Jay McCanless

Jay McCanless asked about the expected seasonality for 2026 under Meritage Homes' new strategy, questioning if community count growth should be the primary driver of volume, overriding traditional seasonal patterns. He also inquired about the expected timing of community count additions for next year, specifically if they would be front-half loaded.

Answer

Phillippe Lord (CEO, Meritage Homes) confirmed that the abnormal seasonality cadence (Q3 lowest leverage, Q1/Q2 stronger, Q4 in middle) is expected to continue, though significant community count growth will mute some of this. Hilla Sferruzza (EVP and CFO, Meritage Homes) clarified that market dynamics haven't changed, only the speed of closings. Phillippe Lord stated that Meritage is not yet guiding to 2026 community count timing but is confident in another double-digit year of growth.

James McCanless asked if the cost of mortgage rate buydowns has increased and questioned the number of communities the Elliott acquisition will add. He also asked for any guidance on the fiscal '25 community count.

Answer

CFO Hilla Sferruzza clarified that while the per-home cost of their rate lock offerings hasn't changed materially, the utilization rate by homebuyers has increased. CEO Phillippe Lord reiterated guidance to end 2024 with over 300 communities, including Elliott, and projected double-digit community count growth for 2025, deferring a more specific number for a future release.

Jay McCanless followed up on Bill Wheat's comment about the Q4 gross margin exit rate being lower than expected, asking if this was primarily due to incentives or higher lot costs, and what trends have been observed in October. He also inquired why traffic isn't converting into sales despite lower rates, beyond general consumer confidence, asking for other reasons heard from the field.

Answer

CFO Bill Wheat clarified that the Q4 gross margin landed about 40 basis points below the low end of the guide, primarily due to the incentives required to achieve sales and closings. He noted that Q1 is starting from a lower entry point. COO Mike Murray explained that non-conversion often stems from qualification issues related to the payment buyers can afford. Other buyers are waiting for rates to drop further, and existing home sales dynamics, including house-to-sell contingencies, also play a role.

Jay McCanless followed up on the comment that gross margins at the end of the quarter were lower than expected, asking if this was primarily due to incentives or higher lot costs, and what trends have been observed in October. He also asked why, despite lower rates driving some traffic, conversions are not materializing, seeking other factors beyond consumer confidence that might be deterring buyers.

Answer

Bill Wheat, CFO, clarified that the Q4 gross margin landed about 40 basis points below the low end of their guide, primarily due to the incentives required to achieve sales and closings, indicating they are starting Q1 from a lower entry point. Mike Murray, COO, explained that conversion issues often stem from buyer qualification for an affordable monthly payment. He noted that volatile rates cause buyers to hesitate, and many have house-to-sell contingencies, preventing them from purchasing a new home.

Jay McCanless of Wedbush Securities Inc. asked about the potential gross margin impact from the Canadian softwood lumber agreement, the factors that allowed D.R. Horton to maintain its gross margin, and the outlook for community count growth in fiscal 2026.

Answer

EVP & COO Michael Murray stated the company has not quantified the lumber tariff's impact. President and CEO Paul Romanowski credited the strong Q3 margin to field execution but reiterated the guidance for a sequential decline in Q4. SVP Jessica Hansen reconfirmed that community count growth is expected to moderate to the mid-to-high single-digit range.

Jay McCanless from Wedbush Securities asked about the potential gross margin impact from the Canadian softwood lumber agreement. He also inquired about any specific geographic or product factors that contributed to the strong Q3 gross margin performance and sought clarity on the fiscal 2026 community count growth outlook.

Answer

EVP and COO Michael Murray acknowledged a potential impact from lumber tariffs but did not quantify it. President and CEO Paul Romanowski credited the Q3 margin strength to field execution but reiterated the guidance for a 50 bps decline in Q4. SVP Jessica Hansen reconfirmed that community count growth is expected to moderate to a mid-single-digit rate over time.

James McCanless of Wedbush Securities questioned the year-over-year increase in finished spec inventory in light of plans to increase starts. He also asked about the drivers of the low cancellation rate and the potential impact of rising property insurance costs.

Answer

EVP and CFO Bill Wheat clarified that finished specs were down significantly on a sequential basis and are expected to decline further, with improved cycle times enabling faster turns on a leaner inventory base. EVP and COO Michael Murray attributed the low cancellation rate to highly committed buyers in the current market, rather than a specific corporate directive.

Jay McCanless asked about the strong SG&A leverage in the Q4 guide, the drivers behind the better-than-expected gross margin guide, and the potential ASP outlook for new expansion markets next year.

Answer

Glenn Keeler, CFO, attributed the SG&A leverage to higher revenue from increased deliveries, with no specific one-time factors. He noted that the gross margin benefit came from a favorable mix, including strong performance in divisions like Houston and Inland Empire. Regarding ASPs for new markets, Glenn Keeler stated that guidance would be provided later, but Doug Bauer, CEO, added that new expansion divisions would have a minimal impact on overall ASPs next year.

Jay McCanless questioned the strong SG&A leverage projected for Q4, the drivers behind the better-than-expected gross margin guide, and the potential ASP outlook for new expansion markets next year.

