Greetings, and welcome to the Meritage Homes Third Quarter 2024 Analyst Call. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Emily Tadano, Vice President, Investor Relations and ESG. Please go ahead, Emily.

Thank you, operator. Good morning, and welcome to our analyst call to discuss our third quarter 2024 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 2, cautioning you that our statements during this call as well as in the earnings release and accompanying slides contain forward-looking statements. 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 earnings release and most recent filings with the Securities and Exchange Commission, specifically our 2023 Annual Report on Form 10-K and subsequent 10-Qs. We've also provided a reconciliation of certain non-GAAP financial measures referred to in our earnings 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 Vice President and CFO of Meritage Homes. We expect today's call to last about an hour. A replay will be available on our website later today. I'll now turn it over to Mr. Hilton.

Thank you, Emily. Welcome to everyone listening in on our call. I'll start by touching on what we're experiencing in the market today and cover some of our recent company news. Phillippe will share a little more information about the Gulf Coast acquisition we announced this morning and then highlight how our new strategic pivot is reflecting in our quarterly performance. Hilla will provide a financial overview of the third quarter and forward-looking guidance. Let me kick this off by welcoming our newest Board member, Ms. Erin Lantz, to the Meritage family. We look forward to her insights, particularly in technology and financial services. And for anyone that missed our release earlier this month, we also announced our continuation of the declassification process of our Board of Directors. We are proud to be able to continue to take on corporate governance initiatives that align with what our shareholders have told us is most important to them. Now let's turn to our Q3 results. Q3 was another strong quarter for Meritage, where we again demonstrated that our strategy focused on affordable move-in ready homes is resonating with home buyers. Our rate buydowns in July and August and the pullback in mortgage rates in September all contributed to order volume that slightly outpaced traditional seasonality. Our third quarter 2024 orders totaled 3,512 homes, and we achieved an average monthly absorption of 4.1. Our company record backlog conversion of 145% this quarter generated 3,942 home deliveries and home closing revenue of $1.6 billion. Our 60-day closing commitment is gaining momentum across all our communities and was the driver behind our increasing backlog conversion rates. Home closing gross margin for the quarter was 24.8%, which combined with SG&A leverage of 9.9%, resulted in diluted EPS of $5.34. As of September 30, 2024, we increased our book value per share 15% year-over-year to $139.2 and generated a return on equity of 17.2%. Now on to slide 4 for some recent acknowledgment of our corporate citizenship. We received the EPA's 2024 Indoor AirPLUS Leader Award for the fourth year in a row for building homes that are designed to promote safer, healthier and more comfortable indoor environments by participating in the Indoor AirPLUS program and offering enhanced indoor air quality protections. As a result of our workplace culture and employee engagement, we were honored to earn the Great Place to Work certification for a second consecutive year. We also made the 2024 Fortune Best Places - Best Workplaces in Construction list and Best Workplaces for Women list, as well as Arizona's Most Admired Companies for 2024. In August, we published our fourth annual ESG report, which also encompasses our task force on climate-related financial disclosures. We encourage everyone to read it and know more about our efforts and progress related to sustainability and social initiatives. And with that, I'll now turn it over to Phillippe.

