MTH - Earnings call transcript Q3 2019 | Meritage Homes Corporation

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Operator

Good morning and welcome to the Meritage Homes Third Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Brent Anderson, Vice President, Investor Relations. ahead. go Please

Brent Anderson

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

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

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

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

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

an one a within within conclude and We will after on available website hour call call. hour replay approximately our be conclude we the expect to the

excuse – will release. those May active in remain our through me, find instructions November press can It X. You

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

Steve Hilton

call participating everyone Thank Slide you, to our Brent. I’ll I’d on begin welcome on today. like X.

results on across our saw all metrics. had you another As good yesterday, reported key quarter very operating we

is performance which strongest demand areas and the entry of level across the our Our direct move-up strategic are our to of first shift markets. result

only not what terms effectively providing of homes efficiently high and our in those we’re buyers homes, affordable building, We’re but by want they streamlining simplifying delivering cost operations. and and quality selling

a and to share, generating for our faster Because taking providing our to at grow the sheet earnings market and flow future growth. improving pace market and of shareholders’ deliver while better equity. our that, balance leverage strengthening reinvest adequate operating capital and we’re and cash We��re growing in margins positive

stark the of to respond XXXX, normal quarter This quarters, the it’s spend by our second the we year returned land and additional we the would on has in half slowing contrast to expected seasonal been which half experienced and quarter year turbulence have third homes decline this this incentives third of quarters of back and second Demand through first fourth meeting in the a for few XXXX. in see of year. a offer we the persisted to the and in

plan due growth to community count. the strategic year-over-year, pushed in I results decrease up happen. steadfast execution. for despite the quarter which our over Meritage entire for and making sound order order third it were XXXX, commend Our small our solid XX% year-to-date XX% all a Those team to are

the up orders quarter total year-over-year entry in X. quarter delivered We and made Slide of communities were third at for level XX% quarter. the XX% year up with second I’ll also entry-level XX% XX% now XXXX, a quarter to of order homes. year’s [ph] LiVE.NOW in market XX% communities [XX%] year’s our of our this ago. turn end from growth They last of our third compared the in with

of the XXXX in exceeds to growth. in level terms third first the the comparisons entry year-over-year homes were broader While of success two easier market LiVE.NOW year-over-year clearly quarter at quarters. our The

incorporated of In starting success positively addition operations our dividends, entry-level impacting financial to product the enhancements first our into operating results. our we’ve and pay to move-up are

not first quarter. a move-up as first year’s as what in And a LiVE.NOW absorptions they but our resources homes move-up growth. made had last as material Our in increase contribution are expected, We providing third our over our want. buyers homes double-digit those absorptions were to year-over-year lofty

low transparent Studio designer higher homes. enhance in their M upgrades their Consequently, personalizing of margin spending Move-up collections they of are on to stress the buyers new process homes. the interiors the love more

about more New our York You XXth. on in Day November at that learn can Investor

you yet do encourage highly so. If haven’t I you registered, to

over highlights I’ll our Phillippe turn to it to some of discuss trends. the sales of

Phillippe Lord

proposition strong all three entry-level a Demand homes. value in Steve. across was space, with you, LiVE.NOW our offer Thank great regions, where we especially the

third well. for by we Our broad mostly of the XXXX though quarter orders as driven XX% move-up see segment, first increase was our across did improvement in

color the region on additional West X. provide I’ll beginning some Slide with

up several Community lower in the a primarily locations. orders points in a at increase active average new coupled XXXX, XX% have growth great by absorption Our price communities in where increase XX% the quarter count X% of driven opened with California in communities. we West over third in region were was

our highest down and the moving least price increasing While is the remains affordable markets are California absorption on band pace. priced focused

increase on average with year-over-year company line California of in per XX% $X absorptions Our average. was a the and in community

XX% average The market and the which the of XX% XX.X total ago. Arizona again a XXXX per order XX% drove year Arizona growth in across value. due to increase was reduction order the growth strongest versus incentive strong is ASP produced absorption year-over-year, an and in the for in quarter, up a in X% primarily at company community average orders

but Colorado price per points as to red for in year-over-year has been our increased hot couple year, it count were community in end the years, higher Colorado as of quarter. by steady, the above X.XX We at especially community The past XXX,XXX. community average down one still past last is absorptions though the not the X% over market

most the significant Denver, and older replacing more and communities working affordable hard we is move-up [ph] to are [care communities. open Affordability home] duplex in challenge

