Good morning, and welcome to the Meritage Homes First Quarter 2012 Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Brent Anderson. Please go ahead.

Thank you, Andrew. Good morning, everyone and welcome to our analyst conference call today. Our first quarter of 2012 ended on March 31st and we issued a press release with our results before the market open today. If you need a copy of the release or the slides that accompany our webcast, you can find them on our website at investors.meritagehomes.com or by selecting the Investor’s link at the top of Meritage Homes’ homepage. Please refer to Slide 2 of our presentation. Our statements during this call and the accompanying materials contain projections and forward-looking statements, which are the current opinions of management and subject to change. We undertake no obligation to update these projections or opinions. Additionally, our actual results may be materially different than our expectations due to various risk factors. For information regarding these risk factors, please see our press release and most recent filings with the Securities and Exchange Commission specifically our 2010 Annual Report on Form 10-K. Today’s presentation also includes certain non-GAAP financial measures as defined by the SEC. And, to comply with SEC rules, we’ve provided our reconciliation of these non-GAAP measures in our earnings press release. With me today to discuss our results are Steve Hilton, Chairman and CEO of Meritage Homes; and Larry Seay, our Executive Vice President and CFO. We expect our call to be concluded in about an hour and a replay of the call will be available on our website after we conclude the call. It will remain active for 30 days. Now I’d like to turn the call over to Mr. Hilton to review our first quarter results, go ahead Steve.

Thank you, Brent. I’d like to welcome everyone to our call today. Since our sales trends provide an outlook of our future earnings potential, I plan to spend most of our time discuss in our sales and associated metrics before turn it over to Larry to discuss our financial results for the quarter. So, let’s begin on Slide 4, the spring selling season got off to a strong start this year for us and many of our homebuilder peers. As the US economy and employment picture have improved, consumer confidence has been climbing since of August 2011, more buyers are searching for homes to take advantage of high affordability and inventories of existing homes have declined substantially in many of our markets, with some areas now reporting just a few months supply of homes for sale. As buyers realize the market is tightening, we are seeing a greater sense of urgency than we have for quite some time. Addition to the improve market conditions our sales have also improved due to unique value proposition Meritage offers with our energy-efficient homes, new plans and features and great locations for our communities. Our first quarter sales of 1,144 homes represented our highest quarterly sales orders since the second quarter of 2009 and a 36% increase over the first quarter of 2011. Our sales strengthened each month through the quarter and in fact have been increasing since November of last year. Both the absolute number of orders and the year-over-year increase grew throughout the first quarter. For the 69% increase over last year in March, April looks like it will also be significantly better over last year. First quarter 2012 was also our best quarter since the second quarter of 2008 in terms of total order value at $308 million for the quarter,…

Thanks, Steve. I’ll pick it up on Slide 6. We narrowed our net loss for the first quarter of the year to $4.8 million in 2012 compared to $6.7 million in 2011 as we increased home closings and revenue, while reducing our total general administrative costs and interest expense. We have been operating around breakeven for the last 2 years excluding the impairment relating to winding down our Vegas operations and just a small number of homes closing can make the difference between being profitable for the quarter or not. For the level of sales and backlog we reported in the first quarter of this year we are expecting to achieve higher closing over the next couple of quarters providing significant overhead leverage and pushing us into profitable territory. Our first quarter of 2012 home closing revenue increased 15% over 2011 reflecting a 12% increase in closing volume and a 3% increase in average sales prices, primarily due to a shift towards states and communities with higher priced homes. As a result of stronger closings, out quarter-end backlog grew to the highest point we’ve reported in both backlog units and total value since the first quarter of 2010. The total value of orders in backlog at March 31, 2012 increased by 44% over March 31, 2011 due to a 38% increase in units and a 4% increase in average sales prices, again reflecting a mix shift toward states and communities with higher priced homes, in addition to a more modest price increases as Steve described. First quarter home closing gross margin was consistent with last year at 17.2% in 2012 compared to 17.1% in 2011. The lack of pricing power until recently has been constraining margin growth over the last couple of years. As we have begun to raise prices,…

