Greetings. Welcome to the Meritage Homes First Quarter 2022 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. Please note, this conference is being recorded. I will now turn the conference over to your host, Vice President of Investor Relations, Emily Tadano. You may begin. Thank you, operator. Good morning, and welcome to our analyst call to discuss our first quarter 2022 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, changes in interest rates, the potential benefits of rate locks, community count and absorption, trends in construction costs, supply chain and labor constraints and cycle times, projected second quarter and full year 2022 home closings and revenue, gross margin, tax rates, and diluted earnings per share. Potential future distractions 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 2021 Annual Report on Form 10-K, 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 2 hours after we conclude the call and will remain active through May 12th. 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 recent results. Philippe will cover our strategy and quarterly performance. Hilla will provide a financial overview of the first quarter and forward-looking guidance for 2022. It's well documented that the continuing labor and supply chain constraints increased cycle times and costs across all aspects of homebuilding operations in the first quarter of 2022. Yet despite these industry-wide issues, the start of the spring selling season has been robust, setting new company records, including our highest quarterly sales order volume, our second-highest first quarter, first quarter of home closings, and our highest quarterly home closing gross margin, which broke 30%, the 30% threshold. Our highest first quarter of home closing revenue, as well as our best quarterly SG&A leverage in our company's history. The first quarter of 2022 was also our fifth sequential quarter of community count growth. We believe that today's sustained demand reflects the desire for homeownership for millennials and downsizing for baby boomers, all driven by life event milestones, which is further amplified by the low supply of new and resale housing inventory in the market. The rise in interest rates over the last couple of months and a series of additional telegraphed Fed Funds rates increases anticipated for the rest of this year may likely change the dynamics of what product will be purchased. We believe the underlying demand from these demographic groups will remain solid. We continue to sell homes shortly after releasing them so far in April, and we are still metering sales in many communities. Now on to slide four for recent events. We recognize that the recent surge in interest rates and 6 quarters of strong pricing power will eventually impact both buyer psychology and affordability. To alleviate some uncertainties for our customers, in March, Meritage purchased retroactive interest rate locks on all eligible floating-rate loans for homes in our backlog that are scheduled to close in the second half of 2022. We want to help our buyers remain confident and comfortable with their decision to purchase a Meritage home and relieve concerns around the high cost of ownership since their home purchase decision. Hilla will dive deeper into details of our bulk rate locks later. In February, we announced our expansion to the Salt Lake City market. With the first 3 land acquisitions approved and more identified in the pipeline, the new division expands our West Region operations into an area with steady growth and solid immigration. We will start our marketing campaign this summer ahead of the first openings of our affordable entry-level community before year-end. Last week, we reported that Malissia Clinton started as our new General Counsel. With nearly three decades of legal experience, she brings extensive expertise managing risk, ethics, compliance, and governance matters. Welcome to the team, Melissa. As April is Earth Month, this year, we announced a national partnership with the Arbor Day Foundation and then kicked off our tree planting program event to support urban tree populations. We will have planting events in each of our markets during the spring and fall planting season and plant over 1,300 trees this year. Our Community Trees Campaign aligns our employees' contribution and our corporate charitable work with our ESG initiatives, and will help enhance the sustainability of the markets in which we operate. With that, I'll now turn it over to Phillippe. Thank you, Steve. Since 2016, our strategy has been centered around the entry-level and first move-up markets, and affordability of our products is paramount. We have been shifting our product mix and operations to address the underserved and underbuilt affordable entry-level markets. Although efficient operations play a role, our land selection also significantly impacts our new home ASPs. For our new entry-level communities coming online in late 2022 and 2023, we have been buying less expensive land that is comprised of larger parcels in further out submarkets, allowing us to lower our ASPs while still generating above average margins. However, elevated demand and the corresponding favorable pricing environment over the last 6 quarters have masked our shift in product mix. This has resulted in our increased ASPs on orders, backlog, and closings on a year-over-year basis this quarter. These higher prices, combined with our streamlined and efficient operating model, resulted in a 15% year-over-year home closing revenue growth, record home closing gross margins of 30.3%, SG&A leverage of 8.5%, and a 68% increase in diluted EPS over last year. As Steve noted, demand is still healthy today. In addition to early month sellouts from January to April, our cancellation rate of 9.6% this quarter is similar to the last eight quarters and low compared to our historical levels and what is typically expected for entry-level products. The credit profiles of our home buyers remain stable and consistent at a historical average of high thirties for DTIs and high seven-thirties for FICO scores. We believe that our affordable quality homes are an attractive alternative for customers who are priced out of the move-up community. That being said, we continue to monitor leading indicators for any early warning signs or changes to the market and remain ready to adjust our near-term operations accordingly. Although we continue selling homes fairly quickly, we recognize current dynamics are not sustainable indefinitely, and eventually, homebuilding demand will stabilize. We welcome the market stability, which we believe is necessary for sustainable long-term growth. We can flex with market conditions and slow down our starts if there is any choppiness in the market demand and focus on smaller products or homes with fewer amenities. Compared to other entry-level offerings, our affordable homes offer surprisingly more with quick move-in timelines. This quarter, we are announcing