We Colorado shift quarter expect of terms ASP order which volume quarters. the XXXX. in best in that future in this was third of our quarter absorptions, and West order reducing absorptions, while value, over region up Overall, increase the will and total was our performing XX% growth

Slide X, Central Region.

shift a that the more process was communities out online sold bringing communities, Central anticipated, absorption for to the to value region, XX% as in resulted faster quarter offset year. That than and the in Texas reduction from Texas. total A increase last decline X% of the over few X% order entering in the in quarters. ASP move-up decline we increase X% volume, order Moving first average in XX% had entry-level over resulting for order a a offset growth X% in by next in partially communities our

region. X, Slide East

increase are for the produced the absorptions. growth We in consecutively our average East XX% region. growth active see with pleased year. communities the each East quarter of improvement in in X% order order East more a XX% third in combination Year-over-year quarter, throughout The region and to continued a very quarter average has increased

X% last value The increase Tennessee, due points. communities in price year’s The increased XX% XX% to strong average affordable national in to and more over quarter increase continues third an a be absorptions. a entry-level market XX% ASP strongest product by year-over-year growth decrease orders was to in up where mix. XX% order as volume market was order was Total greater a partially offset at

XX% Demand increase also newer communities up in approved primarily for XX% good by expansion in quarter increase XX%, Georgia, a over last absorptions North where by in Carolina, offset the are partially up Orders average were is volume. in communities our from X% average. fewer absorptions driven quarters our orders a communities. opened on of in the count a mainly last due and LiVE.NOW XX% the in year, a were couple generating community XX% to The

Absorption by close communities to XX% some South Carolina reduced the year-over-year out year. compared which our to year, down last average XX% due in held orders but count community of steady, strong this were

some last quarter, orders increase over community average new quarters next X% increase couple pace average third our it XX% a absorption the resulting opening the in from a We’re in and of there. absorption. should XX% higher generated increase LiVE.NOW over year’s communities that Florida

XXXX Slide X, we last year, in in of just the than with closed backlog X% more orders XX% quarter third more quarter. homes the entering

last more of our backlog a a year. third spec a entry-level having year available quarter this was increased As which of up spec result XX% closings also were XXXX quarter critical XX% the ago. XX% to inventory, in strategy. move conversion year XX% Those from of which closings quick spec our part compared rate is from third in homes our for

or third We XX.X ago. with ended in about an XXXX of spec year average the a an per compared homes community, to of average of X,XXX quarter X.X inventory

only XX% of However, in were the XXXX. specs completed XX% September XXth, XXXX those compared of as to

selling are for before space. in construction more homes We move in, quick completing spec the entry-level especially

Hilla? to analysis to additional provide hand Hilla I now financial it our some over will of results

Hilla Sferruzza

I’ll more metrics, P&L our XX. Thank some as results you, provide operating Slide with Phillippe. on beginning well details and land

revenues. home towards more margins in additional the reduction price, ASPs, closing resulting increased closings the average entry-level revenue quarter partially our Despite delivered our mix unit offset up addition homes. X%, XX% a increased shift to was X% by Our from a third in sales lower closings entry-level

before, we margin said not we’re sacrificing As homes. entry-level with

homes In entry-level margin better our the or move-up than producing homes. our fact, are same gross

gross of for the bps a closing home higher XXX a ago. margin XX.X% was XXXX, Our year quarter third than

to XXXX community. non-strategic quarter due charge Third a from margin XX million gross a by bps $X.X reduced was exiting move-up

this three to the gross bps closing For improved margin home first year, of XX.X%. XX quarters

third down incentives SG&A quarter a brokerage revenue early commissions late expenses due of and than were Year-to-date XXXX XX XXXX. just expenses to home slightly closing as compared high percentage from XXXX SG&A higher for bps were of XXXX, to XXXX. XXXX mostly in the

equity year severance $X.X incurred leverage. of about accelerated We this that compensation earlier costs our also impacted SG&A year-to-date million and

year-to-date under and primarily spec last result due of turnover quarter interest expense and building the increased and our million inventory of year, that’s part development, is assets which for capitalized Interest construction to less $X mostly strategy. compared to $X.X times faster million the simplification to

We redemption expect occurred complete now after be retire that we be as capitalized later this early We notes XXXX debt interest due to interest in senior expect to should year. expense next year. all our eliminated

year, were of the and year. the comparative earnings of first earnings higher a other quarter half net XXXX for of approximately the due last settlement the last share benefiting in XXXX net interest third second diluted over from in expense and the our for we year third quarter earnings than quarter benefit first Pre-tax favorable per purchases in year-to-date and XX% increase of decline generated in decline quarter earnings the for share reflecting quarter higher The million, of a to was legal net primarily this in which X% $X.X income. XXXX accounted XX%

the our was XXXX. addition, to X% of In rate tax compared for first XXXX months nine higher effective