Thank you, Larry. We believe the market has clearly turned in a more positive direction and we are switching over to offense rather than defense. We’re focused on driving more traffic to our communities and our sales teams have done an excellent job converting net traffic to sales. Our monthly sales have grown progressively since November of last year. And March was our best sales month since June of 2008. Based on current market conditions we believe, we can continue to post substantial year-over-year increases in sales, during the remainder of 2012, with our increased backlog we’re confident, we’ll be profitable for the full year. Our challenges now are to continue to find well priced lots and high-quality locations for new Meritage communities, maximize our margins in each community by taking price increases were supported by demand and wholly done our direct cost, control and better average of our over high cost. We’re continually striving for operational excellence and growing both within our existing markets and expanding a new promising markets. It’s good to have such challenges to face in a stronger market and I believe we will meet those challenges. Thank you for your attention. We will now open up for your questions. The operator will remind you of the instructions. Operator?

[Operator Instructions] The first question comes from Nishu Sood of Deutsche Bank.

I wanted to ask about your land strategy, I think you folks obviously through much of the up cycle and couple of years ago were focused on auctioning most of your land and that allowed you of course to have a pretty good velocity sales, velocity relative to your capital. Now through the downturn you obviously shifted more to own land and given the pretty intense competition for finished lots and the lack of development out there. Its look like you will probably have to stick with the more own strategy going forward. So my question is that obviously you know the that’s been a good spring selling seasoned. Volumes need to grow lot in a recovery. So being more owned versus optioned is that going to restrict your growth going forward in the recovery.

Well we’re certainly, I mean it’s going to be growing at 56% or more as we did in the 2004 to 2006 time period. Because we don’t have all those options unfortunately or fortunately most of the lots we are buying today are big clients, buying directly from lenders. To stress there - from distressed situations and the cash-and-carry and there are just not any or at least not a significant number of land bankers available to the market today. So we still think we can put up some pretty nice growth numbers but they are not going to be off the hook like they were in the early part of the last decade. So, we are not concerned that - not having land bankers is going slow us down that much.

Yes, initially we also think that as the market recovers that land bankers and other people who sell land under option will come back into the market, so that financing strategy will reappear, maybe not to the extent it was during the last cycle but certainly it will become more prevalent over the next couple of years.

And when it does become available, we will certainly take advantage of it.

And the second question I wanted to ask, you folks have been pretty savvy strategically in terms of market - shifting in and out of markets through the downturn and through the first part of the recovery here. So the retreat to Texas obviously when things got really bad, obviously you’ve been diversifying as you mentioned your land positions outside of Texas again. So in that light, I wanted to ask about Las Vegas. I obviously understand the new communities in Tampa and in the Carolinas but it seems like you would be shifting out of Las Vegas just as we are beginning to get some signs that things are getting better there. So any second thoughts about that or kind of what’s your thoughts there?

No, we’re just not comfortable with Las Vegas for a variety of long-term systemic issues that the market has, even though it's a close flight to our home office here in Arizona just not excited or comfortable with that market. So we have no second thoughts or misgivings about our announcement to retreat from Las Vegas.

The next question comes from Adam Rudiger of Wells Fargo Securities.

Steve, as I think about the last couple of years, I think Meritage is a company that was ahead of the curve a bit in restoring profitability and I just - it seems that that first mover advance so to speak has somewhat eroded a bit since then. I just look at your revenues this quarter versus say the revenues in the first quarter of 2010 and you had a much narrower loss then and you actually made money if you include other incomes. So I was wondering if you could, from your perspective, what’s transpired really since the market downturn, how do you guys get to that improved profitability and then what’s happened since then?

