Meritage Homes (MTH) 2 Feb 232022 Q4 Earnings call transcript

Greetings and welcome to the Meritage Homes Fourth Quarter 2022 Analyst Call. [Operator Instructions] As a reminder, this conference is being recorded.

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

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

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

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

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

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

what milestones. will we morning provide performance. of start Emily. market the a are everyone overview strategy fourth about guidance. and and and recent our participating and I'll seeing quarter morning. an welcome with Philippe our company brief cover call a you, quarterly this provide discussion in the to Good overview forward-looking financial Thank of will in Hilla our

of strong Meritage from dedication finish team. XX% more to fourth We XX% QX and $X home in a the quarter homes of and year quarter 'XX. marked closing was exceptional the delivered execution quarter fourth a which the billion in higher than revenue generated this

led gross closing our SG&A and margin of X.X% $X.XX. quarterly home leverage Our of quarterly to EPS of XX.X% diluted

should and buyer of and long-term back declined demographics [indiscernible] demand, inventory the ongoing by they overshadowed increasing were rates rate psychology, we quarter and supply inflation. cancellation the year-over-year orders low drive when on housing get XX%. half of uncertainty our believe Although economic the favorable of to year homebuyers XX% about interest With sales a market, fourth the into mortgage by driven back in a

activity who mortgage rate been current price pressure for hesitancy as are remain will continue believe financial and but buyers or general that potential buyer in sales may remain stabilize, economy rates the locks. higher are still further nervous positions. rates prices incentives their payments current could with until despite as to the builder market they due rate or We Other additional monthly We own of cancelling price coming. place as Today's declines levels some XXXX locks were below rates they XXXX housing cuts anticipate qualify waiting interest home choppy. see above buyers and to have mortgage

quick and our well favorably given available as seeing some respond initiatives. are inventory, our incentives sales as movement our market buyers However, we the and company-wide -- selection to

to on Now, Slide X.

Houston, and veterans military deliver initiatives start that our annual and forward were X countless that Nashville entire the humbled Meritage most excited is to organization on to and This looks employees XXXX. hours impactful core team tradition the families value, we in donated and of to Day Tucson. in one continue to with that heart the embodies mortgage-free their deserving As Veterans homes

of expanded and also local to organizations financial equity our time voluntary our well mission further need. to contributing security We as long-term inclusion shelter those across and and combating history organizations, non-profit diversity, the to donated to support in as and country food providing

News to was work healthiest This And accomplished result business Companies this of our execution. are shareholder, Overall, of of the one our the of on quarter of best by one the both XXXX Most the named by Phoenix we top what quarter, employers. and America's as solid commitment ESG, operational recognized proud Meritage Magazine. was a of quarter League as members of Responsible team Meritage one overall the to places

over now I'll Philippe. turn it to

Steve. you, Thank

the During described. macroeconomic Steve that the market of factors and sales within lens quarter QX we analyzing business and are influence not events impacting our looking could that into the the through control. We XXXX, actions are

control and focused However, react to how that are now. have for our strategies business honed be years many our we can can agile we them how core we around

cycle taken, on we in Eliminating to are homes a To buyers products supply within limited prestarting to puts Prestarting premium our also a reducing build-to-order murky us homes market despite XX of issues. library savings to in economic shorter position favorable home a a strategies entry-level want model SKU complete environment. more XXX% Further, means can close customers. the line with uncertainty pass remain our chain the affordable reiterate a today's time homes as and days. allows on than we are offer stress building ready our our XX homes. in us and This to available since inventory actions we we have to readily committed current

higher pace our a average limited expect added As mainly of and price. products, we of results future stemming we for lack and an pace the the inventory, benefit, absorption have resell prioritize that -- when home. our entry-level from specifications, streamlined in cancelled discounting customization homes, build Since we of over

the runup for at And prices the years industry-leading higher COVID. benefited gross we first home levels. we in despite costs, margin homebuilders, experienced X all Like from

X we to target Consistent continue X importantly, More per our our with increased to net we market sales strategy, month. share.

timing to point our now moving line align inventory production The completed clearing spec these move sale a had completed we back or of actions QX, ready season. rate a actions quick spring ahead lowering of absorption inventory additional on utilizing the range target until which pace. market get get to incentives and net such buydowns time target, per prices pace near our back As our and of in to we for mortgage we locks, and full including have taken our sales X.X the with of is selling month find rate as order

Further, impacting portion during a hard QX, times. despite backlog our chain issues to worked large operations supply cycle our team close of

We that in backlog also remain year-end. home every aggressively of confirmed Most our homes. their as their to validated commitment

our proactively the but likely some the our we cases, this inventory rate in able for a to into January. In was to incremental purchase XXXX normal not home going we end showing buyer sales other adjustments though, use the that backlog, or pricing of cancel available reasonable it incentive more in By confidence to and structure. added identified us with cancellations at cycle gave sales, backlog earlier offer. than we were Some had clear the is

and in a don't homes purchased the buyers XXXX, of relative represent monthly under buyers market backlog pricing advantage we portion and their will certainly ball smaller a from understanding comfortable conditions, a a of the regarding to portion market who current March we greater expectations are economic more payment today's compared While coming what a crystal their that have different XXXX that in earlier cancellations do fulsome environment and of rates rates have the incentives.