Answer

CFO Glenn Keeler attributed the strong Q4 SG&A leverage to higher delivery numbers and increased revenue, with no specific one-time factors. He noted that the improved gross margin guide was partly due to a favorable mix from strong-margin divisions like Houston and Inland Empire. Regarding ASPs in new markets, Glenn Keeler stated that specific guidance would be provided later, but CEO Doug Bauer added that new expansion divisions are expected to have a minimal impact on overall ASPs next year.

Jay McCanless asked what drove the Q2 closings beat and inquired about demand softness in Northern California, particularly Sacramento, and whether tech job concerns were a contributing factor.

Answer

CFO Glenn Keeler stated the closings beat was broad-based, resulting from a focus on selling completed homes. COO Tom Mitchell confirmed that Northern California softened in Q2 but attributed it to general consumer confidence issues, not specific job loss concerns. CEO Douglas Bauer added that other California markets like the Inland Empire and San Diego are performing well above the company average, highlighting the choppy nature of the market.

James McCanless asked if the weakness in challenging markets like Colorado and Charlotte was due to buyer issues or increased competition. He also inquired about the Q1 buyer mix between first-time and move-up buyers and the reason for the slight increase in the full-year average sales price guidance.

Answer

CEO Douglas Bauer attributed the softness in certain markets to a 'very anxious buyer profile' rather than competitive pressures, given the company's premium locations. President & COO Tom Mitchell detailed the buyer mix for Q1, stating entry-level was about 41% and combined move-up was 53% for both deliveries and orders. CFO Glenn Keeler explained the higher full-year ASP guidance is a result of a richer product mix, with more weight towards the West.

James McCanless asked if the higher level of completed spec inventory was driving the forecasted gross margin decline and questioned the current margin spread between spec and build-to-order homes. He also inquired about the current mix of first-time buyers and the viability of the company's long-term community count target.

Answer

CFO Glenn Keeler clarified that the spec level is in line with historical norms and is not the driver of the margin forecast; the change is due to community mix. President and COO Tom Mitchell noted the spec vs. build-to-order margin spread has widened to about 4%. EVP and CMO Linda Mamet confirmed a lower mix of first-time buyers in the backlog. Keeler reaffirmed the 170-180 community count target for 2026 remains viable.

James McCanless challenged the statement that 'rates aren't an issue,' asking if this was due to effective buydowns or a specific customer mix. He also inquired about the expected customer mix for communities opening in the next year.

Answer

EVP & CMO Linda Mamet clarified that while rate volatility causes hesitation, Tri Pointe's well-qualified buyers often prefer using incentives for design upgrades over financing aid. President & COO Tom Mitchell noted the average mortgage rate on locked backlog is 6.0%. Mamet added that only 3% of Q3 orders used a forward commitment. CFO Glenn Keeler confirmed the customer mix for new communities will remain similar, at about 50% premium entry-level.

Jay McCanless from Wedbush asked about the gross margin differences between spec and build-to-order homes, observed competitor behavior regarding co-broker spend and aggressive year-end selling, M/I Homes' potential M&A strategy, and the outlook for community count growth in 2026.

Answer

President and CEO Bob Schottenstein noted that gross margins on spec homes are generally 'a little lower' than build-to-order homes, depending on the community. He clarified that M/I Homes has not increased co-op rates for brokers, focusing instead on internal sales training and lead generation. Bob Schottenstein described the market as community-by-community, with varying levels of aggression among builders. Regarding M&A, he stated there's 'nothing on the horizon' but they would consider opportunities in existing or new strategic markets, with a primary focus on organic growth to 13,000-14,000 units within current markets. For 2026 community count, Bob Schottenstein and EVP and CFO Phil Creek indicated an expectation for continued growth, targeting the 5% to 10% range annually, supported by their strong land position.

James McCanless inquired about M/I Homes' outlook on 2026 community count growth, considering the company's substantial lot position.

Answer

Bob Schottenstein (President and CEO) confirmed that there will be community count growth in 2026. Phil Creek (EVP and CFO) added that their target is always 5% to 10% annual community count growth, and despite slowing land purchases, they are well-positioned for continued growth with 24,000 owned lots.

Jay McCanless asked about the potential gross margin impact from Canadian lumber tariffs, plans for expansion in the stronger Northern markets, the future run rate for SG&A expenses, and the average mortgage rate in the company's backlog.

Answer

Phillip Creek (EVP, CFO & Director) stated it's too early to quantify the lumber tariff impact, as they source specific parts, not full packages, and can substitute, so no significant cost increase is anticipated. Robert Schottenstein (Chairman, President & CEO) confirmed plans to grow in all Midwest markets. Creek projected that SG&A dollars would continue to increase with community count growth. He declined to provide the average mortgage rate in backlog but noted that backlog margin is only slightly down from Q1 and that rate buy-downs are typically 150-250 basis points below the market rate.

Jay McCanless from Wedbush Securities asked about the potential gross margin impact from Canadian lumber tariffs, plans for expansion in the stronger Northern markets, whether the current SG&A level is a new run rate, and for details on the average mortgage rate and gross margin in the backlog.

Answer

Phillip Creek, EVP, CFO & Director, responded that it's too early to determine the impact of lumber tariffs, as the company sources components and can substitute materials, not anticipating a significant cost increase. Robert Schottenstein, Chairman, President & CEO, confirmed plans to grow in all Midwest markets. Phillip Creek stated that SG&A dollars will likely continue to increase with community count growth. He also noted the backlog margin is slightly lower than Q1's and that the company does not disclose average mortgage rates in its backlog.