Well I think, certainly sales prices have come down quite a bit from where they were 2 years ago, which has impacted our margins on both our new communities and our older communities and we just haven’t had the pricing power that we expected to have, we have several initiatives in place to continue to rein in cost, we brought a lot of new product into the system over the last couple of years and I think that’s had an effect on our cost although I believe that’s going to turn around. And I think we’ve had little bit more focus on volume, driving our volume more so than our margin so that we can leverage our overhead. And I really, even though I have been saying this for a while, I really do expect our margins to improve over the next several quarters, because our initiatives on the cost side and because we’re being more aggressive about raising our prices, particularly in about half of our markets. Where we’re having pretty strong demand right now.

On that note on the price increases what’s the early read from the price increase you take in the quarter, has it lead to - buyers thinking they’ve missed a bottom into increased urgency or any of you seen some negative elasticity instead.

No we haven’t seen very much negative elasticity at all, - I think actually the price increases have been a good thing and they have actually created even more urgency particularly in markets like Phoenix, Northern California, Denver and Orlando.

The next question comes from David Goldberg of UBS.

First question actually also has to do with first mover advantage. But my question is really about green product some of the work you guys have done from a differentiation standpoint. Are you seeing your competitors come in and try to adopt similar construction techniques, similar points of differentiation, considering you guys all share the same sub contractor base. Are you seeing that becoming less of the competitive advantage as the market is getting a little better right now.

We are going to - we still think it’s a distinct competitive advantage not only for dealing with other new homebuilders but certainly with resale, certainly the homebuilder communities woken up to energy efficiency and green. And a lot of our competitors are doing more and more in that area. Although I don’t think there is anybody out there just doing the complete package that we are. It starts with spray foam insulation and moved down to windows, mechanical systems and so forth. So, we feel just as confident and bullish about our strategy today than I did a year ago or even 2 years ago when we started on it and we think it’s going to pay long-term dividends, particularly after this summer when we are able to demonstrate to our customers actual utility bills from homes that we’ve built and how they perform throughout the summer periods which are where the highest energy bills are for most of the homes we built throughout the southern United States. So very excited about the opportunity there over the next year.

Got it and then my follow-up question is little bit theoretical but you mentioned earlier in the call that a lot of land deals obviously they are still coming from lenders, broken deals, distressed deals, which you guys are able step into. And I’m wondering if you just kind of think about it in the aggregate, what kind of discount or replacement costs do you can buy land at now? And the reason I asked, I am trying to get an idea if we have to get back to stage where you have to buy raw land at some positive value and then develop it, take it out with in the internal process through develop, what your profitability might look like considering that there is a real chance that there is going to be a shortage of land when you look forward?

I wouldn’t say there is a discount to replacement cost necessarily like we saw a year or 2 years ago. I mean land prices have come up considerably in most markets, so there is a residual for land today. I mean, first of all, we are not buying a lot of finished lots. There just isn't a lot of finished lot deals out there from lenders from developers, so when we are buying a deal from a lender, and maybe that’s 1/3 to half the deals that we are buying, generally now most of them are raw land. They are certainly less than what they were at the peak of the market but they are not too far off from what they were in the ‘90s and early 2000s. So the land market particularly in A and B locations has come back substantially.

Is it safe to assume that the land you are delivering today has a lower basis than the land that you are buying today at prices of comp. You announced that some of the land you are delivering today is a little bit less [indiscernible] year 2 years ago?

Yes. I said that’s fair but I’d say prices are rising too.

The next question comes from Dan Oppenheim of Credit Suisse.

I’m just wondering, you talked about the pricing that you’ve gotten, especially getting on the contract especially in the later months of the first quarter, talking about the margins you had. How would do describe margins in backlog versus margins on deliveries in terms of the confidence of the improvement over the coming quarters?

Slightly improving. I think markets are going to be rising throughout the coming quarters and that relates to our ability to sell at better locations and our ability to raise prices. So I don’t want to predict on a quarter-by-quarter basis what margins are going to do. But pretty confident that they're going to get better.

