Meritage Homes Corporation

Greetings and welcome to the Meritage Homes first quarter 2020 analyst call. At this time, all participants are on a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. 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.

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 homepage. I'll refer you to slide two 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, Chief Operating Officer of American 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 13th. I'll now turn the call over to Mr. Hilton to review the first quarter. Steve?

Thank you, Brett. I'd like to welcome everyone participating in our call today and sincerely hope that all of you and your families have been 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 healthcare workers, first responders, and those who rely on to provide us with necessities like groceries and gas during this time when most of us are staying in our homes. We are grateful for your service. Our number one concern since the coronavirus began to 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 six 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 our first quarter performance, though we realize it's 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 mid-term volatility while keeping our long-term focus aligned with our strategy. Turning to slide four. 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 and a tightening of mortgage markets 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 streamline 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 expanding 330 bps with 160 bps improvement in our SG&A leverage. In other words, 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. It 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.