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

quarter third year’s quarter single spending last few largest last our on quarter, total for $XXX Slide spending quarter the development This control highest in XX, spent during than year’s putting flow $XXX the number this was in the lots years a and more development about of on lots third sheet over over under and put of to Turning balance million approximately in two X,XXX was items total highlights control. land $XX our million. years. million seven and of cash under This land we

on two As for next holding our constant and over XXXX, year total third supply XX, based our quarter ended of Steve five approximately September communities supply materially XX,XXX noted, years of closings. the lots looking share years. new approximately to at to XX-month lots to with We market grow trailing at we’re XX,XXX X.X lots XXXX rebuilding our pipeline are the compared

About was optioned XX% XX, September at XXXX. was of our and XX% lot owned inventory

end Our of capital of to XXXX, XXXX. ago XX.X% was net XX.X% end end year down at of the third at and the September just at from two debt the ratio last the quarter XX.X% years

to lower it be continues our our with limited than historical in as equity stockholders’ continue debt. We increase changes to average our expect to

outlook closing projecting on year, the for we’re of mid to that home home mid Turning the total gross and XXXX quarter Slide being and high and margin XX% rates units our we’re by three X,XXX fourth the year, XX% with anticipate in encouraged optimistic homes home XX, communities around to year full revenue for to X,XXX our in remain will this $X.X the approximately of strong. closing the for be interest We results closing to billion. first demand quarters range. Based in the

a revenue bps and relating the of share SG&A expect XX% increased to XX of this discussed showroom. M full new to to home year the for just year expect XXXX. between percentage and per to be With and generate earnings diluted our tax XXXX compared We slightly year full operating XX% for due as that earlier the of to $X.XX we’ve commission to Studio costs closing about we opening for approximately a year, $X.XX expense rate higher XXXX

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

Steve Hilton

the differentiated third our design centers our buyers. for year-to-date we’ve Meritage quarter move-up for Thank conscious we first buyer M results you, believe Hilla. In with our pleased with product and and value LiVE.NOW and Studio XXXX summary, were

streamlining and Meritage working equation hard also drive partners employees, to greater for It’s putting day first company our and team customers of a simplifying profitability. make trade successful. our every our proud for We’re business customers, and our to shareholders. entire the and efficiencies I’m winning

to our up and open we opportunities for the grow and operator, shareholder support abilities of the We’re to to now it and your ahead continue you we’ll Homes, increased us questions. Thank confident value. most make in Meritage for of deliver of expect

Operator

begin from of Instructions] [Operator We will of question will the Lovallo now America. session. The come first John Bank question-and-answer

John Lovallo

question. and guys you my thank for taking morning, Good

Texas that count Texas? down about community get in on we year-over-year. again. being up anticipate community returning XX% working to When count you are number count hard community guys know question to back in growth you I again First can

Steve Hilton

know that You right know, through sorting now whole really you the business. we’re for

lot We our And by to of already and this lots quarter an ‘XX. this three lots XXX we articulated. we of year end in goal bought of to did get more all bought a communities year have community lots this year. internal We lot and count we last a Hilla the bought far so last probably as quarters

delays, markets, going of more numbers We’re and we’re We community quarter to going delays certainly to challenged have entitlement on now next our online, hard more where specific meaningful guidance out and count but community in that been figure a detailed know next trying year but to just communities you on of development you for working next you give we’re fall. because over basis, lot those expect to know count grow growth of a precisely to getting improvement. going and right couple land developer the we’re years a are

John Lovallo

guys going arrangements Okay, I facilitate then or share, mean, that that’s help efforts could you helpful, laid follow-up, do largely out done a And be that is that? acquisitions you market this that grow the as to Steve. know you anticipate to there organically or

Steve Hilton

what last have year we’ve eyes No, always been count growth, our to We makes primarily we’re smart seen absorptions We’ll absorptions that haven’t through mean, for just over any I seen has it community lately. really and course. sense organically. of planning open certainly acquisitions. do the

but on come So to we’re the they try we’ll counting it. not to themselves know you take sense those opportunity advantage presents and of if certainly make forth,

John Lovallo

Okay, much. thanks very

Steve Hilton

Thanks.

