Greetings, and welcome to the Meritage Homes Fourth Quarter 2021 Analyst Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to Emily Tadano, Vice President of Investor Relations. Thank you. You may begin. Thank you, operator. Good morning, and welcome to our analyst call to discuss our fourth quarter 2021 and year-to-date results. We issued the press release yesterday after the market closed. You can find it along with the slides we'll refer to during this call on our website at investors.meritagehomes.com or by selecting the Investor Relations link at the bottom of our homepage. Please refer to slide two cautioning you that our statements during this call, as well as the press release and accompanying slides, contain forward-looking statements, including, but not limited to our views regarding the health of the housing market, economic conditions and changes in interest rates, community count and absorption, trends in construction costs, supply chain and labor constraints and cycle time, projected first quarter and full- year 2022 home closings and revenue, gross margin, tax rates and diluted earnings per share, potential future disruptions to our business from an epidemic or pandemic such as COVID-19, as well as others. Those and any other projections represent the current opinions of management, which are subject to change at any time, and we assume no obligation to update them. Any forward-looking statements are inherently uncertain. Our actual results may be materially different than our expectations due to a wide variety of risk factors, which we have identified and listed on this slide, as well as in our press release and most recent filings with the Securities and Exchange Commission, specifically our 2020 annual report on Form 10-K and subsequent quarterly reports on Forms 10-Q, which contain a more detailed discussion of those risks. We've also provided a reconciliation of certain non-GAAP financial measures referred to in our press release as compared to their closest related GAAP measures. With us today to discuss our results are Steve Hilton, Executive Chairman, Phillippe Lord, CEO, and Hilla Sferruzza, Executive Vice President and CFO of Meritage Homes. We expect this call to last about an hour. A replay will be available on our website within approximately two hours after we conclude the call and will remain active through February 10th. I'll now turn it over to Mr. Hilton. Steve? Thank you, Emily. Welcome to everyone participating on our call. I'll start with a brief discussion about current market trends and provide an overview of our significant accomplishments in 2021. Phillippe will cover our strategy and quarterly performance, and Hilla will provide a financial overview of the fourth quarter and forward-looking guidance for 2022. Demand in the fourth quarter continued to demonstrate the strength we have seen all year. Mortgages remain very affordable, and home- buying demand continued to outpace housing inventory, driven by favorable home buying activity from millennials and baby boomers. As such, Meritage again broke several company records in the fourth quarter of 2021. In the face of a prolonged supply chain constraints and a tightening labor market, we achieved our highest fourth quarter sales, sales orders, and our second highest quarterly home closings while accelerating our spec starts. Our fourth quarter results include the highest quarterly home closing revenue, home closing gross profit, and diluted EPS, as well as the lowest quarterly SG&A as a percentage of home closing revenue in our company's history. From a full- year 2021 perspective, I couldn't be more proud of what our teams accomplished. We achieved our highest annual sales orders of 13,800 homes and closings of 12,801 homes. Our 2021 annual home closing revenue was also a record at $5.1 billion, as was our full- year home closing gross margin of 27.8%. Price increases due to sustained strong demand coupled with our operational efficiency and the leveraging of our fixed costs over higher home closing revenue drove our lowest full-year SG&A rate of 9.2%, translating to our highest full-year diluted EPS of $19.29. Our community count grew 33% year-over-year. We are entering the spring selling season with 259 active selling communities and forecasting continued double-digit community growth into 2022. We expect that our strategy capitalizing on the solid demand for the entry level and first move-up homes will produce increased volume coming from additional communities and will enable us to gain market share in all of our geographies. Now let's turn to slide four. In addition to delivering impressive financial results, we achieved numerous milestones related to our corporate social stewardship in the fourth quarter. As a team organized around an ambition to start with heart, Meritage employees donated countless hours to deliver a new mortgage-free home to a deserving military veteran and his family on Veterans Day in Florida through Operation Homefront. We also donated to various nonprofit organizations to further strengthen diversity, equity, and inclusion missions, and to help families during the holiday season in the communities in which we do business, and to support tree- planting programs to share our ongoing approach to long-term sustainability practices. Our DE&I commitments and our ESG milestones, we issued our inaugural ESG report during the quarter. We also joined more than 2,100 other companies by signing the CEO Action for Diversity & Inclusion Pledge. We'll have more to share about our ESG efforts with you throughout 2022. We're excited about our employees, executive, and board- level commitments to these important issues. With that, I'll now turn it over to Phillippe. Thank you, Steve. I want to start by focusing on affordability, which with the favorable pricing environment and the anticipated rate hikes coming this year, is top- of- mind for everyone. Affordability is at the heart of our business strategy that is centered around entry-level and first move- up homes. When we first shifted to this market segment more than five years ago, we did so knowing eventually interest rates would go up. Continuing to buy land for even lower ASP products has been our focus over the past two years to act as a counterbalance to the pricing strength all markets have experienced since mid-2020. Although we have taken increases in line with the market condition, we expect our new communities to come online at still attractive and affordable ASPs, especially in light of increased FHA limits in all of our markets. To ensure our product remains affordable, we constantly evaluate the credit metrics of our buyers. Our customers' FICO scores and DTIs remained stable in the fourth quarter and consistent with historical averages, demonstrating that they are not straining financially to purchase our homes. Given the recent interest rate increases, we will continue to monitor the overall