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Edited Transcript of MTH earnings conference call or presentation 29-Apr-20 2:30pm GMT

Q1 2020 Meritage Homes Corp Earnings Call

Scottsdale May 13, 2020 (Thomson StreetEvents) -- Edited Transcript of Meritage Homes Corp earnings conference call or presentation Wednesday, April 29, 2020 at 2:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brent A. Anderson

Meritage Homes Corporation - VP of IR

* Hilla Sferruzza

Meritage Homes Corporation - CFO & Executive VP

* Phillippe Lord

Meritage Homes Corporation - COO & Executive VP

* Steven J. Hilton

Meritage Homes Corporation - Chairman & CEO

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Conference Call Participants

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* Alan S. Ratner

Zelman & Associates LLC - MD

* Alex Barrón

Housing Research Center, LLC - Founder and Senior Research Analyst

* Carl Edwin Reichardt

BTIG, LLC, Research Division - MD & Homebuilding Analyst

* Charles Perron-Piché

Goldman Sachs Group Inc., Research Division - Associate

* John Lovallo

BofA Merrill Lynch, Research Division - VP

* Michael Jason Rehaut

JP Morgan Chase & Co, Research Division - Senior Analyst

* Paul Allen Przybylski

Wells Fargo Securities, LLC, Research Division - Associate Analyst

* Ryan John Tomasello

Keefe, Bruyette, & Woods, Inc., Research Division - Analyst

* Stephen Kim

Evercore ISI Institutional Equities, Research Division - Senior MD & Head of Housing Research Team

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Presentation

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Operator [1]

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Greetings and welcome to the Meritage Homes First Quarter 2020 Analyst Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Brent Anderson, Vice President of Investor Relations. Thank you, sir. You may begin.

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Brent A. Anderson, Meritage Homes Corporation - VP of IR [2]

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Thank you, Donna. Good morning and welcome to our analyst call to discuss our first quarter 2020 results. We issued the press release yesterday after the market closed. You can find that along with the slides that we'll be referring to during our call on our website at investors.meritagehomes.com or by selecting the Investor Relations link at the bottom of our home page.

I'll refer you to Slide 2 and remind you that our statements during this call as well as the press release and accompanying slides contain forward-looking statements including, but not limited to, our views regarding current business conditions and the potential adverse impacts related to the COVID-19 pandemic; our expectations or projections regarding the demand for our homes, home prices, costs, mortgage financing, margins, overhead expenses, cash flow and liquidity. Those and other projections represent the current opinions of management, which are subject to change at any time, and we assume no obligation to update them.

Any forward-looking statements are inherently uncertain. Our actual results may be materially different than our expectations due to a wide variety of risk factors, which we've identified and listed on this slide as well as in our press release and our most recent filings with the SEC, specifically our 2019 annual report on Form 10-K, which contains a more detailed discussion of these risks. We'll also be filing our 10-Q shortly.

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

With me today or at least distant are Steve Hilton, Chairman and CEO; Hilla Sferruzza, our Executive Vice President and CFO; and Phillippe Lord, Executive Vice President and Chief Operating Officer of Meritage Homes. We expect the call to conclude in about an hour, and a replay will be available on our website within approximately an hour after we conclude the call. It will remain active through May 13.

I'll now turn the call over to Mr. Hilton to review the first quarter. Steve?

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Steven J. Hilton, Meritage Homes Corporation - Chairman & CEO [3]

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Thank you, Brett. I'd like to welcome everyone participating on our call today and sincerely hope that all of you and your families are being able to stay safe and healthy through this global health crisis. Our hearts go out to those who are sick or caring for loved ones stricken by the virus, and our heartfelt thanks to all the health care workers, first responders, and those we rely on basic necessities like groceries and gas during this time when most of us are staying in our homes. We are grateful for your service.

Our #1 concern since the coronavirus began its spread has been the health, safety and well-being of our people, including each of our Meritage team members and their families, as well as our customers and business partners, and I commend our entire Meritage team for their commitment to overcoming challenges we've never experienced before over the last 6 weeks.

We'll cover what we're seeing on the ground in April shortly as well as the change we've made, but we think it's important to also review a few of the financial highlights of the first -- of our first quarter performance that we realize is not a current indicator of the remainder of the year. We believe the financial strength of our balance sheet and our strategic market position exiting Q1 will allow us to successfully weather the uncertainty of the upcoming quarters and be prepared for the near to midterm volatility while keeping our long-term focus aligned with our strategy.

Turning to Slide 4. Through most of the first quarter, we enjoyed strong demand for new residential construction amongst the highest demand I've seen in my 35-year career. As you're well aware, economic conditions have deteriorated across the U.S. since mid-March, which coupled with declining consumer confidence in a tightening mortgage market have negatively impacted our traffic and our sales.

Demand was especially strong in the entry-level and first move up, our strategic markets that make up 90% of our communities, while we're able to capture that strong demand to generate 23% order growth with almost 70% of that coming from spec inventory that we were able to close quickly.

That, in turn, drove 27% revenue growth and 180% earnings growth over last year's first quarter. In addition, the simplifying and streamlining of our product and operations that we have completed as part of our strategy has driven our costs down and resulted in the first quarter home closing gross margin attaining 330 bps with 160 bps improvement in our SG&A leverage. In other words, while strong demand for the most -- while strong demand for most of the quarter provided the opportunity, execution of our strategy allowed us to capitalize on the opportunity and to deliver 180% earnings growth.

We also provided cash flow for our early retirement of debt in December last year while maintaining the liquidity we need for the flexibility through this period.

I'll now turn it over to Phillippe to discuss more specifics regarding recent trends and changes we've made in the way we operate.

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Phillippe Lord, Meritage Homes Corporation - COO & Executive VP [4]

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Thank you, Steve.

Slide 5. As we reported earlier this month, the spread of the coronavirus began to have a noticeable impact on our operations in the later half of March as evidenced by an 8% drop in orders compared to March 2019, following year-over-year increases of 38% and 51% in January and February. Based on our sales through the past weekend, we expect April orders to be down approximately 25% to 30% from April 2019, above 650 sales compared to 916 last year.

Our order cancellation rates increased from 13% in the first quarter to the high teens in late March and are currently around 20% month-to-date in April. Shelter-in-place orders are still in effect across most of our markets, but residential construction is currently deemed as an essential service in almost all of our locations with the exception of a handful of communities in California. We are continuing to build and deliver homes following the protocols recommended by the CDC, OSHA and other government and health agencies to stay safe and minimize our risk.

