MTH - Earnings call transcript Q2 2019 | Meritage Homes Corporation

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Operator

Good morning and welcome to the Meritage Homes Second Quarter 2019 Analyst Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Brent Anderson, Vice President of Investor Relations. Please go ahead.

Brent Anderson

Jeff. you, Thank welcome second and analyst to call Good XXXX to results. our quarter discuss morning our We press the our you on Investor can be issued Relations closed to our find market the referring the or it release website yesterday link at along select this at homepage. with during slides investors.meritagehomes.com we'll the that call after the and of bottom

our and Slide statements as as trends. to margins, you operating X contain release during the in and overhead market call refer you XXXX our well earnings and as including I'll that home statements, per addition well this as press for of revenue our share slides, forward-looking our remind to as diluted closings, projections closing such metrics expectations

opinions are assume to no uncertain. at which the other subject are represent statements change obligation we Those and forward-looking any inherently projections and Any of management time them. current update to

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

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

hour May after call conclude be the will It to within replay hour website through our call. X. and expect will We remain we within approximately one the a conclude on active available an

Steve? I'll to our second now results. review Mr. over to quarter turn it Hilton

Steve Hilton

today. through our we call delivered order are increase Slide from homes. We on per of welcome results everyone We half X. growth, quarter and first Thank you, I'll to service had mainly delivered begin another the participating orders community to year-over-year our in driven the lower-priced strategic by an Brent, and with strong XXXX. solid on pleased

for Our XX% our XX% year-to-date year orders the second total than over last were are higher quarter orders and XXXX. up

of Our second quarter XXXX XX% -- average average X% up our of better second the the of the It and XXXX. in per sequentially was orders was community year's X.X. the over way rate second quarterly rate the was of quarter absorption absorption up going quarter's count and our last impressively community in just XX XXXX absorption quarter XX.X X.X to highest first back than achieved than higher of years all we've

second that spot results entry-level homes well buyers clearly move-up XX% X; a quarter entry ago. XX% communities and the the entry XX% of XXXX the our XX% of quarter at affordable. slide in the had we've homes growth our level end made with our in year LiVE.NOW the orders a of to demonstrate as that and our year-over-year of those more were as of compared first We orders sweet to Turning market orders, is Meritage designed for our level in XX% of communities

sell, in our homes results demonstrates growth designed enable cycle than our corresponding lower with all at and We the significantly. about level to believe non-entry the we've absorptions changes are cost build deliver strategic just deciding lots, orders for order in the faster declines Our commitment made we homes re-engineer build, to our times times average homes in deliver made smaller to more small we way impacting ASPs. entry-level mostly us paid is in for our operations the communities to X.X to offsetting

ago. X%, quarter XX% Turning a fewer higher only beginning we quarter considering last home quarter was orders total significant a X; accomplishment closings backlog and the lower of backlog year, second with down the our year value second revenue quarter to XXXX. our than X% X% than of had our home our slide second And community than the closing were for was

offset towards X% the in most mix price our homes. The our increase closing X% in from volume reduction of level sales resulting shift average entry

ASP volume mix in helps maintain volume growth our expect to level Until revenue, sales As then ASPs our stabilizes revenue we while growth total off, us we our offset our declines growth. drive improve margins. the with

with shared level entry margin homes. we're We've not before, sacrificing

producing again this are the level move-up from gross a homes to XX.X% XX.X% our homes. than our XX.X% first Home fact, and closing In quarter quarter higher average year margins rose entry ago. margin in

home As maintained our we a result, closing

despite next to early we the expect our second decrease closing reduce will profit eliminate for earnings were the but to Pre-tax explain XXXX. non-capitalized this the our of small interest primarily debt due higher for revenue. year, in X% XXXX, than of will year interest which quarter gross Hilla later, home which expense quarter lower most expense

rate for of shares the this second and quarter year half we did as share in same first second generated year, diluted in the year. the have reduced of our last in pre-tax outstanding the count year the XXXX, by earnings quarter we in quarter higher tax we lower since second Despite this earnings repurchasing last per share

to Phillippe? Phillippe turn trends. over to now discuss I'll some highlights of sales it our

