So a first question incrementally was on to do to this higher. has strategy and gross about the adding point little that just bit talk trying you're your at land owned maybe front lots cycle and with in the margin the drive anything whether why

Steven J. Hilton

have that buy more conscious opportunities them. to auction those more just markets versus auction available, don't are We land extent haven't we find where need want we buy the a We land to the we to To strategy can land. the or buy land the in pursue under found land. we

trying and sheet to increase been degree to our auction for ratio. we sense that maintain then over find land able for balance to want time that makes our reduce leverage that and we We to it. But are haven't mindful about be can us just you opportunities a

Hilla Sferruzza

our at seller for sense Alan, base in It's piece to the not noted, margins on giving the making you of a I that us. for that right increasing we're bringing intermediaries hyper-focused you're this think land on point exactly for and third-party us. cycle to is in a upside though reason land

Steven J. Hilton

Yeah.

Alan Ratner

Got it.

rates are question. sense. this others are Obviously impact it and And healthy, Okay. seems point. the you That second then seeing order very demand impacting makes not any at from like and guys patterns

mentioning hear and did little I there. the of communities maybe Phillippe, a bit pushing entry-level of you some a barrier Although, affordability

a So it two affordability more that far that land of looking yellow flags at kind when openings metrics whether you there you're sense moving the presumably that waved land kind the caution are as gauging as bit rates and execute makes today primary given year the at kind underwriting that are deal? road, we've of to down community for or seen? really what point And a any are this of are giving you're being

Phillippe Lord

We've as the markets been some other are not as extra affordable careful markets. that of in

land. entry-level, you pretty I gross that been know think, We're anything more a we're loan above Anything strategy underwrite to we're And XX% buying plus to last for jumbo margin has move plus. outside not IRR. continuing markets what the and limits, not the plus consistent buying first We're those XX% are. year up. our of a conventional pushing for loans type

Alan Ratner

been Were not deals, Steve, rates? of consideration because moving in out of that quarter you the move have decided any under to might curiosity, just forward that on there the

Steven J. Hilton

No. No.

think, less deals I focused been more finding on risk. laser we've that have

So, the going risk risk. around execution we're land the improve development, to reduce be, around market product, to really

quantify think, we risk to the other try easily we're more market going risk the I to but can avoid.

Phillippe Lord

of is really size fits deal term we've into been I something think, sure the we're the term. just deals thinking the how making short at not looking too, market about long

little more spending well. as we've a – So, on time on been that

Steven J. Hilton

has size acquisition that's rather average that get a and good particularly deals we'd price of focus can points, have buy. our because lower turnover runway a where longer the at land we The land less on increased,

Alan Ratner

That's helpful.

cycle. sense. Makes there's more to in the you go obviously, runway So, think

Steven J. Hilton

Well, on entry-level... the

Alan Ratner

Yeah.

Steven J. Hilton

the So our we're we're move on positions; – communities, to a deals, smaller. entry-level, But they're the less for the and entry-level overhead. buying turnover on first up have we're bit leverage trying buying little over bigger more

Phillippe Lord

but still from to key limit, is able to there. this, entry-level and now, that And be the us for loan FHA Two stated we'll years I be meet we criteria, we're think, already limit. the have underwriting under FHA below a stay we

Steven J. Hilton

sure. for And absorption they be to higher have communities

Phillippe Lord

Yeah.

Alan Ratner

right, a it. lot. guys. Got it. All Got Thanks

Operator

question Okay. ahead. Please comes from go East Wells with Stephen next Fargo. The

Stephen East

nice Congratulations very Thank and guys. quarter. morning, good you, on a

potentially your we you a probably of at – But that, is delivering struck And forefront returns really of at you that? a manufacturing and is tour a is then the of with along get LiVE.NOW, with you product? case LiVE.NOW, product, is out are – – options. this, because Steve, are velocity opportunities, this this So, this gross that better that can executing that or as margins the different spec is the more or out just a this one I if better a of of you look offsite lot the more as real manufacturing of case manufacturing all on lot having and know, is on looking possibility at this

Steven J. Hilton

think, spec operational I more think We delivering there's risk... the the on it's executing case of and just less product.

Stephen East

Okay.

