Earnings call transcript Q1 2023

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Operator

Greetings and welcome to the Meritage Homes First Quarter 2023 Analyst Call. At this time all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Emily Tadano, Vice President of Investor Relations and ESG. Thank you.

begin. may You

Emily Tadano

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

along can on Investor homepage. call at Relations with You at website it our we’ll bottom during our selecting refer by or the slides investors.meritagehomes.com link this to the our find of

inherently slides earnings call X, forward-looking accompanying Please that this which management, as you change update we and uncertain. and Slide Those current other contain any no to at during cautioning represent as refer release them. obligation in any the to are statements our well to are the forward-looking subject Any assume time, and of statements. projections opinions statements

may in our a than and a results earnings actual Form XXXX and expectations factors we annual different XXK, as materially discussion report variety on most wide filings Exchange on the contains have be well our of our to listed as which more those Securities specifically identified risk which and of with Commission, release detailed recent risks. slide, due this Our

also of referred in to measures press reconciliation non-GAAP financial to compared GAAP provided their release have as measures. related a our closest certain We

Meritage With of CEO; Homes. discuss Executive and us Hilton, President our Lord, CFO today to Chairman; Hilla Vice Phillippe results Steve are and Sferruzza, Executive

available on active call within today’s last the through A website to will about our call XX. expect be two hour. May We remain we hours an approximately will and conclude after replay

over Hilton. it Mr. turn now to I’ll Steve?

Steve Hilton

in market of with a a guidance. financial participating on we and everyone provide provide the milestones. quarter call. quarterly of will brief are will recent Hilla Emily. our Phillippe company start first what overview Welcome cover strategy performance. I’ll you, to overview Thank forward-looking an discussion and about the and seeing our

month by XXXX, right lower sales of with inventory of offering into per the quarter and our net our a mix we pace strategy incentives. over and first achieved four move-in-ready leaned the of In spec pricing

production, X,XXX highest backend which managed billion, home successfully year. of both generating also closing quarter closings prior first exceeded with our slightly We revenue of of $X.X homes

start with Home quarter led despite The closing has spring continuing regional volatility anticipated We in EPS X% selling XX.X% X% which rates. buyer demand banking to to a normal. as diluted to start combined gross as saw new interest for stabilize been and mortgage $X.XX. of stronger – turmoil of begin of the to was uncertainty, interest SG&A the XX.X%, ongoing the the margin start season to economic to acclimate than achieve rates

readily show doesn’t The throughout in with near inventory extremely true any the persisted the shortage inventory in term. limited of first of U.S. the material resale coupled order signs available new loosening and

millennial undersupply as – continuing the runway for this long-term We as housing move-down expect favorable strong for for sorry, buyer a home well buying and will future provide demand. I’m demographics inventory strong runway,

in is team’s on combined our XXXX. five is Slide X. result exceptional homes a the United closings based on builder and building consistent with great spec Gives affordable performance. our to States in Now The now Meritage of on that announce to strategy entry-level top our focus home pride me milestone a

satisfaction, the financial based innovation, and responsibility development, regarding of This recognized were by on Board customer the is magazine, quarter Fortune Directors one employee also which from we of and feedback engagement Admired Builders as Most and Home strength. executives social

to list. other best-in-class on We’re honored organizations this join

ENERGY the STAR of became U.S. EPA’s a XX-time recipient we Additionally,

Sustained Partner of the Excellence Year, Award.

continue to and Meritage ENERGY our be and achievements space. STAR to commitment the we values These goal our responsible are long-standing are our in over starting in to innovator homes, with homes aligned to build proud corporate corporate XXXX completed an have sustainability XXX% Given grow energy efficient certified stewardship. further XXX,XXX our

that, with turn it I’ll And Phillippe. to over now

Phillippe Lord

includes focus most our which I our to success you, market, strategy, a believe QX the Thank streamline and were affordable on results building segments operations. specs testament the our our need our addressing Steve. housing a of by quarter with the for this life them. the in are greatest portion buyers of the market as events change dwelling achieved for We necessitating homes

to Further, suite and and inventory. and differentiating available more move-in-ready, allows homes attractive upgraded that affordable, to components surprisingly via finishes our be product automation efficient are by offering energy have an value alternative resale

X. Slide

strong X,XXX Entry-level closings year. our year. homes in closing of the our of during compared prior first QX team’s XX% to quarter XX% of comprised greater was execution prior the Given homes than XXXX, X%

to to Our by and was up resulted in for sales rate cancellation quarter net sequentially quarter were XX% absorption community the in a which in line the of XXXX year. fourth sequentially down prior from quarter orders growth from of last quarter from Entry-level compared was while X% year’s in homes That partially X.X XX% XX% decline of XXXX our cost, XX% average XX% count. X.X X,XXX moderated the XX% month. XXXX a sales homes compared of challenging pace fourth averages. XX% to per of this from comprised with orders the The first in average offset historical

homes, mortgage the four due most sales which in target to to move-in-ready for our the home of expectations communities. customized our first-time for inventory the We as store locks available incentives buyers. per of and And of buy-downs of quarter in objectives in to the first preferred other is XXXX combination of month type exceeded of rate and three each customer price cuts,

our ASP as in three factors. quarterly due is to is in sequential orders increase increase seen QX have We slight visible in ASPs a The orders. our

this to started about the $XX,XXX on tune pull per First, quarter we to home. of $X,XXX to incentive back

with in tight and also We elastic. test small prices where started our markets is to supply particularly are geographies increases more price

addition our as In mix results slightly impacting to well.