Thank you, Steve. I'll address our acquisition press release first, as we believe that is top of mind for everyone. This morning, we announced we completed our acquisition of the assets of Elliott Homes, a prominent private builder operating in the Gulf Coast. This marks our first acquisition since 2014 and is a great strategic fit for Meritage given the strength of the Gulf Coast markets in Mississippi, Alabama and the Florida panhandle and the alignment on affordability and product geared toward the first-time homebuyer. We are excited to be working with owner Brandon Elliott and the opportunities we see in this underserved part of the country. With the supply of over 5,500 lots, we expect to generate meaningful volume from this new division in 2025 and beyond. Now turning to slide 5. Our sales orders for the third quarter were 3,512 homes, with 92% of the volume coming from entry-level homes. Orders were slightly up 1% year-over-year with both average community count and absorption pace relatively consistent across both third quarter periods of 2024 and 2023. This quarter's cancellation rate was 10%, remaining below our historical average in the mid-teens. ASP on orders this quarter of $406,000 was down 6% from the prior year due to geographic and product mix shifts as well as increased financing incentive costs. Third quarter 2024 ending community count was 278 compared to 287 at June 30, 2024 and 272 at September 30, 2023. We brought 20 new communities online this quarter, bringing our total year-to-date openings to 90. While we are expecting to end the quarter with a higher community count, stronger demand than anticipated resulted in some early closeouts, and the timing of some community openings slipped into October. With the Elliott acquisition, we should be comfortably about 300 stores at December 31, 2024, and a further double-digit year-over-year increase by the end of 2025 to help us achieve our 20,000 unit goal in approximately three years. As we are in the final days of October, I can also provide some high-level commentary on what we are seeing so far in Q4. Despite rates remaining volatile, we are seeing demand hold relatively steady, with October performance falling fairly in line with September. Moving to the regional level trends on slide 6. The central region comprised of our Texas markets had the highest regional average absorption pace of 4.6 per month and an average quarterly backlog conversion rate that has exceeded our minimum target of 125% for the last four quarters. With approximately 35% completed spec inventory in this region, we believe our product and price points will continue to allow us to gain market share. The West region experienced the largest year-over-year growth in average absorption pace to 4.2 per month in Q3 from 3.6 in the third quarter of 2023. We are continuing to see strength in one of our largest markets, Arizona, with attractive products at the right price points. Before I dive into the East region results, I wanted to comment on the recent devastation from Hurricane Helene and Milton. Our hearts go out to those who were impacted by storm damage and power outages in Florida and the Carolinas. We are happy to report that all of our employees are safe and accounted for. While our September closings were not materially affected, we were unable to facilitate sales for several days. In October so far, we have had minor damage to some of our communities, and the power outages and gas outages early in the month have caused some minor construction delays. We anticipate temporary labor dislocation as trade availability is diverted to hurricane repairs in the interim and some short-term impact of sales as potential customers recover from the hurricane. In the third quarter of 2024, the East region had an average absorption pace of 3.8 net sales per month, in line with traditional seasonality as the markets are closer to returning to historical levels of retail inventory. Overall, we do expect markets to return to a more balanced new home versus resale equilibrium in the future, with some of our submarkets already experiencing increased competition from existing home inventory. It was with this expectation in mind that we embarked on our strategic evolution to bring our homes to a near completion stage before we start the sales process, so we can meet a similar closing timeline as existing resale. We believe our targeted market segments of entry-level and first move-up homes remain undersupplied even with the increase in retail listings and that our product continues to be attractive. We also have a competitive advantage related to affordability, as unlike existing home sellers, we can offer financing incentives. We are confident that our strategy allows us to target the largest piece of the potential homebuyer pool by effectively competing in this resale inventory, which we believe will help us continue to grow our market share even as existing home inventory reenters the market. Now, turning to slide 7. With our high backlog conversion rate, we view our specs and backlog in the aggregate when we look at optimal levels for our targeted closings, as we know about the first four to six weeks of orders will become intra-quarter closings under our new strategy. We believe our approximate 9,000 specs and backlog units as of September 30, 2024 are the right level of inventory as we move into the last quarter of the year. We started nearly 3,800 homes in the third quarter of 2024. Although our start volume was down 5% year-over-year and 12% sequentially from Q2, our average start pace was in line with our sales pace and traditional seasonality. We had nearly 6,800 spec homes in inventory as of September 30, 2024, up 38% from about 4,900 specs as of September 30, 2023. This represented 24 specs per community this quarter with our targeted four to six months applied as we build up more mature specs to ensure we have the right inventory to meet our 60-day closing ready commitment. Of our home closings this quarter, 97% came from previously started inventory, up 89% in the prior year. 33% of total specs were completed as of September 30, 2024, the first time since early 2020 that we are at our target of one-third move-in ready homes. With nearly 45% of this quarter's closings also sold within the quarter, our new backlog continues to decline intentionally from about 3,600 as of September 30, 2023, to approximately 2,300 homes as of September 30, 2024. We expect this trend to stabilize once we continually are delivering homes within 60 days in all of our communities. Before I turn it over to Hilla, I do want to address what is likely going to be one of the Q&A topics, which is the volatile mortgage rate environment. Our commentary is the same as it has been since the start of COVID in early 2020. We are an agile organization that quickly interprets market cues and adjusts accordingly. Our expansion into the top 5 homebuilder spot two years ago has allowed us to cost-effectively focus on delivering quick-turning move-in ready homes while generating outsized profits and gaining market share. With our commitment to growth, we have and will continue to offer financial incentives, including rate buydowns for as long as they are deemed to be a helpful sales tool, as we look to provide affordable payments for our buyers and maintain our sales pace. We believe that homes in our target price point are undersupplied in the US, and the demand is strong at the right monthly payment. While we do expect rates to be elevated for the near term, necessitating the continuation of heavier usage of interest rate buydowns, we also believe that with the influx of millennials and Gen Zers entering the home buying market, demand will remain consistent and solid. I'll now turn it over to Hilla to walk through our financial results.