Phillippe Lord

in we in all you, Thank entry markets of --- well space Demand to especially we're outside our where was be the level with strong California, and demand Steve. continue markets across expect strong that mind. positioned

of eight of XXXX nine all quarter states the operate, were three second exception and second for Carolina. we of Our quarter with the South where sole regions, for the XXXX up of over the orders

active Live.NOW region the average communities. in second driven second provide XX% color during nine quarter. in I'll up XXXX, additional coupled with were of west XX% over added West in the our an We absorptions, the more XX% region the orders X; west the beginning quarter on an by increase Slide with in increase communities

put across performance the company. the strongest Arizona up

Our total making is in ASP our order and average in quarter, our XX% up the there so along just mixed Arizona entry strategic and closing for in which the were order drove level to shift XX% target X% our XX% down was to value. absorptions move-up, growth XX.X second year-over-year, first and growth furthest year-over-year.

That good company we potential is a example of revenue a mix the Steve as the described whole. growth of our stabilize as

quarter, XX% increased and year-over-year. XX.X. with community count lower last and remains our California average too the absorption year Absorptions market, highest XX% much challenged unaffordable While this than not from XX.X the priced of average of company down our we're were by in California most

offset order partially decline in growth ASP, value X% by in a was order growth California. X% in resulting net for X% The total

After have Colorado could years selling We faster rebuilt than the we past of over in them. community year. out communities replace our count

Average of community in top count XX% units that Overall, in the up increase order performing X% West best was despite this total was demand. increase state. on drive and California decline quarter region our a the XX% and the value XX% year-over-year absorption pace to our increased a from in

growth to a offset San in XX Antonio increase that opened during in a including good communities in Houston Texas in good closed a Central second communities. Slide decline the XX% a and LiVE.NOW very region. X; partially producers communities few are and out by quarter, Austin start. several off moving to Texas that produced We average with XX% was in absorption X% the order

replace orders grow to over community more several a many X% to of expect expect improve we are move-up next out. up it in The the an count quarters increase as offset open We towards continue reduction net more that in communities LiVE.NOW also we entry-level. our ASP that shift closing our in to as lot X% and should Texas continue communities

ahead transitioning communities. outpaced they to entry-level are and absorptions further Dallas Austin in move-up and Houston Antonio San since and first

East X; Slide region.

two opened very in east LiVE.NOW continue second pleased a first high there are new to also couple Though the out in We to the quarter we see of move-up year. producers. communities We our of of six region. this closed and improve

in in XX% for drove and total our communities east increase we by XX% region average value. order also up XX% the our total count However, and which order increased growth was in XX% year-over-year, absorptions an the

average improved community count also average orders expansion absorptions quarter. with up strong with a in were increase was Demand and and our year's more quarter. second communities in our Orders than there to due increase throughout in in XX% XX% increase absorptions and in new the last doubled XX% in over our the entry-level in North We Tennessee communities over primarily XX% Carolina associated XX% communities. a year, last

other hand, our average community we in some and On closed on the there. strong South communities count reducing absorptions Carolina, out

the XXXX orders so an this LiVE.NOW this absorptions contributed there increase was orders opened in also second which few driven impacted second a selling a year until the quarter Florida XX% in a comparison, by in communities very a we just We in beat of in since last in new X% couple comp. late year's for Florida we quarter. communities second community increase XX% over of it increased all-time-to-time absorptions. orders openings the of timing that the Georgia with the quarter, quarter to second opened record and they The Demand well. of last quarter during year, difficult quarter in second are Total mainly the was orders, the year-over-year improved handful quarter. a

first furthest our Slide our are markets shift XX; top along move-up over entry-level these results validate the our towards and strategy as where in performers.

our drive to we to costs continue products more out profitability. homes, us roll to to reduce into strategy, greater quickly those and we closings and start As streamlining the process our more enable processes in sales our are convert

we with times For reducing example, spec are inventory our cycle additional

cycle satisfaction. which as choice the complete contract communities allowing buyers design selection the with for start process and quicker of out much with our centers weeks move-up M well their new time to lower homes, and customer greater LiVE.NOW Studio stress taking as are to

be homes. second XXXX a earlier, orders XX; the closed we We quickly. weeks sold and through and simplifying backlogs that by spec value few taking construction our and times partners, quarter Working more started Slide out do engineering year our more we with able than of process. we with having closed yet X% trade inventory to our started cycle that X% were are days and of can

from quarter import XX% to XX% last spec our inventory, closings and strategy. year conversion in XX% a to sales to year, In is year we from second the compared part those that inventory order this were up closings sell, had XX% the and to our backlog XXXX quarter all ago. first capture have Our of of was of rate

now I will to hand to Hilla provide Hilla? information. some more additional it over