a decreased ASP cancellations ASP our impacted also is number earlier also which order net as from was orders QX ASP. QX ASP sales, the on the by quarter Our higher we report that XXXX

trends. X, Slide builder a geographic regional-level and a to Meritage between is footprint Central balanced East, with moving West regions. Now

first in of the we of West X.X our late as in the quarter our sales of to This highest XXXX. sales or All clearing first occurred in pace The target quarter market achieve regions find month per region. able were absorption in most price regained momentum right pace XXXX. our regional the exceeded the market

Arizona’s month average also in pricing of X.X which was month highest, region, magnitude this its the was on reset absorption market. the orders decline The in pace the largest, of ASPs reflecting per year-over-year the Central yet of and is sales sequential comprised of our of specs per X.X in first quarter of translated into in availability Texas for an Texas. absorption completed Most pace communities paid improvement the had greater markets XXXX.

still home the buyer in trends and region’s business pro believe the positively remained absorption to quarter. in-migration production resilient specs We to available average communities. we continue Carolinas this Economies but The pace will East region, our the in absorptions of and X.X lower there Georgia Texas demand environment strong was per was in ramp as the and demand supply during in in work new up future. month complete impact impacted our

of net to maintaining for on sales remainder the three month focused year. the per four now We’re

align managed with starts basis our on community Turning to a We Slide to our X. sales pace. per

ground. down X,XXX months first keep of quarter, XXXX, in We from down first target We increase fourth nearly start XXXX. from slow or approximately our the homes have the X,XXX months homes quarter four six but in of the started to accelerating to on applied to in flexibility X,XXX the of the spec quarter

XX.X artificially than faster which the down higher fourth run the specs We during in to a anticipated homes XX% per sequentially specs pace due was period with supply from This level homes which goal inventory, as sold the represented ended slightly was than nearly our the community, high X,XXX we cancellations. spec quarter at lower of quarter.

continue markets. experienced starts all increased manage to align to to expect demand with We our in of spec we

came to XX% the closer is at one-third, is Of buyer. from this rate were prior started our of completed XX% today’s year. XX, and home from March runway previously what the needed closing end, XXXX, up inventory, X,XXX increasing of to specs believe capture year we from in which XX% normal total XX% at quarter,

As quarter. our to this last XX%. least conversion our sold XX% improved we achieved homes XX% rate backlog targeted of closed backlog at conversion this year from were quarter, quarter we of during XX% And the the rate

XX% While until expect rate operating the believe do conversion we supports supply resolved, to are issues we rate hit consistently our normalized this conversion constraint basis. chain don’t a and model labor on

backlog conversion rate homes. in The approximately high ending of backlog X,XXX resulted our

cycle industry-level one weeks suppliers longer a up XXXX. we’ll primarily approximately see During generally of with back than still approximately and on XXXX, path from of QX, trades. in backlog. trades better lean times have Backend But company-wide half long-term six these year. for our from to times on this And initiative our to are week continue and by updates is pre-COVID the cycle cycle first averages. in relationships sequentially us our caught But to starting Reducing the our quarterly we’re improved a not progress. quarter provide front-end times the to continue we

to across led opens. lower communities opened community sequentially increased continued XXX count closeouts. our end. We halted to our than this we over-pace We quarter, X% the year expected. the our XX by but as XXXX, year-over-year Even to was March as we fourth early healthy XXX issues country community returning sales community anticipate transformer the count ending new from new X% Further, some communities and quarter now of XX,

now will Hilla? over turn I our analysis it financial of results. provide Hilla to additional to

Hilla Sferruzza

update first in XXXX, a I’ll remained Thank total primarily To orders. you, provide start, of Phillippe. sales the normalized mid-single-digit BFR. BFR quarter Arizona In a range of as occurred and in percentage the on quick

believe committed institutional high the continue housing this providing our of inventory to And partners important with equation. for gain newbuild we space. traction are rentals are component we an quality as to We

in quarter X slightly to Now XXXX, by Home volumes higher QX closing XXXX little and elevated detail. the our held quarter from incentives home as XX.X% direct as closing in price closing results more a and steady let’s to primarily costs. the Home prior billion margin in revenue to of driven with bit bps $X.X gross turn Slide in as XXX ASPs first of XX.X% first financial to concessions cover due declined year increased continued well the year. prior

XXXX. rate impact until to not gross begin locks the and use did mortgage downs Our buy of our of back half margins

where are saves. are new qualify. they to recent limited us is remain late-XXXX do buyer not pricing costs environment to mid- the allowing Although XXXX, direct include reflect a starting cost in yet quarter available order to as longer in to we construction elevated expect will no home inventory today’s as of rate to X% this moderate is interest looking inventory supplies our incentives increase closings and start existing Elevated And for the limited. continue to

back costs material on focused pre-COVID our to efforts are We company-wide and to rebid levels. return labor

start into While the is XXXX XXXX, will are the end cost last increases costs. also we have over years. about per far, looking have and and of of at lumber so other material savings to the to Inclusive labor two lumber, captured of which absorbed we we X% XX% recoup materialize approximately $XX,XXX unit to

stickiness demand However in improves, labor. as particularly we’re seeing costs,