affordability of our homes. During the fourth quarter, we continued to meet our order pace in most of our communities to manage margins through supply chain challenges and a tightening labor market, and to ensure we provide our customers a quality home buying experience. By focusing on our construction and simplified product strategy, we still achieved record orders and closings in 2021, demonstrating our ability to navigate delays associated with supply, materials, labor, entitlement, and permitting. In today's rising rate environment, we believe selling homes later in the construction cycle offers more favorable options to our buyers as they look to lock in their mortgage rate and close escrow while avoiding rate lock expirations. With each quarterly result in 2021, we also displayed our ability to achieve industry-leading gross margins. This was a function of the favorable pricing environment first and foremost, but also our disciplined production approach to managing our construction costs. As we have mentioned before, spec building typically provide us the opportunity to lock in costs before determining ASP. However, in a rising cost environment riddled with supply chain issues, we went one step further to avoid cost risks and to better manage our margins. In cases where cost increases such as lumber continued past the start of construction, our delayed sales releases allowed us to manage this additional cost exposure. Managing our order pace helped generate the meaningful lift we have experienced in our gross margins. Although we are not forecasting any improvement in supply chain challenges, once they do unwind, we expect to remove our sales metering and fully allow our communities to capture true market demand while maintaining our margin profile. Now turning to slide five. Given elongated cycle times, our fourth quarter closings totaled 3,526 homes, which was down 6% over the challenging comps of the prior year. Entry-level comprised 81% of closings, up from 72% in the prior year. Total orders of 3,367 for the fourth quarter of 2021 reflected an increase of 6% year-over-year, driven by a 24% increase in average active community count, which was partially offset by the decrease in average absorptions. The decline from 5.3 per month in Q4 2020 to 4.5 per month this current quarter was driven by a tightly- metered orders pace across most of our footprint, as well as our new community openings occurring late in the quarter. We continue to reiterate that our sales metering is an intentional choice in order to maximize both our margins and the customer home- buying process as we manage through the current supply chain issues in the market today. Looking at our growing interest list and the early month sellouts in our communities, we know that actual demand for our homes is much greater than what we were seeing in our absorption pace. Entry level comprised 80% of quarter orders, up from 72% in the fourth quarter last year. Entry level also represented 79% of our average active communities, compared to 67% a year ago. Moving to slide six. The regional level trends, we continue to experience strong demand in all of our regions. Our central region, comprised of Texas, led in terms of regional average absorption pace with 5.3 per month this quarter. This 5% year-over-year decline was offset by a 17% greater average active communities, which together contributed to an 11% increase in order volume. With the state's favorable economic development and growth environment, sustained home buying demand generated a 20% year-over-year increase in ASP on orders, the highest increase in all three regions. To address affordability challenges in the market, our east region continued to shift its product mix toward entry-level, which made up 81% of its average active communities. Out of our three regions, the east region's average community count increased the most by 34% year-over-year, which generated order volume growth of 6%. The east region's increase in community count was offset by a 25% decrease in average absorption pace. The West region's fourth quarter 2021 order volume increased 2% year-over-year, mainly due to 19% more average communities, which was partially offset by 14% lower average absorption pace. Overall, we had a solid performance from all our regions despite ongoing challenges with the supply chains. As we accelerate spec production in all of our regions, we expect total overall order volume to increase throughout 2022. Turning to slide seven. Of our home closings this quarter, 77% came from previously- started spec inventory, which increased from 71% a year ago. We ended the period with nearly 3,200 spec homes in inventory, or an average of 12.3 per community as we push to get homes in the ground. This compared to approximately 2,500 specs or an average of 12.9 in the fourth quarter of 2020. As of December 31, 2021, less than 5% of total specs were completed versus our typical run rate of 1/3 due to sustained demand and supply constraints. We accelerated starts to over 3,700 homes in the fourth quarter from approximately 3,400 homes in the third quarter and in line with approximately 3,800 homes in the second quarter. We expect to continue ramping up spec starts in 2022 as our community count increases. Having available specs is necessary for our 100% spec- building strategy. Despite improving our total spec home inventory year- over- year, maintaining a four- to six-month supply of entry-level specs has been challenging given the surge in demand and supply chain constraints, and we expect that trend to continue at least in the near term. We ended the quarter with a backlog of over 5,600 units as our conversion rate declined from 71% last year to 60% this year, resulting from elongated cycle times. However, it was a slight improvement from 57% in the third quarter. As we look ahead into 2022, we aren't expecting any improvement in our backlog conversion since we do not anticipate any near-term improvements in the current supply chain. Once the supply chain stabilize, we expect our cycle times will shorten and backlog conversion rates will pick up again while order growth will also re-accelerate as we unwind sales metering. During the fourth quarter, ongoing supply chain disruptions lengthened construction time by about two weeks sequentially from Q3 to Q4 this year. Despite these expanded timelines, we still believe our streamlined operations and 100% spec- building strategy for our entry-level homes has given us a competitive advantage in today's supply chain and labor market conditions by locking in volume and providing workflow consistency to our trades. Coupling these with our reduced SKU counts and streamlined product library has allowed us some incremental cost advantages. The benefits of pre-starting homes with simpler products to build at and our steady, predictable, and repeatable construction work make us a preferred builder of choice. These