Slide 6. While the world we are living in today is very different than it was just a couple of months ago, I'm proud of the way in which our teams are quickly adapted to the new temporary model, and we are leveraging our technology forward solutions to continue to operate remotely. For example, we are seeing customers either virtually or by appointment only in our sales offices and Studio M design centers, allowing our customers to practice social distancing during their home-buying process.

Our online traffic has held pace since earlier in the year and is almost -- is up almost 50% since last year's April. Additionally, approximately 15% of our net orders came from virtual tours, a validation of the creativity and determination of our sales team during these new times and the acceptance from buyers of this home-purchasing format.

Our sales counselors also take photos or videos of sold homes under construction to update homebuyers on the progress of their home when they can't physically visit the construction site.

We are getting accustomed to working remotely and are accelerating adoption of new technologies throughout the organization, which will continue to benefit us even after the market is fully functioning again. With mobility restrictions in place, the customers we are seeing today tend to be highly motivated buyers who are ready and able to purchase a home. We assist them in their research with a robust website, customer contact center and agents available to answer their questions by phone, text or e-mail without the need to actually visit their communities until they are comfortable. Consequently, our conversion rates of traffic to sales have increased monthly from earlier this year.

Customers are using our 24/7 online mortgage preapproval tool to help them move through the process of qualifying to purchase a home more quickly. MTH mortgage consultants work with them to complete the process without ever needing to come to the office in most cases. We are also doing drive-through closings and are now equipped to process earnest money deposits on customers' debit or credit cards remotely through a secure e-mail link. These tools and procedures make it more convenient and safer for our home buyers to work with us. Since many of the changes we've made are also more efficient and are in sync with today's more digital lifestyle, we intend to keep and expand upon them to help reduce the cost of selling and closing homes even after the current pandemic recedes.

We're working effectively with most of the municipalities and utilities we do business with to enable us to get permit and complete inspection as well as billing and payment for services. Our crews are typically able to maintain our construction schedules, and we have not experienced any significant supply chain disruption so far. For the safety of our employees and customers, we have temporarily suspended all nonemergency warranty work involving the interior of occupied homes. We will begin warranty work as soon as allowable in our markets.

Moving on. Rather than covering our operating results in as much detail as I typically do, I'll point out just the highlights of the first quarter before turning it over to Hilla to review our financial results.

Slide 7. The first 10 weeks of the quarter were exceptional by any measure. Absorptions were up 35% year-over-year. So despite having 9% fewer communities open on average than a year ago, we still achieved 23% order growth. Our ongoing pivot to entry-level continues to benefit our results. Entry-level orders were up 69% year-over-year and represented 51% of our total ending community count at March 31, 2020, and 61% of our total orders for the first quarter. Those are up significantly from Q1 2019 when 36% of our communities and 45% of our orders were entry-level. Orders from our noncore assets, which is anything outside of entry-level or first move-up, dropped to under 6% of our order volume for the quarter.

Slide 8. Our spec inventory at quarter end was up 23% year-over-year to a total of just over 2,700 homes started, of which only 28% were completed. The number of completed specs at quarter end was down 7% from a year ago. We're selling more specs homes before completion and have been able to resell homes that canceled typically without any additional concessions. We ended the quarter with an average of a little over 11 specs per community compared to 8.5 a year ago mainly due to having more entry-level communities, which are 100% spec. Although we have certainly reduced the volume of specs we are starting over the last month, we do not plan to change our strategy of selling spec built in the entry-level space. We are managing spec inventory to keep a 4- to 5-month supply to meet the demand for quick movements. That 4- to 5-month supply is based on order volume, so it will be a smaller number as demand softens and larger when demand increases again.

Slide 9. Our orders in the West region were up 35% over the first quarter of 2019 driven by a 41% increase in absorption with 5% fewer communities on average. Entry-level now makes up almost 70% of our total California communities with very limited exposure to the jumbo market. Total orders and order value in California more than doubled over last year's first quarter. Despite a 14% drop in average communities, Arizona again produced the strongest absorption across the company at an average of 17.8 per average community for the quarter, up 44% year-over-year, resulting in 25% order growth for the quarter.

Our Texas region had a 41% increase in absorptions and despite a 13% decline in community count, orders were up 22%. Austin had exceptional growth of 85% year-over-year for the first quarter due to our strong entry-level presence with our LiVE. NOW. communities. Overall, we believe Texas will be resilient as we continue to come out of this downturn and as we experienced in the last cycle.

We continue to see improvement in our East region during the first quarter. Year-over-year order growth was 11% due to a 20% increase in absorption, which offset an 8% decline in average community count. Closings and orders were reduced due to the devastating tornado in Nashville during March. Within the region, North Carolina produced the largest year-over-year growth with 25% increase in orders primarily driven by product mix, which contributed significantly to 39% increase in absorptions there.

Our backlog is solid. We don't count continued contracts for buyers with the homes to sell, unless the sale is just waiting to close. We are seeing limited cancellations on our near-term backlog, and we expect most of it to close quickly, which is an advantage in today's market due to the employment uncertainty and higher standards to qualify for mortgage financing. Our JV partner is honoring all prequalified mortgage approvals for customers in our backlog without requalifying them using the tighter qualification standards that exist with many lenders today.

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

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Hilla Sferruzza, Meritage Homes Corporation - CFO & Executive VP [5]

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Thank you, Phillippe.

Considering the fluid conditions and lack of clarity regarding the timing and path back to a more stable economy, before I begin, I'd like to note that we're withdrawing our previous guidance until an appropriate time in the future.

Starting on Slide 10. We produced strong earnings growth of 180% in the first quarter of 2020 over 2019 and achieved that result with margin expansion and SG&A leverage in addition to the 27% home closing revenue growth. Closings were up 31% over the first quarter of 2019 with 69% coming from spec inventory and a backlog conversion rate of 83% compared to 73% last year. Our home closing gross margins increased 330 bps over last year's Q1 to 20% for the first quarter of 2020, traditionally our lowest-margin quarter.

Our margins benefited from pricing power over the last couple of quarters as well as construction efficiencies due to simplification of our products and processes, cost efficiencies from better negotiating power on a lower number of SKUs and incremental efficiencies and construction overhead from the additional closing revenue. Although we have not yet seen notable discounting for new or retail homes in our markets, our high gross margins would be able to absorb material price concessions before we would have any concerns about taking meaningful impairments, which has been a topic of discussion among investors lately.