two formal relationships with large national build-to-rent operators, selling them individual homes and contracting for full communities over the next several years. While we do not have specific targets for this line of business, we expect this to be a high single-digit to low double-digit percentage of our annual closing volume long term. In the first quarter of 2022, build-to-rent accounted for a bit under 5% of closings volume. Slide 5. Given elongated cycle times, we were pleased that our first quarter closings of 2,858 homes were just 32 homes below the challenging comp the prior year. Entry-level comprised 86% of closings, up from 72% in the prior year. Total orders of 3,874 for the first quarter of 2022 reflected an increase of 12% year-over-year, driven by a 32% increase in average active community count and our accelerated starts despite a decline in average absorption from 5.8 per month in Q1 2021 to 4.9 per month this quarter. We intentionally restricted our order pace to align our starts with production delays and ensure an excellent customer experience that includes both the opportunity to lock in a mortgage rate and have a quick and flexible move-in process. Entry-level comprised 83% of quarter orders, up from 76% in the first quarter last year as we continue to shift our product mix. Entry-level also represented 81% of our average active communities, compared to 73% a year ago. Slide 6. Moving to the regional trends. All of our regions achieved growth in average community count and orders volume in the first quarter of 2022. Our Central region, which is comprised of Texas, had our largest increase in regional orders volume of 16%. This resulted from a 21% increase in average active communities, combined with our highest regional and state average order pace this quarter of 5.8 per month. Pricing power led to 20% increase in ASPs on orders compared to the same quarter last year, given the state's favorable economic and business environment. Closely behind the Central region, our East region's year-over-year orders growth of 15% this quarter was primarily due to a 45% increase in average active communities, our largest regional increase this quarter. This more than offset the 20% year-over-year decrease in average order pace to 4.5 per month. The East region had the largest increase in entry-level communities, resulting in 82% of its average active communities selling entry-level products during the quarter compared to 72% in Q1 of last year. South Carolina had the highest increase in order volume this quarter, more than doubling its 2021 volume due to its community count ramp-up over the last four quarters. The West region's first quarter 2022 orders volume increased 5% year-over-year as a result of a 21.8% increase in average community count that was offset by a 19% decline in average order pace. Given solid market conditions, strong pricing power, and pronounced limited entry-level and first move-up housing inventory in the region, the West region had our highest regional increase in ASPs on orders this quarter of 21%. Although Colorado remained the lowest percentage of entry-level mix at 50% of its average active communities quarter, we are continuing to shift towards entry-level product in this state. We expect this absorption pace will start to increase over time. In Arizona, where the housing market remains robust, our 40 orders decreased year-over-year by 9% due to metering from numerous supply chain issues, which led to a 25% decline in our average absorption pace despite a 28% growth in average communities. Turning to slide seven. We accelerated starts to over 4,000 homes in the first quarter from approximately 3,700 homes in the fourth quarter of 2021. We expect to continue ramping up starts in the second quarter of 2022 as our community count increases as we work to return to our optimal level of specs per community of 4 months-6 months of supply. We continue to navigate production challenges to increase the amount of available specs in our entry-level communities. 80% of our home closings this quarter came from the previously started spec inventory, which increased from 71% a year ago. We ended the period with over 3,200 spec homes in inventory or an average of 12.1 per community as compared to approximately 2,300 specs on average or 11.2 in the first quarter of 2021. At March 31, 2022, less than 5% of total specs were completed versus our typical run rate of 1/3 due to sustained demand and supply constraints. While our cycle time did not expand in Q1 sequentially over Q4 last year, we are still about 6 weeks-8 weeks of additional time from our pre-COVID construction schedules. We are pleased we are able to hold the schedules from worsening and are now pushing to gain some time back over the next few quarters. In addition to the extended cycle time, we are also selling later in the construction cycle to maximize margin and maintain a best-in-class customer experience. Our customers appreciate the ability to lock in their mortgage rates in the rising rate environment and to plan for a move-in date that fits their deadline. Given elongated cycle times and later sales, we ended the quarter with a backlog of nearly 6,700 units as our conversion rate declined from 62% last year to 50% this year. When the supply chain stabilize, we anticipate cycle times will shorten and backlog conversion rates will pick up again. We continue to lean on our streamlined operations and pre-siting all entry-level homes before selling to help us navigate supply and labor constraints. For example, we are able to lock in supply volumes with our vendors well in advance and provide our trades visibility into our scheduling, while offering consistent and repetitive line work that doesn't require the most skilled labor. Additionally, given our reduced SKU count, we can remain nimble and substitute our selections with vendors if certain product availability runs low. To address our anticipated incremental starts throughout the rest of the year from a community count growth, we strengthened our long-term relationships with our critical national and local vendors. We view our trades as partners, not just suppliers, and are willing to lock in guaranteed volumes for their commitments to deliver additional capacity to Meritage Homes. Our whole team, from field purchasing agents up to the executive suite, continue to engage with our partners, demonstrating our focus on finding workable solutions. I will now turn it over to Hilla to provide additional analysis of our financial results. Hilla. Thank you, Phillippe. First, I wanted to start by covering the retroactive rate locks Phillippe mentioned earlier. We believe that today's buyer is aware of the current interest rate environment and after locking in a fixed rate with our mortgage team for the duration of their construction cycle, the buyer is comfortable with their monthly payments. However, we also recognize that buyers in our backlog that were pre-qualified