Great and then I guess, second question wondering about, you talked about on recent quarters, as I focus on some of the volume and to leverage the overhead, but also a lot of talk in terms of pricing now, is it because of the shift or do you say it’s really the pricing now dysfunction of the market improvement, where as you still trying to go for that overhead leverage and focusing the volume. But now the markets are improving allowing to get the pricing here.

It’s a combination of both, I mean we have some communities, a select number of communities where the demand has been really high. If we’re going to - sell more than 5 or 6 houses a month and we need to get a significant price which is left out there. In those cases pushing prices as far as we can, while in other areas, where volumes are low and we’re only selling 2 or 3 houses a month, we’re going to be less aggressive of about pushing prices and more focused on maintaining the minimum volume. So it’s not one lever you pulling, you're pulling different levers in different communities every week.

Next question comes from Ivy Zelman of Zelman & Associates.

It’s actually Allen [ph] on for Ivy, Steve my first question is on your Slide 7, which shows the lot count change since the end of '08 and I think what’s interesting here is that your lot count's actually up almost 10% from that time yet your community count is down 16%, so was curious kind of what’s driving at it, is it a greater share of raw land or you just have a lot of communities in the pipeline are getting open up that may be double digit type growth is reasonable to expect over the next few quarters.

Well, I think it’s a couple of things first number one, lot of communities we bought in 2009 to 2011 time period were pretty small. We’re talking about 20, 30, 40, lots at a time, 50 lots and we burn through a lot of those, really quickly. Because we got them a really good prices and they were in good locations and they propelled a lot of our sales activity over the last couple of years. Number two, communities that we bought most recently over the last year have been more development oriented and they have a longer lead time and a lot of those aren’t going to online until end of this year and into next year and even beyond. So we’ve kind of stocked the shelves for the future, we’re not seeing the immediate impact of it because we have to develop these communities. We don’t necessarily believe it is going result in spectacular community growth rates but I do think we will steadily grow our communities over the next year or 2. So I hope that answers your question.

Great, that’s really helpful. And the second question unrelated to that is just on your pricing comments. I was hoping that you might be able to qualify some of the moves you have taken year-to-date, maybe just get us some examples in different markets you are in on what kind of apples-to-apples pricing is up. And then the follow on to that is how that compares to the cost increases you guys are seeing?

Well, our strongest markets for price increases have been - recently have been Phoenix and Northern California. The Phoenix market right now is just really strong, particularly in the last 2 to 3 months. Most communities in Phoenix, we have raised prices $5000 to $10,000, some cases more, some cases a little bit less but volumes have been pretty strong. Pretty much the same for our Northern California communities. We’ve been taking pretty good price increases there. In Florida, Colorado, price increases are in the $3000 to $5000 range, 1% to 2%. In Texas, it has been more spotty. Not every community has taken a price increase, some of them have taken small ones so forth. There is pressure on cost. I can’t quantify across the board for you what costs have done but it's been a market by market situation certainly contractors see the sales demand and they see the pricing demand and they see what’s going on there, using that to try to increase their prices and/or trying to keep that in step with what we are doing on the sales side. So I don’t expect construction cost outstrip price increases and I expect it to be a pretty close correlation going forward.

The next question comes from Michael Rehaut of JPMorgan.

This is actually Jason Marcus for Mike. So my first question just going back to the gross margin for a second. It looks like gross margin, ex-impairments declined about 140 basis points sequentially, a decent amount lower than it was over the last couple of quarters. So I was just wondering if you can kind of go over the key drivers there? And also I know you mentioned that you expect to improve over the next several quarters. So I was wondering if you think you can get back to kind of the level where you were in the last quarter or 2.

Larry, why don’t you take this one?