Hilla Sferruzza

highlight Beginning improved we've our some Phillippe. of results more XX; and more as I'll metrics. operations as improvement financial detail covered Steve in some at results and of drive operating well I'll impact deliver so how provide you, our land our Slide year. the those far to Thank already lower with efficiencies Phillippe on homes P&L cost. and this

was a the of than our XXXX in lower first due the charge. half For one-time gross year, XX closing margin XXXX bps to home

have of gross our half We $X.X the warranty of benefit XXXX. million recovery in first the that a increased margin

with have Excluding would margin our year. year-to-date been gross essentially that item, XXXX flat prior the

SG&A to the expenses were for of quarter XXXX XXXX. compared second consistent

increased SG&A early Year-to-date XXXX XXXX to they XXXX. just incentives a percentage So home than and in higher revenue the of due late closing from year-over-year. in higher mostly brokerage slightly slightly expenses due reduction commission to were XXXX, as offered ASPs

combined another We The pulled effect also in forward accelerated equity this increase million and percentage. these $X.X approximately accounted into items of costs compensation was for for million that of SG&A QX incurred future from year year-to-date the severance entire period. $X.X

of increased under for asset capitalized compared million entry-level quarter times to million development, due part which year, construction strategy. and $X.X and the of result turnover less faster to year-to-date is second $X.X of primarily as inventory Interest a interest expense last our

notes higher interest retirements it next be anticipated expense in year early throughout We XXXX, our XXXX. after continue due should expect eliminated the but to of

other the The was settlement earnings decline first which favorable net quarter XXXX also a accounted due benefiting comparison negative of income. in year-over-year comparative net legal for from approximately earnings to million, $X.X

months higher higher for the tax Finally, X% first effective quarter X for rate compared was the to XXXX second XXXX. X% our in and

so have a energy possibility not that in of renewed the for extension Our XXXX, are not could in capture in in from bill, tax been homes still benefit qualifying future. benefited or credits XXXX, tax which credits extenders they the all X.X XXXX we one-year closed totaled million, for out the ruling that these XXXX rate we're tax while

an in community lots entry-level market impairment lots which new second of second in can. in the of XXXX. of communities for such gross the XX% anticipated as second Dallas taking the expeditiously under quarter land we closing for we're on control we were and non-strategic exiting the quarter, as sale, one put positions our $X.X In quarter exited accounted we the million

items $XXX year's sheet second and $XX development Turning less and in quarter up to on balance year's $XXX of on cash this last approximately the we spent first land slide million in flow than from quarter, quarter, but XX; million second XXXX. million

As approximately call, total at due the the entry-level I of compared XX,XXX earnings trailing That to this to based XX,XXX explained of year total on lots X years with last this supply to last XX XX, compared we lots lower for ended closings. lots translates homes XXXX of as quarter months is in June our primarily XXXX. supply cost X.X year to years about second

lots owned XX% total and at was inventory About XX optioned was XX% June XXXX. of

generated asset flow from to $XXX faster and turns, cash of year-to-date million Our contributed reduced XXXX. operation land in the spend

ratio expect to lower next historically XX.X% Meritage off debt be we XX.X as XXst, XXXX. at continuing stockholders' debt would was and to December our paying our it of year the equity the notes the well XXXX, that for coming end we the low as from of as by That is increase. due, net cap down quarter at even if Our range anticipated reduced second in

historical believe times cycle to low comfortable reduced net we debt than to we liquidity to sufficient ratio our inventory to at guidance are Due lower XX%, and continue our grow turnover, higher we cap as the in operations. generating range are a

more XX% were market X.X spec those in our completed total per XXXX community second XX, an our of average of Approximately of XXXX about with quarter of of We per the XX% building homes community as to we level specs average an XXXX. focus compared Consistent to are spec increase the to communities. in year XXXX X.X June specs compared a ago. with ended homes on entry or strategy

will XX; we home outlook on respectively our total this of homes in Based full of and for with year. closing closings projecting the $X.X currently Turning encouraged our results XXXX interest $X.X and by remain are we to rates to and are billion home to billion XXXX the communities Slide for demand that revenue for year, optimistic units the half first XXXX strong. approximately