While XXXX have closings as has some anticipate slower we expected. close seen months that specs don’t of savings more savings year. additional lumber, direct we we this only been few progress impact outside And a cost to have start can than to

although rates strongest. in some leverage was XXXX. in costs general spend and quarter experience running to compared and the of may advertising on first have higher was costs these back which current XXXX, and above X.X% XXXX XX.X% XXXX. choppy environment first the run demand administrative commissions to on costs is due primarily in the technology as since broker of in These initiatives expenses started pull SG&A well The to the where increase and The we sales insurance. low reflect of severance-related increase includes quarter remain

tax XXXX, effect tax in the credits rate in compared XXXX offset partially to $X.XX. this QX energy in XX.X% the higher Overall, lower The first in XXXX. Similar in the $X,XXX The XXXX leverage until favorable on homes home from effective income qualifying rate margin year. rate begin quarter’s XX.X% EPS year-over-year rate first the XX% overhead benefited decline current led didn’t tax gross a in at to by diluted credits quarter per XXXX. quarter was and to

XX, to a XXs, stay The ceiling free uncertain we of flow We $XXX plenty our room of our X.X% have growth quarter Slide in with cash to the quarter return facility. health cash credit sheet and generated this priority nothing of Turning March $XX agile, million had of to at on and strong end. XXXX. in had liquidity, investments remains target to net max balancing disciplined net-to-debt-cap internal debt cap balance our of shareholders. capital X. And today’s The environment. drawn We was at our top million

acquisition goal. $X.X land our development Our totaled we year approximately quarterly our in full and In million which with this million billion $XX $X.XX February, announced of $XXX cash totaled dividend spend quarter, alignment inaugural per land spend this quarter. share,

to cash annual resets. this our new with dividends to from shareholders. value quarterly It We’re announce happy to share Meritage is issue per intent to forward return going channel

Additionally, over program $XX we million as $XXX available XXXX. quarter. repurchase under our repurchased XX, for shares million first in XX,XXX remain the of authorization Over March to

to share annual issuances, dilution from opportunistic with to neutralizing be we will addition our our objectives equity In of continue new buybacks.

cash reinvesting the in liquidity flows continue believe maximize position business we us our growth to shareholders. long-term buying also and returns new value by and while and ahead, strategy operating having land our for driving Looking that strong our

to On in dynamics. When second the assess pulled XXXX back the spend to XX. acquisition Slide half it as on changing land of we we comes market

represent XX, new March XXXX quarter-end, of was lot years. of of we total year, X.X in to recent XX% X,XXX at We target for about in land was lots at inventory XX% The our controlled XX, momentum the owned of added market, all year owned which with line About is and with versus this control of March lots. optioned total supply communities, XX% of In have we at approximately or lot split prior four an are compared were owned The owned Given gross a the the last estimated XX future total quarter this approximately of XX,XXX lots XX,XXX and to optioned lot lots, which the our a XXXX optioned. rebalancing quarter five few ended quarters put of inventory quarter. A in XX% elevated position. portfolio has lots entry-level first new XXXX. product. our under our

to Although opportunities land our believe on historical target rate. lots of to ascribe don’t quickly while on run currently we metric, focusing resulted we a percentage this nimble ready being and for owned has in a that returns higher than transact

to Finally, turning XX. Slide

units expect we QX, X,XXX closings corresponding to of $X.XX Looking between $X.XX revenue be to X,XXX to and billion billion. with

between XX% expect We EPS $X.XX to also and XX%, tax be around our to $X.XX. trend margins and around rate to land

homebuilding full monitor on We will continue and guidance quarterly conditions call. provide to the our of stabilization expect year to next

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

Phillippe Lord

price Thank to to you, share. our to on to capitalize market demand well position both summarize, believe on Hilla. We which focus us To Slide inventory, that pace our our gain reflect XX. first our commitment quarter and over buyer continue continue spec on and of results

spec as XXXX adjust four and and backlog sales QX, to While continue rate. the in, watch we start maintain will strong we found will back quarter goal our to prices. and a backlog we the to completed the pull to near on first in conversion dialed available keep three achieve incentives month have close pace and sales operations to per Having on we our if increase market necessary homes net

maintain priority Keeping we market to up demand. that meet so a with our home available starts is can inventory

cycle expect into the inventory As will backlog we times turns lead normalize, higher conversion to XX%-plus.

the that, continue on turn I believe and With growth sheet shareholders. whilst our returning also will will the for to strong Q&A. enable to value to operator over disciplined business, the the Operator? us growing instructions call We balance now

Operator

first Instructions] Kim your you. Evercore Please question with Thank question. comes from [Operator And Stephen ISI. state our

Stephen Kim

sure the remain I the just range. XX%-plus heard very that much in I to thanks Philippe, turnover make backlog that want Yes, can you guys.

you do start, make when Do you about later could And expect your expect quarter-after-quarter. to or Or you exceed XQ? sure match to year? sort of talk this in point wanted you that what that pace? was do something also, the sustain at then I expect expect you that that As starts order you maybe

Phillippe Lord

Yes.

