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Greetings and welcome to the Meritage Homes First Quarter 2025 Analyst Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce you to your host, Emily Tadano, VP of Investor Relations and External Communications. Thank you, Emily. You may begin.

Thank you, operator. Good morning and welcome to our analyst call to discuss our first quarter 2025 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 our homepage. Please refer to Slide 2 caution 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 2024 Annual Report on Form 10-K. We have also provided a reconciliation of certain non-GAAP financial measures referred to in our earnings release as compared to their closest related GAAP measures. All share and per share amounts have been retroactively restated to reflect the stock split for the first quarter 2024 period. 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. Steve?

Thank you, Emily. Welcome to everyone listening in on our call. Today I'll start by highlighting our first quarter results and current market trends. Philippe will cover our strategy and quarterly performance. Hilla will provide a financial overview of the first quarter and forward-looking guidance. Meritage had a healthy start to 2025, selling almost 3,900 homes in the first quarter despite January starting off slower than anticipated. We delivered our second highest first quarter orders and closings in company history and achieved an average absorption pace of 4.4 net sales per month this quarter as we capitalized on the higher demand of the spring selling season. We had a plentiful supply of available inventory, ready and attractive financing incentives, allowing us to overcome volatile and elevated mortgage rates and fragile consumer sentiment due to increasing macroeconomic concerns. With over 60% of this quarter's closings also sold during this quarter, our backlog conversion rate was yet another all-time high for the company of 221%, reflecting the benefit of our strategic pivot. Releasing homes for sale within 60 days of completion allows us to shrink the sale-to-close timeline and we're able to quickly move finished spec inventory during the quarter. Our 3,416 deliveries this quarter generated home closing revenues of $1.3 billion and we achieved home closing gross margin of 22%. With diluted EPS of $1.69, we increased our book value per share 11% year-over-year, delivered a return on equity of 14.5% as of March 31, 2025. We acknowledge that the current macroeconomic conditions have increased uncertainty, resulting in some softening of the housing market as buyers' psychology and the cost of homeownership are being challenged. Yet, as a result of favorable demographic trends and the limited supply of homes at affordable price points, the new home market, especially at lower price points, is capturing a large portion of total homebuyer demand. Our strategies focus on 60-day closing ready commitment and move-in inventory is creating a differentiator for us by providing certainty to our customers in a highly unpredictable market. And with that, I will now turn it over to Philippe.