for floating rate loans several months ago may now find themselves in a different psychological and financial position regarding their home purchase after the sudden and steep surge in interest rates since the start of the year. We wanted to relieve this concern for our buyers, and in March, we purchased retroactive below-market fixed interest rate locks and applied them to all eligible floating rate loans in our backlog that are scheduled to close in the second half of 2022. The response from our customers has been overwhelming, and we believe this action will help limit future cancellations in Q3 and Q4 of this year and demonstrates Meritage's commitment to provide exceptional value and service to its customers. Let's turn to slide 8 and cover our Q1 financial results in more detail. Home closing revenues grew 15% year-over-year to $1.2 billion in the first quarter of 2022 as a result of a 17% increase in ASP due to sustained homebuilding demand, even as we continue to shift our product mix towards entry-level homes. Home closing volumes declined 1%, impacted by the continuing supply chain issues, pushing some of our late quarter closings to Q2. Our first quarter 2022 home closing gross margin was a record 30.3%. In addition to our favorable pricing power, selling homes later in the construction cycle helped us avoid cost risk and maximize margins. The 560 basis points improvement from 24.7% margin a year ago mainly resulted from higher ASPs more than offsetting higher lumber and other commodity costs as well as the benefit of lower interest costs stemming from improved interest rates on our refinanced debt. Given lumber volatility, we anticipate the next couple of months to be choppy due to timing of lumber locked in Q1, with potential savings impacting margins in the back half of the year. The interest cost savings and margins should be permanent. SG&A as a percentage of home closing revenue was 8.5% for the current quarter, a 130 basis points improvement over prior year. Lower internal and external commissions, higher revenue, and the benefit of technology on our sales and marketing efforts allowed us to better leverage our SG&A. In addition to continuing our pursuit of overhead efficiencies, we expect the incremental revenue from closing volume growth will drive additional SG&A leverage in the future. The first quarter of 2022's effective income tax rate was 24.0% compared to 20.6% in the prior year. The higher rate in 2022 reflects the expiration of the 2019 Taxpayer Certainty and Disaster Tax Relief Act, under which we earned eligible energy tax credits on qualifying homes closed in 2021. Since the energy tax credit has not yet been enacted beyond 2021, we're not assuming any such benefit in 2022 at this time. Overall, pricing power, expanded margins and improved SG&A leverage, combined with the lower outstanding share count, led to a 68% year-over-year increase in first quarter 2022 diluted EPS to $5.79. Turning to page nine. We maintained a strong balance sheet and ample liquidity during the first quarter. At March 31, 2022, our cash balance was $520 million, compared to $618 million at December 31, 2021, primarily stemming from land spend as inventory rose $291 million during the quarter, as well as share repurchases, which totaled about $99 million, or over 1 million shares of common stock. Our net debt to capital remained low at 16.9% as of March 31, 2022. We continue to target a maximum net debt to cap rate in the high 20s, and with no debt maturities until 2025, we believe we have sufficient flexibility should current economic conditions change. We continue to focus our capital spend primarily on opening our incremental communities and getting specs in the ground to help us gain market share. In addition to routinely buying back shares to offset new grants and keep our dilution neutral, we may opportunistically repurchase incremental shares just like we did this quarter. After these purchases, we still have $64 million remaining on our share repurchase authorization. As we consider cash, our cash spend, we look to balance our operational cash needs with maximizing long-term shareholder value. On to slide 10. At March 31, 2022, we had over 75,100 total lots under control, flat sequentially from Q4 2021. Based on a trailing twelve-month closing, we had nearly 6 years supply of lots, which is slightly above our target of 4 years-5 years. Given the incremental volume that has started to flow through from the new communities that have come online over the past few quarters, we have a 5-year supply of lots based on our full year closing projections of about 15,000 homes for 2022. In the first quarter of this year, we secured over 4,100 net new lots, 30% lower than prior year. Our net new lots translated to 27 new communities, of which approximately 93% are entry-level to maintain our focus on affordable homes in the future. We prudently grew our lot positions at a slower pace this quarter than we did in 2021, primarily in spacing our starts. Since the 300 community count goal is within our reach, we anticipate growing beyond 2022 at a more normalized pace, and we continue to gauge for changes in home buying trends in all of our markets. We opened up 32 new communities and grew our community count from 259 at the start of this quarter to 268 by March 31, 2022. We spent over $371 million on land acquisition and development this quarter, which was essentially flat year-over-year. Since our community count ramp is stabilizing, our go-forward land acquisition and development spend growth will be more measured. We use options or staggered purchasing terms or financial receivables to preserve liquidity. Since we manage our capital through balance sheet metrics and margin goals, we do not target an arbitrary percentage of optioned land. Each deal is evaluated based on its own financial merit. About 65% of our total lot inventory at March 31 was owned and 35% was optioned, in line with Q4 2021. As of March 31, 2021, we had a 60% owned inventory and a 40% optioned position. In the first quarter of 2022, we remain selective regarding the land we secure. We continue to underwrite to normalize incentive volumes and absorption as well as consistent minimum gross margin thresholds. Although we haven't changed our underwriting gross margin hurdle, most deals are coming in above that, which provides us a cushion to absorb further cost increases and potentially higher future incentives. This discipline enables us to keep land costs lower and in turn, move down the pricing band when new communities come online. Finally, turning to slide 11. In April, our demand remained healthy and steady even as rates continued rising. As we manage through supply and labor issues and ramp up our starts, we anticipate incrementally higher orders and closings throughout the rest of the year. For full year 2022, we're projecting total closings in between 14,500 and 15,500 units, home closing revenue of $6.5 billion-$6.9 billion, home