Operator

comes Alan next Zelman from and The Ratner Associates. question of

Alan Ratner

on another Hey morning. Congrats strong quarter. guys, good

gross So margin. first the on question

but improvement? about to can getting about you there while You the that’s got guys talk in aggressive like big maybe comments to anything know contributed was any that think talking on guys then you Were back there quarter, based should let you you of? that XQ And are just know, Steve, XX% mix basically if know it there? for the aware more that us just the drivers you. your be one-time a prices sustainable sequentially. quarter, related been you sounds have from this or you guys, goal quantification we there Thank that increase raising of this

Steve Hilton

stronger impact you shift years, have we that the know underwriting, but out development, The entry-level better and know way product. that more has generally lower the few over just above entry-level know, you The slower less margins made segments the margins absorptions, has opened have the higher strategic the product market. we’ve move-up incentives, in to dragged first down our shift, overhead it’s No, on we’ve on the of of land want segment previous you and higher we the incentives, XMU years. last

margins. our Additionally our new with model XMU product helped us really improve also M Studio has

that of center, and the customers better really through the more. that we margins and the have options cost well. spending Studio these number we’re getting the able the are that We’re also home reducing in design the as M design And by to bundling than and higher up sell offerings drives center because so products margins higher liked drive have itself, we the SKUs our revenues

the strategy, difference. it’s strategy the and is a everything it’s So really making

Hilla Sferruzza

Just one other this quarters. high XX% of of East most of kind XX%, around been couple big the our of we’ve in quarter that point The success to the regions last add, you Alan, for XX%, really I know, think region. is story

as year’s of third there just were comparison, East point this year the last gross region quarter, delivered at a margin, So XX.X% XX.X%.

consolidated product the of before of story the they holding region success line the margins, helping and the dragged East are margin. of entry-level consistent were are company the coming the is to our kind really So of for fruition change really now the on with and they’re the

Steve Hilton

offerings. done our job costs, going and through this down but also construction the engineering sure driving I’d know, year Yeah, question you product get and value actually we’re and we’ve costs good a improving to construction this say that about I’m our limiting really

construction a across our and of though costs flat down most cost board pressures on cost net on basis, our there’s regions. are even So the across

Alan Ratner

really appreciate guys. I great That’s that and

huge know has closings, conversion a a midpoint year a lower XQ that. you the backlog into for the guidance tailwind year-over-year. you expecting bit maybe If looks and been spec conversion for question, strategy plays it back obviously of your the I you’re guys into take this like just to lot Second

you starting or so in are you timing something and curious to have there constraints So now that can I contributing was everybody any comment related else if that’s back that strong just or on else’s that? been orders see your labor to is pop

Steve Hilton

themselves, know labors half and know, out Dallas. Florida south worse, bad of know, was to just hang back issues I particularly always there’s not year. weekend trying this know had storm last there you just a it’s a tornado We’ve not and it you just always the a be You unforeseen had went challenge, know, mean really, and weather you through you all we circumstances of it the issues in prudent year with had out already, in know quarter been Not through than with but previously constantly there the quarter of that deal trying any weather on the we present of letting fourth we’re this tore month the to that you that some

Alan Ratner

Good thanks guys. understand, that. luck for I

Steve Hilton

Thanks.

Operator

from Rehaut The with will next Michael JPMorgan. question come

Elad Hillman

there you there? on had the any incentives to but this I maybe many Hi, wondering also and results, particularly, it’s encouraging quarter time get see move-up is the California, detail Elad more quarter the Thanks. communities to you in on offer trends better out? have for how And year-on-year I’d incentive like more Mike. to the about close was to second and in in over

Hilla Sferruzza

to just in asking out I understood about want sure I’m sorry, question. Are communities the make I California? close you

Elad Hillman

close in I’m the then company, broadly across and communities California. about incentive further trends any out asking

Phillippe Lord

Just trends company. throughout generally the about traffic

the beyond driving really relatively interest but steady are I meaningful needed, has typical that. lot anything bit the been the rates quarter, seen little pullback, sort So of a of even think a that traffics we remained throughout seasonal haven’t

obviously then more I our to throughout And traffic tends positions LiVE.NOW the consistent think that be year.

that market heard in traffic picked lower, know, us with up do to positioned overall. everybody other a better the up that our transaction pretty driving California than has communities traffic are that what So fact opened in new better strong you quarter. of traffic it’s else and trends are specifically, the from through Again for that are the trends you’ve some we’ve lot

Elad Hillman

referring incentives. Okay. to I was

Phillippe Lord

Incentives, okay.