vertical cost cost advantage incremental capacity cost supply In savings initiatives, say, are chain. year. is to addition in pricing to purchasing on These will to details team costs our capture to growing but our within as our actions savings across all markets intentional enable adjust all we actively pursuing Hilla of rebidding and categories touch this sales us suffice more is community financing and our our that XXXX. local a we We of environment. right can incentives available kick near-completed offer community so the market with believe us pricing allows that actions, inventory structure mix have we a is off completed aligned package we to each our with combined supply which by can of as of hotel total solutions take different and of level

share labor closings, made up statistics. XX% operational Slide the in our closings year-over-year to The chain turning XX% Entry-level in managing up to Now, QX year. X the challenges. was homes our team of to attributed loans and supply XX% our prior increase to X,XXX from successfully persistent

XX% year. X,XXX up sales XXXX quarter of the homes, fourth entry-level Our orders in homes XX% were from fourth quarter last comprised of

XX% cancellations in year-over-year was primarily decline XX% overall orders The communities. year-over-year demand a due and elevated weaker in despite average to sales increase

more in XX% rate Quarterly sales cancellation XX% from in QX XX% Our declined of and increased QX XX% a year-over-year. XXXX modest XXXX. in gross QX orders

X Our absorption quarter month fourth present. X is towards our will during target affirming the XXXX month X our get was average in of to pace price X.X sales the fourth per pace per per average indeed In fast absorption XXXX finding month of underlying pace at month net was XXXX. consumer target, gross right which to relationship, a X.X down but to X.X pace demand expect the per X was sales monthly we from

occurred we Houston, of X Antonio, Texas Slide regional steadier Austin markets holding Dallas, year-over-year we month on stability all X.X trends overall. greater find in gaining pace are are comprised pace the highest in in XX% quarter region down our level and regional in X.X we and were our the sales markets. Orders Central growth a to a experiencing Texas are Moving to X. per starting month, is San share. which The market With environment of in than fourth while per Texas believe absorption

in absorption here our gross all The work markets East month. the Eastern have fourth actually a to still had was decline in pace per country. of and in The are the X do with the the our target. per year-over-year And this we regional fourth to line pace quarter. of the We in sales up quarter X.X region orders of per positioned for lowest X but East cancellation that had month XX% confident part we rate lowest are well region

was quality most due even our of after the communities. fourth were increase Consumer price have on In mix also absorption evident West region, that primarily Arizona as in the in and XX% continue the experienced times average Colorado result per gross are ASPs over markets and which month place were these years. in to only are shift had in our X.X year-over-year pullback quarter. entry-level is product pace X reduction California X adjust while month, over be adjustments, to up in XX% these orders down the to past the a higher Florida, market. Further, where the the they to higher cycle pace California predictable. of to for and so in our orders runoff orders was convenience. the to more locations the per an experience payments was X longest ASPs transact lovely in the markets a least given sales hesitate positioning still

in Although for a the showing capacity rate incremental is supply up improvement now providing run the here. new chain

January wanted We sales. to into provide some color

up that's January, on month mind improvement achieving per January, than top approximately a know, mid-teens. call. in well QX, in X.X today's January. normalized per houses of in we pace a over to greater sold As average as Compared net last X,XXX we over as per everybody the for the saw more month X.X X% pace a absorption We rate in cancellation of absorption notable community

some to found to X X right our the have sell at per combination net incentives pricing that sales month. targeted we initial We confidence of

we in ended We quarter period fourth in XXXX X,XXX approximately X. homes XXXX. an starts demand Slide than community the lower spec starting of the X,XXX average as X,XXX align XX.X% more fourth quarter, XXXX. compared approximately To to per X,XXX nearly XX the compared with in average X,XXX specs inventory Now, of quarter in an and quarter in to construction to fourth of or of further approximately with this turning moderated homes QX the or

our dictates our in of amount demand communities. available Market each target of inventory

liver. came we reach slow is quarter. production supply of Similar ground of X quarter by But managing about months' align until our keep rate inventory. hand, in Our cancellations pace and although slightly started to noted, have of through on goal and flex already X to down XX% our home supply excess our this of increased target starts we last starts previously from additional optimal will the to our XX% equal we our stacks on worked our inventory holding in these to January. specs match year, as To with the capabilities, the sales above specs our

XX, December homes to sell. added XXX over complete XXXX, At we

higher last of ended the backlog with fourth our a of our a We this our about couple completed homes of X,XXX than can by out coupled of from inventory. rate close portion conversion XX% and, units the end significant backlog to spec quarter as XX% homes last with year is of Our the we and quarters our represent that closed X/X year. QX, improved XX%

times QX pre-COVID to the quarters which X [indiscernible]. continue were XXXX our cycle similar approximately weeks X earliest of be still to X longer to than