Steven J. Hilton

...on is we the the LiVE.NOW, of on with LiVE.NOW the that rise. to we necessarily there than first as we rates And do a move-up, points be higher criteria, higher margins, or at any they're but underwriting particularly the interest gross have hitting think better, going we think probability entry-level move-up. price don't our

some far offsite talk doing team module, about our I've who people this stuff, not from yet, been think it's it are a just studying we're some parties still more As so there on we I I manufacturing for coming in away and but do. and it's that as been certainly play to different we out manufacturing, of and ways it into have have quite what

Stephen East

Okay.

Steven J. Hilton

process other I call pressure precut happen around the on manufacturing the make drywall, become site. lumber, less think, to what maybe – have everything will are precut going precut things there's on skilled labor that I first to a lot

Stephen East

And it then idea you your and how there? That's all of if your at what look can they're at maybe then, helpful. us Okay. in strategy you just will? your land an then, you I materials for strategy And costs and give labor lock days do as mean lumber I XX what's inflating or really was in interested you just nationwide,

Phillippe Lord

This Yeah. Phillippe. is

of going the into. get house We it's of right. since bit, it go maybe a OSB go if So moved the up. A lumber see We $X,XXX which everyone lot again. of that's up on was is about of was the we've I'll it in, walked actually the sentiment to after what loose down, lumber, a quarter, year. first go three went X% seen the kind it but believed It's through we've think down to incurred go they're costs We'll going little thinking around do, Right down that up. kind are first our months. that's now, going beginning lumber to

we throughout We we on the country, Texas, right? mean, have the different we're build stick build, how depending turnkey. in homes, locks West, in I

longer our locks we the a little So, West, are in short. very have bit in Texas locks

can take advantage as it goes of So, lumber, we down.

the of So, land first kind the cost of the lay for that's year. the quarter our through the of

Stephen East

Okay. land doing? your labor And what's and

Phillippe Lord

getting the I of it getting think any because bit come little land sheet exposure. balance we're just more seeing And has that Labor very not business our think cheaper, isn't that lot a But fact the a much, but of gone not we're the there. entry-level and is quite simplifying large our cheaper. through up it's the frankly. of I we're some efficiencies definitely Land, getting price any

Stephen East

Okay. a lot. All Thanks right.

Steven J. Hilton

Stephen. Thanks,

Operator

from ISI. go ahead. question The next Kim comes Evercore Stephen Please Okay. with

Stephen Kim

lot, to for positioning get LiVE.NOW. all future bit we that more you maybe on be Appreciate it In Yeah. – particular, about because product Thanks the see usual. where sense little to may affordability. the I how the guys. the ask a wanted a a for little wanted may pressure as information, I bit a

evenly you very talked larger you You pretty the communities footprints within more you would you are of LiVE.NOW footprint smaller homes that are about And do FHA that of to rates seeing within it's extend limit. the for two? within an to you range But about or get that levels the much LiVE.NOW issue; communities, say to and how the up, come footprint you move or smaller that helpful, basically? staying add your within is let's range I for have, affordability buyer you offer could in homes more lower, say, some slated If have maybe matter in or currently wanted was in your larger footprint that out next ability year distributed? the that slide a interest homes range sense ask below if these to

Steven J. Hilton

products of for community say Phoenix. that Well, the wide communities just as of low X,XXX we most I'd as feet. in we Actually, opened LiVE.NOW our have relatively band square a

think, to $XXX,XXX, feet, don't I of far our anything LiVE.NOW there, well, $XXX,XXX, of foot doing that communities. think outskirts X,XXX over to some for plan square it's a but there's Phoenix, X,XXX X,XXX our it's square on go it most to I we're of communities, up in the sells LiVE.NOW

footage. demand So, communities, in is the bring have what market depending square our that operators are. footage at higher individual upon in the more to buyers more in square ability upon It's the demand a lower buyer or really location, and who conditions product those based

Some young footages, get for other to small just based and really looking locations are more really, they're families, affordability. in on trying square

a kids bit And more and families wait square footage. are mature bit little some longer they that have need a more little to

So, by that it for we do flexibility have varies market, sure. but by community,

Stephen Kim

really That's great.