At this time, we anticipate volume will be lower in the current environment but we are still continuing to sell and close homes every day. While profit is always front of mind, in the current environment, we believe it is important to continue to maintain cash flow from home closings to cover our fixed costs. It's also important to maintain a production cadence that delivers cost savings with our streamlined construction processes. As we continue to operate over the next couple of quarters, we will monitor our market and we'll adjust the conditions with pricing decisions locally as necessary in order to maintain our minimum volume threshold.

The additional closing revenue in Q1 also resulted in increased leveraging of our SG&A, which declined to 10.7% from 12.3% a year ago. We were on pace to hit our 10% long-term target for the full year, although we aren't expecting that trajectory to continue in the current economic environment.

Earnings from our financial services segment were $2 million lower in the first quarter of 2020 compared to 2019. We changed our mortgage joint venture structure relating to customer incentives offered for using our mortgage JV last year, such as the profit from those incentives is now included as part of home closing revenue rather than being reported as part of our financial services results.

Our early repayment of debt in December of 2019 resulted in a $4 million net decrease in interest expense that aided our first quarter 2020. We also benefited from a lower tax rate with the extension of the energy tax credit into 2020. Our tax rate was approximately 18% for Q1 this year versus 22% last year. Our full year tax rate this year is expected to be between 20% and 21%.

Our Board had previously authorized $100 million for share repurchases, and we repurchased 1 million shares at an average price of around $61 per share this quarter. We have $23 million remaining authorized, but we have suspended repurchases indefinitely in light of the current economic conditions. The benefit of the share repurchases was fairly limited in the first quarter of 2020 as the majority of the activity occurred in March, but it will more meaningfully benefit diluted EPS on a go-forward basis.

Slide 11. Our balance sheet is in the best condition it's ever been with net leverage at one of the lowest points in our company's history. We have ample liquidity, and our banking partners are willing to extend additional credit if needed. We borrowed $500 million against our credit facility in March to provide additional flexibility during this period of extreme economic uncertainty, and we expect to hold that cash reserve at least for the short term. The net cost of that debt is very low at under 2%. We ended the quarter with almost $800 million of cash, additional liquidity of almost $220 million under the credit facility and net debt to cap of about 26.6%. We have no debt maturities until 2022 and have been deferring most of our land acquisition and development over the last 6 weeks while eliminating nonessential discretionary expenses and metering the production of spec homes to preserve ample liquidity for future uncertainties.

We don't feel any pressure to liquidate assets to generate cash, and our recent operating results are trending better than our internal downside projections with lower cancellations and higher sales than we anticipated short term.

Slide 12. We spent approximately $246 million on land and development in this year's first quarter. That was about $110 million less than what we expected to spend when we entered 2020 due to deliberately curtailed spending in March. We added about 2,900 net new lots during the first quarter of 2020 to end March with approximately 41,500 lots, which is about where we ended 2019. That represents a 4.2 year lot supply based on trailing 12 months closings. We are on target for our goal of 300 communities by the end of 2021 prior to our decision mid-March to pull back and curb cash spend to preserve liquidity. Since mid-March, we deferred approval of approximately 1,800 additional lots in the quarter. We terminated several deals prior to the end of the quarter and a couple more since in April prior to the expiration of their feasibility period resulted in very limited charges of just under $1 million.

We continue to work with our land sellers to extend purchase and feasibility deadlines. Although most sellers have been willing to work with us and are offering acceptable terms, we're closely monitoring additional deals for termination if the economic recovery is more protracted than currently anticipated. We expect such actions to only result in a limited amount of walkaway charges for the rest of the year. In addition, we have daily reviews of our upcoming land acquisition and development spend with all land cash expenditures requiring corporate-level approvals for the current time.

Unlike the last significant downturn in the market, we have far less risk in our land book now. No speculative luxury projects, no deals with significant development or entitlement risk and a well-defined land playbook with consistent expected margins that provides us with much more confidence in our land position.

We also want to provide some additional information regarding our buyer profile in relation to mortgage financing on Slide 13. Our buyers have solid FICO scores, typically around 730, with more than 70% of that above the 700 mark. Even for our entry-level buyers, the average FICO is 720 and well over 60% of those buyers are over the 700 mark.

Our back-end DTI for the average buyer is below 40%. That's true across all of our buyer groups, including entry-level and has been for many years. Nearly 2/3 of our buyers financed with conventional mortgages with down payments averaging in the mid-teens. All of those are indicators of more stable credit than the credit profile for traditional entry-level buyers. Our longtime JV partner has been able to continue to deliver mortgages for our buyers where other banks and nonbank lenders can't or won't in this environment. While there is a risk that the market could tighten further and impact buyer's ability to qualify for a mortgage, there is no cash or put-back risk to Meritage for mortgage servicing as our JV is a broker only, not a mortgage banker and doesn't own any loans or servicing assets.

We have been successful thus far in working through mortgage solutions with our lender and navigating the financing environment, which seems to be shifting daily. To-date, we have had limited impact from the inability to qualify buyers that would have qualified pre-COVID-19.

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

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Steven J. Hilton, Meritage Homes Corporation - Chairman & CEO [6]

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Thank you, Hilla.

As our first quarter results demonstrated, our strategy was hitting on all cylinders until late March when closures of large sectors of the U.S. economy began to severely impact the market. Since then, our focus has changed as we are leading and managing the company through a much different landscape now. However, we've reminded our employees, partners, homeowners and investors that this is not 2008. Home inventories are still in short supply, and the industry has been underproducing relative to demand for many years.

Demand for homes is from buyers who are taking possession and moving into them. The attraction of single-family homes is even more compelling in today's shelter-in-place world. Prices are not being arbitrary and played by investors looking to flip homes for a quick profit. Mortgage standards are tighter, yet interest rates are still very, very low, and builders are focused on bringing costs down to make homes more affordable rather than offering aggressive discounts to harvest cash.

We believe Meritage is well positioned in that regard with our strategy to simplify and streamline our operations, which has been very successful to-date, and we believe will continue to serve us well through this crisis and in the future. Our entry-level LiVE. NOW. home offers surprisingly more value than some of our competitors at the bottom of the entry-level market, so we can attract a higher credit buyer.

Our first move-up homes are appointed with features and finishes that also attract some second move-up buyers, which expands our potential buyer pool.