Thank you, Phillippe. Let's turn to Slide 8 and cover our Q3 results in more detail. We generated $1.6 billion of home closing revenue this quarter, which was a 2% year-over-year decrease, with 8% higher home closing volumes being fully offset by a 9% decrease in ASP on closings due to product and geographic mix. Third quarter 2024 closing ASP also reflected higher utilization of financing incentives compared to both the prior year and sequentially from Q2. Home closing gross margin of 24.8% decreased 190 bps in the third quarter of 2024 from 26.7% in the prior year. Our 2024 margin reflected higher lot costs as anticipated, the increased utilization of financing incentives, and slightly lower leverage on fixed costs on lower home closing revenue, all of which were partially offset by lower direct costs and shorter cycle times. Our cycle times improved about seven days from Q2 to Q3 to around 125 calendar days. We are nearly back to our target of about 120 calendar day cycle time, which would allow us to turn our WIP inventory three times a year. Labor capacity remained consistent during the quarter, but given some temporary disruptions to trade availability related to the aftermath of the hurricanes that Phillippe mentioned, Q4 cycle times may be impacted in certain parts of the country. We have been able to reduce direct costs on a per square foot basis each quarter since Q1 of last year as a result of dedicated efforts by our purchasing team and our streamlined operations, which allow us to capture volume discounts from our national vendors and the general increased capacity in those supply chains. On a year-over-year basis, our margins reflect about 4% lower costs per square foot this quarter versus 2023. As we have commented on in the past, while still above historical levels, land development cost increases have been stabilizing over the last several quarters. As a reminder, we have already turned over the majority of our communities from pre-COVID land, so the go-forward impact from higher lot costs will be less material in 2025 and beyond. SG&A as a percentage of third quarter 2024 home closing revenue of 9.9% improved from 10.1% in the third quarter of 2023, due primarily to lower performance-based compensation costs. It's important to note that this quarter, total commissions as a percentage of home closing revenue were flat year-over-year again. Specifically, external commission rates were the same as Q3 2023 despite our higher co-broke participation as our strategic relationships reduce the need for ad hoc bonuses and incentives. We remain excited and engaged to deepen our relationship with the broker community, which is proving to be a differentiator for us. We expect commissions as a percentage of home closing revenue to remain relatively steady for the rest of the year. For full year 2024, we continue to forecast SG&A guidance of 10% or under. Longer term, we are targeting a 9.5 SG&A percentage of home closing revenue as we grow our existing markets and leverage our overhead platform to reach our 20,000 unit milestone. The financial services profit of $3.1 million included $3 million of write-offs related to rate lock online costs in the third quarter of 2024. The financial services profit of $5.7 million in the third quarter of 2023 had no such write-offs. The third quarter's effective income tax rate was 21.6% this year compared to 22.4% for the third quarter of 2023. Both periods benefited from energy tax credits on qualifying homes under the Inflation Reduction Act. Overall, lower home closing revenue and gross profit led to an 11% year-over-year decrease in the third quarter 2024 diluted EPS to $5.34 from $5.98 in 2023. Looking at our year-to-date results, we are proud of what we've been able to accomplish in volatile markets and attribute these successes to our scale and strategic focus on delivering affordable, quick move-in ready homes. On a year-over-year basis, order for the first nine months of 2024 exceeded last year by 10%, or just over 1,000 units. Closings were up 15% as our backlog conversion hit triple digits in all quarters, and our home closing revenue increased 7% to $4.7 billion. We had an 80 bps improvement in home closing gross margin to 25.5% from improved cycle times and cost reductions, and our SG&A as a percentage of home closing revenue improved to 9.8%. All-in, we exceeded our long-term targets on every metric so far this year, generating a net earnings increase of 14% to $613.5 million, or $16.72 in diluted EPS. Before we move on to the balance sheet, I want to cover our Q3 2024 customers' credit metrics. As expected, our buyer profile remained relatively consistent with our historical averages, with FICO scores in the 730s, DTIs around 41, 42 and LTVs still in the mid-80s. As about 80% of our home closings in Q3 had some sort of financing incentives, that number is consistent with our mortgage company