plus backlog to is an as achieve rates. our company a goal XX% So conversion

see that think to the that. That’s along important an way. input we’ll us, chain supply how stabilizes I for the maintain

QX, we just not our until we’re then, sales, you’ll that going yet relates our ready every as it to stability. starts quarter were little see single were to So bunch we’re a that And to our matching cancellations in that costs. was out. of we see hit forward. to slower, start also, say it rebidding had primarily that absolutely a we QX clearing because And going we

which to important So the really we were in rebid we our started cost thought getting at lower for new cost, order year. the homes we achieve margins was before these

Stephen Kim

Yes. That’s much. really clear. Thanks so

within can because got net for impact to What they not, of you’re to your mortgage there impacting us, I about that average Now respect And the and buyer ASP, the that sort getting is actually you that. the quantify that the cancellations rate talk of what’s was are cancellation a kind from it’s receiving? But what when this the buy-downs that, incentives dynamic? kind related Is order that they ASP rate actual that offering, Hilla? order with close? to way then a of

Hilla Sferruzza

Yes.

So net It locked in not since right a they’re people that, way buy-downs, once around X.X of use kind may X.X. capacity. all right and has a the than tick but different get money lower everybody around the of we than

down And blended around the of the our side. ASP. mortgage X.X components kind far probably on as then is of the So as breaking

is the walked So buy-down Part map rate was pullback. of about in we we to that through. the of kind mentioned $X,XXX material of it there a actually $XX,XXX pretty

always point. a maybe it. also of little some price percentage increases, that’s bit We had like drives another Mix

you’re half of all about So relates that the you is the kind ASP maybe shake to of the to out, that increase piece seeing. if third it cancellations

Stephen Kim

much. Thanks really Okay, that’s so helpful.

Phillippe Lord

Thanks.

Operator

question. with state question Please Research. next your Wolfe Patterson Our from comes Truman

Truman Patterson

here questions. in just seen picture, kind was really a month A kind clear above liquidating of four And Big your color per X.X function in hitting absorptions a declined push taking end point. to of range Or that in market the you little spec at bit hoping since commentary. XQ? quarter. bit product seeing bit that Hey, good we’ll it your the it good of of the my the color price were is already Was target that, on everyone. little the give decision your morning range? I’m good available acceptance sale? high it lot or Thanks for pretty intentional a sequentially you’re to a call three for a through could we’ve price your absorptions

Phillippe Lord

Yes.

stronger. So what’s trends, I a sales question don’t selling were the make here, an your trying happening you’re that for which monthly versus that just statement. a our January sense. think had February, January is we inaccurate to throughout number really is actually quarter We gave you along last looking to give an was any because different spring the a indication To you comps say way. season expect year We March. We the stronger declined had sales weaker

actually pace absorption pretty quarter. steady the our was and throughout So consistent

plenty sorry, roll just we’ve we to pace is strong. sell pulling too been because QX, everywhere. of on QX – because specs And is pricing not strong, as absorption back into everywhere have We or our the market

So you’re the two neither thinking of. it’s variables of that really

throughout Our the actually entire pretty pace been has consistent QX.

Truman Patterson

you. Got Okay.

some correctly. by home sequentially. just Incentives perhaps heard you was so, $X,XXX numbers. with noise So our intra-quarter Hilla, about I were wanted closeout reduced that to then I it per sure make or And community

you the portion about able hit you really the late that you I your made side, you pushed range. of that think that You XXXX. already have then to this of X% won’t comment in When that quarter. realize of on pricing to you all And P&L? until were costs some the started hit I your Or in believe reduce really think comment made $XX,XXX will during do a the cost the P&L?

of I’m parts So there. some trying understand the to just moving

Hilla Sferruzza

So going they align the exactly don’t in financials. they’re when through period the come to to

and our closed XX% in same the mentioned quarter. sales QX in Phillippe sold So of

side that the of pickup revenue seeing to side, going the are sales in QX. you’re visible in some So the be on

won’t costs the QX. of Some and visible having direct on lumber until we’re other be probably savings that

is everything be line sync timing So little nicely. built-to-order bit where the between difference builders by year-end, up spec the and But builders of will kind there. a of staggered time doesn’t quite the maybe the as

Truman Patterson

you. Got

Okay.

for So, the clarity, just in of that’s kind back on cost, come of lower of that in part the kind all $XX,XXX the year?

Hilla Sferruzza

not one process. coming. right? all an iterative It’s day, on Yes. it’s I mean It’s

and bit bit back a little little and more. go get more You little more bit a and you a

amount through the So end to correct. it’s but flow full the That’s the won’t of impact some going start the to through financials, year. until be in

Phillippe Lord

the we saw said our were XXX we days where really over we as last some here rebidding before, meaningful costs results. And

over time going hope we bit cycle now a the of starts We’re to year X.X quarters, the which here next we close quite if goals. out this can push to achieve

see QX are You other everything as variables the right? The savings the same as environment those the remains stays the incentive closings equal, long and occur in all same.

Truman Patterson

Perfect. Thank you all for your time.

Phillippe Lord

Thank you.