We are also in a much better condition today than we were before the last recession. Our balance sheet is the strongest it's ever been with ample liquidity and very manageable debt levels and maturities. We have curtailed discretionary spending and delayed development projects where possible to reduce our cash outlays in 2020 and beyond as necessary. We are carefully managing our spec starts and inventory while maintaining the cost advantages of that model to maintain a competitive edge for our entry-level communities and help protect our margins.

We are well positioned in the market with our entry-level and first move-up communities, which we believe will continue to serve us well. We have an experienced management team who is in sync with our current strategy. Employee morale is good, and we are supporting each other, our families, our business partners and the communities that we serve. This is not the end of the world. It's the most remarkable active global solidarity the world has ever seen. And to that end, we rolled out a new charitable program last week where Meritage and our Meritage Cares Foundation and our employees are contributing $250,000 to feed America. I'm proud of our entire Meritage team for putting our customers first and working hard every day to make a positive contribution.

That concludes our prepared remarks. I'd like to thank you for your support in Meritage Homes, and we'll now take questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is coming from John Lovallo of Bank of America.

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John Lovallo, BofA Merrill Lynch, Research Division - VP [2]

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And I hope you all are well. First question. Hilla, I think you mentioned more recently some of the activity has improved a bit. Maybe in the context of that 25% to 30% decline you're expecting in April, can you maybe frame the past 2 weeks maybe versus the first 2 weeks in April in terms of year-over-year declines, just so we can kind of gauge how things are progressing?

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Steven J. Hilton, Meritage Homes Corporation - Chairman & CEO [3]

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Hilla, let Phillippe take that one.

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Phillippe Lord, Meritage Homes Corporation - COO & Executive VP [4]

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Yes. I'll take that, John. It's Phillippe. So certainly, when the shelter in places started to occur and state at home orders were instituted, we saw a dramatic slowdown. That hurt the back half of -- really, the last week of March and really the first 2 weeks of April were pretty slow. They were off 50, 60 percentage from last year's April. But then as we moved through the month of April, things have gotten much better. So that's where you start to see us being off 20% that really gets you to that 25% to 30% that we're talking about. So what I would tell you is -- and April is not over yet. We still have a few more days here, but we have seen a meaningful difference in the back half of April versus the first half of April and sort of that last week of March.

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Hilla Sferruzza, Meritage Homes Corporation - CFO & Executive VP [5]

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Just one other point I'll add to that, John. I know some other folks have mentioned a detailed scrubbing of backlog and a higher cancellation rates during the last week, and that's not typical for us. We scrub backlog every day. So we're not expecting an unusually high spike in cancellations to occur in the last day or 2 of the month.

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Steven J. Hilton, Meritage Homes Corporation - Chairman & CEO [6]

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Yes. We don't report any continued sales in our sales numbers or in our backlog numbers.

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John Lovallo, BofA Merrill Lynch, Research Division - VP [7]

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Got it. That's all really helpful, guys. And then I think there was a mention that I think 15% of orders came from virtual tours or something in that neighborhood. I'm just curious of the percentage of those folks that will typically need to come in physically to see the house before purchasing.

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Steven J. Hilton, Meritage Homes Corporation - Chairman & CEO [8]

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Well, I think they will all come to the house at some point in the process. The point of that stat is they're buying the house, basically sight unseen virtually. And then before they close, they'll come see it. But it's a pretty remarkable stat. It's a stat that I didn't even want to believe. I couldn't believe, I've struggled to believe that people would actually buy a home without physically going out and walking and touching it. But in this new reality, we're happy that 15% of our buyers are doing that, and we think that number could potentially increase.

That said, let me just add one more thing that in many of our markets, the shelter-in-place orders are expiring and being replaced with the phase 1 of America reopening. So many of our communities this weekend and then into the following weekend will be back open for business under more of a normal situation. So -- and we will begin to bring some of our offices back online next week in those states where the shelter-in-place orders have been relaxed.

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Phillippe Lord, Meritage Homes Corporation - COO & Executive VP [9]

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I would just add, this is Phillippe, that, obviously, having finished specs is really how you're able to sell a home virtually. It's much difficult -- much more difficult to do that in a built-to-order environment. Our LiVE. NOW. models -- LiVE. NOW. specs, we have to carry more specs. We carry a variety of specs. So we're able to demonstrate that home in a virtual tour. What you see is what you get when you get out there. And I would tell you that all of those sales for the most part are on finished specs.

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Hilla Sferruzza, Meritage Homes Corporation - CFO & Executive VP [10]

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It's a good proxy for folks that are nervous about existing inventory. If the inventory that's being lifted decline and people are nervous about doing tours in someone else's home, we're a good proxy for that.

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Operator [11]

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Our next question is coming from Alan Ratner of Zelman & Associates.

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Alan S. Ratner, Zelman & Associates LLC - MD [12]

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Guys, glad to hear everyone is doing well and congrats on the strong performance, both in the quarter and since then as well. So my first question, I guess just touching a little bit on that last comment about the advantage of having finished specs. One of the things that we've been seeing on the resale side in this current environment is there's been a huge decline in inventories as people are sheltered in their homes and presumably can't sell it if they're looking to move. And I would imagine you guys have benefited to some extent from that trend there.

I guess the question is, as you look forward and eventually perhaps listings do start to increase and you have to think about that 4- to 5-month ideal supply of specs that you have on the ground, how quickly are you kind of adjusting that start pace? Because obviously, the trends are changing so dramatically by the week. So should we think about your current start activity kind of down in that 25%, 30% range that you're forecasting April to be in? Or are you taking some differing view based on what's going to happen with resale inventory once eventually it does come back online?

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Steven J. Hilton, Meritage Homes Corporation - Chairman & CEO [13]

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First of all, thank you for the question, and I hope you guys are doing well also. I'll tell you that I think our spec strategy is going to be the defining element of our overall strategy, and it's going to be what allows us to gain market share in this downturn because many builders don't do it, and we believe very strongly that buyers in this environment and the environment going forward don't want to wait for a home and they want to move quickly. And we have that inventory for them.

That said, obviously, our April starts are going to be down significantly. We don't report starts, but I can tell you our April starts will be down significantly from previous months and from what's normal for us because we're fine-tuning where we want specs and where we don't. We have made -- where we have too many and where we don't have enough and where we're selling houses at a fast rate, and there are many places we're going -- we're building specs.