capture rate. On to slide 9. Our capital allocation is focused on both organic growth and shareholder returns to enhance shareholder value. This quarter, we continued to accelerate our investment in the business by spending about $659 million on land acquisition and development, which was up 23% from the prior year. On a year-to-date basis, our land spend has totaled $1.7 billion. We are on track for full year 2024 land spend of $2 billion to $2.5 billion and continue to expect our go-forward annual spend to be similar. As we nearly tripled our quarterly cash dividend on a year-over-year basis to $0.75 per share in 2024 from $0.27 per share in 2023, our cash dividend totaled $27.1 million in the third quarter of this year and $81.6 million on a year-to-date basis. We repurchased $30 million of shares in Q3 to catch up on our systematic plan of $15 million per quarter. To date in 2024, we have spent $85.9 million on share buybacks, repurchasing 1.4% of our shares outstanding at December 31, 2024. $99.1 million remains available under our authorization program at quarter end. Turning to Slide 10. Even though the land market has been constrained as public and private builders alike are growing their land portfolio, we were able to secure and put nearly 7,800 net new lots under control this quarter, representing an estimated 48 future communities. In the third quarter of 2023, we put approximately 5,000 net new lots under control. We continue to find land in our geographies. And although the competition is tight, we are still able to make deals pencil with our underwriting standards, assuming today's ASPs and costs. As Philippe mentioned earlier, since our Elliott Homes transaction closed in October, those incremental lots are not yet reflected in our numbers. As of September 30, 2024, we owned or controlled a total of about 74,800 lots equating to a 4.8-year supply, in line with our target of four to five years. We also had nearly 41,600 lots that were still undergoing diligence at the end of the third quarter. While our cash position remains high, we are actively sourcing off-balance sheet land financing to allow us to accelerate growth in our land portfolio without overtaxing our balance sheet. We continue to view off-balance sheet financing as a vehicle for incremental growth as we work towards our 20,000 unit milestone. To help offset the gross margin headwind from off-book land, these supplemental communities will deliver additional closings, which will generate improved leverage of fixed costs in both gross margin and SG&A. About 64% of our total lot inventory at September 30, 2024, was owned and 36% was optioned compared to the prior year, where we had a 74% owned inventory and a 26% option lot position. We owned 66% and optioned 34% of our lots at June 30, 2024. Before we share our guidance, we would like to take a moment and describe our guidance methodology. Historically, we have had visibility in our backlog to several quarters of closings, so our revenue, margin and to a great extent, EPS were all fairly known. With our strategic shifts, our backlog at any quarter end doesn't reflect even a full quarter's closings, coupled with our accelerated production timelines and volatility in the interest rates markets that result in a high variability and offered financing incentives, our ability to model margins and EPS on homes that are not yet sold is somewhat limited beyond the current quarter. While we do believe that our strategy of focusing on pace over price will result in our ability to control the volume of desired sales and closings, the mix and profitability associated with such homes is a fairly wide range. Therefore, starting this quarter, we will continue to provide our regular guidance for the subsequent quarter, including ranges for closing units, revenue, margin, EPS and tax rate, but we will guide to full year closing units and home closing revenue only to avoid continuous revisions that may cause uncertainty around our financial performance. And with that, I'll direct you to Slide 11 for our guidance. As a reminder, under the new strategy, our stronger backlog conversion means that closings are converting to sales in real time, which shifts our quarterly peak closing volume away from Q4. In light of today's market conditions, we're projecting the following for Q4 2024. Total closings between 3,750 and 3,950 units, home closing revenue of $1.5 billion to $1.59 billion, home closing gross margin of 22.5% to 23.5%, an effective tax rate of about 22.5% and diluted EPS in the range of $4.10 to $4.60. For full year 2025, we're anticipating closings of 16,500 to 17,500 units and $6.7 billion to $7.1 billion in home closing revenue, both of which include the Elliott Homes acquisition. This implies a double-digit year-over-year growth at the midpoint of our Q4 2024 and full year 2025 guidance. With that, I'll turn it back over to Phillippe.