We home are anticipating XX% margin for the to be the mid gross in closing full year.

and and full XXXX a early Studio percentage slightly reducing home the of revenue that cycle year to discussed increased cost XXXX to our our to which year about higher margins. gross expect of compared as closing expense for this XX We SG&A times due are operate improving bps commission we M showrooms our

Interest per holding expense expected than last XXXX. be XXXX our continue we to the half sequentially year. to down diluted earnings will turn. the faster first trend full XX%, From asset the at our higher to $X.XX half With to is of approximately to rate steady bit share in tax for we a generate of $X.XX expect due

for of the gross approximately home million million $XXX to percentage of for closing high and total to quarter. For a projecting the margin closing XXXX, quarter $XXX closings XXXX in home XXXX the third XX% we're revenue

and I expense about the expect the earlier higher than $X.XX interest We which to XXXX for stated translates $X.XX reasons of earnings to to for be diluted full per year, share quarter. for SG&A the

With back it Steve. that, turn over I'll to

Steve Hilton

improving pleased XXXX strategy. our differentiating our Hilla. year-to-date with further Thank and we're results accordance In with our believe we you, our in products second were quarter summary, and business

and mix, partners. In valued simplify addition which trade and to we're changing employees greater our and our drive by customers, to product streamlining profitability, is efficiencies

and the healthy factors we've Demand industry. housing positive reflects so demand for sustained seen for new year homes macroeconomic believe we this the remains far

working of to entire We're to our day the opportunities expect hard make our and value. every we shareholder Meritage us of our customers in increased most of confident for the deliver continue putting first successful. ability to make Company proud and grow and team I'm ahead to the

support Thank it open and operator? your up we'll you for of questions, Meritage for now

Operator

you. Thank

The first ahead. Please question-and-answer [Operator Zelman the Ratner go session. comes now Alan Associates. from begin & will instructions] We with question

Alan Ratner

see. just question guess success I Hey congrats quarter Steve, great strategy hoping the It's drill and the kind good very morning the demand growth, and at demand this the dynamic of bit thinking in my, clearly great strong, pushing is all you're level. a there to about order supply the it's apparent really with is now, to guys, on the that shift. on was I right the segment, the entry

look given slightly a up is mean over of quarters. at bit I sales lower is had certainly strong quite side bit your If couple last community been only spec the of been have supply some a which I count the year-over-year count up has the expected of how drifted and things, here more that and your

where you Is it's that saw price quarters? experienced dynamic versus how feel very of just a on do we bit think couple pinch you builders pace out Because maybe curious years the they playing risk sales side over a sit spring the to So, ago I environment, been a you today, the few little and clear the I'm see next start like the the has some there any supply dynamic? other might similar solid. when

Steve Hilton

bought XXXX thanks over question. around more we level. challenge XX% in I our finding of I we've XXXX we lots are and I if still the we we have actually quarter, without quarter, number talked are we and thanks lots know quarter, think communities we more community -- to would for than last there, the last the entry-level bought lots entry XX entry-level bought month. entry-level haven't compliment bought XXXX growth, for about lots don't opportunities bought of mix Yeah, opening because last XXXX -- as say, bought, count for for move-up the we're change Well, had growth land, we communities. but continue first, we We a

really is drive there market, like time The through entitlement them goes and for on revenue the long a better finding and challenge will going runway push getting long development produce them. continue process open, We're as and we're to is bringing growth So, them just it to we getting still but and that to term, them product LiVE.NOW and margins. feel

Hilla Sferruzza

quick as if on in have store not prior the than we Just we up per count our have ever to spec to continue follow-up, count to specs we're we have was year-over-year, per count, to year quite to and we in we at as started the still to be to more where the build being explicit start but growth. see started community LiVE.NOW. LiVE.NOW. growth going one LiVE.NOW. that see is value growth the that same as Alan more spec not the going specs last community, 'XX communities, moving just held X.X absolute shift you're 'XX

Alan Ratner

operators Got question are close-out and homes just very others in are single-family the appreciate it. guys. from and that helpful second on communities entry-level, entire That's of curious interested of purchasing sale building the single-family bulk rental either the or I some you've we hearing of for in rental some of all road phases of your just or at gone LiVE.NOW. any even down prospect the entertained if projects. projects that I'm that operators?