strong vendor relationships helped us deliver over 12,800 homes in 2021 and are key to accelerating starts in 2022. Since we have our spec- building processes dialed in, we've been able to give our partners more visibility into our business than ever before, so they can plan for what we need. We provide our schedules to them well in advance so our materials are pre-ordered. Our strong partnerships with our suppliers and our limited build- to- order options also allow us to pivot our product selections based on availability, if necessary, as we continue to stay nimble in these unusual times. Our executive team has been meeting with our top vendors to shore up capacity commitments for 2022. Given our significant increase in anticipated starts as we grow our community count this year, we have also backfilled our supply group with secondary alternative sources to help us with incremental needs should that become necessary. I will now turn it over to Hilla to provide additional analysis of our financial results. Hilla. Thank you, Phillippe. Let's turn to slide eight and cover our Q4 financial results in more detail. The 6% year-over-year home closing revenue growth to $1.5 billion in the fourth quarter of 2021 was the result of a 13% increase in ASP due to strong market demand, even as we shifted our product mix towards entry-level homes. This was partially offset by a 6% decline in home closing volume due to closing timing impacted by supply chain issues. The 500 basis points improvement in fourth quarter 2021 home closing gross margins to 29% from 24% a year ago was primarily driven by a full year of pricing power, which outweighed accelerated cost pressures in almost all cost categories. We believe that despite volatility in lumber and generally higher commodity costs, we can sustain strong margins into 2022. SG&A, as a percentage of home closing revenue, was 8.5% for the current quarter, an 80 basis points improvement over prior year. The higher revenue, lower broker commission, and the benefits of technology on our sales and marketing efforts allowed us to better leverage our SG&A. One-time items, including payments to our general counsel who retired in December of 2021, and a change in the company's retirement vesting eligibility for equity awards totaled $5 million and impacted SG&A expenses by 30 basis points in the third quarter of 2021. We continue to pursue back office automation and greater technological strides to drive incremental leverage of our SG&A. The fourth quarter of 2021's effective income tax rate was 23.8% compared to 21.9% in the prior years. Both years reflected reduced rates primarily from the eligible tax credits on qualifying energy-efficient homes closed under the 2019 Taxpayer Certainty and Disaster Tax Relief Act. Increased profit in states with higher tax rates and the reduced benefit of the energy tax credit due to the greater overall profitability of the company both contributed to the higher tax rate this year. Since an energy tax rate has not yet been enacted for future periods, we're not assuming any such benefit beyond 2021 at this time. Pricing power, expanded gross margin, and improved overhead leverage combined with lower outstanding share count all led to the 67% year-over-year increase in fourth quarter diluted EPS to $6.25. To highlight a few full-year 2021 results on a year-over-year basis, we generated a 74% increase in net earnings. Order units held steady at about 13,800 for both years. Closings were up 8%. We had a 580 basis points expansion of our home closing gross margin to 27.8% in 2021, and SG&A as a percentage of home closing revenue improved 80 basis points to 9.2%. Diluted EPS was $19.29, a 75% increase from 2020. Turning to slide nine. Our balance sheet remains strong even as we continued investing in land acquisition and development. At December 31, 2021, our cash balance was $618 million, compared to $746 million at December 31, 2020, reflecting increased investments in real estate and development as inventory rose $956 million during the year, as well as for share repurchases. During full- year 2021, we repurchased about 640,000 shares of stock for $61 million, of which about 244,000 shares totaling $24 million were repurchased during the fourth quarter. Our net- debt- to- cap ratio was 15.1% at December 31, 2021, compared with 10.5% at December 31, 2020. Our current maximum target for net- debt- to- cap is still in the high 20s, which gives us the flexibility to manage liquidity in changing economic conditions. In December, we extended the maturity date of our $780 million unsecured revolving credit facility to December 2026. Given our strong balance sheet, we continue to focus our capital spend primarily on growth, concentrating on community counts and increased specs, both of which we expect will drive profitability and help us gain market share. We also plan to continue routine share buybacks to offset new grants and keep our dilution neutral, and may opportunistically repurchase incremental shares. On to slide 10. At December 31, 2021, with over 75,000 total lots under control, our land books increased 35% from year-end 2020, and we had nearly six years supply of lots based on trailing twelve months closings. While this is slightly above our goal of four-five years' supply of lots, since we're in growth mode, the calculation on prior years closings is a bit misleading. Based on our forward closing projection of about 15,000 homes for 2022, we have a five-year supply of lots. We secured 9,000 net new lots this quarter, compared to approximately 11,200 in the prior Q4. These new lots will translate to an estimated 45 net new communities, of which 93% are entry-level. To address the higher orders pace of entry-level products, the average community size we contracted for this quarter was nearly 200 lots, up from the fourth quarter of 2020, where the average lot size was about 150 lots. During the fourth quarter of 2021, we navigated around municipal delays and supply and labor disruptions to open 48 new communities. We grew our community count by a 23 net communities from 236 at the start of the quarter to 259 at year-end 2021. On a year-over-year basis, we were up 33% or 64 net communities. During the full year, we opened 163 communities, up 55% from 105 in 2020. We are already seeing increased volume from our higher community count and expect to continue to benefit from incremental orders and closings in 2022 and beyond. We spent about $507 million on land acquisition and development this quarter, in line with last year's Q4 spend and our targeted quarterly run rate. We expect land spend to be around $2 billion annually in 2022 and beyond as we get to and maintain our 300 communities. To finance land, we use options or staggered purchasing terms to preserve liquidity where financially feasible. About 65% of our total lot inventory at December 31, 2021, was owned and 35% was optioned compared to prior