I question, were I been mention more being exploring on using guys and maybe comment this more there sort had increased on one potential of the your was that of for some sophisticated know value and forward one to focused builders wanted ask Second they maybe on the morning precut more your other drywall. lumber about lumber, I approaches of made add touches it maybe that – precut at have also to technology looking very the you focused hard. that panelization opportunities. that they thought to going of

ones of sustainability I only innovation. that and head a have the think, you're actually

the was there building percent or lumber panelization. sense comments I a precut your of you're could you for I give using homes was us interested So even just this and if in that curious your

then year note, you give that are in at us with sense impact a the move precut using And or lumber way at all? your you over all a changing If that costs how not already lumber or you and could how involved the as side spot see does next for two?

Steven J. Hilton

any precut pricing. has I think the don't bearing on

Our are homes, doing XX% going you is California increase panelizing easy. We're percentage. with there's panelized. more panelization. But not of a but most definitely that. Even of But in beyond small as in to going a ability focus. to I lower raw we're with Unfortunately, to modular at future, I'd see trying would get into percentage and is home think, what we're But much say. California is think all not – really, panelization way subcontractors. percentage. much Texas It's it's materials The that doing. the small precut our of goes come I some a of very we're probably on, probably pretty be price. to area to to bigger like our everything move a it's say, the a homes challenge building. a mean, that, before Certain markets precut it it's the being I panelization an of I

Stephen Kim

Excellent.

Steven J. Hilton

kind of So, we're that's focused. where

Stephen Kim

much. Helpful. very All right. you Thank

Steven J. Hilton

Thanks.

Operator

from Okay. Please Sood comes ahead. with The question Deutsche Bank. next go Nishu

Timothy Daley

Nishu. This is actually Tim Daley for Thanks. on

my regarding first question So is the Coast. West

demand strong this the there So out to and not you're that. first on comment builder quarter,

sort that entry-level particularly of and Thank move-up a changes understand builder help if the demand? of pull sort West, a and any curious highlighting as the thinking and last tax with move-up dynamics entry-level the us versus you're strong demand just forward differences rate, currently? Just any with on rates So presence Coast between there's you tax, in quarter could happened out mortgage you. the kind of been West of seeing what the

Phillippe Lord

is This demand Generally, Phillippe. in the Sure. strong. really is West

We're communities across flying. have the country. strongest We absorptions flag seeing really

and entry-level said a as well. have doing of we've lot Arizona, extremely before, in We it's

We in as or to many is well. entry-level are we quite stretched, have for We in don't although LiVE.NOW entry-level in where space that that's the get communities doing buying really land more Denver California, are space. affordability starting much and

communities our So California the while. contrast for communities strong. is we has is but and been a to, in and Southern in communities, core markets, first of strong California those move-up Northern conditions extremely strong very are California demand it really can't Supply those in most

Timothy Daley

if of And we I apologies expecting Understood. still had it, that missed year. to contrasting the of you helpful. faster cadence guess, closeouts And right. West then, of it the guess, higher XXXX, I are in provide given Coast, there's And as just could into the growth I throughout kind count large community will very you looks but would that any XQ be community with push X% the think sort of then, than trying of, better go to, in how All kind about XX% expected. a count if well, the

Steven J. Hilton

of of range, kind the but yet. short that give guidance is not to any The probably XXXX ready yes, to community we're answer and lower-end on count growth

Timothy Daley

the time. All right. Great. Appreciate

Steven J. Hilton

Thanks.

Operator

John ahead. The of Lovallo with comes Bank Lynch. question America Merrill go from Okay. next Please

John Lovallo

Hey, me in here. you guys. Thank for getting

the little is have has left still East region Or question guys of you to in like turned the the first that in a set? seem pretty The region much refining is there management it guys pretty place bit does confident really Are is you corner here. that have you now team do? the

Phillippe Lord

leadership four East. I'm think in moves Phillippe. management we sure absolute upgraded a make or at those made each in markets. our running have them, evaluating the is last We've really the This always the that people our of over very three looking division. to management couple teams team, in We're our Yeah. confident have team quarters, I best

not we aren't team really and you quarters they're the last that that But we've progress going much that. be sit few we're going So over here assess tell changes just making. stronger the I'm as to excited to there over our and about time, made

John Lovallo

of helpful. And going us the for one maybe That's you next can terms community couple cadence back to just Is of over with help quarters? Okay. just count there anything then in second.