Brent Anderson

with of but margin better to positions account to all them we would entry-level to lot it want sell to at a like looked but not really, a discount deliver we really maybe operators. building our we've rental shareholders, desire happy that and value our for that's to need we higher had will on which stores don't we own of entry-level we those better it positions can case. the those we or them, We're see didn't entertained at do excess them if our and so a We've feel

Alan Ratner

any So orders this with no there or contribution those of is no operators? quarter

Brent Anderson

None.

Alan Ratner

Got it.

good guys, thanks Okay, luck.

Brent Anderson

Thanks.

Operator

Stephen Kim Evercore of next from is The ISI. question

Stephen Kim

Good thanks to you the much Yeah, in a ask few guys. quarter. absorptions. very job questions regarding Wanted

you long out example, think to How move-up sense and then span this give absorptions, And X.X indicated therefore can strong of of your had it's these life drivers going seeing given move-up. might how shorter rates the I than take and of for a the and communities what for than think absorptions with that the you expectation? the so were if us being to communities they increase LiVE.NOW. be? absorption you relative these to the communities expected basically to times higher lifespan sell initial to you respect Did initially what not? faster too or has changed envisioned are you

Steve Hilton

and much to but the bigger average I'll number let might entry-level but I or for our you our for of they really move-up haven't buying size up much communities, segments, we it the active then move-up. stores in in out was Hilla but was certainly move-up, I better because incentivizing a entry-level lot buyers those opportunities was entry-level Phillippe positions are lots know, absorptions our can second Hilla plus the bigger you are the XXX those come can tell move-up pretty X% up of but were XX% on tell was adult cases, -- so we're for up are and of first year-over-year, small compelling for increases entry-level pretty to we're move presence -- for than XX% absorption the

You lot number average know count? the

Hilla Sferruzza

a a and over XXX we is XXX is average It actually, there XXX, size...

Steve Hilton

is both segments. growth …which for

Hilla Sferruzza

XX, quite is we both segments, increase. Which for there's more XX of a bit or so, are combined an historically

Steve Hilton

out be supply that to and that will of will the these, entry-level run through not bought have be I'm a going issue or concerned will bigger why absorption we we positions. that's lots anticipated stronger move we we're because,

Hilla Sferruzza

and year is that's goal anticipated based our to a land positions purchase on Yeah, life, four absorptions. that to year three the have

obviously, community. to the take product down offering going So, that we're bits or on up in

Stephen Kim

Yeah that now. sense makes Great.

a or anticipated when communities, originally moved couple these bought that's you great. into a ago of years So absorptions stronger and you

of is the to and for would not that you and entry-level one LiVE.NOW. you're of was I imagine and general your interesting finding something spend curious you kind competitors. which I'm would You for that, dynamics of because, obviously talked about most be your miss, about this buy that, for thresholds hard meets successful your specifically has having I underwriting really in tremendously heard been some the to entry-level trouble land say and thing there, land

more parcels be entry-level not an you're that let's for would say curious for I'm the So, seeing that suitable competition, land product.

find So you're putting entry-level you your in is reasons land or I'm sellers buy lot prospecting you're, larger parcels? say, bidding let's communities to moving that other out some that to are other that wondering Is readily? are simply able is into land so why further it a on just not Or on there land of more market? the kinds to seeing builders these that

Brent Anderson

we're lot Well, there's one, with winning operators, for out It's given, we're builders competing land our number that almost cases. in a lot player competition, reputation of a our whole big relationships a is there's but are it's we're a market, of a there these reasons real in Phoenix, XX years. market parcels, land of why that's a it's why and been we've team, a like in of the local many reasons lot where variety sellers, with for particularly here our getting we

other and large a out just know down, really space position in now able markets us other just builders business. cap driven to more and we maybe in corner, Austin ahead tone, get then we've a of in really I -- places just carved land mid-cap differ the think we're need and competition builders our the have costs, segment entry-level bigger, to still we the in may right little Clearly the underwrite to of deals allows quicker in get and on we going. then how some from like the that but other a couple every we've we're strong starting and in But their are the comfortable our grow to be we're costs we're of are who