Sure, we have always seen a kind of seasonal change in our gross margin because of levering fixed cost that are in our gross margin like land development costs and construction overhead. And we said on the last quarter’s call that we expected the margin sequentially to fall and to get closer to what it was in the beginning of last year, which it's done and that we would expect to see sequential margin improvement throughout the year, but the we thought that comparing year-over-year that we would see overall margin improvement from ‘11 to ‘12 and that’s consistent with what Steve has said in his previous comments.

Okay. And then, going back to the sales progression, which you mentioned increased on a monthly basis during the quarter. I was just wondering if you could breakout January and February and then also you mentioned that April looks like it is going to be significantly better. Would you say that’s kind of on pace with March’s year-over-year growth or does it look more like other quarter?

January, our sales were only up single digits. February, I don’t have that, I will try to find that Larry. You know what February was?

It was...

Looks like 30% or so.

It was in that range but I don’t recall 20% to 30%.

Yes, it was in the 30% plus or minus area, and then of course the March was 69%. I think, April is going to be probably somewhere in between February and March. I think it’s going to be pretty darn good compared to last year and we have quite a few communities opening this quarter, and we also have a lot that are closing now. But I think that’s going to help our sales activity as well for May and June.

The next question comes from Joel Locker of FBN Securities.

Just a, I wanted to talk about the community kind of little bit on just what you see that at the end of this year, you know it dropped down in the first quarter sequentially but based on seasonality, do you see recovering and getting back to towards 160 or -

No, I have said in previous calls that we’re going to finish up the year in 160 to 165 range, and I still believe that’s going to be the number. And it’s going to jump up and down quarter-to-quarter, but by the end of the year we should be get close to around 165.

Right. And what about I guess just labor, split between labor and material cost going forward like increasing, some I want to go hand to hand, but you’re starting to see a lot more in the labor side?

Yes, I mean labors also include the profit and overhead of the contractor certainly lot of subcontractors have much money if they made at all who have many years and as demand picks up and volumes increase, they want to get back to the profitability so they are going to push their prices, just as we are. So certainly there is a lot excess capacity on the material side and material suppliers want to increase pricing, they’re going to try, but if they get a lot of capacity I think we still have a reasonable distance between how long we see real substantial construction cost increases. Not to say we’re not going to have them and we’re going to deal with them, but I think we’ve got an opportunity to get out in front of that.

The next question comes from Stephen Kim of Barclays.

Yes, my questions relates first to your commentary about pricing something that we have been intrigued by how different the commentary has been from the various builders and how I guess - I think you would probably in a very good situation be able to shed a little bit light on it. We’ve observed as you point out in places like Phoenix and Denver you have been seeing some very good price increases and we have seen some others us well. But some other areas outside of those too, it seems like a little bit different depending on whom you speak with. I was wondering if like for example, I was just recently out in Southern California around the riverside like San Bernadino and some better parts in the Inland Empire and there was a builder there was saying they had raised prices every month for the last 3 months in all the communities in that area, and I know that not everybody's seeing that. And so I guess my questions to you is, do you feel that when you look at where you are able to achieve price increases, outside of Denver and Phoenix, it’s primarily a function of the particular land parcels that you happened to be on in those markets, or do you find that it has maybe more to do with marrying the particular product type maybe it's your green homes. It’s a product issue or is it more about specific land issue in your estimation?

