Meritage Homes Corporation

contain forward-looking statements including, but not limited to, our views regarding the health of the housing market, potential disruptions to our business from COVID-19, economic conditions and changes in interest rates, community counts and absorption, projected first quarter and full year 2021 home closings and revenue, gross 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 Form 10-Q which contain a more detailed discussion of those risks. We've 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 us today to discuss our results are Steve Hilton, Executive Chairman, Phillippe Lord, CEO, and Hilla Sferruzza, Executive VP and CFO of Meritage Homes. We expect this call to last about an hour. A replay will be available on our website within approximately two hours after we conclude the call and will remain active through February 11th. I'll now turn it over to Mr. Hilton. Steve?

Thank you, Emily. I'd like to welcome everyone participating in our call today and hope that you and your families are continuing to stay safe and healthy. I'll start by giving a brief overview of our significant accomplishments in 2020 and current market trends. Phillippe will cover our strategy and quarterly performance. Hila will provide a financial overview of the quarter and 2021 guidance. Despite the gravity and impact of the pandemic that affected so many individuals across the globe, 2020 ended up being a great year for the home building industry and for Meritage in particular. We set the bar for new operational and financial records every quarter during the year, culminating in our all-time highest annual sales orders and home closings, and in turn our best average absorption pace of 5.2 per month since 2005. We also delivered our greatest annual home closing revenue and home closing gross profit, and the second strongest annual home closing gross margin in our company's history. Even beyond the balance sheet and income statement, 2020 was quite a year. We closed our 135,000th home, and as the industry leader in energy efficiency, we were the first home builder to introduce MERV 13 nationwide, the most advanced air filtration system offered today for residential construction, which controls and improves air exchange within the home. In keeping with our commitment to innovation and enhancing the customer experience, We rolled out 100% contactless selling to our customers. Our homebuyers can begin their search online, qualify for a mortgage, tour our models virtually, electronically remit their earnest deposit, sign a sales agreement, and even close on a home online if states allow it. We are driving digital enhancements to continuously improve the way customers, employees, and trade partners interact with Meritage. We'll have more to share with you on this initiative throughout 2021. We pride ourselves on our reputation as a premium home builder focused on customer satisfaction. 2020 marked the eighth straight year of award-winning recognition for Meridish, as we received various Avid Diamond, Gold, and Benchmark awards across nine separate divisions. In line with our dedication to fostering healthy communities in which we live and work, We donated over half a million dollars to our Meredith Care Foundation to nonprofits like Feeding America and AmeriCares that are focused on helping those affected by COVID-19, fighting hunger, and combating homelessness. And to promote racial equity nationwide, we donated $200,000 to En-ROADS and the United Negro College Fund and began our multi-year partnership with these organizations. Our board of directors and management are committed to drive DEI, diversity, equity, and inclusion throughout our organization and our industry. We'll have more to share on DEI in 2021 as well. And we were also one of only three public homeowners who Forbes recognized as one of America's best mid-sized companies. Our employees accomplished all these milestones in 2020 while keeping the health and safety of our fellow team members, customers, and trades front of mind during this difficult year. Thank you to everyone at Meredith for their hard work. As we turn to 2021 and beyond, we look to the favorable macroeconomic factors to provide some visibility to future demand. The housing market remains robust with low mortgage interest rates and under-survived new and existing homes for sale and advantageous demographic trends and new home ownership for the millennial and baby boom generations. The home building industry has already experienced an uptick in demand prior to COVID-19, and after a brief pause in late March and early April, 2020's unprecedented strength in the housing market was particularly focused on increased demand for healthier and safer homes at affordable price points. We anticipate these fundamentals to continue into the foreseeable future, which align well with our strategic focus on entry-level and first move-up homes. I'll now turn it over to Phillippe to discuss strategy and our quarterly performance. Phillippe?