Stephen Kim

on community lastly then from And count. it. Got me

this you generally got and want your the for sub-count will the mix sure time end time at Just do move to communities terms of looking year at move I entry-level year? the second selling up of that up ending what in of think be of the you the are and at end What versus make right. speaking

Brent Anderson

we It now. the where are a today. we year pretty starting and of we dip and quarter a out it with QX when will Unfortunately, sell right that's we we be is than bit in will because than about rebound also last slow it's But communities year count because expected QX. the little communities, community our year, end than right we that's ended where and So should sales less lower expected. in the in were ended of little more it the fourth should faster

we then And can get we're as some and hard we next into hope community count resume start year, that. we for growth to working

we'll at to those and we are be So we flat for you, more give end the and those at less the with afraid to of about end of as but entry-level But working can QX communities I'm right now with where said, probably I I year end the year numbers segments, don't, and course specific in with we'll we'll tell one XMU are have as I we'll feverishly finish of now. out up get of the less be those communities.

Stephen Kim

lot a thanks Great, guys.

Operator

Please John will Lovallo question from be America. next The go of with ahead. Bank

John Lovallo

Hey, my for taking question. guys. Thank you

than mentioned move-up that point? more at maybe homes less curious, your more having to of The margins I'm just just is this build average having of of homes. Steve, first you incentives level the entry or a function a a efficient move-up higher materials put one, process is on the function it more just

Steve Hilton

and incentives LiVE.NOW. better incentivizing of able I margins. course spec for better building all that part much not both. not mean, our really as it. the the cost efficiently communities XXX% to than entry-level leverage leads move-ups, of and I so we're we're our it would we're are by and get overhead is entry-level and say to higher It's and build for stronger demand more is for big a

John Lovallo

disappear we interest the taking Okay, in second and to non-capitalized the expect I that? talked that that's expense early about by of Hilla, part the largely XXXX. Is think you Should helpful to way debt then quarter? about down right think

Hilla Sferruzza

Yes. the of after P&L interest breaking our our XXXX should maturity have not We really number. into

John Lovallo

much very guys. you thank Perfect,

Steve Hilton

Thank you.

Operator

will Rehaut be The go next Michael ahead. with from question Please JPMorgan.

Elad Hillman

actually is the This Elad on incentive quarter. overall ask pricing wanted levels Mike. just the about a the to on bit I congrats in guys, Hi more environment. little for

You entry-level than last on able roll just environment? mentioned just that more the pricing quarter maybe lower on you've compared move-up, to on been some quarter levels incentive to and your are still but commentary overall incentives on through the back

Steve Hilton

in had level, to somewhat entry-level the in our fewer sort in in in We especially year, first incentives has second close certainly quarter homes. out mean XMU elevated been of have quarter I fourth been quarter incentives softer. those but did the last our the we than incentives we or California. demand the The

Hilla Sferruzza

There across start a we've able some pricing is bit, the geographies mentioned else, everything and entry-level lower as every in so are more to locations the where we Steve see actually entry-level been market, on definitely country the decrease some the little in but increase not in shift as going to to are company. already already total mix incentive for than incentives to

Elad Hillman

thank Okay, you.

Operator

Truman Patterson The Wells next Please with comes Fargo. question ahead. from go

Truman Patterson

Hi, morning good guys. Nice quarter.

also wanted an metrics it's how some market? of the accepted just dig give customer -- the And could out into the costs the roll around completion, so, some if the Studio you and back time just just give half First in of line update to of and guys you that, M been could the by the year? to on

Steve Hilton

new we So, are for who is executing that Studio XMU buyers. don't our know for our those strategy, M center design

variety and buyers with already of are They're our pre-colorized homes. LiVE.NOW. entry-level colorization buying schemes. spec a of All pre-plotted

Studio more design an before. their centers and we those buyers what selections they eight-step our streamlined through process go of picking XMU they'll call new doing of a within much and it's M version Our to come were centers

choices. but choices, Less of a still lot

New lot to York but it, our have a in going lot that you negotiate will better to will If this Studio we're us which Analyst in can a M November, more our more learn new and about come less see allow Day with allow you us vendors. SKUs pricing to to offer

lot a be quicker what's versus with the It's visit be to through our and hours through and easier visits of exactly take they'll design get process quicker. three expense. or At center. for will time cost they the design two away center what before easier two leave stress anxiety three same or things going and more and transparent. get will and that to goes buyers one know their the Pricing a when with and It

excited balance it. be this may acceptance been planned. we into So, them studios has We opening a their have of couple fantastic. out of XX opened that up the flow up we're quarter, but fourth really We've quarter. We'll the more about eight of

a are feedback customers, We of negative. our getting from very little lot on them positive

stronger better quiver M more method, and make a was improve these in customers for going are more previously it and we we customers margin design in upgrades to so our traditional than from our it employees. very experience And margins, we're our spending it our it's business the design streamline these think customers to is the center arrow in Studio to our the simplify one excited and make our easier use and when for our actually our operate and for centers very, about