So how do we manage that? We manage it daily. Every day, we figure out what we've sold and where we need to replace it. And Phillippe and I together -- Phillippe leads the effort on that. I support him. I can tell you, this is hand-to-hand combat. We're managing that part of the business very aggressively as we're managing our land acquisitions, our land development. Not just about conserving cash, but about putting the right product on the ground, right place at the right price.

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John Lovallo, BofA Merrill Lynch, Research Division - VP [14]

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That's very helpful. I appreciate the insights there. Second question. Just as you think about your footprint, I know it seems like there are some markets that, at least from a job perspective, are being hit harder by this current pandemic when you're thinking about, say, Houston with what's going on with oil or maybe Orlando, obviously, with the Disney resorts there being shut down indefinitely. So when you look across your footprint, are you seeing any discernible differences in trends of late? Maybe ones where the demand hasn't seemed to bounce back as sharply perhaps due to that job uncertainty? Or is this the strength over the last week or two? Is that pretty widespread across your footprint?

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Steven J. Hilton, Meritage Homes Corporation - Chairman & CEO [15]

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I would say that I think about it kind of just the way you just laid it out, going into this pandemic and through it, I was the most concerned about Orlando and Houston, right? There's 75,000 people in Orlando that work for Disney. They furloughed 43,000 people a couple -- few weeks ago. It's a resort market, travel leisure market, very worried about Orlando. Also very worried about Houston with almost $0.00 per barrel of oil. But surprisingly, our sales in Houston have been very robust for April. I'm floored how well we're selling homes in Houston this month. Orlando sales have been off, but not as much as I would have expected. Really, where we're having the most challenges at this moment would be California. California I think is the one state that we could be most challenged by. Fortunately, our footprint in California is not that large. We only have 29 communities in California. But that's the one I'm concerned about. I'm also a bit concerned about Colorado. Our community count has fallen dramatically in Colorado from 23 a year ago to 13 because we've been selling out of communities and replacing them with new lower-priced entry-level communities. But the price in housing is pretty high in Colorado, and I think buyers there are being a little bit more cautious. But demand in Arizona is stellar even through the last 6 weeks, and demand in most of our Texas markets continues to be very good as well. So hopefully, that answers your question.

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Operator [16]

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Our next question is coming from Truman Patterson of Wells Fargo.

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Paul Allen Przybylski, Wells Fargo Securities, LLC, Research Division - Associate Analyst [17]

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Actually, it's Paul Przybylski. I guess, Steve, as we look for an inflection in demand, what would you need to see to give you comfort to reengage the land market and develop? How long would you remain conservative?

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Steven J. Hilton, Meritage Homes Corporation - Chairman & CEO [18]

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Well, we're not unengaged, okay? We're going through our land pipeline. Maybe we had a couple of hundred deals in escrow, maybe 100 of them we had gone hard on. We're reviewing those. We may have some of those, a modest amount of those that we decide to part ways with. And so we're not just going to completely blow up the land pipeline. We're going to reanalyze every one of them. Every market is different. I think some land prices are going to be somewhat sticky in certain places. But I think in other places, they may go down, and we don't want to be in a position where we overpay for land.

But we also think other builders, private builders are going to be stressed in this environment, and they're going to have to let go of some land that we maybe wanted to buy and couldn't buy that maybe now we'll be able to buy. And we're going to be very strategic, and we're going to use this opportunity. This is an opportunity to increase our market share. So I don't know that we're going to be running out buying land tomorrow, but we're going to be ready this summer, for sure, particularly if our city sales rates that we experienced particularly in some markets hold up, we're going to be ready to buy land where it makes sense. So as I said earlier, this is not 2008 where we're just throwing the pots and pans off the ship to stay afloat. This is a different situation.

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Hilla Sferruzza, Meritage Homes Corporation - CFO & Executive VP [19]

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Just to clarify, Paul. We've only walked away from a handful of deals so far. For the most part, all we've done is just pushed out the time line for the deals that we have.

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Steven J. Hilton, Meritage Homes Corporation - Chairman & CEO [20]

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We'll have some more deals that we'll walk away from this quarter, and there'll be some expenses for that. But I don't think it's going to be that material.

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Paul Allen Przybylski, Wells Fargo Securities, LLC, Research Division - Associate Analyst [21]

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Okay. And Hilla, earlier in the call, you mentioned you had significant headroom on the incentive front before triggering impairments. Do you have any color on the magnitude? Is it probably in the like 10% range?

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Hilla Sferruzza, Meritage Homes Corporation - CFO & Executive VP [22]

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Yes. I mean you guys saw the margins this quarter were 20%. So there's quite a long runway between that and breakeven. There's some additional costs for -- not to get too geeky on the accounting part, but the auditor is making sure on a little bit more money. But you probably have between 10% and 15% decline before we would -- in ASPs before we would even need to start having conversations about impairments. And that's assuming that there's no price concessions at all to be gotten in the market today, which obviously there are. So I think that kind of the culmination of all of those items gives us a lot of breathing room.

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Steven J. Hilton, Meritage Homes Corporation - Chairman & CEO [23]

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We had 30% to 40% price declines in the last Great Recession, which certainly caused all those impairments. Our margins were really strong then, they were even stronger at that time. But we're not seeing any real price declines yet. But certainly, incentives are picked up a little bit, but not meaningfully.

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Operator [24]

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

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Stephen Kim, Evercore ISI Institutional Equities, Research Division - Senior MD & Head of Housing Research Team [25]

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Encouraging stuff. Good to hear. Yes. It certainly does seem like things are holding up a lot better than they were looking like they were going to be a few weeks ago. I guess I'm curious as to whether you could comment on what you're expecting or what you're anticipating will be different as you -- in the markets where you reopen versus the markets -- I mean where the states are kind of reopening versus the states where it will be more delayed. And what specifically are you looking for in these markets that are opening up earlier to gauge how you're going to perhaps pivot your strategy in the other markets that may follow?

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Steven J. Hilton, Meritage Homes Corporation - Chairman & CEO [26]

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Well, I mean it's traffic, it's sales activity, it's prior engagement and it's pricing. What incentives are necessary or not necessary to get people to transact? I mean it's no different than in a good time than in a bad time. And the activity that we're seeing in the field and in the communities is really going to drive our decisions around building specs and buying land. It's a pretty simple formula.