I think you’ve nailed, it’s a specific location issue. So I could go back to your Southern California discussion there. In the Inland Empire, there are certain parts of the Inland Empire that we have raised prices and there is other parts that we have not. And it’s due to the supply constraints in those certain sub markets within the market. Certain areas there is a tight supply of new home inventory and there is a tight supply of resale inventory and you got more pricing powers in other parts of like the Inland Empire, there is lot of competition, there is a lot of inventory still. And you don’t have to ability to raise prices there. You know in Texas price increases have been pretty nominal. We don’t have the tightening of inventory there that we have in other markets, which is causing the price increases. So, I don’t think it has to do with the green or making out good land by over not making good land by. I think it’s really about just that specific location. In Phoenix, I'm kind of surprised we haven’t got more questions on that. The inventory of houses listed for sale single family detached houses is under 10,000 right now and just incredibly low number. Those people have earned the housing markets or shifted now from buy end re-sales to buy end new. And for lot of them because there is - they can’t buy a house. A lot of people have - are underwater on the mortgages and so they can’t put the houses on the market. And then a lot of people don’t want to sale until prices rise. So that’s really had a big impact on the supply side and really given the builder in this market good tailwind.

I had 2 other follow-up if I could. One is, I was curious if you could comment on whether you’re saying that builders generally speaking are all adapting a somewhat similar approach to attempting price increases where they can get them or are you finding that there are a couple of players who are less reluctant to even test the waters as aggressively as you have even if they have a product that’s selling pretty well but they’d rather just take the volume versus the price.

That’s a hard question to answer, I’m not hearing [indiscernible] in this markets like Phoenix that a little bit more robust than others that everybody is taking price increases but haven’t done a - it’s been a pretty short time period just last couple of months primarily do a real detailed survey to see what people do versus others but everybody is having good sale success even in outlying markets which is surprising me even in some of the poorer geographies they're selling houses, so -

Great. Well then that leads to my last question which you touched on with respect to the absence of inventory in the marketplace. I was curious if you could respond to this, one of the things that people sometimes ask me is well, that can all change once people who have been sitting on the sideline decide to put their house up on the market for sale and won't that basically dismantle the favorable situation that we have right now with the source of inventory because now it’s [indiscernible] existing inventory. My view on that would be that well you’re also creating another buyer there as well but I was wondering if you could comment on how you think that kind of as we evolve into that kind of a market where more people feel comfortable bring house to the market. How that will change the dynamics in the market?

Well. I think it’s that you said it will create more buyers but it also kind of bringing more back in the normal. It’s not normal, it’s just unreasonably tight, it can’t continue to be this tight and it will have to re-balance itself, I’m not worried that prices go up 20% and we’re going to have an oversupply [indiscernible] want to sell. I don’t see that coming but significant price increases and markets like Phoenix is going to bode well for us. Of course land is going up at the same or higher rate, we’re not going to deal with that. And that’s why we’ve been aggressive in the land market over the last several quarters because it’s only going to cost more in the quarters to come but it’s kind of a little out of balance right now and it’s going to have to get rebalanced.

If I could jump in over just a second, there was a question on sales percentage increases by month and the February answer is mid 30s, is that February is up mid 30s earnings over the prior February.

The next question comes from Jade Rahmani of KBW.

A quick one on backlog conversion. It’s been in the 83% to 85% range the last two quarters, I just want to see if you think that’s a reasonable expectation going forward or if the strong recent orders should drive that ratio lower perhaps into the high 70’s?

I think that’s a distinct possibility that it could drop into the high 70s. I’d hope that that would be the bottom. We are pushing hard, but with the spike in sales activity, it might be a little harder for us to keep up with it in the short term, but I think over the longer term, we should be staying around 80% or if not better, we have sold more third sales also over the last couple of months than we have specs. I don’t know if we have percentage on that Larry, but we were like 50-50. I think we might be done 40% specks and that will also decrease the backlog conversion a little bit.

Yes we’re running in 35% to 40% range now.

And then just I wanted to ask about the mortgage environment one of your peers similarly does not have a captive mortgage company and did experience some operating issues. Over the past there have been numerous changes in the market including several players exiting correspondence. I just wanted to see if any of these changes have caused due to reconsider how [indiscernible] is positioned and if you could just remind us how your sales offices are setup to help customers get through the mortgage financing process and if you have seen any changes in availability or tightness of mortgage credit.