year, with 69% owned inventory and 41% optioned. With over 80% of our owned land currently actively under development and ready to open as a new community over the next several quarters, we believe we are nearing an inflection point on our owned versus option percentages due to our community count ramp up stabilizing over the next several quarters. At Meritage, we're dialed into our land playbook and our growth strategy. We are disciplined in our approach to refilling our land pipeline, even with strong competition and land price appreciation. We underwrite to normalize incentives and absorption. Although we haven't changed our underwriting gross margin hurdle, most deals are penciling above that, giving us some breathing room to absorb cost increases and future incentives while still exceeding our minimum margin threshold. We do not target an arbitrary percentage of option land. Instead, we focus on managing our capital through balance sheet metrics and margin goals. We believe the current market demand trend, particularly at the entry level, will be sustainable at least for the midterm. Once the supply chain stabilizes, the more communities we have, the greater the incremental market share we can gain in all of our geographies. Additionally, our focus on affordability starts with our land strategy, as Phillippe already covered. Our future communities opening in later 2022 and into 2023 are expected to have lower ASPs than what we're seeing in our existing active communities today. Our land strategy focuses on larger parcels, which limits some competition for land, lowers the per lot cost by spreading community level overheads across more lots, and reduces the churn of new community openings and closings. Finally, turning to slide 11. 2022 is off to a great start, pointing to a strong spring- selling season, and we expect home buying demand to remain robust. At the same time, we will continue to manage our orders pace to preserve margins and maintain our high level of customer experience. We expect gross margins to remain elevated and SG&A rates to be at all-time lows. For the full- year 2022, we're projecting total closings to be between 14,500 and 15,500 units. Home closing revenue of $6.1 billion-$6.5 billion. Home closing gross margin around 27.75%. An effective tax rate of about 25%. Diluted EPS in the range of $23.15-$24.65. We expect full-year community count year-over-year growth of 15%-20%. As for Q1 2022, we're projecting total closings to be between 2,800 and 3,000 units. Home closing revenue of $1.2 billion-$1.3 billion. Home closing gross margin of 28.25%-28.5%. Diluted EPS in the range of $4.45-$4.85. With that, I'll turn it back over to Phillippe. Thank you, Hilla. To summarize on slide 12, we enter 2022 with momentum and optimism. We believe Meritage is poised to capitalize on market demand and drive sustainable long-term growth with our proven strategy and operating model, our healthy land position, and flexible balance sheet continued with solid execution. We have already demonstrated our ability to grow community count. I would like to extend our deepest gratitude to our hardworking employees and trade partners who contributed to Meritage's remarkable 2021. Their leadership drove our significant orders volume and closings, as well as a 33% year-over-year ramp up in community count growth while navigating challenging conditions. With that, I will now turn the call over to the operator for instructions on the Q&A. Operator? Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for your questions. Our first questions come from the line of Alan Ratner with Zelman & Associates. Please proceed with your questions. Hey, guys. Good morning. Congrats on a great year. So, you know, obviously, the rate outlook is top- of- mind for everybody right now, and certainly your 2022 guidance is encouraging. Curious if you could share with us any, you know, any thoughts or any feedback you're hearing directly from the field, just given the pretty rapid increase we've seen over the last few weeks here. Have you seen any discernible impact on demand, on order trends, traffic, et cetera? You know, what are you hearing from the sales folks in the communities right now? Thanks, Alan. This is Phillippe. You know, we don't really guide to, you know, month-over-month trends and et cetera, but what I can share with you is that January feels extremely strong. We haven't seen any discernible impact to demand, given the projections of interest rates and where interest rates have moved, you know, over the last 30 days, both in the form of our backlog. As we've gone back to our backlog, and given them indication of what rates are doing, the backlog is stable. As well as forward-looking demand when we think about our priority list and the demand we're seeing across all of our leading indicators. If anything, it feels like it's accelerating. It could be because people have a FOMO and feel like rates are going to move up dramatically towards the back half of this year and they want to get in. It also just feels like more of the same. It's really, in my opinion, being generated by the backdrop of supply, which there's none of. I mean, if you look into all the markets that we operate in, there's just way more demand for housing than there is supply. When they go into the market and they're looking for a resale home, maybe initially they can't find anything. When a resale home lists in the market, and it's a high-quality home, there's usually 12-15 offers, is what we're hearing anecdotally. They go under contract within a day or two. They're migrating over to the new home space, and we only have so much to sell as well because we're metering, and most other builders are metering. I feel like the demand is being generated by the lack of supply, and there is just this tremendous urgency to move, because people need to move right now and they want to move right now, and there's really no other options out there. To summarize, it feels very strong. We haven't seen any impact of rates thus far, but we'll see how it goes throughout the year as rates continue to elevate. Great. Appreciate the comments there, Phillippe. I know it's a tough crystal ball to read here. You know, kind of on that topic, you know, you're in a position where, you know, your backlog doesn't provide you a ton of visibility for the full year. You know, you're giving full- year guidance. You know, just focusing on the gross margin, you know, obviously full year, very, very strong. Does imply some continued, you know, slight easing from kind of the peak levels you put up in the back half of 2021. I'm just curious if you could talk through the inputs there, you know, what's driving that modest compression? Is it an assumption for higher costs, maybe some creep back of incentives, which you kind of spoke about a few quarters ago as a potential possibility? You know, what are the various drivers of that? It's 100% related to