James McCanless asked about the gross margin in the backlog, the sales velocity trend from January to March, the total number of spec homes, and the extent of pricing power across communities.

Answer

Executive Phillip Creek described the backlog margin as 'pretty flat' and expects continued pressure throughout the year. He also provided spec inventory numbers: 700 completed and 2,400 total, up from 400 and 1,900 a year ago, respectively. CEO Robert Schottenstein characterized the sales environment as highly volatile and unpredictable, making forecasting difficult. He estimated that true pricing power currently exists in less than 10% of their communities.

James McCanless sought more detail on the gross margin outlook, the reason for the large discrepancy in Q4 order growth between the Southern (up 18%) and Northern (up 1%) regions, the potential upper limit for homes sold and closed within a quarter, and current trends in land cost inflation.

Answer

CEO Robert Schottenstein suggested the Q4 gross margin is a good barometer for the near future, as it reflects the current cost of necessary rate buydowns. Executive Phillip Creek explained the regional order growth disparity was primarily due to a very weak prior-year comparable in the South. He also confirmed that the percentage of homes sold and closed in-quarter could potentially rise from 30% to 40%. On land, Schottenstein noted that while material costs are stable, acquisition of prime land remains competitive, with Creek adding that finished lot costs have risen 10-15% over the last year.

James McCanless asked for more detail on the sales mix that drove the strong gross margin, how October sales have performed amid higher rates, and whether the upcoming election was causing purchase delays due to potential tax credits. He also inquired about pricing power across communities.

Answer

CEO Robert Schottenstein noted that sales improved as the quarter progressed and that October was 'playing out better than expected.' Executive Phillip Creek added that the strong performance of new communities, including move-up projects, has helped margins. Regarding the election, Schottenstein stated it was more of a general consumer confidence issue rather than buyers waiting for a specific policy, like a tax credit. On pricing, Creek mentioned that while the average sales price has risen, pricing and incentives are managed on a targeted, per-community basis to optimize returns.

Jay McCanless inquired about the current spread between spec closings and build-to-order closings, and the corresponding gross margin differences between these two categories.

Answer

CFO Curt VanHyfte reported Q3 closings were 61% spec and 39% to-be-built, with a gross margin spread of several hundred basis points, potentially reaching 1,000 basis points in Esplanade communities due to high premiums and option revenue. Chairman and CEO Sheryl Palmer added that Esplanade typically delivers the highest margins.

Jay McCanless inquired about performance in the East and West regions, specifically Florida, Atlanta, and Northern California, and the implications of shopper surveys showing macro-level anxiety.

Answer

CEO Sheryl Palmer detailed strong sales in the Southeast and a generally positive, though mixed, story in Florida. In the West, she noted a deliberate reduction in Southern California while Northern California was stable. She and Erik Heuser confirmed that shopper hesitation stems from macro uncertainty rather than personal financial distress, which they see as a positive indicator of latent demand.

James McCanless asked for an update on how cancellation rates have trended in April.

Answer

Sheryl Palmer, Chairman and CEO, acknowledged a slight, temporary increase in cancellations at the beginning of the quarter, which she described as a normal pattern. She stated that she expects the rate to level out and was not concerned, as the absolute numbers remained strong.

Jay McCanless of Wedbush Securities inquired about potential debt restructuring opportunities, the strategy regarding bulk sales of underperforming lots, and the specific buyer segments driving price increases in certain communities.

Answer

CFO Brad O'Connor confirmed the company is actively exploring debt restructuring, including refinancing secured debt into unsecured, as market conditions improve. CEO Ara Hovnanian added that while bulk sales of lots at a loss are not a primary strategy, they prefer to renegotiate with land partners. He noted the company has successfully sold excess entitled land at a profit. Regarding pricing power, Hovnanian identified active adult and move-up buyer segments as the most resilient, while the entry-level market, particularly at the lowest price points, remains more challenging.

James McCanless of Wedbush questioned the sales trends seen in May, the expected timeline to clear through the 2021 and 2022 land vintages, the potential for a bottom in gross margins, and the outlook for construction costs for the remainder of the year.

Answer

Ara Hovnanian, Chairman, President and CEO, described May sales as "status quo" with April. He explained that clearing older land vintages is a community-by-community process without a specific system-wide timeline, noting the '22 vintage is about 10% of lots. Regarding margins, he expressed hope they are near a bottom, referencing the flat Q3 guidance. He also conveyed optimism for slight reductions in construction costs, with the notable exception of lumber, which remains a significant unknown.

James McCanless asked about the expected duration of the hypothetical 18.5% adjusted gross margin, the geographic locations where the company is successfully raising prices, and any direct impacts from recent wildfires in the West.

Answer

CEO Ara Hovnanian stated it is too difficult to forecast the duration of the 18.5% gross margin due to significant month-to-month market volatility. He identified stronger markets with pricing power as being on the East Coast, particularly the Northeast, Mid-Atlantic, Delaware, and the Carolinas. Regarding wildfires, Hovnanian explained the primary impact is indirect, as the limited pool of trade labor is drawn to recovery efforts, creating labor constraints for new construction, similar to the effect of recent hurricanes in Florida.