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Phillippe Lord, Meritage Homes Corporation - COO & Executive VP [27]

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I mean, we -- in the markets, Georgia opened up a little bit, South Carolina. We're now seeing Texas open up here. And the markets that are sort of paving the way for opening, we're seeing incremental traffic right away. We're seeing buyer engagement, as Steve articulated. So we're seeing all that. I mean it will just be key to watch the sort of economic landscape for each one of these markets. I think someone mentioned where the job loss is going to occur, keep an eye on that. But we've already seen buyer engagement improve just with the idea of opening back up. So we're certainly expecting incremental activity and traffic when we actually -- it can be opened up for -- open up without -- in a nonvirtual-appointment-only environment.

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Stephen Kim, Evercore ISI Institutional Equities, Research Division - Senior MD & Head of Housing Research Team [28]

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Yes. Absolutely. Particularly seeing things improve over the last couple of weeks is important. Do you attribute -- or how would you -- how are you anticipating that you're going to utilize incentives during this what you might call a diagnostic phase? You've indicated you've seen some nice pickup in traffic and buyer engagement. I'm assuming that, that is in the absence of a material increase in incentives on your part or any special programs. Can you talk about the degree to which you are planning to maybe pull back on incentives in the near term or conversely to increase incentives as these markets open up?

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Steven J. Hilton, Meritage Homes Corporation - Chairman & CEO [29]

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Well, the question really should be more what were incentives in April. And I would say we used a variety of tools in April, but they all add up to about 150 bps. Some of it was commissions, some of it was more closing costs, a variety of different things that we did. That said, we were raising prices in March. So I don't believe that our April incentives, that 150 bps that we spent, is going to have a meaningful impact on our margin because I think our prices were on the upswing of our inventory going into April. So I think it kind of washes. But I'm going to refrain from telling you what we're going to do in May. I know a lot of our competitors are listening to these calls as well or read the transcript. So I don't want to telegraph to the market what we're going to do. But I can tell you this, we're not going to sit on our hands and watch the movie go by. We're going to be aggressive and active in making sure that we maintain our volume to a reasonable level and move our product and compete. And that's what the really good entry-level builders do. And I -- just ask us what the good builders do period. They did it in the last downturn, they're going to do it now. And we're going to be right up there with them. So I don't know what else I can tell you on that, but I'm not going to tell you precisely what incentives we're going to be offering.

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Phillippe Lord, Meritage Homes Corporation - COO & Executive VP [30]

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I would just add, this is not a peanut butter approach. Every community has a different story. We believe we're going to sell over 650 houses in April in a largely sheltering in place environment. We have a lot of communities, especially in the entry-level that performed at or above our original underwriting expectations. We're not looking to over incentivize those, especially as we think they'll do better coming out of this. So every community we look at and we evaluate what our competition is doing and what's the story on that community, what's our spec story. So it's a community-by-community thing, a market-by-market thing. And then I would also tell you, again, I believe this is the advantage of having specs. When you look at incentivizing specs, it's very different than incentivizing dirt. You can control the margin erosion much better.

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Stephen Kim, Evercore ISI Institutional Equities, Research Division - Senior MD & Head of Housing Research Team [31]

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Yes. No. It's all very encouraging. Appreciate it. And you also didn't mention the fact that lending standards tightened a little bit too in the recent weeks. And so the strength is really encouraging. Appreciate it.

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Operator [32]

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Our next question is coming from Carl Reichardt of BTIG.

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Carl Edwin Reichardt, BTIG, LLC, Research Division - MD & Homebuilding Analyst [33]

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Glad to hear you're well. I was curious, Phillippe, if you could talk about April in terms of entry-level LiVE. NOW. spec versus the move-up side of the business and maybe how absorptions on a net or gross basis had trended between those 2 segments.

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Phillippe Lord, Meritage Homes Corporation - COO & Executive VP [34]

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I don't have those stats right in front of me for April yet on how much of that was entry-level versus 1MU versus sort of our nonstrategic assets, but I can look at data in front of me, and I can tell you the LiVE. NOW. continue to perform very strongly. There's been modest pullback in the 1MU. It's definitely stronger there than LiVE. NOW. And then that the 2MU stuff is definitely more slow -- much more slower than the first quarter. So I would just tell you, in general, entry-level plots, lower-end first MU is all performing much better than the higher-end stuff. And I think you'll see that trend in April and as we come into May as well.

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Hilla Sferruzza, Meritage Homes Corporation - CFO & Executive VP [35]

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Higher-end stuff price was only 6% of total volume for Q1. It's not really even a footnote for us anymore, and the pace is holding relatively consistent at about 150% of first-time move-up. And entry-level is about 150% absorptions pace than first-time move up, and those ratios are holding relatively consistent.

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Steven J. Hilton, Meritage Homes Corporation - Chairman & CEO [36]

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Yes. I would say that we've been watching some of our competitors, and we do have a few communities that are closer to what I would deem as ultra entry-level. And I see that some of those are more challenged because they're impacted. They're -- the buyers are less creditworthy, and they're tending to have a lower credit score. We cater to a little bit more of a premium entry-level buyer with a better credit score. Our entry-level buyers' credit is generally over 700. We do have some in the 600s, but we don't have any of those low 600, even high 500 entry-level buyers that some other people might have. So our entry-level communities have not really seen a drop-off in activity.

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Carl Edwin Reichardt, BTIG, LLC, Research Division - MD & Homebuilding Analyst [37]

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Okay. I appreciate that answer. And then, Hilla, you talked before at the Analyst Day and previously about community count, what '20 would have been, which was a transition year before '21 community count grew. If -- let's operate under the assumption that you're sort of down 25%, 30%, and that's sort of where we are for a few months before there's some type of a rebound. Is your sense then that effectively you'll just run your community count down or replace communities that do sell out at a slow rate? I guess the question to me is, what does the market need to look like before you start to think about a more aggressive expansion of your community count?

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Steven J. Hilton, Meritage Homes Corporation - Chairman & CEO [38]

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Carl, that's just too hard to answer at this moment in time because we got so many moving parts. We have some communities that we've frozen development for a short period of time to see what's going on. So those will be -- some of those will be delayed, that we've planned opening later this year. We have some communities that are selling out a little bit slower. They may continue to be open through the year. We have some that are going faster. It's just -- we're just in the eye of the storm right now, and I don't -- we don't want to give any guidance on community count until we get a little further down the road with this. I think next quarter, it's a more reasonable question to ask.