Thank you, Hilla. To summarize on Slide 12, our solid third quarter 2024 financial performance demonstrated that our strategic evolution resulting in quick-turning, move-in ready homes drove strength in our absorption pace and helps us maintain elevated home closing gross margins. Although the mortgage rate market remains choppy short-term, we believe that the expectation of lower rates over the next several quarters and the ongoing combination of favorable demographics and an undersupply of homes will be constructive for homebuyer demand and will enable us to keep growing our market share. With that, I will now turn the call over to the operator for instructions on the Q&A.

Thank you. We will now be conducting a question-and-answer session. Our first question today is coming from Stephen Kim from Evercore ISI. Your line is now live.

Thank you for the information. I have several questions, but I’d like to start with the production aspect. Things have changed significantly over the past year. I recall when there was hesitance about achieving a backlog turn greater than 80%, and now it seems you are guiding for quite possibly double that in the fourth quarter. I’d like to discuss your long-term targets for backlog turns and the number of specs per community. I believe you mentioned your historical cycle time was 120 days. Are you expecting that to decrease? I’d like to get a better understanding of how you envision modeling backlog turns and spec levels as you move forward with your business.

Thank you, Stephen, for the questions. Earlier this year, we set a long-term target of 125% backlog conversion. However, we noted that we would analyze our business as we shifted to holding homes later in the sales process to offer a 60-day move-in guarantee for our customers. As a result of this change, we have been operating closer to 145% over the past few quarters. We are still evaluating this, but it seems we are likely to settle at a target above 125%. This may be affected by our cycle times, which are approaching where we want them to be, ideally turning assets three times a year. Currently, we are around 125 days and believe we can reduce that a little more for better results in reaching that 145% backlog conversion. Regarding the number of specs per community, we aim to maintain four to six months of spec inventory since we are converting 145% of our backlog. We plan to have one-third of our specs move-in ready, one-third underway, and the final one-third behind those. We feel we are nearly there. If we can continue to improve and stabilize our cycle times, we could manage with fewer specs. Overall, this quarter appears to align with our long-term targets as we look ahead.

Okay. What do you mean this quarter, Phillippe, you mean 3Q or you mean 4Q?

Q3. Q3.

Got you.

Our Q3 results. As you look at our Q4 guidance, we're guiding to something relatively similar.

Except for your backlog, terms can be a lot higher, but I understand your point about the 145% annualized run rate, which is great. For my second question, I know there will be many inquiries about market conditions, and I look forward to listening to those questions. I would like to ask about the acquisition of Elliott, particularly regarding your approach to land. Hilla, could you provide more details necessary for modeling around Elliott? Specifically, can you give us insight into the closings and the backlog you may have acquired, purchase accounting, and other related details? Additionally, you mentioned previously about potentially working on a different land structure. Do you have any updates or changes in your thinking on that?

Thank you, Stephen. To provide some clarity on Elliott, we did not purchase any VIP, so there won't be any purchase price adjustments related to the material write-down in VIP. We will begin starting units soon in Q4 and expect to see the benefits from those closings by the end of Q1. The performance from the assets we acquired will be from newly started assets with no VIP acquisition, and we anticipate that the margins from these assets will meet or exceed our current margins. We have successfully negotiated a mutually beneficial agreement with the Elliott team, resulting in a margin-accretive impact, which is somewhat uncommon for land transactions. You can expect us to maintain a supply of lots for four to five years; however, the actual annual run rate will be slightly lower than 5,500 lots but not significantly so. This outlines our long-term perspective for the new Gulf Coast division. Regarding our off-balance sheet land, we plan to finalize discussions internally within the next few days, and we will share material updates on the off-balance sheet structure during our January earnings call.

But it's going to be finalized in the next few days? So meaning it won't go into effect until 1Q? Or will it actually go into effect in 4Q? We just won't know about it until January?

Yes, it will go into effect in 4Q. It will be part of our 4Q numbers. It's going to be an incremental growth. So it's not something that's going to happen on day one. So the start of the relationship will begin in Q4. You will see evidence of it in our Q4 numbers, and then it will grow beyond that.

Got you. Okay. Great. Well, looking forward to hearing more about that. And thanks very much for all the color, guys.

Thank you.

Thank you.

Thank you. Next question today is coming from Alan Ratner from Zelman & Associates. Your line is now live.

Hi, guys. Good morning. Thanks for all the detail and a nice job in the quarter. First question on gross margin. You guys have been pretty transparent about your expectation for margins to kind of normalize closer to 22.5% to 23.5%. And it looks like based on your 4Q guide that you expect to get within that range this upcoming quarter. At the same time, I know there's a lot of moving pieces on a quarterly basis. I know there's some fixed costs associated with your COGS. I know incentives obviously play a pretty big part of that as well. So, I'm just curious if you can kind of parse through the guide for roughly 200 basis points of sequential pressure on margin? How much of that is higher incentive levels? Is mix? And should we anticipate if incentives remain elevated, is there a possibility, at least in the near term, you might dip a little bit below that normalized range?