Okay, and pick didn’t sorry we up. had a that we bad connection

incentives – as just about and incentives with then we about talk So for began I’ll talk company incentives California. for I’ll the generally

So in the throughout been general, declining incentives year. have

much haven’t the as We stronger. our market gotten had incentivize grown, has to homes as

where a They market California able static. back pulled been Arizona we Texas, are know, in the incentives, place Certainly increase to out really dramatically are much of first consistent. but have Florida, last the trend, pretty although conditions the some to in competitors year haven’t do you throughout in quarter has based of what kind South other half had we’ve sort doing. those pull back the relatively incentives increased in is of market we back, meaningful remained on the incentives the there year, to we market and combat

Elad Hillman

helpful. Okay, thank you. very It’s

Operator

from will next The of Paul question Przybylski Paul, go [Operator come Instructions] ahead. right Wells Fargo.

Paul Przybylski

on has question. Yeah, is Steve, thank forward ‘XX that think mentioned LiVE.NOW gross as follow moving upside your into you is, margin had goal you’ve number to you and there know that of that do you. ‘XX? Alan’s matured, To being XX%

Steve Hilton

peers volume you of have I I but larger a know, some game not demonstrated It’s price our house guess is you mean, know [inaudible]. know, it’s game. you margin and Maybe as a and not entry-level much. really

price really very over deliver You want price compelling conscious pace you to we and know, a sensitive value product. it’s know

would think volumes higher I higher choose So than we margins.

Phillippe Lord

Yeah, very I it’s sensitive. think generally price LiVE.NOW, in Paul,

your incremental can is sales, margins, raised driving incremental really your both to those our – while prices, incremental incremental pushed sale we’re declining, And four so they’re sensitive per price sales, gross grand so an over that makes our buyer per one focused prices, you two know, sale. sale community two holding margins that on pushing you ASP where community, The three do The and sense very where grand, you at. very becomes see And extra as know, we you the it sensitive sales grand critical.

Steve Hilton

net margin, margin, able margin net on margin. on net be gross we’re Paul the pushing going by is to opportunity holding overhead Yeah, higher because the to going the our to drive and volume, to leverage be the a pre-tax the

And So require I be going XX% that less. you over that’s greater, I or think that to XX% back to we down want get get us. know, really to that’s where going for net to the margins to our game SG&A is or

Paul Przybylski

at how looking LiVE.NOW? should know, land then think your size communities model? there have strategy, density you you within your particular And we about the going your land markets, model you opportunity then relative then historical position? know, And community Okay. also with any to are know, And community historical fewer versus the or of to to larger option following is portion on that, the increase you

Steve Hilton

We’re than have before. going we communities to more had larger

to from communities, community We’re on the small our Hilla, churn. really the away would count? you any trying stats reduce community count have average to steer

Hilla Sferruzza

Yeah –

Steve Hilton

size? community Average Or

Hilla Sferruzza

the size control. units, average XXX is we’re continuing larger to as up last several putting community over which Our quarters creep communities under

absorption the more supply fewer So a larger year faster. because of is number far communities, just It’s it’s smaller said, the of as as larger Steve right – not same the it’s to the size as communities XMU communities, it’s it’s clarify, Paul lots. or pace same months, not actually

Phillippe Lord

you Yeah, of trying five each good pretty know, four sounds think out community lots you month XXX or LiVE.NOW to LiVE.NOW. for I mean about a get

Steve Hilton

continue extraordinary buy to there. markets, in we’re we stores as price ASP out peripheral because more those more due comfortable low points to absorptions get seeing peripheral going markets, Yeah, to to more more go you know, and we’re to

a to really, markets pool You that we’re opportunity really under really, of know, seize – is we for deep. XXX,XXX, our pool lot that everywhere really built. the trying buyer And

Phillippe Lord

your meaningful And I this and that last question option I under are was options, was direction. part the movement quarter think think putting it second of more a we lots in

these these for lots tertiary under markets, said, there sequentially to lots in as option be up grow seems markets, we Steve available to LiVE.NOW As more so to we’re we our out. expect as and tie further continue other looking options

Paul Przybylski

appreciate you. I it. Thank

Operator

of The question comes ISI. next Stephen from Kim Evercore

Stephen Kim

very much guys you thanks hear now? me can sorry, and better Hey, –

Phillippe Lord

– speak you up can Steve,

Stephen Kim

job yeah, apologies. stuff. that Good about exciting quarter, it – Yeah, in sorry was the

you’ve little quarter? about sort just and Looking how increase forward to given but thinking understand information want a gross this realized out up or and drove want make the leg I’m of sure to say zoom lot the I step in should on just that, gross Day. I Analysts a year-over-year understand be back margins what I try to I we I sure to I the guess lens to in going the bit. of – make margin big the