Truman Patterson

gross pretty led your by increase? seems What competition mentioned it the to over high us to It gap. like Jumping about hoping that if that. the bridge but guys can for you, I'm land up for margin will. incentives bps, remains down you thanks guide, you Okay, you help XX are you just taking bumped

the also you you you're us kind And what if is for I'd your can up us, that just of move gap LiVE.NOW. between plus delta margin just segments? you first gross So and and appreciate bridge it. could move-up legacy give if then

Hilla Sferruzza

are it's on full-year guidance majority the the margins for Sure, the function projected and we initially from those margins are and second balance see can the and of as the we you entry second into the year. a so those higher a through than closed improving leverage level, homes the the is into for we quarter more accelerate the company overall in projections sold flow-through obviously flowing things wasn't of QX. lift piece really shift It two of the QX for margin,

overhead margins mix, combination of volumes. margins much roll product, out leveraging in mentioned, with engineering calls, leveraged from our higher higher gets virtually about value continuing as in Studio that opportunities just Steve of find is fixed gross M's, other faster of as So the we on on talked and there to higher has volume pace the a the additional the at component a

in on those of of that out, our the a of higher one get and combination to and I although stay driving out we're entry-level. for M our discounting move-up better non-first move-ups. margin. the move-ups, year don't mix specifics, close probably time then now kind move-up tuned highly luxury that stuff all the another. quarter-to-quarter has even first notably be of the want state right roll with We'll entry-levels, pretty into So, second in gross to the shift hair time they of kind is come exiting going And maybe on the line just guidance higher on of the full the Studio to the because time one first than entry-level entry-levels the based they're within margins

Truman Patterson

thank All you. right,

Operator

with question KBW. Jade next from be The will Rahmani

Ryan Tomasello

Ryan This everyone. actually Hi, for Jade. on is

for is M&A, also significant and regarding you consolidation like at technology a more scale, do and more infrastructure to point? seen in really to we this and why invest industry the economics do ability Just you this drive that industry point think right significantly at haven't the for things think consolidation the

Brent Anderson

social issues that founders the reasons same as and have we're it planning should of are operators business well planning, go holding on that control to with decades in the and very are the it's in you to still back, we large control public some know companies like fragmented that For these regional absolutely of bit consolidation. more paper and companies state on a family looks as a

Steve Hilton

different past. than be the going to it's lot realistically, not But a probably

looking X is we're We're and open in opportunities. X, or where that our now in we're right are top to different a priority organically first to M&A the point. Our eyes grow builder constantly things those not at foremost that's and particularly certainly markets and but X strategy

Ryan Tomasello

impact second and share in are And in seeing In growing you market Phoenix, the I-buyers? question. just particular, of the Arizona there from any a

Steve Hilton

relatively here. but Phoenix. the mean communities, do here, piece larger a move-up is the I in trade-ins overall some using the it's gotten We're presences I-buyer some No, still of of to resale of the small now our market for companies I-buyer

Ryan Tomasello

context figures that on you around, have with any and to date. the any I-buyers put you trade-ins Can occurred

Hilla Sferruzza

limited. couple that until... a partnering know, very rolling but out it with very, names across We're country it's big not It's of the the

Steve Hilton

few couple hundred transactions with year over year a last done plus, probably the companies these We to XX months.

that we've So, a hundred. few more taken, than out of only orders we've of couple done XX,XXX

markets nationwide, of it several it's we Now, in tool. a haven't had course had but it nice and we

coming for a to but in out with thing have nice to it hasn't moved and us it's think yet. sell, buyers needle I the

Ryan Tomasello

Great, thanks for that color.