Jay McCanless of Wedbush Securities asked for modeling clarifications on bed counts including Dilly, Cal City, and Farmville. He also inquired about the timeline to reach mid-80s occupancy and potential revenue opportunities from the DHS border funds.

Answer

CEO Damon Hininger confirmed the bed count methodology. CFO David Garfinkle stated that reaching mid-80s occupancy is likely a 2026 event, though low-80s could be achieved by year-end 2025 with new contracts. Hininger clarified that the new federal funding allows ICE to move directly to long-term contracts, likely phasing out the use of preliminary 'letter contracts' and accelerating new awards.

James McCanless from Wedbush Securities asked about the potential revenue from the expanded transportation fleet, whether CoreCivic was considering purchasing specific facilities, and for an update on the Bureau of Prisons' (BOP) activity in the community reentry space.

Answer

CEO Damon Hininger explained it was difficult to quantify transportation revenue yet as it's often bundled into per diem rates, a point CFO David Garfinkle reiterated. Hininger declined to comment on specific acquisition targets for competitive reasons. Regarding the BOP, Hininger noted a new director was recently appointed and expects more clarity on their strategy over the summer, with Garfinkle adding that CoreCivic's secure facilities offer a cost-effective solution for the BOP's infrastructure challenges.

James McCanless asked about the path to getting Safety segment occupancy back above 80% now that the executive order restricting business with the DOJ has been reversed. He also requested a recap of the source of the potential $200M-$275M incremental EBITDA and questioned how the company is protected against rising inflation in its contracts.

Answer

CEO Damon Hininger and CFO David Garfinkle explained that opportunities with ICE alone could lift occupancy, and added that the U.S. Marshals Service population could also grow significantly. They highlighted recent state contract wins as another driver. Garfinkle reiterated the EBITDA uplift comes from activating ~15,000 idle/leased beds. President Patrick Swindle and Hininger explained that since staffing is two-thirds of costs, they are less exposed to supply inflation, and federal contracts include wage determination clauses that allow for dollar-for-dollar reimbursement of mandated wage increases, protecting them from labor inflation.

Jay McCanless of Wedbush Securities asked for clarification on monthly absorption rates, the feasibility of hitting the full-year closings target, the effectiveness of incentives, and the potential impact of lumber price inflation.

Answer

Management clarified that monthly sales per community were 2.8 in April, 2.4 in May, and 2.8 in June. EVP and CFO Russell Devendorf affirmed the 'pace over price' strategy to achieve the full-year closings goal and noted that rate buy-down incentives have been effective in driving traffic and conversion. President and CEO Gregory Bennett stated they have not yet received any notifications of lumber price increases.

James McCanless of Wedbush inquired about demand and pricing trends observed in May. He also sought clarification on whether the company was formally withdrawing its fiscal 2025 guidance and asked for commentary on a recent M&A transaction in the homebuilding sector.

Answer

EVP & CFO Russ Devendorf characterized May demand as consistent with April's challenging but steady environment, requiring incentives. He reiterated that the 3,000-3,100 closing target remains their goal despite not issuing formal guidance due to macro volatility. He declined to comment on a competitor's transaction but viewed the investment as a positive signal for the industry.

Jay McCanless of Wedbush asked for clarification on the 2025 community count guidance, which he thought was a reduction. He also inquired about the year's growth path (organic vs. M&A) and the outlook for the average closing price.

Answer

EVP & CFO Russ Devendorf clarified that community count growth is expected to be in the low double-digits (around 12%), from 78 to nearly 90, and that they could still approach the prior 15% target depending on lot delivery timing. He confirmed 2025 growth is entirely organic, driven by market expansions. While open to opportunistic M&A, nothing is imminent. He also reaffirmed that the $335k-$345k average closing price range for 2025 remains valid.

James McCanless asked about the expected impact of greenfield market expansions on SG&A expenses in 2025. He also requested details on Q3 pricing power and a breakdown of incentives, and inquired about the company's strategy for tackling affordability challenges in Alabama.

Answer

CFO Russ Devendorf projected that SG&A as a percentage of revenue could see about 50 basis points of leverage in 2025, targeting around 13%, despite investments in new markets. He noted Q3 incentives were just over 3%. CEO Greg Bennett explained that in Alabama, the company is addressing affordability primarily by accepting lower margins to maintain sales pace rather than by significantly altering floor plans.

Jay McCanless of Wedbush Securities asked about the current level of incentives as a percentage of ASP compared to last year and the drivers of the Q3 SG&A guidance. He also sought directional commentary on community count into 2026 and clarification on the priority between debt reduction and share repurchases.

Answer

Chairman & CEO Eric Lipar estimated incentives are about 50-100 basis points higher than last year and confirmed community count should directionally increase into 2026. CFO & Treasurer Charles Merdian explained the SG&A guidance reflects revenue variability. Merdian also emphasized that delevering is a primary focus, aiming to lower the net debt-to-cap ratio from its current 45% level by right-sizing inventory.

James McCanless asked about the wholesale channel, which accounted for 18% of Q1 closings, and whether there is sufficient demand to increase this activity if needed. He also inquired about the remaining authorization for stock buybacks and the geographic location of upcoming community openings.