Thank you, Steve. As Steve mentioned, there continues to be healthy traffic at our communities despite affordability being stretched and a deterioration of consumer confidence due to challenging macro conditions. This quarter, we successfully balanced both pace and price as we were focused on optimizing returns. Our business strategy was designed around a sales pace of four net sales per month. So, as needed, we utilized more incentives and or increased external commissions to achieve that target. From there, we looked to optimize our margins and land positions, sub-market by sub-market, and community by community. Given the current macro volatility, this daily discipline ensures that we are not overreacting to short-term market swings and that we preserve the long-term value of our land book. Our strategy is intentionally agile and we constantly are reviewing our start cadence and land spend, and we'll adjust them based on expected long-term housing dynamics while reprioritizing our capital deployment. Now turning to Slide 4, amidst the tougher economic backdrop, we are proud of our team's efforts in the first quarter of 2025 to secure sales orders of 3,876 homes, which was only 3% lower than the prior year. As we mentioned on our last call, January began slower than anticipated, but as we progressed through the balance of the first quarter, the traditional spring season demand felt fairly normal, despite heightened levels of macro uncertainty. Average absorption pace decreased from 4.9 per month in the prior year to 4.4 in the first quarter of 2025, in line with our expectations, which was partially offset by a 7% increase in average community count. Cancellation rate of 9% this quarter remained lower than historical averages, primarily due to our 60-day closing ready commitment, which shortens the timeline from sale to close and provides certainty to our customers and realtor partners. ASP on orders this quarter of 402,000 was down 2% from prior year due to greater utilization of rate buy-down financing incentives to assist our customers in solving for a monthly payment, which was partially offset by small price increases in markets and communities that could absorb that. First quarter 2025 ending community count was 290 compared to 292 at December 31, 2024, and 275 at March 31, 2024, up 8% year over year. During the quarter, 30 new communities came online, a handful of which are related to the Elliott Homes acquisition. We anticipate additional Gulf Coast communities to come online throughout the rest of 2025. Also in the first quarter, we completed an additional acquisition of land from a small builder in Nashville, adding to our existing land book in a growing market. The acquisition totaled about 2,500 lots, some of which represent long-term communities. We were successful in having a landmaker close on the majority of these communities on our behalf and expect to see the incremental volume from this acquisition in later 2025 and fully in 2026. We continue to expect a double-digit year over year increase in community count by the end of 2025, which sets us on our path to achieve our stated goal of 20,000 units by 2027. Before I cover our operational performance this quarter, I wanted to provide some high-level commentary on what we are seeing in Q2. The first few weeks of the second quarter feel fairly consistent with March, and while the sales environment has definitely cooled from the elevated spring selling seasons of the last few years, we are still experiencing a healthy level of interest in our inventory of affordable, move-in-ready homes in line with our historical averages. Now moving to the regional level trends on Slide 5. First, I want to note that the central region now includes Nashville, along with our Texas markets, aligning our external reporting structure with our internal operations. The central region had our highest average absorption pace of 5.3 net sales per quarter. With every division achieving a backlog conversion well north of 200%, the central region had our highest conversion rate. Customers took advantage of our move-in-ready inventory in these markets, with an average sales of closing timeline of about 40 days in the region. During the first quarter of 2025, we saw more diversity of performance across the country in the west and east regions, with some of our markets still experiencing strong demand, while others were more impacted by the current macroeconomic conditions. The west region had an average absorption pace of 4.1 in the first quarter. In the west, Colorado and Utah remain two of the more challenging markets, where the volatile rate environment has meaningfully impacted buyer urgency. The east region had an average absorption pace of 4 net sales per month, as compared to 4.6 last year. The region's sales pace was impacted by our divisions in Huntville and the Gulf Coast, which are not yet fully operational. We believe our solid sales effort demonstrates that through our strategy, we are committed to affordability and certainty, which allows us to provide clarity in uncertain times and creates a meaningful competitive advantage against the returning resale inventory. We combine our move-in-ready homes at affordable price points with a 60-day closing commitment, and then layer in our engagements with the realtor community and financing incentives, the totality of which creates a homeownership opportunity with distinct advantages. Now turning to Slide 6. Under our new strategy, we look at total specs and backlog combined to determine the right inventory levels, as most of the orders from the first half of a quarter will become intra-quarter closings. We had approximately 8,800 specs and backlog units at March 31, 2025, as compared to 9,000 units at March 31, 2024. We calibrate our starts to achieve our targeted four- to six-month supply of inventory, including the appropriate amount of 60-day move-in-ready inventory. We started approximately 3,600 homes in the first quarter of 2025, 13% less than last year's Q1, fairly in line with our sales volume. We look to align our specs starts with sales to ensure we have sufficient supply of available inventory without overburdening our balance sheet. We had nearly 6,800 spec homes in inventory as of March 31, 2025, up 13% from about 6,000 specs as of March 31, 2024, but slightly down from Q4 as we managed to the current experience on the ground. This represented approximately 23 specs per community this quarter, which corresponds to about five-month supply, in line with our targeted range. Our inventory per store is normally greater in the early half of the year to address the peak spring selling season demand and then lower in the later half of the year. As expected, we have been completing our specs to a later stage of construction prior to releasing them for sale to offer our customers our 60-day closing ready commitment. We maintained our percentage of completed specs at 39% at March 31, 2025, the same level as of December 31, 2024. With over 60% of this quarter closings also sold within the quarter, our ending backlog declined from about 3,000 as of March 31, 2024 to approximately 2,000 homes as of March 31, 2025. As a reminder, the lower ending backlog balance today is an output of our strategy as we were able to convert sales to closings much quicker. The higher backlog conversions and shorter cycle times are also generating improved WIP asset turns. As we continue to execute under our new strategy, we will be re-evaluating targets for the optimal completed spec level and backlog conversion rates. I will now turn it over to Hilla to walk through our final results. Hilla?