Operator

comes Alan your question with next Zelman Please Our & question. state from Associates. Ratner

Alan Ratner

the morning. I was Thanks I your details. for guys. cadence apologize but as horse dead question, all Hey, first well. confused a was little beating something monthly Good on for the the Phillippe, here, and

believe in the again, hoping quarter. at Understand pace for X.X was comps and January clarification. last X.X month said that per So you I came for you the on referenced, call, just quarter’s you but some sales

it March level. February very still and imply a and So deceleration does little a healthy in of bit

some yet we’re sales deceleration Or of subtle just maybe to the So I a just that through, think pushed reaction think targets get that supply? our on a availability was to pace of very do was still hitting a is, and function strong you maybe you price what handle at there your trying pace? you increases very

Phillippe Lord

look at business way. really it dead I mean our a I horse. Yes. is that don’t

we back sell buyers in we specs didn’t – incentive get and slowdown achieving really changed that. per had every community, structure. per didn’t anybody didn’t feel February We’re like feel pulling three, have in community. trying because the didn’t on four a situation store, we’re to We to five depending any were feel have sometimes our people, We store, March. four didn’t where to We and we

would it perspective. much well. per on X.X, So April the our mean, to us of four achieve four goal. is plus we’re I same pretty X.X sales like four from which store, We that it’s felt feels I goal a feel whether the to you, And tell or our track or as net same

Hilla Sferruzza

we’re we’re, downpour pretty Alan, here. we like mean, of finite torrential fairly that’s is February said, a questioning at all us, market which I really was things I a level it well in California, rain for much like actually mean doing and March.

So Sales comparability it’s some patterns April. good not a in us. just pullback. feels really pace It’s no weather affecting and period-over-period change for

Phillippe Lord

have communities community specs Yes. of less a bunch point. in by this maybe sold had in And those more we a point. some community same. talking And we community inflection, found we cancellations. We January And a houses of clearing thought. have We communities. than where the we XXX% bit market the at in we’re feels quite Overall,

Alan Ratner

the there. added Makes sense. commentary Appreciate

on get I detail to bit apologize but missed more Hilla, I that, little some SG&A, and the just I if a on Second, was hoping commentary.

So to your little in were up temporary you that. I but co-growth your any And year-over-year flattish anything expectations about pretty wrong be if a SG&A number. you there I items on know on that growth bit kind related there just subside? forward talk the or of should Can side and mentioned, through revenue a I going community were SG&A expenses XXX points believe might basis higher on expenses

Hilla Sferruzza

Sure.

just color SG&A bit So out give of we little here. we a guidance, can so add maybe don’t

seeing sold. rates commission you’re through QX that we come So is in the what

a of to the what had sold specs pretty Some what the current we we of sold during it some add quarter, where is a we to rough of in it commission. external sold, QX it is of but we is half really lot what

So to was some you’re last There’s what normal. couple for but there historical back sure levels. of than even to reset commission be above seeing a rate going years, higher in the

achieving target, marketing push on to do that pedal with scared right above some see Now pace we’d again it now, we’re we’re commission. But do. like definitely of if us our going advertising, for not pullback what doesn’t sales in the to level and to

So the that back benefits going there’s from of be that will half some come the in to year.

out On side, three the items. specifically we G&A called

of which future expect them a would that is severance, technology from in periods. One insurance. bit continue And but then not and will that’s didn’t we little of you noise something quantify,

maybe as the something we should those leverage not items, So we are extent, that all the all to year. be go of better through the same to able rest recurring but

Alan Ratner

I appreciate Thanks guys. that.

Operator

Our next Please question question. comes Mike from state JPMorgan. Rehaut with your

Mike Rehaut

Thanks. Good everyone. morning

terms that imply First also are make you X% just in to of like rest sure decline pretty pace of wanted about question, it I the right. like from whereas X% for the XQ, talk understanding historically When to and X% sales I’m sequentially year, similar sales would maybe of roughly XQ pace. a XQ

are lower? a expecting things continued in how pace, solid, a and expecting be also sales pretty you in pace bit improvement of just sequential price a should on So wanted drive obviously are that to we little because bit And understand if that’s if we should average, interpret sales running decline to that. little

Phillippe Lord

stop at these the So year-over-year of think looking question would way have I we is comps. that to I sort because answer

still It rolled to it And for and strong QX, through us until May. were down. then QX all wasn’t have sales net We the pretty felt remember, per got sales. year, We June seven rough. of first store. almost five we metering as were done QX time. last things obviously that to achieved quarter at And the we then that You six probably way had could slow or pretty into started

year-over-year be are to bit going hard So to explain. the a comps little

now, per communities end four our communities. XMU most store, three At entry-level the the net of entry-level. and three in Right day, are four we’re to achieve trying communities in our of to our sales

achieve four probably seasonality per much we’re We do the here. pretty to expect be So along way. some month there’ll trying

on go that tight That’s we’ll four As and three XMU. entry interest rates retail just trying store throughout we the goal where per comes level get what to stays do. in and from. how our But we’re Depends into see. the year, market a net sales

let one at I’ll not as well, Hilla your how I’m we’re it. looking sure of question. So jump that’s if but kind I’m here in answering

Hilla Sferruzza

up. four, said It’s to So and point not expected-to-sell. to we’re can that’s four. us have we if the market that just Obviously if three when right? we Mike, going that our give this below So that it fall to right, the let goal, not quarter three X.X, more three wrapped we targeting sold to four is we’re

So we where that’s we’re lower, it force that because not we’re not we operate going to be let below to the market think to but drop most going arbitrarily that efficiently.