closing gross margin in the low 28% range, an effective tax rate of about 25%, and diluted EPS in the range of $26.30-$27.90. We remain on track with our 300 community count goal just around the corner in Q2 this year. We continue to expect the full year community count this year to grow between 15%- 20%. As for Q2 2022, we are projecting total closings to be between 3,000 and 3,200 units, home closing revenue of $1.3 billion-$1.4 billion, home closing gross margin in the high 29% range, and diluted EPS in the range of $5.60- $6.10. With that, I'll turn it back over to Phillippe. Thank you, Hilla. To summarize on slide 12, we believe we are well positioned to navigate supply and labor disruptions, take advantage of our increasing community count, and ramp up our starts, and continue to capitalize on market demand by offering affordable yet quality product. That said, we are prepared for today's rising interest rate environment, given our focus on entry-level and first move-up products and a proven strategy and operating model of driving lower costs through pre-started inventory. We have a healthy land position and a disciplined and proven land playbook. With a focus on accelerating community count since late 2019, we were very active in the land market post-COVID-19, which is now starting to become visible in our community count growth and will continue to come online over the next several quarters. The older vintage land is producing outsized profits that is visible in our strong gross margins due to those being secured before the significant land price run ups that started in the back half of last year and benefiting from the ASP appreciation over the last six quarters. Additionally, our strong balance sheet enables us to remain nimble and flexible for any market conditions. For the first time in our company history, we will have 300 communities. We believe that our community count growth will mitigate potential absorption declines should the market slow down. Further, it will allow us to continue to leverage our incremental revenue to achieve economies of scale. With that, I will now turn the call over to the operator for instructions on the Q&A. Operator? At this time, we'll be conducting a question and answer session. If you'd 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'd 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. In addition, we ask that you please limit to one question followed by one follow-up question. One moment please while we poll for questions. Our first question is from Stephen Kim with Evercore ISI. Please proceed with your question. Great. Thanks very much, guys. Impressive results as becoming usual. Right now, there is a lot, I think, of confusion and questioning around the entry-level segment of the market. Is it the better place to be or is it the worst place to be? You know, in a rising rate environment, I think most everyone's saying, you know, the entry-level buyer is gonna be squeezed more, and some people are taking potshots at that segment. Since you're so big there, I figured I'd ask you, is it we're still seeing demand greater than supply in your communities, including your entry-level communities, and that's in terms of order taking. Is there anything about the order taking which you know reflects in any way kind of an obsolete lower mortgage rate? Is it fair to say that the sales that you're making today are reflecting the demand and supply intersection at rates today? If that's staying strong, why should we necessarily expect to see it weaken if rates, you know, sort of remain where they are and the economy remains similar to how it is today? Thanks, Stephen. Yeah. We're aligned with the second statement, which is the demand is based on current. The buyers that we're seeing come into our communities are expecting a 5% rate, 5.5% rate, whatever it is today. They're entering that market expecting that rate at the current pricing, and that's the payment that they're looking for. That's what we're seeing today. Now, what I would tell you is that given the stability of our FICO scores and some of the DTI ratios we're looking at, clearly the buyers are shifting around. We believe that there are buyers that are being priced out of the affordable move-up space, if you will, and they are moving down to buy an entry-level home. Someone who was thinking about or looking for a house in the $500s is now looking for a house in the $400s. We do see people shifting around that kind of a price band based on interest rates going up and down. Stephen, the thesis is really, is there a population that needs housing? We believe both millennials and baby boomers need housing. They're solving for a monthly payment. As interest rates go up, the ASP of the house needs to come down. As long as you're offering attractive products, which has been our thesis all along, offer a little bit more, surprisingly more is what we like to call it internally. As long as you're offering a little bit more, when they're coming down a price band and looking at our homes, they're not disappointed with what is now a substitute product for them. The demand is still there. As long as we can solve for a price point, a monthly payment, then, we're still seeing that demand exceed supply. The other thing I wanted to add to this is not all entry-level buyers are created equal. Our strategy was always to position our product for the entry-level buyer who is willing to pay more and is a little more qualified. There are entry-level buyers that are literally just driving for affordability. There's a whole bunch of buyers out there that have a more discerning preference. They're trying to get into school districts. The millennials that are driving a lot of that. We're seeing a high-quality entry-level buyer that is willing to pay more and is looking for that payment, as Hilla Sferruzza said, looking for those high-quality locations. That market is very strong. Great. Yeah, that's very helpful. I mean, I think at the end of the day, it's sort of sounding like rising rates is just forcing the market to focus on what they need, and maybe we're in a needs market rather than a wants market, and that's totally fine given the scarcity out there. I wanted to ask a question about your gross margins and your outlook. Obviously you called out lumber, which is, you know, something that does, you know, gyrate around a lot, and we're watching it just like everybody else. In addition to that, what we're wondering is whether or not there's any other, you know, incentives that are sort of being contemplated in your outlook. It wouldn't be terribly surprising maybe to see incentives and, you know, increase to some normalized level. Maybe you could help us understand, one, are you including any incentives, increase in incentives, maybe like for example, offering to buy down rates at the closing table or something like that? Two, what is the normal level of incentives that you would run through your gross margin or cost of