Thank you, Phillippe. Let's turn to Slide 7 and cover our Q1 results in more detail. We generated $1.3 billion of home closing revenue this quarter, which was an 8% year-over-year decrease that resulted from declines in both home closing volume and a lower ASPN closings of $393,000 due to increased utilization of financing incentives. While a greater percentage of our customers needed assistance with rates this quarter, the incentive cost per home was lower compared to prior year but increased sequentially from the fourth quarter of 2024 given market volatility impacting rate lock pricing. We anticipate the use of pricing incentives to remain elevated for the near future. We demonstrated margin resiliency this quarter, hitting our target percentage despite a tougher sales environment than we had initially expected. Home closing gross margin of 22% in the first quarter of 2025 was down 380 bps from 25.8% in the first quarter of 2024, reflecting the increased use of incentives as we had anticipated. When compared to prior year, our 2025 margins also include reduced leverage of fixed costs on lower home closing revenue and higher lot costs, both of which were partially offset by savings in direct costs. During the quarter, we reduced direct costs about two percent per quarter per square foot year-over-year. Our higher volume combined with our purchasing teams negotiations translated to additional savings. Both the current land values and savings in direct are reflected in our Q2 margin guidance. Given the cadence of tariff announcements and the evolving start and stop nature of these discussions ever since, we don't yet know to what degree, if any, tariff-related cost increases will impact our gross margin in the second half of 2025. However, the current status quo of no tariffs on lumber should get us most of our expected 2025 closings completed at current market lumber prices. Given our increased scale and ongoing efforts to streamline our operations, we are confident in our ability to work with our partners to minimize the impact of supply chain challenges. As a top five builder with limited floor plans and a high level of product visibility, we intend to continue to leverage our bargaining power with national vendors. During the quarter, labor capacity remained consistent as demonstrated by our cycle times remaining stable at our historical average of 120 calendar days. We have not experienced any labor impact from recent immigration actions, and we believe there's slack in the system right now due to slower multifamily construction and reduced starts in the industry. As a reminder, our long-term gross margin target is still 22.5% to 23.5% under normal marketing conditions, which is about 300 bps higher than our historical average. We are a larger scale company with a different operating model today, which we believe permanently improves our gross margin trajectory from our pre-COVID experience. SG&A, as a percentage of home closing revenue in the first quarter of 2025, was 11.3% compared to 10.4% in the first quarter of 2024, primarily as a result of reduced leverage of fixed costs on lower home closing revenue, as well as greater spend on technology and startup overhead costs for our new Gulf Coast and Huntsville divisions in advance of a full quarter's contribution of home closings. We are confident that at our 20,000 closings goal, we will fully leverage our overhead platform and achieve our longer-term SG&A target of 9.5%. Commissions were relatively flat year-over-year as a percentage of home closing revenue, despite the tougher selling environment. We increased our co-broke percentage to 92%, but were able to secure other offsets as part of our strategic shift to maintain stability in total commission rates. However, if the market slows further, one of our levers is to lean into our external realtor relationships, as a small increase in commission rates or bonuses can drive an outsized impact in sales volume. The financial services profit of $4 million included a de minimis write-off related to rate buy-down expiration costs in the first quarter of 2025. The financial services loss of $1 million in the first quarter of 2024 had $6 million of similar write-offs. The first quarter's effective income tax rate was 23.3% this year, compared to 20.5% for the first quarter of 2024. The higher tax rate in 2025 reflects fewer homes qualifying for energy tax credits under the Inflation Reduction Act, giving the new higher construction thresholds required to earn the tax credits this year. Overall, lower home closing revenue and gross margins and a higher tax rate led to a 33% year-over-year decrease in first quarter 2025 diluted EPS to $1.69 from $2.53 in 2024. Before we move to the balance sheet, I wanted to cover our customers' first quarter credit metrics. As expected, our buyer profile remained relatively consistent with our historical averages, with FICO scores in the mid-730s and DTI around 41 to 42. LTVs were still in the mid-80s. This validates our belief that there is still a deep buyer pool that can qualify for our homes and that the hesitation is primarily coming from consumer sentiment and the desire to feel confident about a home purchase decision rather than the inability to afford a monthly payment. On to Slide 8. We maintained a healthy balance sheet at March 31, 2025, with nothing drawn under our credit facility and a net debt-to-cap of 13.7%. As we continue to grow our land position, our net debt-to-cap ceiling remains in the mid-20% range. We ended the first quarter with $1 billion in cash compared to $652 million at December 31, 2024, reflecting our new $500 million debt issuance this quarter. Our new 10-year senior notes were priced at an attractive 5.65%, demonstrating the benefits of our investment-grade status and the market's confidence in our sustainable business model. This additional debt offering will help Meritage fund long-term growth trajectory and capital return goals. Also, as we mentioned on our last call, we completed a two-for-one stock split on January 2 this year. We remain consistent in our capital allocation strategy of managing internal growth and return of capital. Land acquisition and development spend net of land development reimbursements totaled $465 million and $363 million for the first two quarters of 2025 and 2024, respectively, a 28% increase year-over-year. We continue to expect full-year land spend of around $2.5 billion for 2025 and the next several years, but we are mindful of current economic uncertainties and will shift our capital dollars if further market disruptions were to occur. We increased our quarterly cash dividend 15% year-over-year to $0.43 per share in 2025 from $0.375 per share in 2024, and we spent $45 million to buy back over 600,000 shares in Q1, tripling our $15 million systematic quarterly commitment. We have demonstrated that we can and will repurchase shares opportunistically based on market conditions. As of March 31, 2025, $264 million remain available to repurchase under our share authorization program. We returned a total of $76 million of cash to shareholders in the first quarter of 2025, continuing to prioritize both internal growth and shareholder returns. Slide 9. In the first quarter of 2025, we secured approximately 2,200 net new lots under control, inclusive of the Nashville acquisition lots. This balance is net of about 1,600 lot contracts that we terminated as part of our routine quarterly review. In the first quarter of 2024, we put nearly 6,300 net new lots under control. We have a disciplined land acquisition process where local market dynamics, including our anticipated incentives and pricing, are captured in our land underwriting. With our healthy land portfolio, we can increase or pull back on land acquisitions for the next several quarters based on market demand. As of March 31st, 2025, we owned or controlled a total of about 84,200 lots, equating to 5.4-year supply of the last 12-month closings, but in line with four to five years of forward-looking 2025 demand. We also had over 29,600 lots that were still undergoing diligence at the end of the quarter. As we prepare for our goal of 20,000 closings in 2027, we are actively sourcing both on and off balance sheet land to ensure our balance sheet is not overburdened during our growth cycle. About 62% of our total lot inventory at March 31, 2025, is owned and 38% was optioned compared to prior year where we had a 69% owned inventory and a 31% option lot position. Finally, I'll direct you to Slide 10 for our guidance. Looking into the future, there is a greater amount of market uncertainty dependent on the -- of pending federal actions. Based on current visibility and market conditions, we are maintaining our full-year 2025 guidance of home closings of 16,250 to 16,750 units and home closing revenue of $6.6 billion to $6.9 billion. As for Q2 2025, we are projecting total closings between 3,800 to 4,100 units, home closing revenue of $1.5 billion to $1.65 billion, home closing gross margin of around 21.5%, an effective tax rate of about 24.5%, and diluted EPS in the range of $1.85 to $2.10. With that, I'll turn it back over to Phillippe.