Hilla Sferruzza

to going guidance a down Steve our quarters, a of the of kind to over as probably within up to next said ending closer end. variability X% bumping just of year maybe not lot lower couple, but the up couple, of the then and There's couple XX%, a along be

Steven J. Hilton

right? though, about absorptions Talking more

Phillippe Lord

No. count. No, community

Steven J. Hilton

cadence. (XX:XX)

John Lovallo

was cadence Yes. thinking I count. of about community That's the right. the

you. answered guys You Thank well. it

Steven J. Hilton

Okay.

Operator

there, move in Maklari think is you a expansion Susan you bit bit down rates of rise that time? that perhaps you. upgrades margin Credit Maklari get over a Please entry-level and Do you as (USA) question first we in with next ahead. comes a a perhaps Credit My picture Thank go bigger thinking Susan Okay. LLC Suisse from - get The Hello. Suisse. question Securities gross could more see kind LiVE.NOW driving of buyers come more towards product. more in your

Steven J. Hilton

really No, houses, they to or is to one into – have the mean, because product. sending going the centers, we're upgrades buyer. for I entry-level the have preplanned. that whatever strategy them we're not those to we so number design put that's be And not price pre-plotted for to amenity

to really in more of get there's So nature revenue our for that going those business. not an option to opportunity be

Hilla Sferruzza

that going a Susan, are our you're Well, will pack I base see level say we're probably to above putting in notch traditional and the in entry-level. options that what

as still the increase that attracted second in to (XX:XX). in – to down to will time rates due which So options And ability does the space. there needs not still homes much they be pivot our interest product, for amenitized has maybe does highly affordability, still first-time so LiVE.NOW is to the move-up have product entry-level it probably our move-up put

Steven J. Hilton

is we as models. opportunity don't many Yeah. The the that build to have fact

there's don't with for So go see. people we have less purchase and And to it do out to much can we overhead, as construction less standing inventory always to overhead because and supervision.

growth we builders Suisse can bit over reporting their dominant That's we're It you we up Okay. as your can seems our ones in seen And held us little as pretty Susan color get SG&A like helpful. more Maklari more of very just from you've and in think (USA) Credit line-building. Thank the - low are And well. give because Texas. what like is – there can can this entry-level LLC strategy. a I push space. seeing build down on think, time today, that's SG&A bigger we that of their then we homes And that's because really Securities I order has you. you're some

what's color in going terms the ground? any of on Just on

Phillippe Lord

Phillippe. strong. markets, I all seeing good. It's is demand. in This Yeah. mean, four we're It's strong

in We really more four seen for really segments on the have ourselves seeing Austin. and has We're those then positive we're and San bit move-up and And are strong conditions there. different very of Dallas Antonio we've focused point, And groups. recovered very in we markets. are And demand a the move-up hurricane we're in days and quickly. lower the strong since it's price Houston. strategies and first builder in positioning And homebuyer at all these Houston space high those in we're first Dallas little but and demand softer a time

So now. right on economy we're Susan market in Maklari bullish and the Texas Securities Thanks. Credit Suisse we LLC Okay. (USA) - how

Operator

go The question Okay. with Research Housing comes Center. from Barrón ahead. Alex next Please

Alex Barrón

lower And each? have you the prices wanted a entry-level could about much you guys. Thanks. versus power your job about to what seeing, the in guess, ask make the pricing you're on comment move-up, I I power pricing great quarter, if and how at

Steven J. Hilton

previous into we month. price power. of and lot Well, hyper-focused have We've the this taken increases quarter, margin a already throughout on pricing substantive this quarter We're here.

our at one everything We give in are pricing market the involved corporate us the of level taking really the our getting more will communities in every and across country.

big a of our story. be margin to going that's So, part

pushing we think, I could going maybe on pricing, year. to not remainder be the of have better for that's done but this our case the

Alex Barrón

How each is going tax or question a I get tax that guess, of How be just energy year? going quarter the bit also credits. quarter, on once to to this catch-up had work? that Got forward? that a something related we going I it. rates. Is you work a is a saw the going And to to

Hilla Sferruzza

in XXXX first was for catch-up there one-time passed the was all a So, that of quarter.