However, improvements construction see from front-end and our are in time already targeting reductions to some we aggressive XXXX are for trades. starting

plan appliances, cycle flooring, over and quarters the conversion hopeful of in next the the are rates back of few loosening, improve like back-end will backlog cabinets capacity year. the half We backlog our this trades countertops in that and industry with clearing

turn financial I'm additional to to our provide results. on Hilla it now to Hilla? over analysis going

interest viability the of countercyclical Like you, higher to hurdles sector, our targets. through of low market We're only our represented color providing environment. of volume some bit encouraged their Thank to built-for-rent the due rate see BFR of the rental to a the operators, and in orders fourth this rest detail. underwriting believe partners are and historical net incremental start strength on the analyze pausing as our the much last in to we'll in Philippe. interest in percentage continue a by before Sales financials quarter, the quarter and like rental of channel reviewing single-digit January financial business adjust

Now our results and cover X more let's turn in to Slide QX financial detail.

grew supply close quarter our we to year-over-year closing XX% of greater revenue backlog. portion combining the and a closing challenges higher X% billion compared as XXXX year overcame of when home fourth prior XX% to Home to $X.X ASPs chain in substantial volume

was home greater and XX.X% $X.X and several direct as grew of to a Our margin X year related well fourth quarter the XXXX million including closing was $XX.X XX.X%. higher incentives offset vendor for in cases items, and bps specific adjustment as ago gross $X.X warranty partially costs land deals the yields for deterioration which rebate The XXX deposits terminated and result were nonrecurring option costs and by diligence land of terminated retroactive we million In had million for million fourth no adjustments. or write-offs rebates. $X.X write-offs XXXX, due quarter in warranty in

quarter XXXX home these margin to closing Excluding QX adjusted XX.X% of nonrecurring compared fourth in was items, XX.X% XXXX.

our pricing cost continuation We we've starting margins reduce will elevating already the action, and make incentives to offset broad-based expect some commitment taken although time. projecting improve not we locks buydown sales material headway that direct price concessions elevated sales discounts $XXX,XXX financing we're conditions cycle are when pace. challenging to and However, demonstrating to of savings today, impact costs gross market compared And to our to last down XX% quarter in We this a for our to year, ASP negatively and XXXX. rate with

There home some excess where already substantial success in $XX,XXX trades reductions stories just since divisions, in slower emerging with savings company our are per in of initiatives particularly markets cost capacity. drive to have full

our several likely will XX%, operations increased end the and gross volume operating that However, impact long to our average still at and home or mid won't above we until end benefit captured this although normalized of from from these be will as full to historical bps We into quarters up in and leverage from be believe likely the until will streamlined our margin year. XXXX of benefit are our better XXX next the late bumpy. savings from XXXX our of starts they tail term,

closing which current revenue of home year. quarter percentage was in the the over slight a X.X% a for was improvement as prior X.X% SG&A

historical advertising Our higher with near remain our This to current the SG&A environment. averages closing lower in combined above partially leverage. drive revenue will commissions sales was costs that allowed broker the our offset us expected marketing better We and by in SG&A. leverage commissions response volume reflects and future higher will lower to which, XXXX, costs believe

rate Tax share XXXX Act Overall, volume, increase Disaster qualifying to year. for and outstanding diluted prior the claim quarter the current to $X.XX. count combined quarter in the Inflation in for under was The Relief current closing year-over-year effective Taxpayer the credits earned the and Certainty lower XXXX homes prior quarter, XX.X% to the year. XXXX compared led both XX.X% Act higher Tax XX% with in fourth the on fourth energy-efficient EPS tax were income quarter Reduction a XXXX

XX%. SG&A X.X%. our order XX and margin results up few diluted basis, in XXXX. an of XX.X% highlight a XX% EPS XX year-over-year had improved revenue XXXX XXXX percentage a XX%. a We net closing to a record To year to bps were generated We declined the full as gross fiscal units was and in a Closings on $XX.XX of home bps increase closing for from XX% earnings a home year, increase expansion

Page X. to Turning

slower conditions, in balance land, At over Given flow the of cash XX, just sheet also focused nothing with reduced free phone shares our under on with exercising internal X.X% year repurchased are $XXX $XXX our debt this which and development December We below ending cap program. cash discipline. quarter, high our credit million during spend repurchase we the to is on well on market share inventory, authorized $XXX generating threshold facility ended maximum was quarter. XXs. million XXXX, and was drawn just of our available we and With net XXXX no million

additional to call. to cash provide shareholders look operations we for Ahead our uncertain position on returning was to we coming expect strike we updates a between of dollars to quarterly next In felt will our and an and in the cash to flexibility prudent preservation environment. maximum maintain grow it spring season, balance months, selling the

we want I will despite every impairments gears, expected is present. cash cover impairment and about there review calculated. and remind sale communities incur costs. to to we community direct the that homes impaired ASPs in the a were QX estimate determined that our is all in the community When assets quarter in and We that generated be the Shifting of reduced from no higher not how are to everyone of cost

broad-based Looking we assets. not expected expect prices our across do XXXX, our home at in impairments

XXXX XX. communities our the continue to X% in Slide this supply we year, XXX year. QX to opened for our year new grew QX, at community line XX The liquidity issues with in time transformers Even the this compared to XX openings. communities [indiscernible] count chain end. On increased In ongoing to community extend new we

openings that Additionally, our advantage slowed when rebid in these times and opportunity and at strategically we of the our some competitive so of open can to vertical come have a more halted they position costs take communities to lower online.