Thank you, Hilla. To summarize on Slide 11, we are proud of our team's efforts and our first quarter 2025 operational and financial results, which demonstrated the effectiveness of our new strategy in the challenging housing market. And as our spec building and streamlined operations afford us flexibility and efficient cost structure, our business model is resilient in good market conditions and even more critical when the market slows. We believe that our move-in ready supply for quick closings and our balanced approach toward pace and price will enable us to optimize returns and grow our market share while effectively navigating the uncertain economic environment because we are offering consumers affordability and certainty in their home ownership journey. With that, I will now turn over the call to the operator for instructions on the Q&A. Operator?

Thank you. We will now be conducting a question and answer session. [Operator Instructions] [Indiscernible]

Hey, guys. Good morning. Nice job in a very tough market. So, congrats on the continued progress there. First question on the guidance, I guess, if I look at the midpoint of your range, I think I'm getting to an average closing price of around $410,000, which would be up quite a bit from first quarter levels. And I didn't hear in your comments, any real indication of pricing power. So, I'm just curious if you could walk us through what the expectation is there.

Sure. So, if we're looking at our ending backlog, appreciating that our closings were at $393,000, our ending backlog is actually at $405,000. So, we're starting to see a function of mix. It's not necessarily pricing power, although we have taken price increases in markets that can allow it. So, it's a combination of both, but primarily mix.

Got it. Okay. That's helpful. And then, I guess, just more broadly on that, as far as the pricing power and incentive environment, we've heard from a number of builders so far that have had, I would say, more cautious commentary on April activity compared to what you guys expressed. And I think a number of them have indicated they're either in the process of increasing incentives or expect to increase incentives to try to get volume jump-started. So, I'm curious, as you think, I know you're not getting much guidance in the back half of the year, but what is your broad-based expectation for your incentive levels as you get through the spring selling season and ultimately in the seasonally slower months in order to achieve your volume targets?

Yeah. Thanks, Alan. So, as we look into April, we have one more weekend left and a few days. And as we said in our opening comments, it feels pretty much similar to kind of February and March. So, with that being the current trend in the market, that's really our current expectation for Q2. As we think about as we move throughout the year, it's hard to tell, right? Rates continue to move up and down. When rates move lower, we see increased demand. When rates move higher, we see softness. So, it's hard to say what's going to happen towards the back half of the year. But as we sit here with one weekend left in April, we're feeling pretty good about Q2. And we just sold 4.5 or 4.4 in Q1 when things were really challenging. So, we're pretty confident there. The other piece of this for us is just we have a lot of new communities opening in the back half of the year. We're finally starting to land our community count growth. We're going to have double-digit community count growth by the end of this year. And those communities are opening up in some of our strongest markets. And traditionally, our new communities have really strong demand even in non-seasonal times. So, that's how we're sort of feeling about the rest of this year and our confidence as we move forward.

Yeah. Just to reiterate what Philippe just said, I know some folks are having to dig deeper on incentives to hit their targeted per-store volumes. We hit our targeted per-store volume this quarter. So, I think that we're comfortable at the current incentive threshold. We understand what it is that we need to do to hit that 4-plus target since we were already there in the first quarter.

Makes sense. I appreciate the thoughts there, guys. Good luck.

Thank you. Our next question, Stephen Kim with Evercore ISI. Please proceed.

Yeah, thanks so much. I just appreciate that. I just wanted to continue that thought. Philippe, I think you indicated that new communities are opening up in their strongest markets and good sales initially, I guess right out of the gate in those markets, sorry, in those communities. When are we expecting to see the influx of these kinds of communities? Would it be as early as this quarter in the second quarter or is it more likely to be kind of, third quarter or even fourth quarter? And the reason I'm asking is because in order to hit your targeted closings guide, it looks like absorptions need to kind of rise from the level they were in the first quarter. That doesn't usually happen. And so I just wanted to sort of push on that a little bit and see whether or not you could elaborate a little bit more on these new communities coming in.