we last first rules work, the way the tax the So, quarter. year that all in took of

the the tax XX%, There's going credit reflecting opportunity but similar XXXX, tax rate may noted tax for extension certainly a throughout to the not that to going not XX% we've get that's holding it. year. So, of energy first in just The an rest be hope those, there be and we're of of going is still regular the out quarter's the to modeling to that's rest although about we're no be be repeated rates. year

Steven J. Hilton

Yeah.

the a we And – period XXXX. was two-year passed a normally. there passed was of for That then see at expired. previous recall, year-end. at and then they credit bill we XXXX you XXXX tax at and XXXX, And passed went the tax the at end or right energy year, at passed XXXX and the If they credits it and of those in that end under like administration end no the energy got XXXX, credit of each XXXX XXXX like bill

into think that – lasts way into the all So, February. January, I went

last it. passed we'd year. was they already It results to last year, our Finally, delivered for retroactive but

it Congress lobbying again working the know, don't to pass going took we're and in one. get year, to we we this first So, administration Whether hard quarter. the but we're for another

Alex Barrón

at year, you maybe see law the year? passed at rest gets next expect it a if for this to don't So, point, of of the new beginning basically until the

Steven J. Hilton

on could But or just every comes we've it. come it at knows? but banking not different gotten we're could times. Who come It it sooner later, year,

Alex Barrón

it. Got

luck. of Best much. so Thanks Okay.

Steven J. Hilton

you. Thank

Operator

question comes Okay. from The Carl next Please go BTIG. Reichardt with ahead.

Carl E. Reichardt

offered wanted Thanks. your for mid-XXs was this margin ask guidance you that to Hilla, Good January for did you and XX.X%. in I everybody. about, back quarter morning,

good surprises that internally, to were relative positive what to to so in be led the what guided performance the Just you'd January?

Phillippe Lord

homes take helped closed a one. the our leverage prices throughout I'll those think handful of that earlier we hard particularly were we well. we really the I'll the that of say specs closings and got on quarter, in pushed quarter. XX% I that extra as And

Hilla Sferruzza

the in products our of engineering value some did also We East.

build product able little to a to rollout as of a that remember, If cost as as well (XX:XX) bit and squeeze we we the had of you production. we were the out over product, guys and quarters engineered started library it new we value couple last

Phillippe Lord

earlier Yeah, QX and quarter.

Hilla Sferruzza

Yes.

Carl E. Reichardt

But you XX% your did the Thanks margins I'm Q. Florida the then, that. not substantially I Okay. quite And by think the East, I get a on percentage third. closings versus know of versus for this year with last. which we'll higher your were gross region

driver. So, a the how gross margins helpful much – being and you mentioned there

So, to contribution those legacy assets there how markets to that's due improved business the of relative there have trying the then the I'm parse Florida performance into. parts operational East. bought there and than that or the a Florida markets? improvement the better rest just for while other in Whether between difference a the you just much of owned shift you to was mix there that you've margin in or of the

Hilla Sferruzza

than saw correct. the markets break part although performance don't QX. from the in stronger lags is of that in performance we get homes rest a hurricane QX, the closed Florida, out of improvement We a of although couldn't to in course, closed anything in the able you are Yeah. from that we regional of to bit the margin concentration get East. lower the other than in The coming all There's level, markets the were of we the Florida is a bigger

Carl E. Reichardt

Thanks. Okay.

Operator

The from KBW. question comes go Rahmani with Jade Please ahead. next Okay.

Jade Rahmani

Thanks very much.

the spec successful, lower backlog implied With driving your in expectation the for so XQ? guidance what's XQ sales being conversion closing

Steven J. Hilton

at that. I'd have look to

Hilla Sferruzza

closings. bit But and QX, there QX a that We as QX. you a accelerated hurricane mentioned, in waiting in blip Yeah. actually on little saw had little a complete. we The municipal of to little – was a of those hookups. kind some the of back We're utility volumes. of were catch-up bit homes we're normalized actually just bit

Jade Rahmani

give you rates sales? and spec a Can higher percentage if you're in seeing color Okay. cancellation and then cancellation seeing the – rate the quarter on any if you're

Hilla Sferruzza

XX% We a have for rate quarter. the cancellation about

not we It's were first intentional. shift up XX%, is at trying quarter, very level I entry year's last a to at they specs. the due to to which get actually think It's bit. little on We're the to just in folks some doors, and space. qualify a the get be we But we make wider funnel to more folks successful in and population of that do then some the try to bigger will don't. picked entry-level

Steven J. Hilton

are is around specs being cycle The on lot of somewhere those specs Most Yeah. time the sold lower. a a drywall. framing

I'd for that probably builders is really more rate might less. it argue it isn't any cancellation than So, respect (XX:XX) be and

Jade Rahmani

Okay.