goods sold, versus where it is, where it has been, let's say in the first quarter of this year? Sure. Yeah, as we look at our gross margin guidance, you know, we're not expecting margins to continue to go up from here from the Q1, as you can see from the full year guidance. A lot of that is being driven by the continued cost increases that we're seeing. We saw some very meaningful cost increases in Q1, and we're still seeing those. Then on top of that, we are thinking that there's going to be incremental incentives, whether they come in the form of rate buydowns or actual true incentives, maybe some additional realtor focus or whatnot to hit the back half of the year and to move those buyers through the process. We're being sort of conservative with that as we sort of look at this rising interest rate environment, which is resulting in our full year of guidance. As it relates to what our incentives were in Q1 versus what a normal environment looks like, they were basically absent in Q1. We didn't really have any incentives other than the mortgage buydown that we did was really for our backlog. But in a normal environment, we could see anywhere from, you know, somewhere around 3%, 4%, when housing is sort of the supply and demand is in balance. We typically sort of underwrite new land around 3%-4%. That cost of rate loss, even that is reflected already, as we mentioned, is for Q3 and Q4 closings. That's a portion of what you're seeing flow through the margins in the back half of the year. As there's obviously a decline when we guided to low 28% and we just closed out the quarter at 30.3%. There's obviously a sequential decline coming in the back half of the year. A portion of it is that, a portion of it is incremental conservatism that may be needed. It's difficult to gauge, you know, with the Sure. What you read about the expectation from the Fed over the next one to two months, it's difficult to gauge what the market's gonna be, and we don't have 100% of our expected backlog to close out the year just quite yet. Yeah, sure. I was, That's what I was hoping you were gonna say, Hilla, that it incorporated that conservatism. Just to clarify one thing though, when you talk about normal incentives in a normal market, is it also true that in a normal market, home prices are rising at a, you know, sort of a low to mid single digit rate? That's typically what happens. When we look at a new piece of land and we buy a new piece of land today, we aren't expecting home prices to appreciate. We underwrite at current prices, we underwrite at current cost, but what we are doing is underwriting at traditional incentive structures that currently don't exist in the market today. Yep, got it. Okay. Thanks very much, guys. Our next question is from Truman Patterson with Wolfe Research. Please proceed with your question. Hey, good morning, everyone. Thanks for taking my questions. First, just wanted to follow up on one of Steve's questions before, but your business model, you have a shorter order to close cycle time. You reiterated your 15,000 closings, which I think indicates you're expecting demand to remain pretty healthy, strong growth for Meritage at least the next couple quarters, despite, you know, the move in rates. I'm just trying to understand at the margin if there's been any shift in your consumer behavior outside of that mix shift. Is there more handholding to get them across the line? Are you seeing more traffic that you have to get qualified before, you know, they place the order, etcetera? Just trying to understand what you all are seeing on the ground floor. Yeah. All of the above. Definitely, more handholding and getting people comfortable with getting qualified, what their loan's gonna be, what their payment's gonna be. Certainly having to go deeper into priority lists. We still have really deep, strong priority lists on subdivision by subdivision level, but we're often having to go deeper into those versus there being the pressure of the first one to buy or they won't get it. You know, going in 3, 4 deep into our priority list to find the right buyer for the right home. We're seeing all of those leading indicators come off of, you know, what was just unprecedented highs, where it was, it was sort of just a frenzy out there. Still very, very, very strong, but I wouldn't categorize it as a frenzy anymore. I will say that once we get the buyers, the qualification process is not any more difficult than it was previously, right? When we're looking at it, our FICO, DTI, and LTVs are not any different than they were. We're having to go down deeper into the list for sure, but part of that is because those buyers bought from someone else. As soon as that home becomes available, they have their names on a whole bunch of priority lists. First one to call gets the sale. We're still able to qualify the buyers on our homes at a consistent financial metric. All the leading indicators around traffic and web activity, contact center activity, those are all very, very strong as well. They've certainly come off of their peaks, given the rise in rates, but still, very, very strong flow of inbound interest in our homes. Okay. The priority lists are still deep. You're just having to go a little bit further in. I'm trying to understand the level of investor activity in your core for-sale communities, either, you know, smaller mom-and-pop investors or larger institutions, and whether or not there's been any change in investor activity given the rate backdrop. You know, kind of part two of this question, you know, the BTR platform. If the for-sale market or consumer, you know, decelerates, I'm trying to understand the appetite of the BTR investor, if you will. How quickly do you think you'd be able to mature that platform? Yeah. You know, we have a pretty tight governor on the amount of investor activities we allow in our subdivisions and our communities. We've always done that. We try to limit it to around 5% of the overall community. We can open that up to mom-and-pop investors and whatnot. When we look at the last four quarters, that's about where it's at, is about 5%. We haven't seen. We don't particularly increase that activity. Have you seen more interest from mom and pop? I'd have to follow up with you on that. I do think the investor interest in the market has grown, but we govern that pretty closely. On the Build-for-Rent, that's our thesis as well, although we are also waiting to find out how they perform along the way here. Right now, they have a very, very strong interest in anything that we can provide to them, and we see it as an opportunity to mature quite quickly if our for-sale business were to soften or decline. That's at least the conversations and the partnership and the relationships we have in place today. As we've sort of tried to increase that volume over the last couple quarters as we look into the remaining of this year, there's a very, very strong interest from those partners on buying anything that they