Answer

CEO Eric Lipar confirmed that wholesale demand exists at the right price but is highly market-specific. Executive Joshua Fattor stated that $177.7 million remains on the share repurchase authorization and that buybacks are a compelling investment and priority, especially when the stock trades at a discount to book value. Lipar added that new communities are opening in high-volume areas like the Carolinas and high-ASP markets on the West Coast, which will support full-year goals.

James McCanless asked if the company was seeing any impact from layoffs in the strong Washington, D.C. market, questioned the difficulty of converting multifamily renters to buyers, and inquired about the geographic focus of community expansion.

Answer

CEO Eric Lipar stated they have not seen an impact from layoffs in the D.C. area, clarifying their communities are in further-out locations, including West Virginia. On converting renters, he noted that while demand for homeownership is constant, the affordability gap between renting and owning is wider than ever, requiring higher marketing spend (reflected in SG&A) to find qualified buyers. For expansion, Lipar confirmed the focus is on increasing community count within their existing 35 markets, not entering new ones.

James McCanless sought to quantify the impact of households with $60k-$100k incomes being priced out of the market. He also asked about the expected sales pace for 2025, the potential for further reducing home sizes for affordability, and whether the company might shift more focus to its higher-end Terrata brand.

Answer

CEO Eric Lipar acknowledged the affordability challenge is significant but did not provide a specific number of affected households. He projected a 2025 sales pace similar to 2024, which, combined with higher ASPs and 10-20% community count growth, would still result in a positive year. He stated they are near the lower limit on home sizes without compromising quality and confirmed that the luxury Terrata brand is a growth area, with plans to include it in more communities, sometimes alongside LGI Homes product.

Jay McCanless from Wedbush Securities questioned why gross margins were flat year-over-year despite higher volumes and pricing. He also asked about current chattel mortgage rates, consumer confidence, and whether price competition seen in the previous quarter had reemerged.

Answer

EVP and CFO Allison Aden attributed the flat margin to a mix of factors, including leveraging factory overhead while also absorbing some tariff costs. Corporate Controller Mark Fusler stated chattel rates were stable in the 8-9% range. President and CEO William Boor commented that while consumer confidence fluctuates, strong underlying demand is evident. He also confirmed that significant price competition had not reemerged, noting a general upward bias on pricing in local markets during the quarter.

James McCanless of Wedbush inquired about the potential impact of tariffs on specific cost of goods sold items, the current state of chattel loan rates and credit availability, and the nature of recent price competition. He also followed up on the significance of the Florida market and the potential margin impact from falling OSB prices.

Answer

CFO Allison Aden clarified that tariffs could impact 5-8% of material costs, primarily on components sourced from China like lighting and plumbing. Executive Mark Fusler stated that chattel rates are in the 8-9% range with no material impact on credit availability. CEO William Boor noted that significant price competition is isolated, mainly in Florida, and has been more pronounced on lower-priced, single-wide homes. Regarding Florida, Boor mentioned it is a notable but not overwhelming part of the business. On OSB prices, Aden acknowledged the recent decline but cautioned that the market can change quickly, especially during the spring building season.

James McCanless of Wedbush Securities inquired about the status of potential FEMA orders for disaster relief and Cavco's capacity to serve Southern California. He also asked about current chattel loan rates, the potential business impact of the new administration, and trends in input costs like OSB and their likely effect on fourth-quarter gross margins.

Answer

President and CEO William Boor stated that FEMA orders have been 'strangely quiet' but that Cavco has four plants ready to serve Southern California if needed. Executive Mark Fusler provided the current chattel loan rate range of 8.6% to 9.6%. Regarding the new administration, Boor noted potential inflationary pressure from tariffs but also a potential upside from a more favorable regulatory environment. EVP and CFO Allison Aden explained that commodity price changes, like the recent drop in OSB, typically flow through to cost of goods sold with a 60 to 90-day lag.

Jay McCanless of Wedbush Securities inquired about the average selling price (ASP) trend, asking if it was approaching an inflection point due to retail sales mix or product shifts. He also requested an update on current Chattel loan interest rates.

Answer

President and CEO William Boor explained that the gradual decline in ASP over the past two years was driven more by mix shifts, such as channel and product type, than by same-product price reductions. He stated that a true price inflection point would require higher industry-wide capacity utilization and growing backlogs. Executive Mark Fusler provided an update on Chattel rates, stating they have been steady but are slowly declining, with current quotes ranging from the high 7% to high 8% range.

Jay McCanless of Wedbush Securities sought clarification on the expected sequential decline in adjusted gross margin from Q3 to Q4, asking about the sales mix driving it. He also asked for an outlook on competitive new home inventory levels and the potential impact of higher Canadian softwood lumber import duties on costs.

Answer

Chairman and CEO Allan Merrill explained the Q4 margin guidance reflects a continued high share of spec homes, which weighs down the margin uplift from their to-be-built backlog. He expressed a belief that new home inventory will compress as the industry has slowed start activity. Regarding lumber, he stated he has not heard of impending price increases from suppliers, who seem more concerned about declining housing starts.

James McCanless questioned the state of the labor market, progress on Zero Energy Ready construction efficiencies, the trend of homes sold and closed within the same quarter, and whether more aggressive buyback measures like an ASR would be considered.