XXX-community We continue and quarters. next the throughout over to targets new expect our return stores the open to to several year

This walking with sourced years. we XX,XXX slightly quarter, X still land closing we portfolio, extensions. X.X-year year, ended Even target more underperforming our to not loss away we XXXX our terminated with land continue from secure supply X deals deals to lots than this rightsize recently where or within could of of

will loss million not roughly right $XXX under the So a X,XXX of future with we're new lots million. that approximately write-off we These terminated we comfortable corresponding be land not incurring. terminated we QX, relate did all that land and now. add development we In we spend $X.X to of while control lots have any need

for related due of For full incremental total which assets. lots future phases includes of from $XX.X exposure $XX.X only than less we million our X% of considering communities. yields, up after terminated this XXXX, existing million charges in, control diligence have of land All deposits, under next to our year makes walkaway

development, our fourth on $XXX spend and costs. full billion. we the X/X bringing of During the land land on only spent land million year total acquisitions, reduced about was development to spend $X.X quarter, acquisition With

extended or acquisition below XXXX XXXX be spend our expect the development count despite growth. $X.X We in billion land to the community at anticipated and

owned XXXX. at had controlled owned as XXXX, we auctioned from auctioned lower. at of December the lots year, not mix XX% control approximately total the position. XXXX but of XX, and portfolio approximately lot land of auctioned total or of comfortable XX,XXX lots. XX% In December December had as to and one was lot in was our under drove a a XX, land XX, the we with secured total XX% With About the inventory inventory and XX,XXX the XX% of XX% the well XXXX owned lot as earlier, compared our prior under terminations lots lots At just understandably are auctioned of we basis current sourced control balance

XX. turning Finally, to Slide

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

down market to expect rate limited to holding XX%. XX% on to to our With off around margins trend We at and year full conditions, this to XX% XX% visibility providing we're time. be tax guidance and

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

To strength summarize but Hilla. to selling the on to quantify you, Thank start Slide early is XX. a off January season. in too great spring

incentives for We to combination product net pace pricing X find prepared our communities to right per a X achieve sales to are month. of of all of the

XXX% market commitment capture profitability to to homes, and prioritizing maximize market Our takeover of evolve. leverage positions conditions streamline us and gain price as operations share, -- prestarting

the well our employees their would for dedication all and to Meritage Their conclusion, job drove like done hard work In success. thank I XXXX. in

the will Operator? And to with that, over turn Q&A. now the instructions the for I on operator call

Wolfe first The Instructions] question Patterson is coming today [Operator from Research. of Truman

Did that up say all correctly. X% orders First, X,XXX this sure and just you I net were making heard January about previously year-over-year?

Yes.

around X.X -- sales community. over We per X,XXX bit in absorption January last approximately up which was about right per January, have a And store per about X%. -- pace X,XXX then houses was over our little sold

too beginning through to I costs the trends. lower into But reading January And not Perfect. have P&L. realize flow we much Okay. lumber

year. some You stick other perhaps the maybe costs brick later in all hitting and mentioned

the But environment all expect pretty help gross if incentive XQ think have can to found I'm kind that also pricing you of us We an higher think hoping you we you through some costs might choppy? that land it the margins all or be Or floor. -- maybe should year? still floor the in for uncertain maybe be

into detailed I'll aggressive. right what just a builder. what's now an But mean, We're spec I too description to do. on is more in really been going let dive of Obviously, to affordable going QX. know Hilla it's we've murky pricing

price we're the prices. which to in So by going is our community set which ourselves what our piles X bottom competitor of we've done is community why

Our ASPs at from down now are XXXs the peak. into $X.XX the

like So, pace adjustments tell made we've do. be we it's we're we really that like to the some term. significant well to positioned feel to affordable hard need our for and the long to find going feel and competitors But what are to

to a still going builders yet. Some close I and quite they're backlog don't think adjusted of pricing bit out they've have that

we'll driving and at X have are but that about interest rates are We're those don't are we that how optimistic out do. feel stabilize and really this know plays pricing happy and going factors they So to predict see wait point. inability our to certainly to them what see to where

And let got we then, guidance. QX of margin how I'll to our Hilla share kind

Yes.