costs. What we're seeing on the cost side, they're increasing. As of right now, we feel like we have the pricing power to maintain our margins into next year. It feels like the market's gonna give us the pricing power we need to. Given the lack of supply in the market, we will be able to overcome that. It's all cost. We aren't modeling any change in incentives right now. We're not modeling any additional sales and marketing costs that we need to sell homes. It's all being driven by cost. That being said, we're coming into the year with 5,500 units in backlog. We have 3,200 specs started, and we already have another 4,000 specs slotted to start in Q1. That's why we have strong confidence in what we're gonna do here. We know what the margin is on those specs that we have teed up to start in the first quarter. Once we get through those starts, you know, we're almost there on our 15,000 sort of midpoint target. We have a lot of confidence in our margin profile as we move through the year. Certainly the ability to raise prices here in the early stages of spring selling season is giving us even more confidence. Perfect. That's really helpful. Thanks a lot, guys. Thank you. Our next question is coming from the line of Stephen Kim with Evercore ISI. Please proceed with your questions. Thanks a lot, guys. Thanks for all the information here. I wanted to start off by asking a question about your cycle times. You talked about the fact that they lengthened, I think if I heard correctly, two weeks. They lengthened two weeks from 3Q to 4Q. Was curious if you could give us a little bit more granularity about that to the degree you can. I think KB had mentioned that they hadn't seen cycle times increasing, I believe in November and December, and was curious if you could just talk about it a little bit more granularly, therefore, and maybe what you're seeing in January. Then related to that, you said you're not forecasting any improvement in cycle times in your projections. Are you forecasting any worsening in the near term? Thanks, Stephen. You know, the back-end trades were part of the challenge in Q4. I think you've heard everything you need to hear about garage doors, but there's some other back-end trades that, you know, we're just adding some extra weeks into our cycle times to make sure we deliver the house 100% complete to our customers, just to assure as things are pretty unpredictable right now, that we have the right amount of time to get our homes built and at the quality we're looking for. As we look into 2022, we feel like that's our best metric today. It gives us a little room, and we don't see any reason right now for those to improve. Based on the conversations we're having with our trade partners and our labor, they don't expect it to improve, so we don't expect it to improve through 2022, and we're not modeling it either to get better or to get worse from what we saw in Q4. It's taken us, you know, six or seven months to build a house right now. Given our position in entry-level, we think that's a really good number, and we can deliver a great home to our customers. Got it. That's very helpful. So you're basically saying that, you know, you're sort of doing this in terms of that two weeks is sort of what you're sort of embedding in your assumptions to give yourself some wiggle room just in case something unexpected happens, which it's been, you know, tending to do here. So it sounds like it's a bit of a cushion, kind of a two weeks. I don't know if I'd call it a cushion. This is our actual cycle time right now, Stephen. We're modeling our actual cycle time, although to your point, the delays are occurring from a different trade every day. Maybe one trade's getting a little bit better, but another trade's got a delay. I think that we're comfortable maintaining our current expected cycle time. Again, with the 60% backlog conversion in Q4, it's easy to calculate what that is. I think that we're comfortable with that, but I wouldn't say that two-week is cushion. This is our actual cycle time. As we sit here today, just very difficult for us to indicate that we see something out there that would suggest it's gonna get better. That being said, y ou know, we have a ton of houses permitted and teed up. If we can increase the production capacity and it does get better, we're in a real great position to go out and capture that. We have the communities, we have the lots on the ground, and we're pre-permitting a lot of homes and laying it out, so we can always accelerate that if the supply chain does get better. Yep. Yeah, makes perfect sense. No reason to assume. All right. In terms of your gross margin, again, you know, very encouraging results. The 1Q, though the move from 4Q to 1Q is always a little bit tricky because you got, you know, community level fixed costs and that sort of thing. We also have had lumber gyrating all over the place. Can you help us here, maybe disaggregate a little bit about what you're seeing there in the 1Q guide on gross margins? How much of a headwind are we seeing from fixed level community costs, y ou know, and lumber? As you think further out in your guidance, you gave a number for the full year, which was obviously welcome. I was curious. You mentioned I think earlier about costs, you know, that you're taking into consideration there. Are you also assuming anything in terms of incremental pricing from here in that gross margin outlook for the full year? We don't model expected increases in ASPs. We do model expected increases in costs. One we know and the other one is market- driven, and we can't control it quite to the same extent. For us, we're modeling the current cost trends that we're seeing plus any known increases. We're not modeling incremental increases in ASPs, which is why we guided to margin holding steady at that 27.75% for the full year. We believe that we'll have the pricing power to continue to offset the increases that we're seeing and that slight tick down from the 29% flat in Q4 gross margin to 28.25%-28.5% guidance for Q1. You're exactly right. A piece of it is lost leveraging. Number one, it's just lower volume. Number two, it's also the ramp up of the communities. We continue to ramp up in communities here. It's a little bit of that and then a little bit of noise. I don't think that it's lumber yet coming through. It's a little bit too quick for that lumber lock to show up in the financials in Q1. It's a little bit of the other costs that have gone up over the last three- six months that you're seeing come through in that Q1 number. The rest of the year guidance, that's really the lumber locks that we're seeing start to bleed through the financial statement. Excellent. Thanks so much, guys. Appreciate all the help. Thank you. Our next question comes from the line of Michael Rehaut with JPMorgan. Please proceed with your question. Hi. Thanks. Good morning, everyone. Congrats on the results. You know, first, I just