can buy from us. Yeah, you're gonna see a ramp up in the individual home sale activity. As we've mentioned, it's a little bit under 5% of the current quarter, but that's gonna grow throughout the quarters of the year. The inventory has already been identified and committed. As we roll into next year, we mentioned that there's entire communities that are structured to be sold to the build-to-rent operators. You're gonna see that volume consistency in our results. Again, it's the new emerging market for everyone here, the institutional BFR participating in new home construction. We'll see what the appetite is. For now, it's incremental business for us. It's not taking away from our core business. It's additional units that we're identifying and securing for them with additional labor. This is just a plus for us at this time. Perfect. Thank you, and good luck in the coming year. Thank you. Thank you. Our next question is from Alan Ratner with Zelman & Associates. Please proceed with your question. Hey, guys, good morning. Thanks for taking the questions, and great performance in the quarter. First question maybe just on that BFR topic since you were just addressing it. What are the economics? I know it's early, but what do you expect the economics to look like there, just recognizing there's going to be some mix shift as that business grows from, you know, 5% to double digits of your volume over the next year or so. You know, I'm assuming that you're not expecting margins on that business to be kind of the 30% type level you're generating today at for sale. But are there any notable mix differences either on price or margin that we should think of? No. It's actually consistent. There are certain costs that we don't have to spend, utilizing the BFR platform, and we pass those savings to our operator partners. Actually, it's a net neutral for us, and it's a net savings for them. Since they're buying the majority of what they're getting just straight off the MLS, they're getting the savings that we're passing along for costs that we don't have to spend. It's actually net neutral right now. There might be some shifting across P&L line items, but net is the same for us at this point in time. As the new communities roll on, there might be a slight, you know, net 150 basis points variance on the full new community versus individual homes. Again, not material at an accelerated pace. The leveraging and the efficiency of the communities is still gonna result in a net neutral impact to Meritage. Okay. Great. No, that's helpful, Hilla. Thank you for the color there. Second, would love to chat a little bit about some of your comments on the land acquisition side, kind of pulling back a little bit there this quarter, and you know, I know you guys obviously made a concerted effort to really kind of accelerate the community count growth before a lot of your peers have, which has really worked out well. I'm curious with your new lot acquisitions down year-over-year. Is that consistent with the plan you've had in place, or was that in reaction maybe to what you're seeing in the mortgage rate environment and some concerns going forward there? I'm just trying to figure out like whether this return to more normalized growth is more of an inflection or a change in thinking or whether this was always kind of the path you envisioned. Both. I mean, we were very intentional about getting to 300 and stabilizing, which we're gonna accomplish here this quarter. But from there we always planned a more measured growth, to allow us to get the organization positioned to be successful and frankly, not take on unnecessary land risk. I mean, the opportunity to get to 300, you know, we put that goal out there in 2019. COVID slowed us down a little bit, but as soon as we, you know, saw what was gonna happen out of COVID, we jumped in and delivered on that. A lot of that land, by the way that we are closing, that's making up the 300 today is stuff that we bought two years ago, contracted 2+ years ago. It's really well-priced, low residual land that's gonna be flowing through our business plan for the next 2 years. We really don't need any land, frankly for the next 2 years at all. As interest rates have risen, we've rationalized all of our land, the land in our pipeline that we're closing, the land that allows us to grow from the 300 next year and beyond, and looking at every piece of land through the lens of a higher interest rate environment. Does that make sense, going forward? Clearly, land prices have escalated quite a bit over the last 6 quarters. The land that you're seeing out there in the market today, to me, frankly, it's kind of uncomfortable. There's some good opportunities out there. You have to be very disciplined and look at 20 deals to find the one that you like, which we're still doing. I think you can expect us to have a much more measured and tempered new land pipeline from here as we look at just making sure we have the best 300 communities in our portfolio and then just grow modestly from there until we see exactly what interest rates are gonna stabilize at. Yeah, I think that strategy makes a ton of sense. Given all the uncertainty, I would imagine that, given the moderation in growth, that should translate to some pretty healthy cash generation as well. I agree. All right. Thanks a lot, guys. Appreciate it. Our next question is from Carl Reichardt with BTIG. Please proceed with your question. Thanks. Hey, everybody. I'm sorry if I missed this, Hilla. Did you talk about how many homes you had actually under construction at the end of the quarter? Oh, gosh. Back homes or total homes? Total homes. Just the specs plus the backlog. Okay. It's like 9,500. 9,500 Yeah. or so. Yes. Yeah. $9,500. Okay. Yeah. 6,700 houses in backlog. Yeah. 93.65 is the actual number. Yeah. Yeah. Okay. Thanks for that. Then just trying to think about pricing strategy here and as you're looking going forward, I mean, obviously the average order price is up a ton year-over-year and has been for the last 3 or 4 quarters. Is this the point in time now as we look at our models where we ought to really effectively start flattening it out on a go forward as you look at the new communities coming online and the mix there? It seems like that's this is kind of now where we should start to flatten it. I'm just curious if you think that makes sense or the expectation here is that, you know, maybe you'll take the hit to margins, but you'd still see AOPs up. Just like your thoughts on that. I can give you my thoughts. I mean, we're a ground up company, right? We have 300 communities that make up our business plan, and every community has a different story. Some have a lot of runway, some have a little bit of runway, some have demand for years, some, you know, we're scratching for our 5 a month. We price to the local market conditions. What are the competitors doing? What's the resale market doing? Who are the buyers coming to our communities? We're pricing based on