So thanks for the question, Alan. I think when we guided a couple of quarters ago to what we thought the long-term range was going to be, I don't think you anticipated quite the level of heavy incentives that we're seeing right now. I think the incentive volume, as you've heard from several of our peers that have also released results already, it's been a little bit heavier than expected. Interest rates did the opposite of what people expected after the Fed announcement. So our numbers for Q4 reflect a higher expectation for incentives even in what we saw in our Q3 results, which is the lion's share of the pullback. The material decline from the current quarter to the next quarter is all anticipated increased utilization incentive. I think we're all waiting with bated breath to see when the rates will come down, and there will be a positive impact. So, I don't know that we're forecasting another further pullback in incentives. I think, as we head into the spring selling season, hopefully, the tides will turn and head in the other direction. So our long-term margin, I don't think is that risk of coming in lower. I'm not sure we're anticipating currently for quarters to fall in below that. But again, we'll be actively monitoring the interest rate markets and adjusting accordingly. I think we've said this several times.

Thank you. Next question today is coming from Michael Rehaut from JPMorgan. Your line is now live.

Hi thanks. Good morning everyone. Thanks for taking my questions. Wanted to delve in, I think you kind of already alluded to this, Hilla, but around the cadence of incentives throughout the quarter. It sounds like it ended at a high note and that's what you're further projecting into the fourth quarter. I was hoping if you could just remind us where incentives are as a percent of sales price and how that compares to normal levels, let's say, pre-COVID?

Yes. They're definitely running north of pre-COVID. Pre-COVID, it was anywhere between 3% and 6%, depending on the nature of the market. Right now, they're running a couple of hundred basis points above that. So, there's definitely increased incentives today from a normal market, which is why we're comfortable that on a long-term basis. Our gross margin targets are so correct because we do expect a pullback in the utilization of financing incentives long-term. We're not modeling that right now. The current dynamics in the interest rate environment don't allow us to model that, although we're hopeful that will happen sometime in 2025. So, the guidance that you're seeing from us is at the current exit interest rate utilization, not even so much as of September 30, but currently, right? We're at the end of October, and we have a whole month's worth of sales, a lot of which will close in this quarter. We have fairly good visibility as to what the current interest rate environments require us to offer.

I appreciate that insight. Secondly, I would like to hear your views on the market, especially regarding your company. The topic of finished lot availability was mentioned in a competitor's call, indicating that supply challenges are becoming more noticeable in certain markets. You recently secured a deal with Elliott, which provides access to a significant number of lots in a new area. However, from a broader perspective, how would you describe the availability of finished lots within your operations? Has it increased or decreased over the past couple of years? I'll leave it at that.

Thank you for the question. It's been decreasing over the last decade, and we haven't seen finished lots for 10 years. We self-develop almost 90% of what we do, and the finished lots we acquire are usually opportunistic. This pattern is unlikely to change soon; in fact, it's probably increasing. The finished lots available in the market are often highly contested, and the prices tend to be quite high. Developers expect to receive retail prices plus additional premiums. Therefore, finished lots are quite rare, except in mergers and acquisitions. There's a lot of activity in M&A among private builders who do have finished lot inventory available. Elliott Homes has some of those lots, which we can access. Overall, I would describe the availability of finished lots as extremely limited, and I don't foresee any changes in the near future.

Just to clarify, that's always been our expectation, right? Our four to five-year supply of lots assumes it's going to take us a year to two for development and then three years to sell through the community. So I don't know that it's any different for us than what we've been modeling as Phillippe said for the last decade.

One last quick one, if I could squeeze it in. Hilla, you mentioned that Elliott, you take the 5,500 divided by five maybe it's a little south of that. But let's say that that's closer to like 1,000 lots or closings rather that could add to your 2025 number. That's a 7% growth roughly off of your 2024. And I think even before that, we were kind of looking for 10 percentage type volume growth. So should we just be adding that to the normal 10%? I mean, is it out of bounds to think that you could be doing a 15%-plus closings growth next year?

Yeah. I'm not sure that we're guiding to 15% closing growth. We gave our guidance that includes the Elliott numbers. That 5,500 lot is a long-term run rate. So I'm not intimating that we're going to be in the 1,000 unit range in year one. The numbers that we have are inclusive of the Elliott transaction; their component of that is not four digits. So I think that the growth that you're seeing is primarily organic at that midpoint, that 17,000 units is primarily organic.