Steven J. Hilton

that. on an But we'll keep eye

Jade Rahmani

Thanks very much.

Steven J. Hilton

Thank you.

Operator

Please ahead. question Wedbush. McCanless And go Jay with comes the from next

Jay McCanless

morning, Good Hey. everyone.

took last question the guys more Meritage changed for margin with is up I little and had, your year. for have guidance reported all What's first week gross industry where margin everyone either months of the a in couple builders or gross that this comfortable line. the the The you for the other

Steven J. Hilton

better at are cost least Pricing Pricing we think power. execution, power, better, of refined power control. Pricing we I all outside executing lumber, and are. know I

Hilla Sferruzza

little a mentioned, room, Phillippe labor. on as of bit breathing Maybe

Steven J. Hilton

Yeah.

Jay McCanless

hear. to Good

product. the What you way last see had quarter seeing absorption sales what The luxury second did up year? second sales for it, versus I are you your product? generally higher or you're on, all for the why your question for to are ASP the the move of call seeing sell-through Just points. just figure out price year trying up, a or in sell-through mix it's that in you moved full better seeing better And those to whether

Steven J. Hilton

better. say it's wouldn't I

well We million in that the ASP California California selling have $X some and is stuff we're probably good million, a water really a there. some is It and be the community high of Orange had around actually probably not in then really, We that. – in Close California that Valley influencing around $X where from in. we're opened markets are luxury the it's couple to of other really sales, price communities sales in in states. Silicon these wouldn't move-up in County. a first the far At

little a bit, where to don't So, we're but it's I the I material heading. think think that's skewing numbers directionally

Hilla Sferruzza

And fairly to clarify, is and couple of first-time participation just move-up, our with to our it's years. over limited, LiVE.NOW on in going second-time focus in next luxury and move-up to continue decline the

Steven J. Hilton

Yeah.

Jay McCanless

it. Got

Okay. Great. it. Appreciate

Operator

And Please Oppenheim the Dan from question comes with ahead. next UBS. go

Daniel Oppenheim

about SG&A onto very the quarter we thinking about closings in of and I done trailing in Wondering level, as the declines and here? the count price the at was leverage, overhead given ended over it it the quarters to guess, quarters Thank of Great. sort impacts the how next the as coming the though you. couple a with West. thoughts much. community California leverage higher as of Wondering go the the progressed point looks Thanks and that as sort lower count quarter over community lower relates

Phillippe Lord

high of still of impacted lot we're leverage that driven West actually you're is in Obviously, overhead just by our seeing turning over mean that's out and I communities. going communities. absorptions a the down is when the those

opening front-load overhead you're when always new You communities. up

having a a way. we're positive in basis in store strong on per it. trend such getting on drag leverage our absorptions But that's a So, a bit the to that little West of continues

Daniel Oppenheim

of markets? margins, would what guess, talked questions Okay. sort the of specs. about is goes you've just been coming the move of in but the refining And also terms in how you'd with changes versus been what say doing there've the been improvements a much that margin how couple in then, to you I of the into you've Wondering

Phillippe Lord

market, mean I really market. margin would being I the say the on from in short by power most the strong. was the in market the everything term the we of getting quarter first focused in is driven pricing we've the can

opportunities, we with houses. the putting we're have but we're get we national with the We also business, opportunities into seeing we as what are way contracts, as align efficient margin pricing and building more our house our simplify

the We pricing I of power. costs. story are seeing better to big opportunities cost control even and the say, reduce our would again, margin But part a is

Daniel Oppenheim

Thank Great. you.

Steven J. Hilton

Thanks.

So, I a thank day. question. this you you to that We and very next our our participation your our interest look call on much. talking forward in you to quarter think for call. and was we Have great last Thank

Operator

attending you Thank Okay. The conference now presentation. has for concluded. today's

may You now disconnect.

Meritage Homes (MTH) 26 Apr 182018 Q1 Earnings call transcript