wanna make sure I understood your answer before, Hilla, around gross margins. Obviously a key topic as always. You said that you're modeling costs, some cost inflation as you see it now, the cost trends continuing, but not modeling any future price increases. At the same time, I thought I heard you say you expect to be able to continue to offset cost with price. So I just didn't know how to reconcile those two statements. Or is it really the former statement that you're just being, for all intents and purposes, a little bit cautious on your future pace of price increases? I wouldn't say that we're cautious on future pace of price increases. I would say that the reason that full- year margin is coming in lower than Q4 actual, so full- year 2022 is coming in a little bit lower than what we've experienced for the last two quarters. It's because we know we have some costs that have already been telegraphed that they're going to be increasing. We know what those increases are. We think that beyond that, future increases will be offset by future price or ASP increases. We're kind of holding our current structure as we see it today and assuming that anything above and beyond that will have the pricing power in the marketplace to offset it. Okay. That's helpful. Appreciate that. I guess secondly, maybe just on the topic of price. I was wondering if you had a sense of, you know, during the fourth quarter and maybe compare that to the third quarter, what percent of communities were you able to achieve price increases and by roughly what average, either for the quarter or the month? We would have to follow- up with you on that one. I don't think we have that data available to us. I would say, in the fourth quarter, I thought prices were relatively stable. You know, we're very mindful of affordability in our business. We realize that price is the ultimate amenity. We were really focused on just getting the pace we were looking for and not looking to push pricing onto our customers right now. I don't think we raised prices a lot in Q4, although we did in certain places where demand was really strong. Once again, in January, it feels like things have accelerated again, which gives us some confidence as we look at our priority list and the people waiting for our homes that are being metered. We feel like there's some more pricing power that frankly, we didn't think we were seeing in Q4 and we're seeing now. Okay. Phillippe, could you be a little more granular in terms of, you know, your comments around January when you say extremely strong or, you know, accelerating? You know, I know you don't wanna get too detailed on a month-to-month basis, but what are some of the things out there that you're seeing in, you know, either, you know, foot traffic or perhaps, either better pricing power or, you know, sales pace? What are those things that you're seeing right now, that gives you that increased confidence now, you know, with the spring- selling season right around the corner? Yeah, I mean, usually the spring- selling season starts a little bit later in the year, and we've just seen a lot of people that wanted to buy a home last year who weren't able to, are back in the market. They're very active. There's a lot of urgency. Our priority lists in our communities are growing. Versus sort of stabilizing or shrinking. We're adding more people. We have more people waiting for our homes where we're metering for our homes. The quality of the traffic is extremely high. These buyers have really strong credit profiles as well as down payments. We're seeing our competitors have strong traffic. We're seeing, you know, continued and robust activity in the resale market where it exists. All of the above. It feels like the spring- selling season, at least as we sit today, is going to be relatively strong, even as interest rates have risen. As I said earlier, maybe it's because people think that rates are rising and they're coming into the market with sort of a FOMO mindset. It also feels like there's just still a lot of people out there, their rents have gone up, they wanna buy a home, they're moving into our markets. We're in the best housing markets in the country. There's a truck-ton of job growth and in-migration going on. I mean, across all fronts, Michael, really across all fronts. I would add two more other data points. The first Phillippe mentioned in his prepared remarks, but when we meter, there's a certain number of units we can sell per community. We're seeing we reach that goal early in the month, very early in the month. Once we release the lots for sale, they sell. We're hitting that metering pace earlier than in prior months. That's another indication that the demand out there is really robust. As Phillippe mentioned, we increased prices on a much more muted basis in Q4. We really increased the pace of ASP growth in just January here alone. Part of that is because the market allows us, and also we're seeing the increased cost come through. We've seen no pushback from our customers as we've increased pricing. That's another data point that's giving us confidence on the strength of January. Great. Thanks so much, guys. Thank you. Our next question has come from the line of Carl Reichardt with BTIG. Please proceed with your questions. Thanks, everybody. I wanted to talk about customers for a second. For a while, you've mentioned in releases about sort of you've got entry-level customers, millennials, and you've got baby boomers. I was curious if you could talk a little bit about the baby boomer component of the demand curve, the move-down customer. Then also just following on to that, do you have any sense as to what percentage of your buyers in fourth quarter, whether orders or closings, came from a different state than the one that they purchased in? Those are pretty specific, Carl. Let us do a little bit of homework and circle back with you on the in-state migration. It's obviously largest in Florida, Texas, and Arizona, but we can dig in a little bit more and provide you some metrics there. As far as the baby boomers, I'm not sure exactly what data point you're looking for. They continue to be a material percentage of our business. Although we're saying millennials, but the generation coming up right behind them is also starting to enter their home- buying years. We think over the next couple of years, while the baby boomers are still gonna be a very active part of our business, there'll be another buyer cohort at that early entry rather than a move-down component. We're starting to see that play through, although we think that'll be much more meaningful over the next two-three years. Given the affordability of our product and the quality of our community and locations, we're seeing a very diverse group of folks come through our stores. It's Gen Z, it's millennials, it's move-down buyers that are looking for more affordable housing. It's all the folks that are moving to Florida and