comment you far fully that can I price and absolutely. that’s pushing interpret So back maybe as on as how think incentives,

point Right we’re now And it absorptions always absorption sacrificing doesn’t margin. the you are seeing at price a right? pace. pace reduction we over internally, to not push impact pace. up with our A of at it and net drop and you expense same do pace, end have what right, linear, into translate It’s the want on we profitability. our the If same impact that’s that magically the discussion does price not

the this we that community-by-community interpret the we’re looking expect you just trying impact the at please below increases to revenue four. current of that to fall want flow basis. But of So four, don’t mean But to should on it see yes, get we’re back that into don’t three to to a to some through. three

Phillippe Lord

historical If push Right. the as year. I today, And based through half traditional we we’ll to like incentives back and see feel to we’re seasonality, bring feeling what lower there’s we and the price which elasticity. the pretty in of some think year, incentives prices do spring. move we is We a us selling typical on in which can back see, I have expect

as everything it have stays relates So macro assumes this And see. we’ll static rates other to context. to and just interest just

Mike Rehaut

That a it’s terms understand I lower just I sense. that. And Right. long so lot the reduced There’s was a I No, color. sales all appreciate call numbers gross to no. pace of summary. margin at looking on Also, thrown in get a costs. of makes here, construction been just I incentives, XQ the guide, been hoping appreciate around

you the came, had be the would and incremental as in terms the that And some that? throughout were the progressed the of specifically, into first to fuller levels be it the relates towards might got reduced look kind again, negatives? that as of if impact the XQ quarter to you I the you What as as back to As they that think quarter. XQ, end of of incentive incremental what to tailwind half, an in positives margins XQ second offsets would they

Phillippe Lord

homes I we mean still started year. that we’re are that our selling XQ specs last

the regions. a some We discussed pulled So mixed specs. the we but those that on you some savings there back are have of also going stuff cost between incentives, in lot

in get I than out to out getting of think going of the the QX. West we’re East we’re more

of there’s So some the regional there. influences

and that kind different less it’s of structures cost have have all So that’s and of incentives are also higher We do probably QX homes that. in have then mix but closing there’s that that. prices, they driving

Hilla Sferruzza

And we back didn’t materially. pull

performance actual quarter to guided margin. XX%, gross our feels same Our around of kind in the We guidance. the in was XX.X%

our incentive short need least our months. holds we if over the we’re term, market a of true, the and trends anticipating as next what much have not quarter, at visibility closings pullback. the will a So in same half may not as sold to we XX% And two

Now on other could it the could go It could also be but it direction. improving, be nothing.

So We with it guiding this still couple that quarter make a sure weeks wanted more same close of were to not homes limited for that we the weren’t visibility, numbers quarter. can and we in attainable. sell

Mike Rehaut

on so Thanks guys. the of right. All much quarter. upcoming Best luck

Operator

Lovallo comes UBS. Our question. John next your question with state from Please

John Lovallo

taking for as you my Thank questions well. guys. morning Good

Hilla, you buybacks to and bit there a this little talked is, the know out share bit But I a the overall on an capital on of a little point? thoughts with you think do guys initiatives at were Is were we came I you get number you And considering. about your today. the guys return of shareholders think call, different to talked is dividend, how there aggressive which encouraging, how that you opportunity one allocation should just more first and front? on buyback had capital The think last about about

Hilla Sferruzza

in our So It’s for history. first thank recognizing one you the the dividend. ever

We’re that’s takeaway. think important listening, the right? I

of the planning. return return are be our high what asking as capital and way great a our sense show attraction that a when are. for, makes as of it’s capital, cash of to ongoing hearing they thought are our balances We’re and capital commitment for to Definitely shareholders was we component a an

to expect our analysis. buybacks part definitely you share continue and overall can So dividends to be of

right? we we’re just make most as to looking far always where the As accretive. And is I it sure dilution, to that it, general think right? We we’re buyback, cash our means, what want shareholders. mentioned share putting to exactly that We to it’s take don’t want it’s use opportunistic, dilute opportunistic

comfortable of front on we So of capital since shares, shown back that buy certainly company if there’s grow XXXX, then It’s a at pace. get we will. our continuing and expectation right? into opportunities that normalized with the every managing kind track we’re market definitely that. something have it’s record to the to We’ve certainly the a initiatives just So, the incremental doing year

John Lovallo

Understood.

is West I of communities. Okay. percentage that about has the talk you. of going just highest dynamics just that? absorption division that’s interesting, then are lowest entry-level Thank it was at X, on the that some maybe thought And had Can looking the driving the Slide segment there you or but

Phillippe Lord

a is classify it think California. entry-level. as California just of really lot don’t We I

West up the in of positions our West. entry-level rest Western makes most region So California, the and are Arizona. the Colorado throughout of which

as So we that’s it first what’s as move relates what it really as kind what up. of and entry-level we driving to classify classify

Hilla Sferruzza

recall, for we the quarters. mentioned a aggressively market. if in of market aggressive, for was a also We were really you And to pricing find us that couple We Arizona try tough to QX. really reduced

there, there some starting pretty drop. in success increase find and to pricing was material Arizona starting but We’re to a

Arizona individually it drop that I remarks think had in in the the ASP. largest was scripted

John Lovallo

Thank you it. Got guys.