Great. We are absolutely committed to our mortgage model that we have. Nothing’s changed there. We haven’t experienced any changes whatsoever over the last several quarters, a year. We have a few mortgage joint ventures, one large one with a company called imortgage based in Arizona, they do our mortgages in a joint venture in California, Arizona, Colorado and Florida and they are also doing some now in Texas. And we have a couple of smaller joint ventures in Texas as well. And those have worked very well for us and we don’t see any changes to that model. And as far as mortgage tightening, it’s really been about the same, over the last several quarters, we haven’t really heard of any real differences.

And in fact on our imortgage JV, our capture rate has improved, we’re approaching a 90% capture rate between 85 and 90, so we’re very happy with the performance of that JV.

Next question operator.

The next question comes from - just to verify, Alex Barron of Housing Research Center. Alex Barrón: I wanted to ask in terms of your - where you’ve been more successful in seeing the highest sales rates and in raising prices. Is there anything that you’ve seen those communities have in common or they kind of towards the lower end, lower end of the price range for the [indiscernible] A locations or is that where they - I note for example, like in Phoenix is overall type supply but is that where the submarket was even tighter. There are anything that some side you would - that what those communities might having common?

Not in Phoenix, I mean it has been across the board, I mean we have a couple entry level communities in some remote locations are left over from years past and we’ve been have to raise prices there and get strong sales demand and then better locations the same, I mean, I guess the one thing I would say is the active adult business we haven’t seen the same increases and we haven’t had really any pricing power in that market but for us the rest of the business has been pretty much across the board. Alex Barrón: Okay and I was in Phoenix recently and I saw some of your competitors were selling houses to investors. I guess people who can’t find stuff in the resell market. What is your- I guess, thoughts on then, is that something you guys are doing as well?

By the way, I read your piece on Phoenix and it was very well done and have been shared with lot of my friends but I have been hearing the same thing and I’ve been very sensitive to that and we have been - we’re checking with our salespeople or sales offices and examining our backlog very carefully and we may have a few investors out there but we’re trying to be really careful about that. We’re certainly been lessons learned from the past in dealing with the investors and we don’t expect to repeat those mistakes and making sure we don’t have lot of investors in our backlog. Alex Barrón: Got it. And my last question maybe this one is for Larry. Larry, in terms of - it seems pretty obvious this is your bottom in terms of probably your last quarter you guys will lose money and you should start to see some pretty good leverage going forward. Any sense on the timing of when you guys expect to get back to DTA?

We still think it’s sometime in 2013 depending upon how the next few quarters go, it might be earlier, could be later, we don’t have complete clarity from our auditors on that at this time and it does depend on several factors and there is lot of judgment involved.

The next question comes from Susan Berliner of JPMorgan.

This is actually Rich [ph] for Sue. Just had a quick question. It seems like just given increase in demand you guys are getting a little more aggressive in the land market. Can you guess comment on what we should roughly expect for land spend this year?

Larry, what do you think?

Sure. This last quarter we were running in the - including development costs, including about $75 million range and previous quarters had been a little lower more down in the 55 or 60 range, so I would think that you’ll see that little incremental $5 million $10 million $15 million per quarter higher run rate over the next few quarters.

Yes. I think it will be at least $75 million for the quarter going forward. I hope it’s not going to be less than that.

The next question comes from Joshua Pollard of Goldman Sachs.

First one is on normalized gross margins. Steve or Larry, what in your view are your normalized gross margins? And can you talk about the path to getting there as you guys made some comments to some earlier questions about increased labor and increased construction costs. I’m just wondering how you all and the group reset higher closer towards whatever you believe normalized margins are. I generally assume 20% to 22%, but I’d love you all’s view.

20% is normalized gross margin for us. We're at 17 and change right now and the way we’re going to get there is through more pricing power number one. And number two, continue to manage our cost, our direct construction cost. And then lastly leveraging the little bit of construction overhead that’s in there. And I think we can get there over the next couple of years and certainly if the market continues in the direction it’s going right now, giving us more pricing power, that’s going to happen. But I can’t take it - tell you precisely how long it’s going to take of course.