So thank Philippe. you,

saw activity the the X seeing Our in that X, QX last what we over primarily our sales. is months ASPs you're as in

It's QX. down cancellations we that decent fairly the gross had in scrubbing really net the the backlog the sales of mentioned, we sales. and As brought

market January a definitely it. found per X think So month. sales proved we we to net X for

QX initiative. seeing the cost in sales yet not in environment anything direct we're right guidance So QX comfortable what the now, current reflects not reflect but we're does giving beyond

no until think And don't those to the margins that we are said, increases of really coming there's year. we latter as part way. the other our that However, that's assuming materialize are going that

the of We're at we're sell kind where are, pricing and almost our structure. an able to we're down XX% at acceptable from current we at pace. looking comfortable So peak

need although feel conditions. we So further constantly don't adjusting we market this it with we're like any time, to move at

up today's you And than It's But help year-over-year. lot clearly January. through streamlined business you in I'm potential chance I'm competitors. model quantify quickly far of us alone. have help think generally floor you the SKUs a can as Any experiencing pretty so that starts hoping magnitude we'll jumped vendor maybe lumber can lumber. fewer cost hoping -- It's clearly us with of plans down leave all outside you're here Perfect. and tailwinds those? of

going effort through entire right we're rebidding Well, now. an

rebidding mentioned, Hilla we're aggressively all our starts. of for As communities spring

really been We as on also new those holding opening as get costs to we vertical off can. far to rebid some have communities our

early look way it's like. too success as exactly end on to as we it know success what the end let said we're script, to going the relates you less to So on front that's build. the But back our having in and

you fast we've starts still other and like in markets of going out you $XX,XXX seen going opportunity. now the the market here we'll effort to we literally can that quarter back and we've the next how which, we stable, hit this we're on going we some is we opportunity to budget, right you've to through haven't -- seen right So seen there's are do a hardest feedback haven't Florida, pretty $XXX,XXX did. prepared that's that In are can seen pretty early construction from report our But all But that recovered over everything vendors house per because capture on we math. markets the we're that because still say now. and is

next The ISI. from Kim of question Evercore Stephen coming is

rebound. what color. January extremely with of I about Yes, predicting times. been really sustainability cautious of appreciate A And out the seems everyone dovetails there hearing. on exciting excitement but particularly, the the commentary I've all lot the

sales extremely with obviously, that the were that, So good. to regard

your over per in X to January. order were X month You pace

actions you're your mean done ratchet net down taking or price. which the so the has beginning wondering clearly raising incentives at you're face. And other a that I'm market kind of to an And community level would if effectively about

Yes.

to we business XX% to at net point of get from end that our sales built day, we to to the and per that And try And the store. to going -- that's XX% everything we're going how So view. we're at get of a try X margin pace.

why the is not fact which the I'm have. January there, somewhat sales perspective, additional better ready spring like and it's saw January. result. why went We're out feel have sure inventory. our inventory move-in having not had we that than it's the any about From some we having we And That's winter interest we we is stabilized. frankly, really rates that consumers inventory other optimistic the and market, So the want. our And that's rebounded in that what

even a In we were above in able where prices when strong very we achieve X lowered made adjustments, we did number communities to we sales. demand see of and net elasticity our

on much we'll we're where and So use in can that specs. rate think to back we're drive We all did on as we can pulling nearly rate we sustainable. that's buydowns those quickly off People costs back we move buydowns. now down. have incentives selling relatively as in communities, those don't And

by don't today's get probably So at now. we If be and But it's can spec share get homes spring today's builders while it. to more we take the market go to going more we're we'll than other season X to have want months margin. go and selling months right going go aggressive. margins, this here it's one do take market month community community. at We're than X to It's

are, try we're where absorptions bit And margins makes go most the to more So, we're comfortable we'll are. it a our our little sell part, entire sense. back for going But pull houses. to where

lot makes that a Yes, of sense.

a be hotter Your your of rollout month. communities though, commentary, seem X at would bit with than and count a about those to odds, though, running community

community So proves about can bet have community if demand count and than I'm community openings the of on actually wrong. a that face year-over-year the to yet, you positive willing your you deeper count really broader is maintain the or anyone do do an correct year? ability course over to me on so be to this openings If

strong. accelerate community. really can We demand our is The opening always

that's we I prudent think don't feel that today.

by of opening would critical them strong us don't compromise integrity opening community be success probably of our meaningful getting it we think big openings at count I do and comps opportunity communities want have early costs that to So long-term for decision have the these investments and those the to because than really up it more costs for Right we're seeing vertical that. don't make And high underwrite. some made. new we to community lower to now, the on that's we to up those vertical the

number So one. that's

get to community, two transformers that the every still single job get communities, municipal open ready and, the frankly, get any in not ready to move open in it's site inventory Number community. of finished we these inventory easier to -- when up is have a so approval, one getting municipality, we

those strong and structure inventory It's more the them we that's to opening with discipline I to Sandy going executed, think driving can. operational best ready that up well up up opening is just up opening clean, to the vertical count the -- this cost communities So momentum, And hit with with about opening don't to community accelerate there. move in year. compromise decision we're

the peaks community Stephen, Just that a we to rebidding process. already to the that clarify, count going XXX target say in hit in couple quarters, we're of

We get target said is couple those the work. through So have as our community full opening latter community we us going the count quarters rebid. just it's part to with that said, inventory starts year really take Opening provided. we're not doesn't we until going a of aligned to exactly without this which home to of a

know that and just couple be is As bunch you we're a specs at in And we we specs. quarters in seeing right the decision. of the coming down putting have an it's seem available the volume inflated whole a doesn't of ground to because said, cost

while what in pace sacrificing of we end the of year. margin year in just can make the and the price, So back front that instead a at anaemic of more sales be those patient set we're we not half willing targets to sure pace the sales lower the at drive to accelerated have

of last don't hold comment, doesn't going QX up and for buyer opening cancellations on make are in that without the all the when were issue part just rates And one production. to months hoping to was we X interest then any know do. you're And sense just people communities your what

lock with inventory. up Customers that XX willing your it They And open So in XX, move-in we are I minimizes think cancellation days. to moves their something with to ready want can exposure. rate. engage XX,

remain we've rates those that we're cancellation assuming we run volatile. to sure business it got our And down to our we going So to interest keep continue low, now. make will rates want where to cancellations