We definitely still have our mindset and our target on getting to that 300 communities. We wanted to be there by the end of '21. We're still going to get there. It's just going to take us a little bit longer, the delta curveball here. And I think with these low interest rates and the tight supply of housing that we're going to get through this in a pretty good way. But I don't want to give any kind of guidance like that yet.

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Hilla Sferruzza, Meritage Homes Corporation - CFO & Executive VP [39]

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I think that Steve had in his prepared remarks, we're just trying to navigate the short and midterm, but nothing's changed for us long term. That's still the strategy is to hit the 300 community mark. Not sure it's going to happen on the quarter that we thought it was going to happen in, but that's still the eye on the prize.

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Operator [40]

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Our next question is coming from Michael Rehaut of JPMorgan.

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Michael Jason Rehaut, JP Morgan Chase & Co, Research Division - Senior Analyst [41]

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I hope everyone is healthy and safe. First question. I was just hoping to get maybe in some ways more of a clarification on some of the numbers provided earlier, specifically, just around the down 25% to 30% in April, that appears to be more of a gross decline. And if you kind of extrapolate the...

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Steven J. Hilton, Meritage Homes Corporation - Chairman & CEO [42]

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Mike, it's not. It's not.

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Hilla Sferruzza, Meritage Homes Corporation - CFO & Executive VP [43]

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Mike, we had not -- I think there's a slide in our presentation. We had 916 sales last year's April net, and we're projecting north of 650 net. So that's how we're getting to the 25% to 30%. So that already has all of the cancellations in there.

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Michael Jason Rehaut, JP Morgan Chase & Co, Research Division - Senior Analyst [44]

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Okay. Okay. That's helpful. I guess maybe I could follow up off-line with some of those numbers. And -- but also around the down 50% to 60% in the -- early in April and then down 20% in the last couple of weeks. Is that also net or gross?

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Phillippe Lord, Meritage Homes Corporation - COO & Executive VP [45]

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This is all net. So the first 2 weeks of April, we were -- and I'm trying to think about week-to-week trends, year-over-year is what the question was. And I'm not sure if I'm spot on. I think the point is the last 2 weeks and as we move through this week are meaningfully stronger than the first 2 weeks of April.

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Hilla Sferruzza, Meritage Homes Corporation - CFO & Executive VP [46]

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I -- and maybe when you get caught up on the weekly percentages, I think the takeaway is that it was rougher in March. It's been improving steadily ever since, and we expect April to close out 25% to 30% net. And as Phillippe mentioned, likely April will be the toughest of the month considering almost the entire country is shelter-in-place right now, and we're exiting out of that rolling into May.

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Steven J. Hilton, Meritage Homes Corporation - Chairman & CEO [47]

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Yes. I mean, Mike, I know you know this as you've known us a long time, but sales numbers always build as you get later in the month, okay? Because incentives expire, salespeople get more motivated. They work harder at the end of the month than they do at the beginning of the month. People clean up their backlog and take the can. So as you move through a month, numbers are always building. So that said, the last 2 weeks in March, as Hilla said, numbers were declining. And the first 2 weeks April, numbers were lower than what you expect for the prime time of the selling season. But the last couple weeks, particularly this last week, it's been pretty strong. So we endeavor to deal with our cans on a daily basis, and we're always reporting net numbers.

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Michael Jason Rehaut, JP Morgan Chase & Co, Research Division - Senior Analyst [48]

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Okay. Okay. I think maybe I was also just confused with the -- on the bar chart, there was a 600 number in there for the month. So maybe that's again where we can follow up on. But I appreciate the clarity. I guess secondly, just on the gross margins in the first quarter, understanding a lot will change off of the current market conditions going forward. But there was a very impressive number around 20% gross margin for the first quarter and compares to the mid-18s that you were expecting. So I was just hoping to get a little bit in terms of what the drivers were of that upside on a relative basis. And if that's kind of the new starting point, all else equal, if you were to kind of take out maybe what incentives and market demand is going to do. But if there was any type of kind of mix shift or timing that benefited that quarter or if structurally, perhaps you're at a higher level than you realized.

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Steven J. Hilton, Meritage Homes Corporation - Chairman & CEO [49]

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Well, here is the thing with our strategy and our model. We're able to sell homes in the quarter and close them, okay? Because we had 83% conversion ratio in Q1. So we had a robust January and a robust first half of February, and we're able to sell inventory and close it within the quarter, which allowed us to outperform the guidance that we gave you for closings, which drove a higher margin because we didn't have to create any additional overhead to produce that revenue. So that's why it's important to keep building and selling because the overhead leverage is significant and has a tremendous impact on the bottom line. So because January and February were so strong and we've sold quite a few more homes than we expected to, we were able to close those and produce a better gross margin.

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Hilla Sferruzza, Meritage Homes Corporation - CFO & Executive VP [50]

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So Mike, if you're looking year-over-year, Q1 to Q1, of that 330 bps improvement, about 80 bps of that is increased leverage from the higher volume. The rest of that is a combination of what we talked about, which is our ability to increase pricing, the strength that Steve talked about coming into the quarter, but also those cost efficiencies. We've been improving our processes and our product, as we've been talking about for the last couple of years. So the culmination of all that really became evident in our closings in Q1. So again, that 330 is mostly comprised from improved processes and cost reductions, although there is 80 bps in there from that overhead leveraging from the additional volume.

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Operator [51]

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Our next question is coming from Jade Rahmani of KBW.

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Ryan John Tomasello, Keefe, Bruyette, & Woods, Inc., Research Division - Analyst [52]

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This is actually Ryan Tomasello on for Jade. I was wondering if you're seeing any early indications for potential increase in acquisition opportunities across the landscape and including large-scale M&A in the market.

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Steven J. Hilton, Meritage Homes Corporation - Chairman & CEO [53]

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No. No. No one's looking at acquisitions in the middle of a pandemic. And I don't think any builders inclined to be selling right now unless they're looking for a lifeline. So short answer is no.

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Ryan John Tomasello, Keefe, Bruyette, & Woods, Inc., Research Division - Analyst [54]

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Okay. And then are you seeing any preliminary signs in your markets today of increasing demand as a result of specifically the pandemic from multifamily renters?