Answer

CEO Allan Merrill noted that labor availability has loosened, creating a potential cost tailwind, and that significant efficiencies are being found in the Zero Energy Ready building process. He confirmed the trend of higher backlog conversion should persist. Regarding buybacks, Merrill stated that 'all the tools are in the toolkit,' highlighting the company's large authorization and opportunistic track record.

James 'Jay' McCanless of Wedbush Securities asked about a range of topics, including the margin difference between spec and to-be-built homes, the long-term target for this mix, details on a new rate-lock program, and the sustainability of order growth in the West. He also sought to confirm changes to the full-year guidance.

Answer

CEO Allan Merrill stated the margin gap between to-be-built and spec homes is 3-5 points and the long-term target mix is likely 60% to-be-built and 40% spec. He explained the new rate-lock program reallocates existing incentive dollars to make to-be-built homes more competitive. CFO David Goldberg and CEO Allan Merrill confirmed the primary guidance change was pointing to the low end of the gross margin range (19.5%). Merrill also noted the $3,000 cost saving represents just over 1% of a home's build cost.

James McCanless sought to confirm the gross margin guidance was on an adjusted basis, questioned the strategy of pushing for higher absorptions amid community count timing uncertainty, and asked about the flexibility to shift away from the high spec mix.

Answer

Executive David Goldberg confirmed the guidance is for adjusted gross margin. Chairman and CEO Allan Merrill clarified that while sequential community count can be uneven, year-over-year growth is locked in, justifying the focus on improving sales pace. Merrill also explained that the 60% spec mix is a reflection of the current market environment and not a specific product strategy, noting that specs are offered across their communities and are not exclusively entry-level products.

Jay McCanless of Wedbush Securities asked about the future goal for the 92% on-time and in-full delivery metric and questioned how long it would take to pass through higher lumber costs resulting from Canadian tariffs.

Answer

CEO Peter Jackson stated the goal for on-time and in-full delivery is simply 'higher,' driven by better vendor partnerships and customer alignment, aided by new digital tools and the ERP system. Regarding lumber tariffs, he asserted that the cost increase will be passed through to the market, as the company cannot absorb such a significant tax. He noted the market will adapt through rebalancing and substitution.

James McCanless sought clarification on whether the company is actively lowering prices on value-add products now to protect share and asked if a change in tone on the multifamily outlook was due to different bid volumes.

Answer

CEO Peter Jackson confirmed that managing price to protect share in value-add has been ongoing for the past 8-12 months. He stated that any change in tone on multifamily was unintentional and that the market has been relatively stable, despite some earlier 'green shoots' commentary.

Jay McCanless asked for the rationale behind updating the long-term margin targets on Slide 17, questioning what had improved since the last quarter. He also requested the company's outlook for the Repair & Remodel (R&R) market for the upcoming year.

Answer

CEO Designate Peter Jackson clarified that Slide 17 was not an update to the forecast but a new disclosure intended to bridge historical performance to the long-term 30-33% gross margin target established at Investor Day. Regarding R&R, he noted the market has significant pent-up demand and could see a tailwind from falling mortgage rates. While the 2025 forecast is modest, he sees good momentum building for 2025-2026.

Jay McCanless of Wedbush Securities requested clarification on UFP's lumber mix, specifically the percentage of Southern Yellow Pine and the potential impact of softwood duties. He also asked about the sustainability of growth in the concrete forming business from data centers and whether new tax deductions could boost the packaging business.

Answer

CEO Will Schwartz confirmed that Southern Yellow Pine is about two-thirds of fiber purchases and that 75% of total purchases are domestically sourced, limiting direct exposure to Canadian duties. He expressed confidence in the infrastructure growth outlook for the concrete forming business, noting it's a small part of a larger business. CFO Michael Cole stated that while the company benefits from tax changes like bonus depreciation, they have not yet seen it impact customer demand in the packaging segment.

Jay McCanless of Wedbush Securities asked about potential opportunities for Deckorators from the James Hardie acquisition of AZEK, the current state of the concrete forming business, and whether other commodity products besides ProWood have seen successful price increases.

Answer

Chief Executive Officer William Schwartz stated that the AZEK acquisition could create disruption in 2-step distribution, reinforcing UFPI's strategy to invest in its own distribution capabilities. He also confirmed they have not seen any substantial cancellations or slowdowns in the concrete forming business. Regarding other commodities, both Schwartz and Chief Financial Officer Michael Cole indicated that lumber is the primary focus and there were no other specific products to highlight, though cost pressures persist in Construction and Packaging.

Jay McCanless sought an update on the company's cost-saving initiatives, asking if the targeted $60 million in savings by 2026 represents the full extent of the plan or if further actions are being considered. He also inquired about early first-quarter trends in the factory-built housing business and whether the Concrete Forming business has seen any impact from potential government budget changes.

Answer

Executive Chairman Matthew Missad explained that cost evaluation is a constant, ongoing effort. CFO Michael Cole specified that actions for approximately $41 million of the savings have already been taken and will benefit 2025, with the full $60 million impact expected by 2026. CEO William Schwartz expressed continued optimism for the factory-built housing business due to affordability challenges but noted it was too early to see any impact on the Concrete Forming business from policy changes.