Thank you, Steve. Since 2016, our strategy has centered around the entry-level and first move-up markets, offering customers affordable yet high-quality homes. The strength in the housing market this past year enabled us to capture pricing power, which combined with our streamlined, more efficient operating model, produced growing sales volume, higher margins, improved SG&A leverage, and our strong Q4 results. Slide five. The fourth quarter of 2020 was another record quarter for Meritage, which reflected the continued momentum of the first nine months of the year. We sold 3,170 homes, four homes this quarter, which was 52% higher than the same quarter of 2019. This represented the third highest quarterly orders only to be surpassed by Q2 and Q3 earlier this year. Home closing revenue of $1.4 billion in the current quarter increased 28% year-over-year. In the fourth quarter of 2020, we delivered our best quarterly home closing gross margin since 2006 by improving 425 to 24% from 19.8% in the prior year. 2020 lacked the normal cadence of seasonality. The housing market remained robust during a traditionally quiet time of the year. Capitalizing on the overall industry demand, as well as the expansion of our community mix towards entry-level homes, which sell at a higher pace than our first-move homes, our absorption of 5.3 per month per quarter was up 87% year-over-year, even as we increased pricing in all of our geographies in line with strong local market demand. The per-store absorption accelerated faster than total order growth, demonstrating our capacity to generate significant sales volumes once we achieve our 300 community target. Five out of the nine states had absorption increase over 100% year-over-year this quarter, despite a 19% decline in average active communities. We continue to focus on growing our spec inventory for our entry-level communities, as well as refining our offerings for the first move-up market, which has also experienced solid demand over the last two quarters. Entry-level comprised almost 70% of total orders for the quarter, up from 55% in the fourth quarter last year. Entry level represented 67% of our average active communities during the current quarter, compared to 45% a year ago. As we have hit our relative product mix goal, we expect these ratios to sustain for the near to mid-term, although mix in individual geographies is always adjusting with communities opening and closing. Our first move of communities also experienced improved demand year-over-year, with absorption 91% higher than a year ago. Slide six. All our regions reflected solid year-over-year performance in Q4. The strength in the market was driven by low interest rates, limited supply, and shifting buyer preferences for single-family, less densely populated homes. Our east region led in terms of order growth with a 76% improvement over the fourth quarter of 2019. Absorption in the east region increased 118% year-over-year for the quarter, offset by a 20% decline in August community count. 64% of our average active communities in each region sold entry-level products during the quarter. The East Region performance and products mix are now in line with the rest of the company. The shift to entry-level is nearly there, and average absorption exceeds 5 per month. Our center region, comprised of our Texas market, increased orders by 46% over the fourth quarter of 2019, despite a 20% reduction in average community count. Energy level communities represented 71% of the central region's average active communities during the fourth quarter of 2020. This region continues to see solid demand with shifting migration into the state, particularly in the tech sector, with Austin and Dallas, where we're seeing outside demand even by today's standards. Our fourth quarter 2020 orders in the west region were up 34% over the same quarter in the prior year. and many others, driven by a 65% increase in absorption and partially offset by 18% fewer average communities. Entry level communities represent 67% of the West Region's average active communities during the quarter. Colorado had our highest per store absorption in the company this quarter, with an average of 6.4 homes per month in the fourth quarter of 2020, compared to 2.5 in the prior year. This produced a 48% year-over-year growth in orders, reflecting the hard shift down the ASP price band over the last four to six quarters. Turning to slide seven, we closed 32% more homes in the fourth quarter of 2020 than prior year, and our backlog was 4,672 units at the end of the fourth quarter, reflecting the high absorption pace we achieved this quarter. Of the 3,744 home closings this quarter, 71% came from previously started spec inventory compared to 61% a year ago. At December 31, 2020, less than 10% of total specs were completed versus one-third, which is our typical run rate. We are selling more specs in early stages of production to meet the surge in demand and are focusing our production efforts on completing our backlog inventory. Our backlog conversion rate has decreased to 71% in the fourth quarter this year compared to 80% last year, reflecting the early stages of construction in our sold homes. We expect similar trends over the next couple of quarters as demand in the market absorbs our spec inventory at an accelerated pace. Spec building is the core tenant of our entry-level market focus strategy, which results in a higher spec inventory in these communities compared to first move-up communities. We try to keep a four to six month supply of specs on the ground of our entry-level products. We ended the fourth quarter of 2020 with a little over 2,000 five-liner spec homes in inventory or an average of 12.9 per community compared to approximately 3,000 or an average of 12.4 last year, reflecting the significant sales order growth during the fourth quarter. While our specs per community grew, our total spec counts did not quite achieve our goal of 3,000 as these homes converted to backlog as quickly as we started them. However, we are still focused on increasing our specs in January as we move into the spring selling season. I will now turn it over to Hilla to provide additional analysis of our financial results. Hilla?