Meritage Homes Corporation

Good day, everyone, and thank you for standing by. Welcome to the Meritage Homes third quarter 2020 analyst call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Emily Tadano. Please go ahead, ma'am.

Thank you, Hannah. Good morning and welcome to our analyst call to discuss our third quarter and year-to-date 2020 results. We issued the press release yesterday after the market closed. You can find it along with the slides we'll refer to during this call on our website at investors.meritagehomes.com or by selecting the investor relations link at the bottom of our homepage. Please refer to slide two cautioning 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 the health of the housing market, disruptions to our business by COVID-19, economic conditions and changes in interest rates, Community Count and Absorptions, Projected Full Year 2020 Home Closings and Revenue, Growth Margins, SG&A Expenses, Tax Rates, and Diluted Earnings Per Share, as well as others. Those and any 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 have identified and listed on this slide, as well as in our press release and most recent filings with the Securities and Exchange Commission, specifically our 2019 Annual Report on Form 10-K and subsequent quarterly reports on Forms 10-Q, which contain a more detailed discussion of those risks. We have also provided a reconciliation of our certain non-GAAP financial measures referred to in our press release as compared to their closest related GAAP measures. With us today to discuss our results are Steve Hilton, Chairman and CEO, Hilla Sferruzza, Executive Vice President and CFO, and Phillippe Lord, Executive Vice President and Chief Operating Officer of Meritage Homes. We expect this call to last about an hour. A replay will be available on our website within approximately one hour after we conclude the call and will remain active through November 5th. I'll now turn it over to Mr. Hilton. Steve?

Thank you, Emily. I'd like to welcome everyone participating on our call today and hope that you and your families are continuing to stay safe and healthy. Before continuing the call, I'd like to take a quick moment to say thank you to Brent Anderson, who is retiring as the Vice President of Investor Relations at Meritage after 15 years. He's done a great job representing the company to our investors and analysts, and he will be sorely missed. I'd also like to introduce Emily Tadano, our new head of IR. Good luck, Emily. You have big shoes to fill, and I hope you're with us at least for the 15 years like Brent. Now this is the last time I'll address you as Chief Executive Officer of Meredith Homes on an earnings call. As we have previously announced, effective January 1st, Phillippe Lord will transition to the CEO role and I will retire after 35 years and become the Executive Chairman of Meredith's board. I will continue to participate on these calls, but Phillippe will be taking the lead. Phillippe and I have worked closely together for 12 years From the past five years as Chief Operating Officer, Phillippe was the co-architect of our strategy to focus on the entry level and first move up markets while driving operational excellence and efficiencies throughout our organization. I feel confident that Meredith will continue to be an innovative leader, provide exceptional quality and value to our customers, and grow to new heights under Phillippe's stewardship. I look forward to partnering with him in our new roles. So let's talk about the quarter ended September 30th, 2020. Meritage had many remarkable achievements. We delivered our highest quarterly orders, our strongest absorption since 2005, record quarterly closing revenue, and our best quarterly closing gross margin since 2014, despite record high lumber prices, while also achieving our lowest net debt to capital in our company's history. These outstanding results are due to both solid market dynamics and our strategy. So I'll start with slide four. We sold 3,851 homes this quarter, which was 71% more than the third quarter of 2019, and surpassed the quarterly record we had just set in the previous quarter this year. Although we are still in a worldwide COVID pandemic, favorable macroeconomic factors for the new home industry that began last quarter continued in Q3, including historically low mortgage interest rates, increased demand for healthier and safer homes, limited supply of existing home listings, and a decades-long supply shortage of new homes in the market. All these dynamics create the advantageous backdrop, which combined with our strategy, focused on affordable entry level and first move-up homes, translated into another record-setting quarter for Meritage. Moving on to slide five. We believe we have a solid strategy and are executing at a high level. We are achieving strong closing revenue growth with an increase in both pace and price. While we are increasing prices in all our geographies in alignment with local market conditions, we are not turning down sales where demand exists. We can and will capture demand whenever possible because of our available spec homes. Our SPAC building strategy has allowed us to sell at a greater pace and take market share. In Q3 of 2020, we accelerated our main investments by spending nearly $300 million and put a record 9,000 new lots under control. Our balance sheet remains very strong, which provides a long runway for growth as well as a safety net in the event of another downturn. We have maintained plenty of liquidity and a low debt leverage even as we invest significantly for additional growth in all our existing markets. While the accelerated sales trend resulted in some early community closeouts this quarter, we are still on pace to achieving 300 active communities by early to mid 2022, and consistent with our strategy, our new entry-level communities will have a high volume of spec inventory immediately available for sale at community openings, which can be closed relatively quickly. I'll now turn it over to Phillippe to discuss more of the recent trends. Phillippe?