Jay McCanless of Wedbush Securities asked what percentage of communities were able to raise prices during the quarter. He also sought clarification on the timing of new Del Webb communities coming online, asking if the bulk would be operational by year-end or into the first half of 2026.

Answer

Management stated that they were able to raise prices in approximately 10% of communities during the quarter. Regarding Del Webb, President & CEO Ryan Marshall explained that the recent increase in sign-ups to 24% of the total will translate to Q1 2026 closings, bringing the Del Webb mix back to its traditional level. EVP & CFO James Ossowski added that there will be a good flow of new Del Webb communities opening over the balance of this year and into next year.

Jay McCanless of Wedbush Securities asked for details on price competition, including which specific markets are most affected and whether it's concentrated in single-section or double-section homes. He also inquired about any recent updates on potential FEMA orders and the current trends in chattel mortgage rates and credit availability.

Answer

EVP, CFO & Treasurer Laurie Hough identified Florida and the Northeast as slower markets, with a general shift toward smaller, single-wide homes impacting margins. She noted that credit availability remains stable, with chattel rates approximately 150-200 basis points above conventional 30-year fixed rates. President & CEO Tim Larson confirmed there have been no new FEMA orders to date.

Jay McCanless of Wedbush questioned how low GEO's debt-to-equity ratio would need to fall before initiating stock buybacks, particularly after a potential asset sale, and asked for clarity on how to model the startup costs for the new Northlake contract.

Answer

CFO Mark Suchinski indicated that once leverage is significantly reduced to the company's comfort level of 2.0x to 2.5x, the opportunity to return capital to shareholders could be accelerated. He clarified that for the Northlake contract, the upfront capital investment is made by GEO and is included in the company's guidance. These costs are then recovered through pricing over the life of the contract, making the project accretive over its term.

James McCanless sought clarification on the incremental revenue potential from alternatives to detention (ATD), the capacity increase resulting from the $16 million investment in monitoring devices, the reasons for the slow ISAP population growth, and the upper limits of GEO's monitoring capacity.

Answer

CFO Mark Suchinski clarified that reaching the prior peak of 370,000 ISAP participants would generate an incremental $250 million in revenue, with further upside if counts exceed that level. Executive Chairman George Zoley added that the $16 million investment is to build inventory for GPS ankle monitors in anticipation of higher demand. Zoley stated that while the initial focus has been on detention, the procurement process for monitoring is now accelerating at an unprecedented pace, and GEO is positioning itself to scale from hundreds of thousands to potentially millions of participants.

James McCanless requested a breakdown of the closing guidance, particularly the rationale for the expected significant increase in the second half of the year despite market headwinds. He also asked for quantification of SG&A savings from recent layoffs and details on the current level of price cuts and interest rate buydowns.

Answer

CFO John Dixon attributed the projected back-half increase in closings to significant community count growth coming online in Q2 and Q3. He stated that savings from cost-reduction initiatives are already incorporated into the full-year SG&A guidance. Dixon also noted that the average mortgage rate buydown in Q1 was to the mid-5% range and that the overall incentive mix was approximately 55% price-related and 45% mortgage-related.

James McCanless of Wedbush Securities asked about the level of incentives in the current quarter, the sales absorption assumptions behind the 2025 growth guidance, and the company's outlook on the M&A environment.

Answer

CEO Robert Francescon confirmed that current incentive levels are consistent with Q4 at around 900 basis points. He also stated that the 2025 delivery growth guidance assumes a flat absorption pace of roughly 3.2x, with growth driven by community count. Regarding M&A, Francescon noted the company is always evaluating deals that fit its strategy of deepening its presence in existing markets, similar to the two acquisitions completed in 2024.

Jay McCanless asked about the financial contribution of Anglia Homes in Q3, the expected purchase accounting impact on future gross margins, Anglia's historical closing volume, and the trajectory of the company's net debt to capital ratio.

Answer

CFO John Dixon stated Anglia's Q3 delivery contribution was minor (less than 2%) and projected a 30-50 basis point gross margin drag from purchase accounting in Q4 and Q1 2025. Chairman and Co-CEO Dale Francescon noted Anglia historically closed 400-500 homes annually. Mr. Dixon explained the leverage increase was due to the acquisition and expects the ratio to decline by year-end as assets are monetized.

James McCanless asked if the company was still experiencing delays in getting utility meters in California following recent wildfires. He also inquired if prices were raised in any of the communities that did not see price cuts.

Answer

COO Rob McGibney acknowledged that while some meter delays persist in California, the worst of the fire-related impact is over and he expects the situation to normalize soon. He confirmed that in the stronger West and Southwest regions, prices were not cut because communities were already selling at pace. He cited Las Vegas as a market where they have been able to continually raise prices while maintaining strong sales.

Asked about the drivers for the strong 2025 ASP guidance, the nature of land deals returning to the market, demand trends in Florida, and the quantifiable impact of rising homeowners' insurance costs.

Answer

The company stated the strong ASP guidance is from both pricing power and lower incentive costs. Land is returning to market at recalibrated prices due to builder discipline. Demand in Florida remains strong but is highly dependent on affordability and incentives. The company is aware of rising insurance costs but has not yet quantified the impact.