I XQ know good present we’re know, in and as what But to quarter. continuing LiVE.NOW has LiVE.NOW, was margins about I talking wasn’t in you year-over-year an the into fact we’re leg all was nearly that this mean factor that that year. you’re but results ongoing well. profitability your growth the seeing

the you some something jump so, of the that that there. you there remainder quarter? third basis Were improvement not year-over-year, you that was last – lumber something happened Can that Was in Similarly know present or saw cost that why? in help in I like mentioned, something XXX if Hilla would the in point East know big quarter contributed was? increase margins And obviously me understand that seem that have to year-over-year margins. what the gross And issues,

Steve Hilton

the you go a both the well, all this really it’s that communities the it’s ingredients Stephen And know I Well mean, higher. driven in and that entry-level East. have stores the you they’re stores in doing that margin South lot cake we know, They’re that opened well extraordinarily in into really clearly you a in mix. have performing more opened and year. we’ve we know making have good of Arizona, West and some we’ve really, the here entry-level

we open, market centers. new it’s we but in of product design year cost you pretty of markets where margins know on much this margin. lower we we managing as our product progress produce made to and at this engineered value efficient a all able open that entry-level many and And fantastic have every showing single and cost The although energy lot we’re streamlined delivery M said don’t also the a online, I have it our Studio have before, and brought as more better some results it’s

So a to over margins you think you last are that. close thing, And we’re going a confident gross continue. than produced and all able very not to better things it’s know, we to we’ve know that going of those And on things to maintain and XX% we’re it’s margin. years as get the lot one be few

Phillippe Lord

it’s the entry-level quarter, we when had as And specifically in the as what in staffs our we’ve much as beginning too, seeing margin second space. the the to as first through market, confident the did were incentivize moved the quarter in we we we in year were

Hilla Sferruzza

the drag first from becoming And limited. move-up and time that our non-entry-level very

de said, bit a in we much bit a Steve there additional would we we said, so and closing would rolling everywhere, little expect little is our portion as volume of As and other are it’s with line noise XXXX was bigger of a into to higher XXXX. It minimis have then QX-QX what from you’ll in pieces All to volume leverage. and continue in here, see. to the what expected see see

Steve Hilton

EPS a you even that, even of top bottom without will better overhead. our margins by our good us We to know, And which and increasing meaningful absorptions about costs, to will some allow drag feel on growth our just driving producing the maintaining job look, make that it that doing line good better, bringing top revenue we’re up line. can we but if growth leverage

Stephen Kim

it all know a seems tasty pretty making what to be cake. you Yeah goes into

there. So good job

Steve Hilton

cake. sexy Yeah,

Stephen Kim

continue so company. is to If sort long debt cap guess as the get to be see basis, ever performance too to – level your my I to going-forward curious for don’t to of going leverage. recall of wanted we on to it proper isn’t related about your before you this ask to how levels know, And net I’m to question kind think a second seeing I that going your of I you leverage. down

You’ve up talked to at about least. out foreseeable you way couple on future, to purchases you’re very goal a going pretty obviously feel out a obviously years homes probably about market build XXXX, looking of for going the something the significantly aggressive land that’s your and is be that to good ultimately the are

have that your down leverage you about let’s just the level should cap make lower to a leverage? if bit So drift net it say low? be we is more below, about a will, down talk that? Does XX% And how thinking you if to on or threshold, too to can sense little debt your it’s

Steve Hilton

TV going it’s that You bullish certainly there, we’re experiencing I’m been specific not in out the going to you are millennials know, and move-up shift primarily entry-level any on be you has I night the you all I But the than home past. propelling know, first housing I’m really business. turn homes, at go they’re the know, targets forward the cable but the business, to know lower it to going put I on and the X watch demographic buying due market, million when that

know happen. you know spin channels what’s to and don’t going makes my news you head

to as about think I So economy. macro demographics I a want know the where we the I think you prudent you to we’re agree, are be what the well you be sheet people because want you very like know, don’t housing very pretend know our balance I about know lot of prudent said for you earlier know the in looks and I industry. necessarily late cycle.

be but prudent I brake you we’re foot and the foot the and just doing. what that’s I gears it about one wrong, could want be have know on So one and on to