Yeah, definitely a little bit more, although timing of community openings on a quarter-by-quarter basis are very hard to predict. But as we look out over the next three quarters, we're very confident in our double-digit, year-over-year growth to end the year and move into the next spring selling season. It should be relatively, from where we are to where we want to end, pretty consistent from here. You'll sort of see it stair-step up. But obviously, most of the growth is going to come in the second half of the year, third quarter, fourth quarter. But we're going to be opening up those communities with move-in-ready inventory. We're going to be opening up those communities with things that can close within 60 days. And we personally believe that there's a strong demand for that product right now. So as you're looking at your modeling, my suggestion is that it's more about the community count growth that's driving our full-year guidance than it is about us assuming that the market's going to get better.

Yeah, that's helpful. Do you guys do much in the way of bulk sales to investors? What percent of your sales were bulk sales to investors? And what should we expect from those kinds of sales on a go-forward basis?

Yeah, I don't have that number in front of us right now. But traditionally, we've always sold somewhere around 5% of our product not to bulk investors but to just investor communities. Some of them could be bulk. Some of them could be just mom and pop. And we've never really increased that amount. As we've stated in the past, we have done some things with some built-to-rent operators. We continue to try to do that. But that stuff has somewhat slowed here, as you are aware. So we're running probably right around 5% if I had to guess. But we can definitely get you a more accurate number. But I would say it's definitely not increased recently.

Okay, great. That's good to hear. Thanks very much, guys. Appreciate it.

Thanks.

Thank you. Our next question comes from the line of Michael Rehaut with JPMorgan. Please proceed.

Thanks. Good morning, everyone. Thanks for taking my questions. I wanted to first just kind of revisit, the really -- and hats off to you, the ability that you've demonstrated to reiterate your guidance. Amid, what other builders are seeing is a decent level of volatility and some downward revisions on both volumes and margins. And I wanted to drill down a little bit. You've talked in the past about the positioning of your communities. And I was wondering if you could try and dial in to the extent you have the best sense the ability to kind of maintain that targeted sales pace in the face of some of the challenges the industry has seen, if you feel that it's driven more by -- you're already -- your price point, which is already kind of at the lower end of the range positioning within markets or the way you go about the incentive levels as well or increase in some of the sales commissions could be a combination of all. But, just trying to get a sense from your perspective of, what's kind of driven the performance year-to-date from a competitive standpoint.

Yeah, I'll try to answer that a couple different ways. I think, first of all, our confidence as it relates to maintaining our four-year guidance is based on really three factors. The first one is that we just did exactly what we thought we were going to do in Q1. The second is that April's trending positively for us, so we're feeling confident in our Q2. And the third is that we believe in our double-digit growth in our community count. So that's really our confidence. Our crystal balls are about as murky as everyone else's right now on what the incentive environment's going to look like, the rate environment's going to look like as we progress through that. But the fact that we were able just to do what we did in Q1 gives us confidence that we can manage in these conditions. As it relates to what we're doing differently, I'm not sure we're doing anything differently than the rest of the folks. They all manage their businesses really, really well. But I do believe that offering move-in ready inventory is really offering customers something today that is in high demand. They're looking for certainty. They're looking for confidence in their home purchase. And we're able to manage and solve for affordability in a different way with that window. And so my belief is that that has allowed us to secure the demand that we needed to in Q1. And we're confident as we move forward that it'll continue to be that case.

Great. Thanks for that, Phillippe. I guess secondly, you highlighted an acquisition during the quarter of lots or assets. I was wondering if you could kind of speak to perhaps more broadly, the M&A backdrop and how you view to the extent that the landscape might have changed over the last three or six months with regards to deal flow small builders or assets that are on the table. And that could be by the way, also including not just home builder operations or smaller private builders in certain markets. But also even in the land market side, if any deals are coming back to the table, people are starting to walk away from things.

Yeah. So deal flow is high right now. Well, I'd say there's a lot of deals out there. It does feel like deal flow last year was pretty high. We were working on this one for a while. It's a small builder called Willow Branch. They're a great operator in the Nashville market, great locations. And it was an all land purchase, which was perfect for us because we could build our product on it. And it was in a market that we feel very, very strongly about. So there's a lot of those out there. We're trying to pick our spots. We bought, Elliott Homes last year, which got us into the Gulf Coast, which is a market we wanted to be in. And then the ability to double down in Nashville we thought was a unique opportunity on some really great locations. So we'll continue to look at all that stuff. I think there's going to be a lot of that stuff out there. It's hard to underwrite stuff today. And I think it's getting harder with the current sort of uncertainty that's out there, incentives running as high as they are. So, land isn't getting any cheaper. And these builders believe that their land has a lot of value. So it's getting more challenge to underwriting. In the land market, I would say the same thing. What we are seeing with the current kind of uncertainty in the market is there is an opportunity to renegotiate. We're seeing the ability to renegotiate terms mostly, push deals out, take them down over a longer period of time. And in some cases, we are seeing some price concessions, but not a ton just yet. If this were to continue, I would expect to see more of that. We walked away from 1,600 lots in Q1. A lot of that was because the sellers wouldn't renegotiate. And we felt like we needed to get that land at a lower price to make the current environment work. So, we'll see how that goes as we go along here. But land is traditionally sticky. They're very patient. They'll wait for the market to get better. I don't think anyone thinks that this is going to be a multiyear event at this point. If it's not a multiyear event, land sellers are going to hold on to their land prices.