Yes.

you rates we interesting, mentioned that's is which that said the because stabilize. have. that you what Philippe, a mortgage we've So volatility in like certainly just to And I think that you'd rate lot seen see of

I'm curious if And I'm so need to suggested -- you that curious true. really buyers sort of see rate But some that's stability.

here buyer if starts term, relatively as that, in into not think were that as boost seems home we headlines? which to make might certainly an instance, For sentiment the drop mortgage to short the additional that do possible the to the it rate a you represent see

It's you're If relationship. clearly, demand. I mean, absolutely are one-to-one lower, a trick asking rates there's me more question.

selling demand. it's if chain. So to a our our We The discipline about But year. to holds. future selling not half of we're were But It's season. certainly rates of knowing lower to They they move-in cost going -- in operational go going going It's them. we're ready say structure stronger yesterday. what Fed the yes, a supply made specs. the with go the could our strong up stay see see spring didn't could great to X, their not back rates and about speech

to best going operating know and don't yet of way the we focus So is company. think on the interest we we're our in

of The next is Instructions] [Operator Associates. Alan coming from question Ratner Zelman &

all Thanks, the great always, info. as for

over than up the mix your peers imagine I down certainly amount more as more of couple XX% side, market well. being would way obviously than maybe guys the brought order way is sounds And down a there's and last But more quarters average pricing on is the price of First which of Hilla, aggressive. you decent are. that is in it like some you there

I'm So, because for to the ago you're were that kind I a out us parse of quarters of of sensitivity. impairment kind curious couple if just recall giving when you able do

to ton which think current saying makes home now you're kind the impairment obviously not there's given bit. any you you into a drop risk. curious would a be little there I'm to said for if lot like could need meaningful And that XX% just of prices of there sense I drill of a market. risk out

now bit we're of close affordable Primarily, biggest XXX a little certain but to the and is it's mix. store-to-store. I'll the builder. the to unpack -- It's not mostly would adjustments absolutely [indiscernible] West it's to middle question ASP lot year close although impairment that have east. last We of position and Texas, And I mostly just been you, let tell an just was parts we're of price. you our the our in and a

have sense to payment we And get We our makes under to a that customers. that exists ASP. payment we're for when believe XXX

Xs Xs our statement come underwrote income we ago, was X the So our to that's assuming land low going that's our product. where position we be our ASP into of years to most in and

the we're our graph And of being or so about all above the the and in homebuilder the slightly is positioning new mostly affordable so competitively set; competitive of the bottom bottom ourselves at graph price. that

pretty all can yes, we've And a they're priced. new it's the -- at But Hilla It's communities maybe few ASPs. speak then impairments. and much up opened to lower

have with do geography we East. Well, the

in last we quarter. When sales were the that entry-level. mix a quarter different year's on XX% looking not from it, Alan, perspective, fourth mentioned, XX% we're our of It's just at

in So XXs category. the is the somewhere in mix

confidence sit we current probably impairment that, that as in that of here with of So that don't a quarter margins material, the margin. that's in not but a reduction still quarter just the material gives say with XX we today, north price north for. we're That XX% guidance this gave not we to shift broad-based see us the

and So, be you math can work? XX% How above that XX%? from how XX.X% does drop still

But volume pieces There we us into saw leverage helping costs, the the as fourth quarter. in some are some that of the and efficiencies high product. then other is some certainly simplification mix, go particularly increased also the

lot So any you're into impact a shifts why the a X But overall, to sales. is material there's prices those good feel comfortable, we our numbers other of looking that market to January we hit already that lower seeing have without that ASP our our the X roll in at especially pieces in of which calculations. numbers large net

meaningful also direct And we've we've meaningful our most we savings most in where script our what done. over we house, last which When saw the earlier the have XX,XXX in quoted have where we got the those and X ran numbers cost made that's where up Colorado Phoenix, the in Phoenix. most that the adjusted most has softened adjustments Denver, where prices also market years. That's and got per the margins

for affordability more reduce you've to you And still and generate helpful. equation able level really been impressive a that have it's all and much your the prices think bring you as at as margins consumers That's I are. reasonable the really

speaks obviously there. it the think operation to of I execution the

share kind So well -- positioned take to continue from of that taking regard.

back here this you last half second a in kind of the that accelerated night over agree of continuing gain but but like that to do similar into statement too activity of they bit another last at kind The on would get really from activity fine improvement point? of a you Or a X a is on here of of off the things question, kind we heard week leveling feel implying have weekly of builder Not gave is December seen that add might early or the momentum kind they that did January. January commentary with? to market comment