Texas and the South and Arizona and Colorado because they're leaving colder states or less affordable states. It's a very diverse group of customers that are moving through our communities, and it's being all driven by the affordability and the locations. One other data point anecdotally. We mentioned for the last several quarters that the size of our communities is growing in lot count. As we do that, we typically have more robust amenities in those locations. For those baby boomers that are looking for that lifestyle, active community type of feel, the type of amenities that we're providing in our larger communities align with those needs as well. Thanks, Hilla. I mean, obviously the spear point of the question is the interest rate sensitivity of the customer. The customer types may be different, which is why I asked. Just shifting to the balance sheet or cash flow really for a second. You were significantly OCF- positive in 2020, obviously, not so much this year as you invest in dirt. What's your thinking, Hilla, on 2022 and the sense of whether or not you might be OCF positive or negative looking at the land spend and the delivery pattern? Thanks. It's hard to know, you know, to model things on a quarter-by-quarter basis. I mean, full year, we've guided to $2 billion of acquisition and development. That's the same thing that we did this year on a much lower volume, if you look at our guidance for next year versus where we ended up this year. We think there'll be a lot of variability intra-quarter, but full year, we would expect to be neutral or slightly positive, I would expect, since we're spending similar amount of money walking out the door, but bringing in a larger percentage. Thanks a lot. Appreciate the time, all. One other data point. Sorry, just to clarify now that I understood your question a little bit better. The percentage of our cash buyers hasn't really moved too much in the last 18- 24 months. If that's a proxy for you for baby boomers, that's kind of holding steady. Okay. Thanks very much, Hilla. Thank you. Our next question has come from the line of Deepa Raghavan with Wells Fargo. Please proceed with your questions. Hi, good morning, everyone. Thanks for taking my question. Phillippe, it is pretty interesting that you talk about price increases in January, but also mentioned that your ASP for the upcoming communities could be lower as you want to be mindful of affordability. Do you have a sense for what's the ASP sweet spot range is for your buyers? Is that what you would be working towards as you target a 15,000 steady- state home sales? Yeah, I mean, obviously we're in a lot of different markets where the sweet spots are different. You know, we used to be really kind of thinking about our business below FHA. With the recent increase in FHA, we think it's lower than that. I think, you know, we're constantly looking for land that allows us to position our products in the threes and fours. We like those price points depending on the market. As interest rates rise, we think that payment is very attractive to the people that are seeking out homeownership, whether it's millennial, Gen Z, or move down. Anything with a three or a four in front of it, you know, we think is very attractive to that consumer segment. I'd say it's somewhere around all that. Depending on the concentration by market, you know, we figure out kind of where our blended ASP is. Yeah, you can see Deepa, if you look at our backlog, our backlog ASP is $443, but our sales for the current quarter are $433. You can start to see the product mix shift starting to impact us as obviously we're continuing to increase prices. If our net ASP is coming down, that trend is due to the new product that we're introducing. We bought a lot of great land in 2019 and 2020 that's coming to the market. Really great deep land positions at very attractive basis. When we underwrote that land, a lot of that product was in the threes, you know. You know, maybe it's in the high threes now or low fours, but that's kind of the sweet spot. Got it. It looks like there's good run rate with, you know, should prices stay pretty stable here. That's good to know. Just switching gears a little bit and just for you know some peace of mind for investors around here is what kind of sensitivity are we looking with your buyer profile should the 30-year mortgage rate increase above 4%? We constantly look at that to make sure that we're priced according to what our consumers can afford. We ran a sensitivity analysis at 50, 75, and 100 basis points from today's prices. Kind of at that 4.5 and north of that. Even in that scenario, if we were to increase a full 100 basis points from today's rates, the deterioration in our backlog is like mid-single digit, low- double digit, assuming that they buy exactly the same product and don't buy a slightly less expensive or slightly less amenitized home. We think that there's a you know, minimal overall impact other than psychologically on the balance sheets of the consumer. There's certainly the capacity to be able to absorb 50, 75, maybe even 100 basis points. You know, the small percentage that would fall out, we think could be substituted with additional qualified buyers that are in our pre-qualified pool. That's great. Thanks for the call. I'll pass it on. Thank you. Our next question has come from the line of Truman Patterson with Wolfe Research. Please proceed with your questions. Hey, good morning, everyone. Thanks for taking my questions. First, just wanted to touch on your continued shift to the more affordable areas, which generally means, you know, a little bit further out. In these newer communities that have come online, just hoping to get an early gauge, are absorptions and wait lists, you know, in line with some of your legacy communities? Then, you know, competitors in tertiary markets, kind of the outskirts, if you will, are you seeing any increased incentives now that rates are moving up? I'll take the last and then work backwards. We have not seen any incentive activity in the market across any of the competitive sets, private builders, public builders, rental, or the resale market. People are getting full- ask in all of our markets, if not above- ask. No incentives yet. Haven't seen anybody push out any sort of lock incentives yet either. You know, that tends to show up in the market when the rates start to go up. As we think about our new communities, I think I said this before, but we're not going way far out. We're just sort of out where the infrastructure is. We're seeing tremendous interest in our new communities. Every new community that we schedule to open, we start to build a priority list, you know, 90 days out from releasing the homes, and they are extremely robust, and there's a tremendous amount of interest in these new source. Okay, thanks for that. You know, prior to the pandemic, you all basically had gross margins in the 19%, maybe 20% range. Over