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Steven J. Hilton, Meritage Homes Corporation - Chairman & CEO [55]

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I think it's too early to tell. I mean we believe long term that people are going to want to own a home, they're going to want to be in the suburbs, they're going to want to socially distance, not live in tight quarters. We think we're going to get influx of people from the -- from high-density cities to move out to the Sun Belt where we build. But we're just -- we're only a few weeks into this thing and it's just -- you can't really take any trends away from this based upon anecdotal evidence yet, it's too early.

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Operator [56]

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Our next question is coming from Alex Barrón of Housing Research Center.

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Alex Barrón, Housing Research Center, LLC - Founder and Senior Research Analyst [57]

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Yes. I hope you guys are well. I wanted to ask about how much is your build time being affected by social distancing and all that stuff.

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Phillippe Lord, Meritage Homes Corporation - COO & Executive VP [58]

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Yes. Thanks, Alex. This is Phillippe. Well, the first thing I would say is it's not getting any worse. In fact, I would tell you that we're seeing more effective construction activity. We think that's largely attributed to us being essential service. It's being carved out. This is what the trade crews are performing at a very high level right now. They're getting to the job site faster. They have less other work to do that's a distraction. Supply chains are moving effectively at this point. And so we're building houses probably faster than we ever have right now because of all those reasons. And our cycle times are still extremely tight. I think we are seeing a little bit of a lag with permits and things like that, but it's nothing too big, and we're certainly making that up on the build time, the actual vertical build time.

So again, I think this will start to unwind over time, but I would tell you the trade crews are performing the best I've ever seen in the last 5 to 10 years. It's been such a struggle. And right now, they're executing at an extremely high level.

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Steven J. Hilton, Meritage Homes Corporation - Chairman & CEO [59]

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Yes. I'd say, Alex, 1 or 2 of our big builder friends early in the pandemic shut down construction. And those crews came over to our job site and said, "Can we double up?" And we said, "Sure, come on over. Let's get some more stuff built." So those guys are reading the paper too, and they're nervous, and they're working hard to maintain their share as well.

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Alex Barrón, Housing Research Center, LLC - Founder and Senior Research Analyst [60]

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That's good to hear. The other question is, Steve, you said you're not going to let anybody else, I guess are you going to be aggressive and not let others take your market share? So my question is, how much flexibility does each individual salesperson have on getting a sale done? In other words, do they have some pool of money that they can work on incentives? Or do they need to check more all the way up to you guys? I guess I'm trying to understand how centrally controlled the sales and incentives are versus does each salesperson have their own kind of flexibility. I'm just trying to get any -- get the sale done regardless of what it takes.

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Steven J. Hilton, Meritage Homes Corporation - Chairman & CEO [61]

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Obviously, they have a little bit of pocket discretion, but we control things locally at the division office, through the regional leadership and centrally corporate. So that's our job. That's Phillippe's job. He monitors that every day. He has his hands on the wheel. He's pulling the levers as needed. And we don't have any delay on reacting to what's happening on the ground.

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Phillippe Lord, Meritage Homes Corporation - COO & Executive VP [62]

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Yes. And I mean we rarely go into an environment where salespeople are empowered to just get buyers on paper at whatever cost. We're certainly a long ways from that.

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Steven J. Hilton, Meritage Homes Corporation - Chairman & CEO [63]

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Yes. That's not how we operate.

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Alex Barrón, Housing Research Center, LLC - Founder and Senior Research Analyst [64]

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Okay. And my last question is, if you guys have any communities that maybe haven't had a sale for a few weeks or what's the trigger to kind of reevaluate your incentive or your pricing? How many weeks would need to go by without seeing any activity before you need to kind of relook...

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Steven J. Hilton, Meritage Homes Corporation - Chairman & CEO [65]

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Yes. We have -- that's a little too granular. I don't think we're going to talk about that. But yes, clearly, we haven't -- we're not selling houses somewhere for whatever the reason is. There could be multiple reasons. It could be something with a salesperson. It could be something wrong with the product. It can be rational, what the competition is doing, et cetera. We're going to send the SWAT team in there, figure out what the problem is and make the adjustments accordingly. But we don't -- I'm not -- I can't tell you a formula after 3 weeks, we're going to slash the price. We don't function that way.

Operator, I think we're getting close to the end. Do we have any more questions? We may take one more.

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Operator [66]

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We're showing time for one last question, which will be from Charles Perron of Goldman Sachs.

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Charles Perron-Piché, Goldman Sachs Group Inc., Research Division - Associate [67]

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I'm calling for Susan today. My first question is, can you discuss the different trends that you're seeing on the labor and material costs through April and if you believe these could provide a tailwind to the margins in 2020, assuming a weaker demand environment?

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Steven J. Hilton, Meritage Homes Corporation - Chairman & CEO [68]

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I would say that we haven't had any price increases in April or cost increases from our trade base. Certainly, we did experience some in March, but it's been more muted. I do think with the low price of oil, we will be able to get some price concessions going forward -- cost concessions, I should say, from our trade base. And I also believe that lumber is -- we have a lot of lumber contracts expiring tomorrow. And we're going to be renewing those contracts we believe at lower cost, maybe 10% to 20% lower, at certain geographies, of course, more than others, and others less than others. But I think the cost environment has become more favorable for us and for builders moving forward.

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Charles Perron-Piché, Goldman Sachs Group Inc., Research Division - Associate [69]

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Okay. That's very helpful. And second, I would like to go back a little bit more on the SG&A. And obviously, even if you don't hit your 10% target for the year, can you give us a sense of like where things could go on your SG&A this year? And what do you expect to trend overall for the year?

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Steven J. Hilton, Meritage Homes Corporation - Chairman & CEO [70]

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That would be guidance. We're not giving guidance. So I don't know how to really respond to that.

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Hilla Sferruzza, Meritage Homes Corporation - CFO & Executive VP [71]

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We can't -- that percentage is a function of revenue, and we're not giving out revenue numbers. The only thing we will say, and we said it a couple of times during the prepared remarks, is we're pulling back dramatically on nonessential discretionary spend. So we're going to be controlling costs very tightly, but the revenue piece is still murky. So I don't think we're prepared to provide any guidance on SG&A right now.

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Steven J. Hilton, Meritage Homes Corporation - Chairman & CEO [72]

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Okay. Thank you. So that concludes our question-and-answer in our prepared remarks here today. We appreciate everybody coming -- joining on our call. We hope you stay well and navigate through this crisis and come out the other side. So we look forward to talking to you again next quarter. Thank you very much. Have a great day.

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Operator [73]

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Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines at this time and have a wonderful day.