Operator

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

Carl Reichardt

guys. you, to go Thank back Hilla, question. to Truman's

leverage all relative quarter margin think, So, what gross guide did is three with and really the 'XX's component I 'XX terms was to that fixed in things some other into or are of there of guided for so, mid this quarter. the you you related where for ended differential weeks in you to up of there

Hilla Sferruzza

to had we so able actual same West where of on up margins the problems here, total, mix so were the the and some It's relatively the lift Actually combination did it's that Central really obviously now of we've How East know the year-over-year. guidance composition the versus of Yeah, those our results story were margin in our but getting had QX for in our higher, numbers have the breakout I regions by past. steady call. some margins.

this year the portion QX of of that bigger really push and that in ability to had product value products engineering we our our to East margins bps, The the margins spec up. XXX of year helped value last engineering grew backlog close actually in in QX

always helps. Of course, lumber

the together anticipated fixed on deliver anticipated. than a to that than higher higher of margin, higher, helped we gain I the think gross those volume component had all came of had us components margin we those closing leverage with the all of

Carl Reichardt

And what great, you thank changing? on I is you percentage lots? hand off then count lot or are finished your base know the now. Do options, your XX% just those for of think of Okay, within that. it's option that And roughly paper on percentage lots

Hilla Sferruzza

some around the don't finished piece and needing level I development. purchased versus about XX when but I the XX% we right not, know percentage we were XX we what paper actual option believe which of - on split it's

Steve Hilton

option. Yeah. But we We buy option paper lots through don't lots. finished the

guess which and not been now. are you're most be ready asking I ready to to right yet go developed haven't I developed say is So would to which need and go now. are primarily ones right ones

Carl Reichardt

been rentals. purchases you know buyers. Do I'm one orders last just of to them what broadly asked then what's thanks. about Okay, interested just called tracking the one, in in occupants? sticking the [indiscernible] And of Alan more institutional percentage single sort family of have non-owner offhand your of

Steve Hilton

it's really, here. are small, investors real how a to how you the in pretty go to say the bit and ask tell it's living can I I cycle, sales talk investor you communities our in quite community, our saw than the go many new of less actually we X%. people out is tell and field are small. I these could them really last And many to what I and unlike

Carl Reichardt

Okay, Steve. thanks, all. Thanks,

Operator

[Operator ahead. go Instructions] The next question Housing Please will be Center. from Alex Barron Research with

Alex Barron

the second question LiVE.NOW.? or over year I you see percentage was next I wanted And of questions. two And on One two? to the trending the on your job. balance of do that the was great what guys, kind LiVE.NOW. communities are the Hey on sheet. ask guess is where

of and term level a you XXXX kind of the lower So maintain issues there level to, got of on due. to or coming replace leverage renew, to debt Is debt longer lower any that therefore interest. a

you generating cash the just at business growth are to If enough sustain rates? current

Steve Hilton

high XX%. entry end of That So, at entry-level. were XX% orders XX% go as for can were as level. communities our quarter XX%

that, have our that's but where upper be we're frame entry-level. think don't of time that's for XX% heading. target, I a sort I to

sheet debt, we're As not building potentially entry-level housing, potentially far into for even and expense. point bit debt, our are up tremendous a with opportunities is interest cycle as both go of coming our but issue it's reduce refinance we moment. paying just a company there way, at that the term opportunity our additional at different to to balance plan out long like and that prudent variety feel We moment now is plans and change not as cash pay get deleverage off off with can the with our though the things, right that March believe we certainly to the have the that's and that longer to that the in debt the on the replace we

Hilla Sferruzza

for total think as seeing on breaking be And that in you're the other in on this well point is over get margin million, years debt balance and the interest expense I the that, but $XX that is if you're going closer there of some burden XX to time that just go it seeing some financial improvement the statements because interest away asked to did, one won't earlier loan. from upcoming the that will breakthrough margins the well not capitalized, help of that, the

Alex Barron

Right. Yeah. asking. That's I why was

lot, luck. Well, and thanks best of a Okay.

Operator

Ladies and conference turn our closing concludes to gentlemen, to the like I this any Hilton Steve remarks. back would session. for question-and-answer over

Steve Hilton

a talking Thank earnings to again great quarter. you quarter call you second look very much for in your our participation Have to we forward and day. next

Operator

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

You disconnect. may now

Meritage Homes (MTH) 25 Jul 192019 Q2 Earnings call transcript