Hilla Sferruzza

give what where be, think you not net going should but think bottom comfortable traditionally So to cap in we’ve I we’re I growth. been see debt Stephen, comfortable that with don’t being definitely number assuming and as we’re to it the a mid-XXs, that of

number fixated the the going with require of communities mentioned end by sheet get of growth. a of that’s of balance can Steve We reduce that we to XXXX, cost an leverage there going to bit that on not quite XXX this we’re at in certainly the to goal aggressive think So our cash. that be effort a

So balance quicker from our we’re both us ability fact to that and turn faster. our focused just much to on harvest simplification strategy allowing our cash entry-level the so sheet

see of to it it have to teens target going anything, to the at you into not although is continue creep down this but don’t or get exact we creep So to not income to the point. growth. expense you but an statement will continue going at share we’re it’s down, know, that But willing

Stephen Kim

guys. thanks Great, lot a

Steve Hilton

Thanks.

Operator

Carl BTIG. will come from The next Reichardt of question

Carl Reichardt

is CUM house sort but more old upgrades increase terrific I the Can bit and know that a for you Maybe in organized One, margin are not I quantify selling just and you. the to and what move-up customer how and at get set how it. of by to guys, doing two the is getting the Steve your long mathematical if you? had the stop of a of choice be? savings Hey I trying more chance tell a you had options for also about talked in little time it’s me time I’m how to you’re ago customers much look sense first a much you now? way might limited, and more to numbers? versus

Steve Hilton

I'm answer the going Phillippe, put that and that let strategy going because so over that I’m really question. to closer architected to he’s to him to he’s

Phillippe Lord

There three money if than I about before. you think I seeing was questions there right, got that? what’s we’re people on So spending were math it spend people money were they more the of there. are more and X% And sort know

Hilla Sferruzza

of X% price. the home

Phillippe Lord

of more price, the home X% correct.

Steve Hilton

$XXXX, a $XXXX, house. $X,XXX

Phillippe Lord

Right depending on market. the

able I you a going four design would our a second in benefit any think hours was people in and of appointment know, to traditionally or three we one times is back studios time know center. you question them select clearly couple in are you design being see to there traditional everything of the sort come know

process, know we’re get the deliver you obviously get started them to quickly able better homes et their quality So through cetera. more

was over to making customers. final to question So our we’re homes turn kind and we’re we cycle And of margins – those our the definitely our the ability times shrinking

Steve Hilton

A better cost.

Phillippe Lord

by driven so driven and bps obviously drive better you are also, to I margins it’s think costs. our our but are mean actually the able margins through equation so costs, up pricing know we’re to cost. being on I being better or XX about customer by Yeah, better the value

about we know you we’re home. or options and buyers know, making you the XX% traditionally on thought those are of into putting so have that So would making XX% closer to

Carl Reichardt

one. really try to great Phillippe, thanks so That’s that. much. keep to I question, second the And it appreciate detail. That’s great. I’ll

at region How Steve making business you’ve out houses. does you’re smaller is into certainly it been to but your our want not similar, more aggressive exactly of making state? this a feeling look obviously, to as more that what are move, go go lower hog? whether especially peers prices to a you, land peers to curious this it’s So differ lots, smaller just looking lot do end smaller hinterland move much kind seeing gradually Thanks. to aggressive of and looking or I’m whole or by go peers markets,

Steve Hilton

I’d successful say and first to going these you’re to old with Well, lots it, building successfully. all that the unless go levels because go to can’t compete product competitive good peers not be you to on the know, my at product we were you luck expensive have expect to a peripheral less you cost

get complicated and you it’s on much to been point. than out working we’ve to something years So know, this and move to lots find a for it’s just running more the periphery those several

by is that the Phoenix to seeing Phillippe finding a year. very, good for markets third affordable bullish LiVE.NOW I’ve really, like very of know, we’re really, lot the we’re of been markets know, we’re you encouraged segment, tough I’d and But almost know, say this some find in of that way in we’re But it’s all lot. fourth entry-level our the what lots getting to the seeing and our over feed and in you example Florida now a Texas lots at thing. And that in product our a on know, on road you we’re know the markets by deals quarter great even you market we’re market know South, And price really you lot seeing. you markets and an of to

to So you we’re growth. produce so can we that satisfy community know going pipeline count

Carl Reichardt

Steve. Thanks,

Operator

we It looks have take have of a questions just Do today? left. couple to time like we them

Steve Hilton

Yes.

Operator

the next question from of Jade take We’ll Rahmani KBW.