I would add to the other side of the equation is growing revenues. So you leverage your overhead and there is a balance there and certainly at this point we are focused on growing volume too. So we don’t want to increase price too fast and slow volume growth down. So it’s possible that you could grow margin, gross margin faster at the expense of revenue growth. And I think we’re focused on balancing that to really leverage our overhead.

So given what’s going on in Phoenix are your gross margins there above normalized already?

Not yet, above normal, I would say they are approaching more normal. Again probably been a couple of months where we’ve been able to raise prices. So very little of that if any is flown through the income statement, it’s going to start flow through over the next several months as we start to close some of these houses. But I do think margins are going to improve certainly in this market and in Northern California, the margins have done a complete 180 over the last few months. We had some difficult, real difficult margins up there and with the pricing power we’ve had there, they’ve improved dramatically. So we just kind of have to wait and see.

I know this maybe a little bit of stretch. But I wonder what your outlook is in your markets on foreclosures, there have been a number of things, there were a number of moratoriums last year. Is there any concern on your part about a wave of foreclosures hitting your market such that some of the nascent pricing power that you currently have gets couched a bit?

Josh, it’s just going the opposite. I mean everything I’m hearing is supply is dwindling, foreclosures are declining and investor appetite is enormous. And there is literally fights breaking out on the courthouse steps between investors trying to get these foreclosures and bidding wars, the average buyer just cannot get access to these units and the supply is declining dramatically. So the way that I think - as prices are rising, lenders or expert would be even more careful about wholesale in at these units is foreclosures and trying to recover more from them on the sales. So I think it will get tighter, I’m not worried about the supply increasing.

Yes. The price point of the foreclosures is much, much lower than new homes and they’re in much inferior locations and they’re much inferior home because of deferred maintenance. So they’re becoming less and less direct competition to new homes, anyway.

Excuse me, this is the operator, is there time for one more question?

Yes. This will be our last question, operator.

That will come from Jay Mccanless of Guggenheim.

I apologize, if I missed it, but what was the spec count in the quarter?

Spec count is - we have 535 total specs right now.

And then wanted to ask the competition question in a different way, with all the supposedly large funds that have been out there buying foreclosures and going to turn them into single family rent house. Are you seeing that competition? Yet do you expect it to be more pronounced in certain areas and what effect these things going to have on pricing power?

Well, number one, I’m not seen a lot of large funds getting foreclosures and we have aspirations to buy pools of foreclosures, but I’m still hearing that most of foreclosures have been bought by Mom and Pop investors, and private groups, and groups of investors, non-institutional investors, and as I just - I said previously, this doesn’t have an impact on us. They are - the supply of foreclosures is tightening and we don’t compete with them to begin work for a large part that generally much more towards the entry level part of the market and more of them are in free location where we don’t build and we’re seeing less and less impacts from them every day.

And then, another question with the increase that you have in orders this quarter. How do you expect closings to progress through the year, do you think you’ll probably see the peak during the second or third quarter this year rather than the fourth, or do you expect this to be a normal year in terms of seasonality for your closings?

I think it will be relatively normal due to seasonality, although the numbers expect to be higher, we’re going to close a lot more homes in Q2, then we did in Q1. And I expect that allows us to be profitable on at least on operating basis, we have to deal with the loss from the bond transaction. But I do expect that we are going to build significant leveraged our overhead this next quarter with higher volumes make us profitable certainly on operating basis.

Where there that peaks occurs depends on how strong second-quarter sales are,

Right.

If it continues to be real strong you might not see it fall off at the end of the year, at all and just keep going on but it's just too early to call.

Okay. We thank you very much everybody. I appreciate your participation on our call today and we look forward to talking to you again after our second-quarter. Have a good day.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.