Great. Thank you.

Thank you. Our next question comes from the line of Trevor Allinson with Wolf Research. Please proceed.

Hi. Good morning. Thank you for taking my question. Phillippe, I wanted to follow up on some comments you were just making about early reads on your realtor and buyer appetite for the 60-day moving guarantee. Have you seen the mix of realtor attachment rates that you guys were anticipating with that and in markets that you are seeing a higher level of resale inventory? Are you guys finding your 60-day guarantee to be a competitive advantage in those markets? And that's perhaps what's differentiating you to some degree in this current market?

Well, our co-growth is now 92%, which means we're obviously partnering with the realtors more strongly than we were when we were 75%. But that's intentional. It's part of our strategy. It's our commitment to those folks. We believe a lot of those folks drive the activity on the existing home market. And we're giving them the opportunity to do more business with us, which is really the goal. Look, I think the competitive advantage with resale is that we're a new home. We're a new home. We build our homes energy-efficient. No one's lived in them. You can get them the way you want it. It's in a brand-new community, hopefully in really good school districts. And we can solve for your payment with rate buy-downs. And those type of things. So I think that really creates the competitive advantage. The additional cherry on top, if you will, is the 60-day move-in ready kind of commitment and the move-in ready homes, which helps realtors help their customers with the process. When they can tell their customer that the home's going to be done, done, done, ready for them to move in, there's going to be no compromise of their lifestyle. And there's a guarantee behind that. That's a really strong selling tool for our realtors with the customers they're bringing to us. And I do think that creates a competitive advantage against the resale market.

Just one more point, Trevor, and maybe we'll start sharing this next quarter. Part of the reason that we got to the 4.4 net sales per month is not just the 92% co-broke. It's that the repeat business from those same agents. It's not individual transactions with one-time transactions with a broker. It's multiple transactions with the same set of brokers who are seeing us as a partner and bringing their customers to us instead of us having to solicit business from them. So maybe we'll start sharing some of those stats in future periods about the repeat business versus just the co-broke percentage. That's really kind of the advantage that we're seeing with our strategic sales.

Yeah, that'd be very helpful. And it sounds like the strategy is having a lot of its desired impacts. Second question is, you're really the only builder in recent weeks who's maintained your full-year guidance. It's encouraging. It sounds like you're also hearing labor loosen up. So just with the softer market overall, are you expecting to see more direct cost savings with your trades moving forward? And then from an order of magnitude standpoint, do you think it's possible that these direct cost savings could be enough to offset any potential tariff impacts whenever those may occur? Thanks.

Yeah, that's a great question. It's really too early to tell. Currently, labor is performing extremely well. As Hilla mentioned in her comments, we think there's slack in the system because people have pulled back on starts. Multifamily continues to be slow for now. So we expect labor to continue to perform well. The supply chain is somewhat of an unknown. As we sit here today, we haven't layered any tariffs into our forecast because we don't have any cost increase that have been delivered to us in certainty. There's been a lot of communication from our vendors of what might come or what might not come. So we're waiting to see. But I think we're very confident right now in our ability to kind of navigate that cost environment. We're the fifth largest home builder. So the relationships we have today with our national vendors are very strong. They provide us more price certainty and clarity because of our scale. Our streamlined operating model allows us to pull in different products. If things get stuck in the supply chain, our vendors are allowed to replace those products with other products that are similar. You got to remember, we're 100% spec builder. So the customer isn't picking out what's going in the homes. We're picking out what goes in the home. So as long as the home looks good, our customer is happy. They don't have a buyer's remorse if they don't get the carpet they picked out. And then finally, we have almost 8,000 homes. We just closed another 35 or so. So the next three starts, the next four months or so of starts are going to go out here at today's cost, we believe, which really secures our 2025 year. So tariffs are probably going to be more of a 2026 thing for us if all of that happens the way I just stated. And that's kind of currently what we're forecasting our business to be.

Appreciate all the color and good luck moving forward.

Thank you.

Thank you. Our next question comes to the line of Susan Maklari with Goldman Sachs. Please proceed.

Good morning. This is [Indiscernible] for Susan. Thanks for taking my question. First, I want to talk a little bit about the balancing between price and pace should market conditions soften from here. Can you talk about your flexibility in the ramp of community count, if you were, would be willing to pull back on some of these coming in this year against maybe leveraging your incentive to maximize your return to ensure that you're meeting your absorption targets across your communities.