Hi, good morning. Thanks for taking my questions. I wanted to follow-up on the 4Q margin guide. If we look back over the past several years, you've consistently outperformed the top end of your margin guidance range. I think that was true in 3Q as well. And then as you alluded to, 4Q assumes a notable step down here sequentially, can you talk about the degree of conservatism that's built into that guide? And then what would you need to see happen for the bottom end of your 4Q guidance range to come into play?

Yeah. So I think as you look at the past eight quarters where you have identified that we've outperformed, a lot of that was predicated on the fact that our business was shifting dramatically and you're going from 1MU to entry-level builder and then from entry level to all spec and from all spec to move in ready. And so we just didn't have complete visibility and confidence in all the transition that was happening and how quickly it was happening. So we are guiding conservatively based on that. Now as you look at the last quarter in our guidance, we indicated to everybody that our margins are going to be down. And we slightly outperformed, but a lot of that just came in the form of a higher backlog conversion and a little bit less utilization of rate locks. So I think we're getting much, much tighter. And I would say, as we sit here in October, we don't think there's a lot of conservatism in our 4Q guide. That being said, I think rates would have to go higher than they currently are for us to perform below that midpoint, which I currently don't feel like they're doing. We have another maybe two or three weeks of sales that will close in Q4. And as we look out and see what sales we're procuring today, we don't see our financing costs going up. So I feel confident in our midpoint for 4Q.

Hi. Good morning, everyone. Thank you for taking my questions. My first question is for Phillippe. I wanted to follow up on one of your earlier comments. I thought during the presentation, you indicated that October had similar order levels to September. Since September appeared to perform well, is the order pace fairly steady but with higher incentives? How should we interpret the order pace you’re observing so far in September?

Yes, you're thinking about it the right way, which is why we're guiding to our fourth quarter margins. The demand is there. We feel very confident that we're able to go secure the pace, and we are a pace-driven business. So we feel confident we can go get our four months or so at the margins that we guided to because we have the financing incentives to go get there. So the demand environment remains extremely constructive. It's the financing and incentive environment that is continuing to be volatile and just the cost and the expectation of consumers as it relates to incentives and financing to procure the sale.

Makes sense. And then I think you answered this, but I just want to make sure that I'm understanding it correctly. You guys maintain the sort of the long-term trend margin outlook. And so does that that imply if rates, in fact, do come down and who knows if they do and when they do, but that you would take the foot off the gas on the incentives and capture more margins? Is that the right way to think about that?

Absolutely, as long as we’re aligned with our objectives. There are numerous factors that can influence margins beyond just financing, especially as we consider future quarters. We have new vintage land coming into play, among other factors. Our long-term targets stem from our comprehensive underwriting, the efficiencies we expect to achieve with our new operating model, backlog conversion, and leverage, among other elements. However, the incentive environment can significantly impact those targets, either positively or negatively. It's not just about how we manage customer payments, but also how competitors are responding to the current conditions. If interest rates decrease, that could potentially help margins. Conversely, if rates remain high or increase, it might create challenges. Nonetheless, we have various strategies to maintain margins in such scenarios, including adjusting our cost structure and pricing strategies. Therefore, while lower rates can be advantageous, higher rates could pose challenges.

Thank you. Our next question today is coming from Carl Reichardt from BTIG. Your line is now live.

Thanks. Hey, everybody. I wanted to ask about Elliott more generally. Your goal of 20,000 units in three years suggests you'll reach 17,000 next year at the midpoint. Does that include any additional acquisitions? Now that you have the production model really refined, are you considering gaining market share in the areas you're already in or entering new ones? Since Elliott represents a new and different market for you, is this an opportunistic move, or could it indicate a new direction for exploring new markets or making further acquisitions to reach that 20,000 unit target?

Yes. Actually, Elliott was a very strategic deal for us. We've been looking at these markets for a while. They fit in nicely with our overall strategy to provide affordable housing. These markets are benefiting from a lack of affordability regionally in the states that are around here. They still provide a great quality of life. They are attractive to first-time homebuyers, move-down and first move-up. And the economies are actually really, really strong. So we've been thinking about getting into these markets organically or through M&A. Elliott Homes was a great opportunity for us to partner with a great gentleman who built a phenomenal franchise in those markets so that we could go more quickly and scale from there. So it was very much a strategic fit. As I said before, Plan A is always to increase our market share organically in the markets we are. We are a top five builder across most of our markets. We think as a first-time entry-level spec builder, we should be a top three builder. As we think about where we can be a top three builder, we can easily get to 20,000 units through that growth. But we also have a number of markets that we have identified as strategic fits to our operating strategy and to our consumer segment strategy that we are looking at organically going into or acquiring the builder that would allow us to strategically enter that market at the right price. So it's always been both of those, and we're going to deploy our capital appropriately as long as it's a good return to shareholder value. And we'll go from there. That being said, we don't have anything currently out there from an M&A standpoint that is actionable. We're looking at things, but we have a lot of growth planned organically for our existing markets.