Asked for the specific purchase accounting impact on Q3 gross margin and the outlook for Q4, the current percentage of communities targeting move-up buyers and future plans for that segment, and for commentary on sales order and pricing trends in October.

Answer

The purchase accounting impact was $5.6 million (1.7% of gross margin) in Q3, with a similar level expected for Q4. The company is primarily a first-time builder, with the move-up segment comprising about 20% of their mix, a ratio they don't plan to change significantly. Sales trends in October were strong, with absorption rates ticking up compared to August and September.

Inquired about the current product mix, land cost inflation, the long-term land-light strategy, and recent pricing power trends.

Answer

The current product mix is about 47% first-time buyer, with a goal to increase it to the high 60s. Land costs remain high, pushing the company towards earlier-stage land development to find value. The long-term strategy is to use more options and land banking to be asset-light and drive higher returns. Pricing power remains, with steady, targeted increases of 3-7% being implemented.

Jay McCanless of Wedbush Securities asked if the 'extend and pretend' strategy in commercial real estate is ending, given client acceptance of higher rates. He also inquired about the potential timeline for the GSEs exiting conservatorship and the company's strategy for expanding into the hospitality sector.

Answer

Chairman and CEO Willy Walker explained that while clients accept higher rates, many face cash-in refinancing hurdles, which limits options and can lead to sales, but he does not foresee broadscale distress due to ample market capital. On GSE privatization, he noted it's a possibility in 2025 if tied to the tax bill, but the odds would decrease if that window is missed. Regarding hospitality, he compared the expansion to their successful move into multifamily investment sales, aiming to leverage client overlap and create a one-stop-shop for financing and sales.

Jay McCanless of Wedbush Securities sought confirmation that the transaction pipeline remains solid despite recent rate hikes. He also asked about other potential catalysts or risks for the emerging real estate cycle and questioned the credit risk outlook for the servicing portfolio if interest rates stay at current levels.

Answer

CEO Willy Walker confirmed the Q4 pipeline is holding strong. He identified several potential tailwinds for the new cycle, including the deployment of sidelined equity capital, a potential pickup in M&A activity, and transactions from private REITs. Regarding credit risk, Walker highlighted that 91% of the at-risk portfolio consists of fixed-rate loans with very few maturities in 2025, making it largely insulated from current rate fluctuations. He stressed that rate stability is more crucial for new transaction volume than the absolute rate level.

Jay McCanless of Wedbush asked for a general market outlook on mortgage credit availability for 2025. He also inquired about the new infrastructure finance initiative and how the administrative landscape might affect investment desire in that space.

Answer

Baron Silverstein, President of Newrez, opined that mortgage credit availability will likely stay in its current state, with a focus on affordability and growth in purchase and home equity loans. Michael Nierenberg, Chairman, CEO, and President, addressed the infrastructure question by stating that despite political shifts, the need for capital is massive due to a global power shortage, driven by data centers and AI. He emphasized their strategy is to partner with world-class experts to capitalize on this multi-trillion dollar opportunity.

Jay McCanless of Wedbush Securities Inc. asked for a market outlook on mortgage credit availability for 2025 and questioned how potential policy changes might affect Rithm's strategy for infrastructure finance investments.

Answer

Baron Silverstein, President of Newrez, stated that with rates expected to stay elevated, overall mortgage credit availability will likely remain in its "current state." Michael Nierenberg, Chairman, CEO, and President, addressed infrastructure, noting the massive capital need for power generation and that Rithm will rely on expert partners to navigate the space, regardless of administrative changes.

Jay McCanless of Wedbush Securities asked about the mix of incentives being used, specifically the level of base price adjustments versus rate buydowns, and inquired about any plans for expansion into new markets beyond the recently announced Austin entry.

Answer

President and COO Jed Dolson responded that adjustments are primarily 'incentive-driven' and the company avoids touching base prices unless necessary, suggesting 6% is a good guide for recent incentive levels. CEO Jim Brickman addressed market expansion, stating that while the company is always open to good deals, the primary focus remains on the 'fantastic runway for growing' within their existing core markets of Dallas, Houston, and Atlanta, where they own 37,000 lots.

James McCanless of Wedbush Securities inquired about the expected quarterly run rate for share repurchases and asked if the liability reversal in the quarter was a one-time event.

Answer

Executive Robert Bates stated that while the Board supports buybacks, the company will not commit to a specific quarterly amount, preferring to repurchase opportunistically when the stock trades near its internal calculation of liquidation value. Regarding the liability reversal, Bates grouped it with other balance sheet cleanup activities, such as non-core asset sales. He indicated that the accounting team is actively reviewing the balance sheet, and similar clean-up items, both positive and negative, could occur in the future as they address older items.

James McCanless of Wedbush Securities inquired about the company's expansion in Florida and Texas, its M&A strategy following the Enica acquisition, and the key segments driving the increase in full-year guidance.

Answer

President and CEO Michael Bieber highlighted Florida and Texas as the company's fastest-growing regions, with significant employee growth driven by state and local demand. He stated the Enica acquisition supports a strategy to expand the commercial business, with a focus on future M&A to capture data center opportunities. Executive Vice President and CFO Creighton Early added that while growth is broad-based, the state and local government sector has been a standout performer contributing to the raised guidance.