I think there might've been two questions there around pace and price and how we think about that if conditions were to deteriorate. I guess, we're always going to go out there and focus on trying to get four net sales per month as our base pace. And then we're going to maximize returns from there. We were able to just again, achieve 4.4 and what I believe to be very difficult market conditions. And then execute on 22% margins, which I think is pretty solid in what we thought we were going to do. And it feels again similar to what we're dealing with here in Q2. As we move into the back half of the year, if things were to get worse, we're going to focus on getting four net sales per month and then maximize returns from there. That's the baseline. I think the other question was, what would we do with our community openings? Nothing. Our community openings are scheduled based on when we have the lots and when we have the homes in production. And we're going to open those up based on that, not based on market conditions. When we open up new communities, we typically do really, really well, no matter what the market conditions are. We believe strongly in the land that we bought and those where those communities are going to be opening up. So there wouldn't be anything, any pullback in our community count growth. But again, if incentive, if the rates get go higher, or there's a lot more uncertainty or consumer confidence continues to deteriorate, we're going to figure out and solve for four net sales per month and then maximize our margins from [Indiscernible].

Yeah, just to clarify, our communities are not cannibalizing. Our new communities are not cannibalizing existing communities. They're complimentary. So having any sort of pause on a rolling out new community openings doesn't really make sense. It's additive. It's not a substitution.

Got it. That that's super helpful color. And I understand you don't have a lot of visibility on potential tariffs, but I guess my question is more on the risk from those potential tariffs across the supply chain for you. You obviously made significant improvement in cycle and time over the last few years. And how would you address the risks of potential supply chain disruption from tariffs and how would you be preparing ahead of that to make sure that you can keep your production pace intact.

Yeah, I think, you're a 100% right. There's a lot of risk out there. We're communicating constantly with our vendors. We have day-to-day conversations with those folks, both locally and at the national level. So our main plan is to over communicate. So we understand what's coming so that we can plan accordingly. But we're committed to our starts, which I think is critical if we don't continue to start homes. We don't have moving ready inventory, and we don't really have the ability to execute on our strategy. So that commitment from us on the starts allows them to plan their business accordingly. And we're over communicating. And then if things are changing out there in the future, we could hopefully source from different places and come up with substitute products where possible and just continue to plan our business. So we're not immune to these tariffs any more than, uh, any other folks out there, both inside our industry and outside of industry, but we're just trying to, uh, be more strategic. And I think we have the ability to kind of plan out our business a little bit differently, given our strategy. Operator.

Thank you. Yes. Thank you. Our next question comes from the line of John Lovallo with UBS. Please proceed.

Morning guys. Thanks for taking my question. I guess this is the first one is I just wanted to go back and maybe put a finer point on what Steve and Mike were getting at. To achieve the midpoint of the 2025 outlook, it seems like you need to sell about 11,000 more homes in the remainder of the year. And I get the fact that the community count is ramping nicely, but it does still seem like it would assume better than normal seasonality and absorption. I just want to make sure that, that we're thinking about that. Right. And if so what do you -- what sort of gives you confidence in the ability to execute on that?

Yeah. Thanks, John. So it's definitely not better than normal seasonality. We would say the number one driver in that number is the increased community count. So just the timing of when you're modeling it and the volume of that increase is driving the majority of that performance. The other piece until we've mentioned it. So I'll just mention it one more time. We typically seem to have a pop in volume when we open up a community. So in a normal month, maybe we're doing four when you open up a community for the first time, it tends to be more than four. There's excitement and engagement around the first release of lots in a new community. So if we have a high volume of communities opening up, they will have a higher absorption rate in the month of opening. It's not a seasonality change or something, that we're saying is market driven. It's the fact that it's a new community opening. So the fact that we have a lot of these communities opening, will have a larger pop in that initial month is driving the confidence we have for the full year number.

Okay. Yeah, that's helpful. And then if we think about just the gross margin guide of 21.5 in the second quarter. I mean, with 60% of your sales intra-quarter, it seems like you would have a pretty real time view on gross margins. So I guess the question is, are you seeing the 21.5 now, or is there baking in a little cushion for potentially having to offer a greater level of incentives?

And we're not too far from the end of what we're going to do, right? Everything's in backlog and we're three weeks in a little over three weeks into the quarter. We only have a couple more weeks of volume that's still going to close in the current quarter. So, yeah, I mean, this is live. You're seeing it live. Our current strategy is very real time numbers. So what you're seeing today is what we're experiencing. We have a high level of confidence in that number.

Okay. Thank you guys.

Thank you. Our next question comes from the line of Carl Reichardt with BTIG. Please proceed.