When we guided in June to 20,000 units on our investor calls, it was assuming all organic. So anything that we're doing now is incremental.

Thank you. Good morning everyone. My first question is on stick and brick costs. We've seen lumber inflate in the last several weeks or just wood products in general actually. Can you talk a bit about what you're seeing there? Thoughts on the potential that that path continues for that input cost? And then how does this strategy allow you to effectively price the homes as we do perhaps get some volatility in some of these core commodities?

Yes. So you're right, lumber has kicked up a bit over the last couple of weeks, although on the whole, the composite of all of our direct is kind of being exactly what we see in a normal market. Some things go up, some things go down. On average, there's maybe a little bit of a pickup, but it kind of corresponds with what we're seeing on the ASP side. So net-net, there's not a material drag from direct costs. With labor stabilizing, we're kind of seeing everything holding relatively within the bound of what we would consider a normal environment. So we're not seeing anything super outsized on the lumber market, although they have ticked up a bit. But overall, everything is still fairly in line. The volatility in the cost that we said, we are a quick turn builder, right? So you are going to see anything that's happening in the market displaying itself in our results fairly quickly. But with costs stabilizing and supply chain kind of returning back to normal levels, we're not seeing the variability in that today. We do have lumber locks that secure the most volatile and biggest individual component of the home. So we do have some straight lining there. But for the most part, we're not seeing tremendous movement like we had in direct in the last maybe three or four years. I don't think we have any guidance yet on capital allocations for 2025 and targets for shareholder return. We can definitely share those on our Q4 earnings call.

Yes, thank you and great job on the quarter. I wanted to ask about Elliott to clarify. For the existing communities, any homes currently under construction and in backlog will be completed by the previous owners, and anything new will benefit you? Is that how it will work?

Yes. But the only nuance is their existing communities were buying the remaining lots within the existing communities, and we'll start our homes on those, but anything that is under construction in the existing communities' models and sold with the Elliott team we'll be keeping and securing the profits from those. So we're only buying the land and starting homes on the go-forward land, including inside existing communities.

Okay. But I'm saying, you guys are keeping all the team, right, like every salesperson and builders and all that stuff is now working for you?

Yes. We don't have that. We don’t have an operations in the Gulf Coast. So the Elliott team is joining our team, and we look forward to building a great company down there.

Okay. Now, I was briefly looking at their website, and it looks like their price points are pretty low. I mean, some homes are even as low as $170,000. Are you guys planning on continuing along those same price points? And if so, what's allowing that? Is the land just cheaper in those markets than in other markets?

Yes, we love it. The lower, the better, more affordability for the folks. So as we currently sit here today, we plan to continue operating in the price points and submarkets that they're in. And to answer your question, they had some of the best margins we've ever seen from private builders. So they've executed a very profitable business there, and you can get the land on the ground to achieve that affordability. Some of the low load stuff is kind of some unique stuff that they were building. We're probably not going to continue too much with that. But their core operating model is a 30 and 40 foot. And it's in the high 2s, low 3s, and we intend to build our franchise around that.

Yes, we're going to be building a lot of their products. So we're going to be maintaining the fantastic product offering that they have down there. So you should expect to see that. And as Phillippe alluded to, lot cost is significantly less expensive in these markets, which is what allows the lower price points, but actually improved profitability.

Thank you for addressing my questions. Alex covered most of my inquiries about Elliott, but I wanted to ask about the mortgage rates. We've heard some competitors mention that the cost of mortgage rate buydowns is rising. Is it still the case that a 25 basis point increase in the nominal mortgage rate equates to a loss of around 100 basis points in gross margin? Or has that ratio changed given the current rate volatility?

Yes. We have a slightly different structure on our rate locks. So I'm not sure that there's any rule of thumb that you can use for that. The costs are staying elevated, although we've changed our offering a little bit. So the per home is not materially different, but the utilization of how many folks are using them and meeting the rate lag or I shouldn't even say meeting, would should say leaning the rate lock due to psychological fear about buying at a certain time in the market, that percentage is increasing.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.