Operator

Please comes Oppenheim question Dan your next Credit question. Our with from state Suisse.

Dan Oppenheim

I wondering much. was very Thanks about community counts.

of that are on had in talked XXX. can things the in the some that you’re And to You and savings of I get about where back year, halted some just anything community wonder there’s in in those of in there. communities bringing you terms sort before to later them were back halting overall. terms rebid now do coming and talking if terms of terms openings and of accelerating

Phillippe Lord

Yes.

was anything of up. sort I back rebidding now those track, due think effort back on mostly opening slowed is to the and that we’re

transformer the I think the is national bigger out issue, has which there. news issue been

and lot that some based communities just to we out set communities much the XXX QX we late QX a to them stronger times then relates little is scheduled of see are and predicting have that we being earlier transformers. were that that budget to sales being We in for as QX, achieving expect not that delayed a were saw transformer issue. up the in And open earlier. up it told our on in bit closing were But that our as issue communities the into are of biggest now QX lead

Dan Oppenheim

the in comments push for Great. of on having in up side. get of half so your given talking the that terms the margins, here of Would in could that talked XQ in some really of you for expectation those being back about And benefit half you’ve the of orders, you then you’re then the bottom the pricing price in then the the close ends that second cost is then year? Plus now you here. back pushing on about sort year made that year, quarter, margins terms then the say

Phillippe Lord

so in was prepared different right I to Yes, guidance many things not moving with now give directions. out margin

trades summer seeing opening communities year. that the until finishes. now, We’ll we hard seasonality up to guidance, we’re we the half environment of back as half give [ph] really just it’s the going cost the full we’re year basis pricing meaningful into have incentive say impact of closings we do. QX all And in savings, that that and right with lot move some we stable of labor will With RAM around, before is see how get stay still the the the then back-end to this some some moving a year. in have in why have saw in back We to challenges which which waiting on higher out bad we’re the although

Dan Oppenheim

much. Great. so Thanks

Operator

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

Carl Reichardt

how from it and walked how deals you has things I intended wanted dropped of pick you which takedown? options. again a those to to you Hilla. everybody. are things are potential dropped beginning about to start give me little on are that again, now curious, just as now Thanks about of might those lot Can you to to assuming talking the that back up a just those easy improving? block a bit sellers potential ask I’m is on options go look restarting for lots color I’m count, self-develop,

Phillippe Lord

prices Yes, all. I East, one. changing are depends I’ll on It at take think prices that the are, in don’t where, land like

might strong, the In there We fact, still sort more we expensive. of and big everything a stuff didn’t back they really and of a be getting still makes drop because pricing expecting reset. market lot was sense were

reset terms. better West, market, As little you I’m depending more I you where and can from to terms. bit think again, in get opportunity but maybe a not on East the maybe about seeing Austin Texas, Houston pricing, move sure

walked seen a market Not prices you now we cost. under can were hit really as years couple we we to have of some land some the to at contract that tracking. West deals then the secure going lower that long-term West, stuff the we’ve were wasn’t of necessarily a was us contract, the that stuff help definitely move out anyway. And Most from away the opportunities that for

patient. sellers get basis. drops that those some deals, But deals that those So are more were builder been lower we another seen able into that a near-term have we’ve pretty at to

Carl Reichardt

it developed it? And Phillippe? the then inventory WIP Do you self you if have a lot Great. you house turns in is turns time, Phillippe. on what to are hurry. over once overall [ph] an optioned, get sort And stage, relative for internally to guys you of so, a Thanks you, but target again,

Phillippe Lord

a to We do whole we be go long. times year. and We able different. got our when were to That’s XXX you’re looks days. an builder, before homes one we you sideways houses that think COVID going our should little half two because in can it’s that, of entry-level that SG&A per now Yes, hit. building fast. is doing too business bit are completely And a spec our reasons the When cycle be

start them build And homes in two assets the our XXX year. So September days. a turn can sometimes August, basically the year. close goal same to times even and a can half in and into We we is in

early. this some homes we progress just there. a might August in we in But that hopeful to year closing start divisions some I’m year. too what some of and It’s our place where get seeing actually with able to be making do this we’re We’re even

Carl Reichardt

years. be the Your at then three two WIP but thinking? two on to hang you’d turns and what would your that to turns a Is half, years land

Phillippe Lord

– in a entitle it on type you’re mean, we lot a because what four it Yes. that’s we land of but years talking three project and about I when to land of to turn hope shovel-ready, depends years. we close

Carl Reichardt

much. Appreciated. so Thanks

Operator

with next comes Housing Barron question. your Center. state Alex Our from Research Please question

Alex Barron

you you to Are forward? mode a going Yes, of going has with thanks. plan about down way curious you terms leverage leverage forward find your Or kind to Obviously strategic be what the if you on how I’m – in this thinking kind hold until gone is just regards opportunities? of norm are is the the significantly. to operate? thinking just of more Or that? going guys

Phillippe Lord

off these Well, QX. happened lot we’re and really, with dealing margins high absorptions really and of really then not where I just with coming it’s really in happy at. mean is a high what it

as goal XX. hope the for our all But – term, leverage XXX-, would to be to think back nine. XXX-day building absolutely get is closer would to long time, about I below we’re So us. cycle homes I you It’s in

And our efficiency. cycle faster So when we operating kind homes model incremental comment is full, the Hilla close will can as we the we to at when those efficient full of well. more want are and – operating maybe when times sales and

Hilla Sferruzza

Yes.