Thanks. Good morning, everybody. Nice to talk to you. Thanks for taking my questions. So what percentage, Hilla, of your current option mix, I think it's like 32,000 lots is from land sellers JVs versus land bankers. And I know Philippe talked about land being sticky, but how do you think about the owned option mix on a go forward basis, given the choppiness in the market where opportunities might be and what the cost of these lots or the cost to option might be?

Yeah. So we said we're comfortable around that 40%. I mean, 40 is not a magic number. A little bit above a little bit below feels like the right number for us. We're trying to remain aware of what's happening in the market today. And we'd like to take everything off book that we could, although we appreciate that there's a margin pull. When you do that and in today's uncertain environment, it seems a little riskier than what we'd like to go very, very deep into off balance sheet. Although we're definitely comfortable doing a little bit more than where we are today. But I think you raise a great point, Carl, which is all off book is not truly off book. We're not paying a land banker lift, on all of the off book lots. There's not 38%, 39%. That's off book at a very high premium to us. A lot of that is just structured terms with our sellers. We have a very good relationships and fantastic land teams on the ground that are negotiating structured takes with the initial seller. So most of those don't have a heavy list. The percentage that's true third party charging us a fee to take something off book is a very small percentage of that true off balance sheet number that we've given.

Great. I appreciate that. Thank you. And then to go back to something you said, and also that Trevor asked about, which is slack in the labor pool. I'm in the worry was immigration reform would create problems with availability or cost. And now it's feeling maybe the opposite is occurring. Can you maybe specify, there's some specific regions of the country where the slack is most noticeable and some specific trades where it is? Thanks.

Yeah, thank you. You're right. I think we all were very concerned about how immigration might impact the labor pool specifically in construction and specifically in the South, where I think it's acute. And as of right now, we haven't seen that. I think, again, part of it is just the pullback on starts and we're not all increasing starts from here, which has created that opportunity. So for now, it's business as usual, our cycle times seem to be remaining consistent with what we reported. As it relates to other specific regions or categories that they're not really. Generally everything is sort of status quo right now. We're not seeing it impact framers differently than foundation folks, but different than roofers. As of right now, it's kind of a steady state across all that.

Great. Thanks, Philippe. Thanks.

Thank you. Our next question comes from the line of Alex Barron with Housing Research Center. Please proceed.

Yes. Thank you. I guess I wanted to ask some of your bigger competitors who are doing also specs and focused on entry level seem to be leaning heavily on price cutting. So I'm wondering how you guys are dealing with that. Or can you avoid it or can you just deal with it through offering lower interest rates to not do that?

Yeah, great question. Again, it's community by community, depending on where we are and who our customer is and who our competitors are. We have places where we're adjacent to some of those competitors you referred to. We have to adjust accordingly, but generally we're not really cutting prices across our business. We're solving and competing with those folks through rate buy downs and some other incentives that we're using with external realtors, et cetera. So for now, we don't have a lot to report on actual price cutting. But at the end of the day, I think incentives are the same as a price cut. It's all what's the house price. But the main tool we're using is rate by downs affordability and payment seem to be the key to all of it. And as long as we can solve for a payment and provide that 60 day move in window or we're able to compete without cutting our prices, as we sit here today.

Alex, cutting price at the end of the day, a customer is trying to sell for a monthly payment, right? The price of the home is a headline number, but can they afford the monthly payment? So a price cut does not go as far in your monthly payment as a reduction in interest rate that you can get through a rate buy down. So for us offering a rate buy down helps the customer solve the affordability question much, much more efficiently cost us a lot less money than trying to reduce the price down to a monthly payment that makes sense. So I think that we're kind of combating against those offers with the right monthly payments through interest rate buy downs.

And I really believe that's where that balanced approach is most important. If you're in a situation where you have to cut your prices dramatically to solve for that four net sales per month, maybe that's not the right decision for that community, depending on all the competitive, what's going on with competitors and how much your land costs and whatnot. So that's really how you need to find that ball and balance. If you can solve for four without cutting your prices, that much better outcome.

Yeah, no, I mean, I agree with you 110%, which is why I'm surprised they're going in that route. Because mathematically and financially, it makes a ton more sense to buy down the rate, like I saw you guys in Texas offering 4.5%, which is great for the consumer and it goes a long way towards making the payment affordable. But, nearby there's competitors cutting prices, 10%, which I'm like, why, why are they doing that? It doesn't make sense to me, but then I think it puts pressure on you and other builders if people see like that guy's offering a lower paint, lower price. I guess, until you convince them that you're offering a better, lower payment?

Yeah. So far we haven't had to operate that way, but we're not immune to a bunch of competitors around us cutting prices. But for now we've been able to achieve our [Indiscernible] sales per month without having to cut prices.

Okay. Well, best of luck guys. Thank you.

Thank you so much. And is there one more operator?

No, there are no further questions.

Okay. Thank you so much operator. I'd like to thank everyone who joined this call today for your continued interest in Meritage Homes. We hope you have a wonderful rest of your day and a great weekend. Thank you.