supply and demand dynamics in each market. The supply and demand market dynamics have been so upside down all the way through, frankly, even today, they're still there, that we're pricing our products based on the demand in the market. It's hard to say what prices are gonna do from here. If you look at what's going on in April, I would expect prices to continue to go up based on the dislocation of demand and the ability for us to bring supply to the market. It's hard to say. Maybe the interest rates will start to diminish the demand to a point where we're not gonna continue to push prices. Certainly our costs continue to go up as well. We'll just have to see month to month. We have a lot of communities where they're on coastal California, coastal Florida, you know, core Colleyville, urban Texas markets, et cetera, where there's underserved demand for decades in those markets and we're gonna price to the market. I think you've seen from our margins we're not shy to do what the market. We're not trying to take what's available in the market. We're gonna increase our pricing in line with what everyone else is doing and maybe even push a little bit more. Does it challenge affordability? It certainly does, and I think we're trying to get there by buying cheaper land and starting in at a lower ASP, but we're not scared to take what the market is giving us. Yep. That's exactly right. We continue to buy the land we are buying, the land we are bringing on this year, not only is it bringing our ASP down, even though the market's appreciated a ton, but it's producing very, very strong margins. We are bringing all these new communities. We've had the highest community count growth in the industry, or frankly, the only community count growth in the industry. We've completely flipped over our community count mix, and we're producing industry-leading margins. It's all about the great work that every single one of our land teams have done in every single one of our markets, buying the right land to help us deliver affordable products at really strong margins. I really appreciate the detail, Hilla Sferruzza. Thanks so much. Our next question is from John Lovallo with UBS. Please proceed with your question. Hey, guys. Good morning, and thank you for taking my questions. The first one is, I guess, on the purchase of the mortgage rate locks for the customers in backlog. I mean, that seems like a very good customer service action that you guys took. I'm curious, you know, given how tight supply is right now, I mean, do you think that you could have actually sold those homes that folks dropped out of backlog at higher prices? Why I'm asking this is, this move is not a reflection, or is it, of demand concern going forward? That's not a demand concern issue. It was who we are as a company and treating our customers right. We're not buying below market rate locks for current customers. They know what the interest rate is when they're walking in the door today. Folks that bought houses from us when the interest rate was around 3%, and when they're gonna go to the closing table, it's gonna be 5.5%, they're gonna probably fall out. Can we resell that house? We absolutely can resell that house. Is it the right thing to do? Is it the right thing as a company to treat your customers this way, and not one or two, but a large swath of your customers? We didn't feel like it was the right thing to do. The market moved a little bit more quickly on all of us than what we thought. Yeah, it's taking us longer to build the houses. Even from the time that they're locking to the time that they're closing, just the variability is likely more than what they were expecting, and frankly, more than what we were expecting. They have probably moved up more dramatically than what everyone is looking at or everyone was expecting to see. For us, like I said, we're not offering below market anything for new customers, and we're selling at the same pace. We're definitely not thinking this is an indication of demand in the marketplace. Although we are now locking in all customers using our mortgage company with an interest rate lock. Now it's at market rate, so they know what it is, but we just think that it's good business and it's good for their, you know, comfort to know that the rate that they're locking in, the monthly payment that they're solving for today is the monthly payment that is going to be available to them when we close the house. Before we allowed loans to float, there wasn't a lot of variability in the market. Today we're asking all buyers using our mortgage company to lock in their current rate. Okay. No, that makes a lot of sense. Thank you. I think you guys mentioned that you did not see any further extension in cycle times in the first quarter. I mean, if that's correct, I mean, that's different than some of your competitors are saying. I'm just curious, you know, what do you think has allowed you to sort of maintain the cycle times when others are seeing, you know, further extension? Yeah. That is true. We didn't see any additional incremental schedule delays. I guess our schedules didn't expand from Q4 to Q1. I think it's just the commitment to the all spec strategy, the starts, pre-planning those starts. As we've said a number of different times, we started planning out our business six months ago for this year. We knew all these communities were coming. We got in front of our trade partners. We built out the plan. We're committed to the plan. Despite rising interest rates, we stayed committed to that plan. Because of that and our intention of scheduling out our starts and planning out our starts, and then the fact that our business is so streamlined and our trades can perform better when we have less complexity, I think that's what has occurred, and it's played out in our cycle times. I'm not here to tell you that it's not a mess out there. It's still very bad, still very difficult to get material and labor to our sites. Things haven't gotten any better, but they definitely didn't get worse for us last quarter, and we're not seeing them get worse this quarter. I just think it's again, the commitment to the specs and planning out the business well in advance. Great. That's helpful. Thank you. Our next question is from Michael Rehaut with J.P. Morgan. Please proceed with your question. Thanks. Good morning, everyone. Thanks for taking my questions. You know, first I just wanted to kind of break down, you know, the maybe potentially get a little more specifics, if I missed it, I apologize, on the rate lock actions in terms of, number one, what% of your backlog did this impact? When you're talking about floating rate loans, I assume most of your loans have been or are fixed rate. So I was just kinda curious on the% of the backlog that this impacted and roughly what was the dollar impact of providing that to the company? Yeah. These are mortgages through our mortgage company partner, which is about 80% of the business that we do. These