Kind but little a yes, as comment was same is when bit, on a recovering if pulled talking X.X lot the right we back low. leverage the land. fully SG&A, of too market So number ended It’s so cash on right turning not debt now, we leverage, Phillippe. with right of about up you’re

we If guidance to you going was have were remember, that spend. our of in original billion XXXX, $X

to, If $X.X billion we looked that. about have everything had wanted leverage spent short different. of we our We’re that would had

the expect can of into And business to the land reinvest and the both of it’s expectation form back then stabilizes, communities of market the you in holds us steady business, communities. kind more. in reinvest So and those If to new course see WIP. our need

be categories. see building it going today, it’s you’ll back give even debtor inventory there’s and stabilize it all we doesn’t in another If where stabilize to or definitely return now, reinvest some further, going reserves the market cash in that, to in But So end up have to whether the to quarter stand we of we’re to start shareholders. capital things and of Meritage. to right see how

Steve Hilton

Alex, Hey, to this is Good it? place inst be, Steve.

Alex Barron

isn’t a you conservative I Anyway… the such you that surprised multiple, better wonderful. It’s given am a position. market actually Yes. have giving

Steve Hilton

spot on. and you you’re wrote what read We

Alex Barron

I come. will think another I it have question.

So see capacity it the to significantly? now somewhat back expand or were at suddenly stuff to just like into were say like these go it to have happy whatever, into up? you a curious, end should Or sort of ramp-up industry and supply much industry. feel everybody’s and guys are ran and left let’s builders for I’m easily for a doesn’t before – interest the then is that guys were the everybody in rates XXXX? I all you before already issues capacity to all grow we coming, How of everybody of people prices that feel orders chain is again, activity backlog home knew you grew if supply buy the constraints do take think XXXX, you drop do your

Phillippe Lord

Well, this – in starts XX%, are could mean, think year. They dramatically. versus be last XX% XX%, down I I off

ramp could term, the in pretty well. I short think up I we think our business

capacity I some there’s there. think out

the has It as to clearly three years. last but not fast what been cost like, You broke. as might done cycle There’s somewhat capacity finite. the I over feels think not there. the do see do times is contract It you

flows I there’s into it will, be multifamily of some some that the capacity stuff Now this space. if to slows going down, residential more think which

to spaces, with days I anything over and feels our few the five line. we’ll on we it that trades was go If more would strategy, during front excess of we And in we’re builder, get feel finite. the in capacity last COVID. the I saw us different are the back growth be or be other solved now capacity have best specs, could from there focus like before. go we doesn’t that streamlined think, And than suggest cadence, we’re we these to type pretty top give it. a But that could again, continue in steady support willing to few that So it but build think production, position years,

Alex Barron

right. All of Thanks luck. Best guys.

Steve Hilton

operator. question, So I think take more we’ll one

Operator

And Please Susan question from that state with comes question. Maklari Sachs. your Goldman last

Susan Maklari

you. the for taking Thank question. Thanks

start Some of builders about your themselves opportunities could of smaller standards. peers stress that present talked if from to have some see your tighter lending

operating are today you? And those different that that Given than the what are they strategy size of you would there the business and of to things be historically? the have, interest were

Phillippe Lord

dividends do really most to That’s We to of allocation opportunities And things company they paying We other No, grow of off the or risky. M&A, whatnot. at, That’s small the right? attractive. we be. perspective, kind shares the from or really can three us. the the about areas ranking really our we especially big At we There’s opportunities. we the can I how debt think – very business, and do and capital table, look in our be when M&A. take want buying can interesting lowest of off the whether there’s think would increasing we it’s day, back end

there’ll what do five stress we I team, been got the last opportunities be some years doing we’ve in that investing just top see at. we’ll to looking builder And keep status. is And over can And which our us and then we’re here. some think seven that

have still to do opportunities we So, that.

a secondary every would our to market our single footprint our that of we’re We’re that be to lot But conviction smaller conviction geographical have priority number and trying share one because lot something that in. within to buy fits in strategy. accomplish market a business. in not top that five that’s in we complements of we’re team and our And

Susan Maklari

Okay. into? about And or you’re that targeting that are there thinking you’re getting geographies

Phillippe Lord

that there geographies that not we geographies a in, other in then list we want are that short business Florida. Texas on want our There’s as get we’re leverage And currently like bigger to that the picking markets into are outside to and time. three too looking constantly new years, over We right of Beach. of couple is the Myrtle and geographies we’re Coastal last the just went current at a fantastic. That Carolina,

That’s Jacksonville. into doing jumping We’re great.

enter We’re Lake starting Salt to City.

geographies increasing diversify footprint. we’re continuing are that in So, our we and to

Susan Maklari

you good everything. and for with the Thank luck Okay. color

Phillippe Lord

I’d everyone continued in Goodbye. day Meritage hope who great of to all for operator. like you. you, rest a Thank thank call you great Homes. joined week. have your interest the and We Thank their today a

Operator

Thank concludes today’s you. This parties may disconnect. call. All

Meritage Homes (MTH) 27 Apr 232023 Q1 Earnings call transcript