I mean we just monthly. gave out

weekly can want you, trends. we tell just not you agree would I that sales statement. Now with

is The JPMorgan. of coming next Mike question Rehaut from

quarter think could believe construction about should the puts either lot costs, or the you said a impact obviously, reduced directionally quarter. late XXXX. both a which, first first about said make said, might you you're a I point. we're Because just least? I this everything about giving How at else obviously you materials we the to appreciate side if some range, quarter you and But that at understanding margins your I gross back gross and which margin had questions. to where early right, and wanted are XX% only is my guidance the taking or just I takes in labor equal, you're sure thinking first tailwind, XXXX, as XX% I'm takes beyond heard being of be talking and circle puts long-term you appreciating in on

the impact a of might a a the months further few there's kind last are construction is Or a of the relative above of even would the trying still wondering even quarter offset bit about first that, even dip environment XX%, incentive in hit where that XX%, some in it of I'm anything seen over second quarter? -- could little be you're that in you create the any lower and pricing to there costs. you've given if if that the lag thinking that, to perhaps

So thanks for are first under for there to any but the we XXXX are quarter question, The homes that that production. -- that's Mike. the guided -- XX% XX%, the

what the there's to So we in them They're came costs those that quarter. the We right? specs with either quarter. in close closing are, can know or backlog in

into QX. a So we good have visibility

the too Now trend, whole. we're margin normal said be at spoke here about when long-term obviously, our to of but XXXX as We XX%. about a not about not from trends. cute or we above We're talking long-term talking

we're margins what that XX% long-term there north that communicate trying is So are I the think to of that. or

what XXXX be the a whole we year be an right normalized So kind place had strategy. all COVID new in a first in pace. that look operational COVID of it kind structure hit, really at just in engines And coming impossible we really is then when our honest, had right? environment got was to would we and of to

Since normalized we it to seeing XX in the thought we beginning, we're efficiencies And be we as to raised on the XX. today's call, or said the north it would then, would at continue So harvest at business. that we XX. be of

that's I year. long be structure higher. if the the look So QX, that trough. to we're that sitting we the when By year, for builder have, not position, can't don't I whole feel know dynamics operational low -- yet going understand point or the XX% guidance XXXX. We today term it's the for that took of we confident rest the long in all at I providing term predict so confident be for the will we the do here not the

over clarifies there. we'll additional quarters, that As insight the give coming

quarter one levels gross sense I are your maybe to incentive months, say and element terms are Or I'm because that. the let's line my that get in or Hilla. helpful. reflect assume sure pricing That's appreciate in couple you less make great. Would terms that, on in That's of gross a environment. of say that is also So last that? more quarter reflected higher in would incentives levels -- December higher orders in if incentive on first trying of margin where question of that wrong in first current And you I to that, were of the where just current the margins the October, fully than with but than guidance? just what that first around or

incentives coming our just level. clarify. I'll XX% So but know we said primarily from we I just you to with expect entry clarify, look builder don't volume of because incentives at

a for base use financial interchangeably because we incentives payment solving for buyer. we're and the So discounts price

sales. of So ready we X,XXX all what seeing in, of mentioned This the is in expected. that and guidance them of have quarter, specs those we in to sold includes January QX sold we we X/X We current you're that some the volume the already. our our year, those. Those close QX what entering in

So in of seeing environment. the XX current guidance margin to what we're XX reflects the

The next question Lovallo is John of from coming UBS.

valuation, stock's coming open liquidity mentioned you there's about your is to to share to an get more the here know shareholders. aggressive debt there about buybacks? being capital potentially opportunity to XXXX, returning I on just thinking But mean, I due position, no

and cash There's debt buybacks looking at to paydown. balance we to position possible. Sure. sure the to to consider the get shareholders look do getting We're other while on what in that the of to at everything optimizes methods keeping opportunity strongest return shareholders make sheet the to an trying us aggressive share

our XXXX in Board. that some we're definitely it and which still we'll is, action there's through action but So taking be the magnitude betting

for So for next quarter's some visibility tuned into that. stay more call

versus how And of And And any is entry is portfolio? level on would other just -- to differential for entry Okay, to go? good margin level, your like there hear. there go? how high then it the this the of you that's XX% can us, high orders parts remind

no differential. Yes really and there's

move-down focus consumer we the blurry. that We buyer then blurry. we have it's call get higher. of on segments value-conscious the up lines entry-level move what value-conscious The and X we buyer, And kind

of are moved are people, them of Some buyers families, same aspirational same entry-level value-conscious. type kind up of the

you target buyers. XX% XX%, level it and get So is and entry customers can move up and XX% down conscious the our on XX% value But our XX% communities. to of based move go definition I all to XX%, your think -- our way up

interest think move and the And market the doing but I rates it of kind around spot. depending is doing sweet so on what what are that's can

question next of coming The Reichardt is from Carl BTIG.