are mortgages just for Q3 and Q4. Prior to the run up in interest rates, only about 25% of our backlog was locked, right? It's more by historical averages, but pretty much in line with the last three years. People aren't locking rates. The likelihood is that the rate's going to go down, not going to go up. Now, let me just clarify. There is a one-time float down on this rate lock, even though it's below market. There is a one-time rate float down on this lock as well. But the expectation of buyers up until maybe February of this year is that rates are only going to go lower, not going to go higher. Very few are locked. That's changed dramatically in the last 5, 6 weeks. Everyone is asking to lock, so that's obviously going in our favor. What was in the backlog before was definitely not locked. Post this action, great majority of the backlog that we had is now locked for the back half of the year. Yeah. No, don't get Michael Rehaut, you're mixed up. We're not talking about people having interest-only loans that float. Everyone's on a 30-year fixed, but they let the rate float until they close the house. Correct. We were locking the rate, but no one was doing ARMs or interest-only loans that were floating. This is if they were letting it float during the build time and then locking, you know, 30 days before they closed. We wanted to lock them earlier on than that. We're not giving the specific costs for competitive reasons, but the cost is baked into our guidance. I got it now. Thanks for that. I guess just more broadly then, in trying to understand, you know, the first half gross margins versus second half, I guess, you know, doing the math, it would point to, you know, second half gross margin somewhere in the 27% range, roughly speaking. If you look at that maybe 250-ish basis point differential, let's say. I'm sorry. Yeah, are you still there? Sorry about that. If you look at that difference between the two, first half and second half, I'm just trying to get a sense of how much is conservatism, you know, versus, you know, some of the cost increases and maybe other anticipated increases in incentives that you're anticipating. Yeah. We're having a breakdown of the margin analysis for the full year. I think you hit on all the right notes, Mike. It's a piece of it is the rate lock. A piece of it is future anticipated incentives for homes that we haven't yet sold that will be closing in the back half of the year. Some of it is timing of lumber, right? We have just higher direct costs flowing through everything that we're starting to build now. That's closing in about half of the year, has higher costs. So there's a whole bunch of different dynamics that are flowing through the expectations through the back half of the year. Although obviously we still raised our full year guidance from, you know, 27.75 last quarter to low 28. We are still forecasting an improvement from where we were just three months ago. Overall, we're also trying to be realistic and cautious as to what the next couple of months hold. Thanks. Our final question is from Deepa Raghavan with Wells Fargo. Please proceed with your question. Hi, good morning, everyone. Thanks for taking my question. A very high level question from me, since you know, everyone is welcoming housing stability here, how do you define the stability in a idealistic market? Is that 1.6, 1.7 housing starts with a certain percent volume growth, pricing maybe 1%-2% annually in line with overall inflation? I mean, like, at what volume do we not end up stretching the supply chain that we have right now? Also in that scenario, what is Meritage strategy to grow and take share as you try to ramp from that 300 community count base that you've set for yourself, here? Yeah, I mean, I think, when you look at annual housing starts, historically they've been, you know, 1.5 or so, and so we're not even close to that. Meritage strategy has always been to get to 300 communities. We think between one MU and MT level, we can do a kind of blended absorption rate between 4 and 5, and that's 15,000 units over an annual period. That's our strategy. We grow based on what the market will give us from there and what the land market will give us as well. You know, that's really the strategy. It's not that complicated. When you think about home prices, you know, when things are normal, prices are moving up 3%-4% a year, not what they've done over the last 2 years. That's, you know, that's how we think about it when we look at new land. We don't include appreciation, we don't include cost inflation because our assumption is that home prices will go up 3%-4%, costs will go up, you know, 2%-3%, and you'll end up with what you underwrote. That's what's normal for us. We've constantly said that we think the market will normalize to a 3-4-month absorption pace over time. We're clearly not there. We're still metering sales across the entire industry for a variety of reasons that have been articulated. I don't think if we opened up all our communities today and just let them run, they would run at a much higher pace than 3-4 right now. I think this was maybe back to the first question that Stephen asked, which is, you know, what do you think of the central estimate? I don't know that it's 100% tied to total housing starts. It's what homes are you building? We think that we're building in the area that's most underserved. The stabilized market for us may not be a direct extrapolation as to how we start, but it's a normalized pace of, as Phillippe said, you know, four-ish, a little bit maybe more than that with normalized ASP growth. When the market does that, all the dynamics make sense. Land prices are normal. Supply chains come back into alignment. Labor makes sense. That's the environment that we're looking for. That's where everything is rational and the buyer doesn't have a fear that they're buying it at a bad time in the market. That's great color. Thanks for that. My follow-up is on SG&A, and I apologize if I missed it. Are you able to provide some numbers around that for the year? I mean, you talked about some additional leverage coming from this new volume reset you have. I mean, on the SG&A, you know, it's. I wouldn't expect it to do something tremendously different than what we're doing right now. We've guided to higher closing volumes, so it's gonna bump around. There's always some, you know, nuances as to what happens quarter to quarter. The 8.5% that we had this quarter, I would expect things to look not too different from that. That's great. Thanks very much. It was a good quarter and good luck. Thanks. Thank you. Well, thank you everybody. We have reached the end of the question and answer session, and I'll now turn the call over to CEO, Phillippe Lord for closing remarks. Thank you so much for your time and your interest in Meritage Homes. We really appreciate you listening to our story, and we look forward to seeing you next quarter. Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.