the past, you know, five years or so, you all have made just significant changes to your business model. Quite frankly, I don't know that we can necessarily look at, you know, historical gross margin based on the strategic shift. Just hoping to understand where you think, you know, a long-term normalized gross margin level is for you all today, you know, relative to history. I think you're right, Truman. We can't really look at what we did pre-pandemic to where we are today. The lift in our margin is not really a function of just the current demand. The current demand environment has raised everyone, but I think it's the change in our product mix and our operating model that's really driving that incremental couple of hundred basis points that we're seeing above maybe the industry averages. You know, I think that we discussed this previously, we've probably reset what average is. It's not, it's no longer 19 or 20, it's probably a couple of hundred basis points above that, just because of the nature of the type of product and who we are as a builder today. I don't know that we're ready to put a marker in the sand on what that number is right now, but it's definitely north of 19 or 20. Okay. Thank you for that. Thank you. Our next questions come from the line of Ken Zener with KeyBanc Capital Markets. Please proceed with your question. Morning, all. Morning. Hello. We see your rising inventory units. Obviously, it's a function of, you know, starts, but it's also partly helping to offset lower cycle times, as we measure. You know, you talk about two weeks we measured as WIP, as a percent complete. My one question is this. Your roughly five starts per community that you've done in the last two quarters, talked about in the first quarter, I believe. Can you talk about that being, you know, operational decision to ease lower cycle times, right? Just if the cycle time is slowed 10%, you could have 10% more inventory. That would kind of neutralize that. As opposed to, you know, what you think your business model, you know, your production types, your production level can be. Because ultimately, your start decisions, in our view, dictate your order level. Is five kind of a rate per community that is part of your, you know, more entry production level? Is there some component there that we should think about as governing, you know, your kind of longer term thinking? Thank you very much. Sure. The number is probably a little lower than where we want it to be. Obviously, we've addressed the supply chain constraints, so we're definitely not starting homes at the pace that we would like. Our starts pace is significantly below where we'd like it to be, both on a per- community basis and then in the aggregate. Obviously, it's also gonna grow just as a function of increasing communities. You're kind of gonna see a doubling effect there. For us, we're really focused on four- to six-month supply of lots in entry level, which at this point is like 80% of what we own. It's probably a good proxy for most of our communities. We're looking at four- to six-month supply of lots, and that's just a function of what the market's gonna give us in the peak here when we're selling five, six units a month in those communities. We're gonna be starting an equal amount of what we're selling. We always wanna keep that four- to six-month supply ahead of us. You're gonna see a ramping up of that because we don't have four- to six-month supply of inventory on the ground right now. You're gonna see us ramp up to that as supply chain constraints unwind. But then we're kind of gonna maintain that pace. If you're at that four-six every month, sales are substituted by that month start. You'll see us at somewhere around that five-six per month on the entry level and just a tick below that in the first-time move up. Thank you. Operator, we'll take one more question. Thank you. Our final questions for today come from the line of Susan Maklari with Goldman Sachs. Please proceed with your questions. Thank you, everyone. This is actually Charles Perron in for Susan today. Thanks for taking my question, squeezing me in. I guess my first question is, regarding the affordability dynamic these days. How quickly can you adjust the specs of your unsold homes, such as floor plans or finishing, to meet the affordability standards, especially when considering, how early you need to order certain materials to build those homes in this environment? Well, once we start a house, there's not a lot we can do other than the price. On future starts, we can start smaller square footages, square footages with less features in them, or homes with less features in them to help lower the price. On a pre-started home, there's really nothing we can do. Got it. Just as a follow-up, with this rising rate environment, how do you expect this to impact the demand trends across entry level relative to move-up buyer? Specifically, do you still expect the entry level to outperform given their continued desire to own a home that you mentioned in the past? Maybe you think that you're gonna see more move-up buyer coming out in your pipeline, as it begins with their increased ability to meet higher housing payments given the recent home price appreciation? Yeah, I think both. I mean, clearly our thesis is that as rates increase, people are gonna move down price because they still need a home. The entry-level buyer in particular need the home. With the pressure on rents, they're really looking for homeownership. As rates rise, we think the entry-level buyer performs relatively well as long as they don't get too high. Hilla talked about, you know, where we think they're gonna go and what the opportunity is. Clearly the 1MU buyer, especially the move-up buyer that we're focused on, which is a more affordable move-up buyer, we think they move down into the entry-level communities when rates go, and they don't feel like they want to spend as much money on a home on a per- month basis. We see a shifting of that, but we're not targeting sort of the, what I'll call the very affordable price sensitive entry-level buyer. We're targeting more of the higher-end entry-level buyer that's more qualified, looking for a nicer home. It's not all about the lowest price. It's really about the best home for the payment they're looking for. We call them entry-level and first-time move-up. To themselves, they're just a buyer. Right. They're gonna solve for a price point. If we can offer them a price point at what we call 1 MU when interest rates are a little bit lower, that's fine. If not, they're gonna go to the next community and solve for that monthly price point, which is where we have the bulk of our communities. Thank you. I really appreciate the color on this. Thank you. Well, thank you, operator. Thank you everyone for your continued trust and support. We hope you have a great rest of your day. Thanks again. Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.