Jade Rahmani

so Thank with you like in Opendoor some could Can you or move-up side whether you for accounting activity color just give much. out talk in your called, of Offerpad, and the active maybe are existing what you be it’d companies know to if you percentage iBuyers the how around the closings, are iBuyer’s of in market? home of the terms transactions overall buying very own

Hilla Sferruzza

a So use couple that home to kind sale where with partner across with buy contingent by most a names partner familiar our turn We a active. iBuyer them large them own don’t to a the use way sell. but them customers our country you’re that they’re geography the of as split of to inventory, we we do We with when with in sale. fixed come a into

but So of that volume accretive impact the the I think margin. of on become it’s business, seeing a huge we meaningful. our definitely It’s are more not

Steve Hilton

done think our I we’ve have – few buyers a done hundred.

Hilla Sferruzza

yeah. hundred, of Couple

Steve Hilton

transactions year. hundred few the A last over

in So half every our don’t market. I you know offer in we think maybe We it offer single market.

Hilla Sferruzza

every It’s rolling of throughout will – in be rest country; the out the it

Steve Hilton

X%. you know less Yeah, it’s so than

Hilla Sferruzza

Yes.

Jade Rahmani

sell if to investors? estate and them I who iBuyers new selling potentially potentially other wondering single-family considering was And aggregate them them, warehouse real then would Okay. homes you’re companies to rental or

Steve Hilton

of to want some make their you money Unless homes.

Jade Rahmani

Okay.

Hilla Sferruzza

key – position Our the their is volume,

Steve Hilton

got – We

Hilla Sferruzza

our more the profit, to of that’s customers, a we person you that you have to on were iBuyer it we another sell rental, an if working not kind you, it would directly. is then labor thought to talk direct single-family to Our now necessarily you taking just if them sells

Steve Hilton

buyers to as rental want us, them but mean that thing I pay to the pay happy same those sell guys. regular very yet find we’re customers Yes. we’ve houses, to our

So continue we markets. know, sell our have lot of to going for products, a to we’re demand you those traditional so

Jade Rahmani

Thanks.

Steve Hilton

Thanks.

Operator

Barron Research question will come Housing Center. from The Alex of next

Alex Barron

towards Slide of a were think quarter. X, job now of wanted I entry-level. the year XX% I XX% entry-level were to showing versus And XX% lots ask on you recall are ago. great last Hey you you I buying said, plus on so your quarter, communities guys, your you were the

XXX as going? communities you the entry-level percentage move see where communities XXXX, that of towards by So, you do

Steve Hilton

Above XX%?

Alex Barron

the Is than closer XX%? to the it XX%

Steve Hilton

that XX%. somewhat it’s move-up about homes, target. going not we fee an it land we know above And I be were know to selling No, you where you could need up, opportunities entry-level just what you move hardly to demand because high. can find be it so would having be get opportunities entry-level, fits. travelling upon it’s where on we be homes mean the based we’d can XX% in that we’d if like. we it’s and our It’s can the is we sell find And exact know, to really and going that But you faster not more the find that we know about XMU really for any

Phillippe Lord

in to LiVE.NOW continue you’ll get do markets. some of got in to Then the even purchased just so large be space our to to work amount we we lots XX% the of that much see a because

to continue bit lot we’re as in well see a bit, land quite buying move-up a currently and but our still of that move-up, first a there first have book. we’ll for existing trend So move-up projects of we

Alex Barron

had it your margins, and margin a guys of pretty Got improvement this in obviously you quarter. terms good

what know, this about trying margins in So just compared I’m of are say your get at the entry-level point the to that time a sense future? move-up margins and where to you does

Hilla Sferruzza

but from time. The first north drag entry-level of entry-level a or don’t stuff margins have bit that’s a forget, time not are first of we still closing, other little move-up, our so

is falls that bit that lift, other entire radar, entry-level. margins but total company seeing will the about the north the once lift in a So we’re then entry-level above, at little kind in of we’re seeing in the you’re so of XX, some our running off what of at

Alex Barron

Well good work. keep up the Thanks. great. Okay,

Steve Hilton

Ally. Thanks

Operator

I’d And this now back Steve Hilton concludes closing like remarks. session. for question-and-answer conference the our to turn to any over

Steve Hilton

talking for Thank you. results. Well, call look to on in yearend for today, day. much forward very and for thank our great you your our and to Have a engaging you January we support

Operator

concluded. all attending for you presentation. conference now Thank is today’s you, The sir. Thank

your a lines. now day. Have You disconnect may great

Meritage Homes (MTH) 23 Oct 192019 Q3 Earnings call transcript