cycle that Arizona you why Philippe, in and curious mentioned just the company. longest were is the in Colorado that. times I'm

question. It's a good

different of things. couple a it's think I

capacity were I both in up actually, And the Arizona, not I same multifamily being they're COVID. was think with there just trade starts during demand single-family. so pushed reason. and amount in just different could much the don't out both keep and But think the of that

up but across lot back just So constraints them pretty tremendous the categories and cycle to not end ramp-up meaningful versus across board. they of just end able times in a lot put of in XXXX, expansion and keep we just front on some a saw 'XX, weren't

that always just It's don't you you always into been saw lots big our in So again get times always add there. there. market, really somewhat business It's just to -- get cycle been of we It's surge that attract then when a out lot skilled long. saw of a issue. really, Colorado labor folks labor demand. has difficult And constrained. COVID, demand a of had

X here. different quickly significantly I think relatively as recovers Phoenix reasons; slowed So demand has

that. And already seeing so we're

here times think affordability. I to times the We high We do as relatively quickly lot build there. always demand We a because get is we'll there Denver down challenge. cycle cycle basements. be always longest have density of going slows. our able to a be

as there So to as slowed but continue the we'll challenges market there hopefully, well. have we'll do better

those And you've January? at near Obviously, that or from limits. in that seeing in had below helped FHA about of consumers talked lot in apps? a Has then to you your big that all terms limits. hearing of second, in you've Are keeping the importance a jackup past, conforming pricing loan the

No. It's high. gotten even for limits us and FHA really loan conforming not a have factor so because anymore

to now it's and the just I of positioned as be bottom want bottom the all be, said the we're set. our the market. middle graph, with who So of where offering in earlier, affordable on We on against we're the about to competing the really depending competitive

it's So it's every our and need research at and really no that clearly right? pace. tells how these looks it price pricing to We find well but below probably where department by just given driven that connected to community days our every to the longer ideal to our week matters. that be we we to But we that are. It below want inventory want high unless be is, us

the comes lag they that needed just ASP people was getting conventional They started Just visibility, total the a kind and assistance when high loans. got for was up to are It disconnected. XX% to our of are FHA, need from down. little X-year FHA the come of be a mortgage lot using a people they so us it's don't but certainly, right dollars where of Carl, FHA year bit to came for pool some that

today question final from Center. Alex Research Our is Housing coming of Barron

guess, Yes. guys stuff deals? ask environment? how guys how you few are going your approach weeks forward, if your better current I in to opportunities at last you the regarding replace thinking to hold thinking are transpired, you what's guys cancelled to land Or you to land and going going to position, be I wanted about just land are Or the the off? about there's

environment started think, around be costs like. have what to here. through land down as looks things out prices and sort got spring interest are new long-term We're re-evaluate modestly, if going prospects is to land. survey that's opportunity X%. saw the have our the recently cautious reality; patient plenty We've decline like, I think get development what of definitely that I well, don't to hard the seeing rate underwrite. we of market so going I We're the there. Today's look to We're certainly enough. and get a to some land

for really have articulated, maintain trajectory you've to buying couple years anything. XXX of As we our without next the the community ability count

to will We're as clearly be be So but when want we We well. patient there. want time it in there be grow to it's active some about from markets. new to

sitting really what going of couple through to read So, going see leaves, us evaluate and like in XXXX XXXX are up. I being have And be said, tea next think start just you're kind really, get. going the to it before million of opportunities to to That get themselves, ramping definitely we the bank. present feel if we'll certainly patient. we the go $XXX We're quarters

Yes. They're cheaper be A Alex, of away you're clarify, to to a all at builders. builders repackaged just deals land land our that still We're of Those folks from going sense. lot from and sold exist. don't deals. make hearing to walking price. are the just dropping options peer

buying at opportunistically market to every is enter and that attract the buy we're having than aggressively opportunities land a jumping land prices. at to more will land to So point some more committee point, be week there going but there be going

things to time to do to and you'd time your -- approach reflect of how let's chain guys? you this Or X those given Or lessons about years, the years? on you market if in opportunities? I chain around, had differently last what you thinking capitalize reaccelerates differently we either I this things had are do be the we again, What X are it. X experience if doing Got how see mean, supply would for last we rates. you start interest back think supply rising say, think you you guess, And these then the the, issues maybe issues,

always we're learning. Well,

last that We came ahead the years lot one and proactive -- an our strategy. share. grabbed of out We've we're extremely X we've a I agile market than think COVID anybody, of pivoted that organization. over the aggressively probably of demonstrated trends. of been we're more We the

side with right market. in the I -- part playing in think we're the right the the of

We have specs.

paying to agile. this So continue do We be we're We're attention to XX/X. going everything. to job

faster engaged this very and but to can than as We market represented talk whatever that so We well. and a to there. out collaborate team and time. of take evident move going advantage a we're also the before one aligned, opportunities quicker all the properly still continue listen have have We another risks to that as we we in team are manage

we change that's a and real going everything being what and that. here have agile. willing we'll to and invest that So to it's we've willing constantly continue innovate to about strong and that to capability is It's learned, and to adapt. evolve right? was being just about in Don't think be And be continue

great to Homes. have you Thanks. We you, today this everyone hope great thank the interest you. call in rest Thank a Meritage of weekend. Thank operator. and who for continued like your a joined I'd day

and you Ladies concludes your gentlemen, This thank event. for today's participation.

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